<PAGE>
As filed with the Securities and Exchange Commission on August 6, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PC-Tel, Inc.
(Exact Name of Registrant as Specified in Its Charter)
---------------
Delaware 3661 77-0364943
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification
incorporation or Code Number) Number)
organization)
70 Rio Robles
San Jose, California 95134
(408) 965-2100
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
PETER CHEN
Chief Executive Officer
PC-Tel, Inc.
70 Rio Robles
San Jose, California 95134
(408) 965-2100
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies to:
DOUGLAS H. COLLOM, ESQ. SCOTT D. LESTER, ESQ.
ROGER E. GEORGE, ESQ. MICHAEL S. DORF, ESQ.
DEBORAH M. CHANG, ESQ. TORREY MILLER, ESQ.
SHELDON J. QUAN, ESQ. Brobeck Phleger & Harrison, LLP
Wilson Sonsini Goodrich & Rosati Spear Street Tower
Professional Corporation One Market
650 Page Mill Road San Francisco, California 94105
Palo Alto, California 94304 (415) 442-0900
(650) 493-9300
---------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement
---------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
<TABLE>
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- -------------------------------------------------------------------------------------
<CAPTION>
Proposed Proposed
Title of Each Class of Amount Maximum Maximum Amount of
Securities to be to be Offering Price Aggregate Registration
Registered Registered Per Share Offering Price Fee(1)
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<S> <C> <C> <C> <C>
Common Stock, $0.001 par
value................. 5,290,000 shares $16.00 $84,640,000 $23,530
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(a) promulgated under the Securities
Act of 1933, as amended.
---------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall 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 such Section 8(a),
may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed without +
+notice. PC-Tel, Inc. may not sell these securities until the registration +
+statement filed with the Securities and Exchange Commission is effective. +
+This prospectus is not an offer to sell these securities, and PC-Tel, Inc. is +
+not soliciting offers to buy these securities, in any jurisdiction where the +
+offer or sale of these securities is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Not Complete)
Issued , 1999
4,600,000 Shares
[PCtel LOGO APPEARS HERE}
PC-Tel, Inc.
Common Stock
------------
PC-Tel, Inc. is offering shares of its common stock in an initial public
offering. We estimate that the initial public offering price for our shares
will be between $15.00 and $17.00.
------------
We will apply to have our common stock quoted on the Nasdaq National Market
under the symbol "PCTI."
------------
Investing in the common stock involves a high degree of risk. See "Risk
Factors" beginning on page 8.
------------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public Offering Price........................................... $ $
Discounts and Commissions to Underwriters....................... $ $
Proceeds to PC-Tel, Inc......................................... $ $
</TABLE>
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
PC-Tel, Inc. has granted the underwriters the right to purchase up to an
additional 690,000 shares of common stock to cover any over-allotments. The
underwriters can exercise this right at any time within thirty days after the
offering. Banc of America Securities LLC expects to deliver the shares of
common stock to investors on , 1999.
Banc of America Securities LLC
Warburg Dillon Read LLC
Needham & Company, Inc.
------------
The date of this prospectus is , 1999
<PAGE>
Inside front cover
Background of space shot photograph of planet earth and graphic images of
telephone, laptop computer, desktop computer, wireless modem, personal digital
assistant and set-top box. Text caption "High-Speed Personal Connecting
Communications Solutions."
<PAGE>
You should only rely on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 4
Risk Factors............................................................. 8
Special Note Regarding Forward Looking Statements........................ 20
Use of Proceeds.......................................................... 21
Dividend Policy.......................................................... 21
Capitalization........................................................... 22
Dilution................................................................. 23
Selected Consolidated Financial Data..................................... 24
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 25
Business................................................................. 37
Management............................................................... 50
Certain Transactions..................................................... 60
Principal Stockholders................................................... 62
Description of Capital Stock............................................. 64
Shares Eligible for Future Sale.......................................... 66
Underwriting............................................................. 68
Legal Matters............................................................ 70
Experts.................................................................. 70
Where You Can Find Additional Information................................ 70
Index to Financial Statements............................................ F-1
</TABLE>
----------------
PC-Tel, the PC-Tel logo, HSP Modem, MicroModem, HIDRA and LiteSpeed are
trademarks of PC-Tel. Other service marks, trademarks and trade names referred
to in this prospectus are the property of their respective owners.
3
<PAGE>
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. This summary is not complete and may not contain all of the
information that you should consider before investing in our common stock. You
should read the entire prospectus carefully before making an investment
decision.
This prospectus contains forward-looking statements, which involve risks and
uncertainties. PC-Tel's actual results could differ materially from those
anticipated in these forward-looking statements as a result of the factors
described under "Risk Factors" and elsewhere in this prospectus.
PC-Tel
We are a leading developer and supplier of cost-effective software-based
connectivity solutions. Our solutions enable Internet access and other
communications applications through existing analog and emerging broadband
networks. We have developed a proprietary software architecture that
substantially reduces the hardware, space and power requirements of
conventional hardware-based connectivity devices. Our software architecture is
easily upgradeable, minimizing the risk of technological obsolescence. Our
communications products are designed to enable widespread Internet access and
other communication applications through desktop PCs, notebook computers,
Internet appliances such as set-top boxes and webphones, video game consoles
and remote monitoring devices.
We are a pioneer in developing host signal processing technology, a
proprietary set of algorithms that enables cost-effective software-based
digital signal processing solutions. Host signal processing technology utilizes
the computational and processing resources of a host central processing unit
rather than requiring additional special-purpose hardware. The reduction of
hardware components in our architecture reduces space requirements by 50% and
power requirements by 70% compared to conventional solutions. The first
implementation of our host signal processing technology was in a software
modem, or soft modem, in 1995. Through June 1999, we have shipped 11.3 million
soft modems. Based on our 1998 unit shipments, we believe we are the largest
worldwide producer of soft modems, representing 68% of all soft modems sold
that year, as estimated by Vision Quest 2000. We also believe that in 1998 we
sold 6% of all analog modems, estimated by Dataquest to have been 59.1 million
units. Various OEMs, including Acer, Dell, emachines, Fujitsu and Sharp, have
integrated our soft modems into their products.
In recent years, dramatic increases in business and consumer demand for
multimedia information, entertainment and voice and data communication have
resulted in a corresponding increase in demand for high-speed remote access.
The accelerated growth of content-rich applications, which demand high
bandwidth, has changed the nature of information networks. High-speed
connectivity is now an ordinary requirement for business, government, academic
and home environments. These market trends have resulted in a significant
increase in the demand for connectivity devices. International Data Corporation
estimates that by 2003, the number of Internet connectivity devices in use will
grow to over 722 million.
Our host signal processing architecture allows us to quickly and cost-
effectively capitalize on this rapid growth in demand for connectivity devices.
We believe that we can use our intellectual property portfolio to readily adapt
to the speed and design requirements of additional emerging connectivity
technologies. For example, we have developed LiteSpeed, a host signal
processing architecture solution, in response to growing market acceptance of
G.Lite, a digital subscriber line, or DSL, technology that enables downstream
data transmission speeds of up to 1.5 Mbps and upstream data transmission
speeds of 512 Kbps over existing copper telephone lines. Our G.Lite technology
is completely compatible with analog transmission networks, offering the user
complete flexibility in choosing access technology and transmission speed. By
providing connectivity solutions that can be easily adapted to new standards
and protocols, we reduce interoperability obstacles, which simplifies
purchasing decisions and accelerates deployment times for OEMs.
4
<PAGE>
To extend our position as the leading provider of cost-effective software-
based connectivity solutions, our strategy includes the following key elements:
. identify emerging high-growth communications technologies and develop
innovative software-based connectivity solutions to capitalize on these
new market opportunities as they gain acceptance,
. enhance the scope of our host signal processing technology to further
reduce the number of hardware components in our software-based solutions,
. develop innovative products based on our host signal processing
architecture that enable migration to emerging broadband communications
technologies for next generation devices,
. extend our intellectual property leadership position and establish
industry standards through rapid internal product development, strategic
acquisitions and licensing of innovative communications technology, and
. license our proprietary digital signal processing communications
applications in non-PC devices to provide enhanced performance and cost
savings.
----------------
Our principal executive offices are located at 70 Rio Robles, San Jose,
California 95134. Our telephone number is (408) 965-2100.
5
<PAGE>
The Offering
Common stock offered by PC-Tel.......
4,600,000 shares
Common stock to be outstanding after 15,602,078 shares
this offering.......................
Use of proceeds...................... $15.7 million of the proceeds from this
offering will be used to repay bank
debt. The remaining proceeds will be
used for general corporate purposes,
including working capital, and for
potential investments in and
acquisitions of complementary products,
technologies or businesses.
Proposed Nasdaq National Market PCTI
symbol..............................
In addition to the shares of common stock to be outstanding after this
offering, we are obligated to issue shares of our common stock upon exercise of
outstanding options and warrants. As of June 30, 1999 these additional shares
included:
. a total of 3,815,710 shares of common stock issuable upon exercise of
outstanding stock options under our 1995 stock plan and 1997 stock plan
at a weighted average exercise price per share of $5.72, and
. a total of 202,417 shares of common stock issuable upon exercise of
outstanding warrants at an exercise price of $8.00 per share.
In addition, during the period between July 1 and August 3, 1999, we granted
additional stock options under our 1997 stock plan for the purchase of 565,390
shares. This includes options to purchase 400,000 shares of common stock
granted to William F. Roach, our President and Chief Operating Officer, who
began employment with PC-Tel in August 1999.
----------------
Please also note that, except where otherwise indicated:
. the information in this prospectus relating to our outstanding shares of
common stock or options or warrants to purchase our common stock is based
upon information as of June 30, 1999,
. the information in this prospectus reflects the conversion of all of our
outstanding shares of preferred stock into 8,510,748 shares of common
stock upon the closing of this offering,
. the information in this prospectus assumes no exercise of the
underwriters' over-allotment option, and
. in this prospectus, "PC-Tel," "we," "us" and "our" refer to PC-Tel, Inc.
and its subsidiaries.
. all shares referred to in this prospectus reflect a 3 for 2 reverse stock
split that we effected on October 4, 1995.
6
<PAGE>
Summary Consolidated Financial Information
You should read the following summary consolidated financial data together
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and our consolidated financial statements and notes thereto
included elsewhere in this prospectus. The adjusted balance sheet data as of
June 30, 1999 reflects the application of the net proceeds from the sale of the
4,600,000 shares of common stock offered by PC-Tel at an assumed offering price
of $16.00 per share, after deducting estimated offering expenses and
underwriting discounts and commissions. Had this offering closed on June 30,
1999, $16.0 million of the proceeds would have been used to repay bank debt.
The adjusted balance sheet data as of June 30, 1999 also reflects the write-off
of deferred debt issuance costs and the expense of the prepayment penalty
related to the bank debt.
<TABLE>
<CAPTION>
Period From
February 10,
1994 Six Months Ended
(inception) to Year Ended December 31, June 30,
December 31, ------------------------------- -----------------
1994 1995 1996 1997 1998 1998 1999
-------------- ------ ------- ------- ------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................ $ -- $ 191 $16,573 $24,009 $33,004 $ 12,343 $ 33,046
Gross profit............ -- 85 7,391 11,085 19,126 6,395 16,049
Income (loss) from
operations............. (283) (1,127) 3,882 2,957 228 732 4,454
Net income (loss)....... (280) (1,093) 3,004 2,301 495 683 2,704
Basic earnings per
share.................. $ -- $ -- $ 4.79 $ 1.13 $ 0.21 $ 0.29 $ 1.10
Diluted earnings per
share.................. $ -- $ -- $ 0.29 $ 0.20 $ 0.04 $ 0.06 $ 0.21
Shares used in computing
basic earnings per
share.................. -- -- 627 2,032 2,355 2,320 2,461
Shares used in computing
diluted earnings per
share.................. -- -- 10,280 11,645 12,325 12,400 12,638
</TABLE>
<TABLE>
<CAPTION>
June 30, 1999
--------------------
Adjusted for
Actual the offering
------- ------------
(in thousands)
<S> <C> <C>
Balance Sheet Data:
Cash and short-term investments............................ $23,534 $74,182
Total assets............................................... 50,483 99,661
Long-term debt, net of current portion..................... 13,630 --
Total stockholders' equity................................. 17,861 83,113
</TABLE>
----------------
See Note 2 of Notes to the Consolidated Financial Statements for an
explanation of the shares used in computing basic earnings per share and shares
used in computing diluted earnings per share in the above table.
7
<PAGE>
RISK FACTORS
Before you invest in our common stock, you should carefully consider the
various risks, including those described below, together with all of the other
information included in this prospectus. Additional risks and uncertainties not
presently known to us or that we currently consider to be immaterial may also
impair our business operations. If any of these risks actually occur, our
business, financial condition or operating results could be adversely affected.
In that case, the trading price of our common stock could decline and you could
lose all or part of your investment.
Risks Related to Our Business
Our sales are concentrated among a limited number of customers and the loss of
one or more of these customers could negatively affect our operating results.
Our sales are concentrated among a limited number of customers. If we were
to lose one or more of these customers, or if one or more of these customers
were to delay or reduce purchases of our products, our financial performance
could be adversely affected. For the six months ended June 30, 1999,
approximately 81% of our revenues were generated by five of our customers, and
revenues derived from sales to Talent Trade Asia, TriGem and Silicon
Application Corporation accounted for 42%, 20% and 10%, respectively, of our
product sales. For the year ended December 31, 1998, approximately 60% of our
revenues were generated by five of our customers, and revenues derived from
sales to Silicon Application Corporation, BTC, Askey Computer and Zoltrix
accounted for 15%, 13%, 12% and 12%, respectively, of our product sales. These
customers may in the future decide not to purchase our products at all,
purchase fewer products than they did in the past or alter their purchasing
patterns, because:
. we do not have any long term purchase arrangements or contracts with
these or any of our other customers,
. our product sales to date have been made primarily on a purchase order
basis, which permit our customers to cancel, change or delay product
purchase commitments with little or no notice and without penalty, and
. many of our customers also have pre-existing relationships with current
or potential competitors which may affect our customers' purchasing
decisions.
We expect that a small number of customers will continue to account for a
substantial portion of our revenues for the foreseeable future and that a
significant portion of our sales will continue to be made on the basis of
purchase orders.
We have been sued by Motorola for patent infringement. If this litigation
resolves unfavorably to us, our business is likely to be harmed.
In September 1998, Motorola, Inc. filed a patent infringement lawsuit
against PC-Tel and another modem manufacturer in the U.S. District Court for
the District of Massachusetts. Motorola's complaint alleges that we are, and
have been, infringing seven Motorola patents by making, using, offering to
sell, selling and/or importing products that embody or use the inventions
claimed in its patents. In addition to alleging direct infringement, Motorola's
complaint includes allegations of inducing infringement and contributory
infringement. Motorola's complaint seeks damages and also asks the court to
award a preliminary and permanent injunction to prevent us from continuing acts
of direct infringement, inducing infringement and contributory infringement.
Motorola's complaint contains a demand for Motorola's costs, expenses and
reasonable attorney's fees and treble damages for willful infringement. Six of
the seven patents asserted by Motorola relate to communications standards
accepted by the International Telecommunications Union, or ITU. Any patents
incorporating communications standards accepted by the ITU are required to be
made available for licensing by the holder of the patent on terms that are
fair, reasonable and non-discriminatory. The seventh
8
<PAGE>
Motorola patent, entitled "Processor Modem," allegedly relates to software
modem technology. Motorola subsequently dismissed its Massachusetts lawsuit
without prejudice and re-filed its complaint in the U.S. District Court for the
District of Delaware.
We answered Motorola's complaint denying infringement of Motorola's seven
patents and alleging the patents are invalid and unenforceable. We also
asserted counter-claims asserting tort and breach of contract claims and
violations of the antitrust and unfair competition laws. Our counter-claims and
defenses are based in part on Motorola's refusal to license its ITU-related
patents to us at fair, reasonable and non-discriminatory rates, as required by
the ITU. Our counter-claims also allege that Motorola intentionally interfered
with our actual and potential customer relationships.
In response to Motorola's lawsuit, we filed a patent infringement suit
against Motorola in the U.S. District Court for the District of Delaware. We
have since amended our first complaint against Motorola to include allegations
that Motorola is, and has been, infringing, inducing infringement and
contributorily infringing ten of our patents. In our complaint, we have asked
the court to award similar relief to that requested by Motorola in its lawsuit,
including a preliminary and permanent injunction, damages, costs, expenses,
reasonable attorneys' fees and treble damages for willful infringement. Our ten
patents asserted against Motorola include patents related to ITU standards,
software and other modem technology.
Discovery is underway and trial is set for early 2001 in both Motorola's
lawsuit against us and our lawsuit against Motorola.
Due to the nature of litigation generally and because the lawsuit brought by
Motorola is at an early stage, we cannot ascertain the outcome of the lawsuit,
the availability of injunctive relief or other equitable remedies, or estimate
the total expenses, possible damages or settlement value, if any, that we may
ultimately incur in connection with our litigation with Motorola. However, we
believe, based on our knowledge of the industry, our review of Motorola's six
ITU-related patents and our products, our involvement in the ITU standards
setting process and our awareness of Motorola's participation in that process,
and the advice of our patent counsel, Knobbe, Martens, Olson & Bear, LLP, that
Motorola's six ITU-related patents asserted in its lawsuit are not enforceable
against us. We also believe, based on our knowledge of the industry, our review
of Motorola's patent related to software modem technology and our products, and
the advice of our patent counsel, Knobbe, Martens, Olson & Bear, LLP, that
Motorola's patent allegedly related to software modem technology asserted by
Motorola in its patent lawsuit against us is not infringed by us and is
invalid. We are vigorously contesting, and intend to continue to vigorously
contest, all of Motorola's claims. Nonetheless, this litigation could be time
consuming and costly, and we will not necessarily prevail given the inherent
uncertainties of litigation.
Substantially all of our revenues to date are attributable to products which
Motorola claims as the basis for its infringement suit against us. Further, we
anticipate that a substantial proportion of our revenues for the foreseeable
future is expected to be dependent upon sales of these and future products
incorporating technology that Motorola has alleged infringes its patents. In
the event that we do not prevail in litigation, we could be prevented from
selling our products or be required to enter into royalty or licensing
agreements. We could also be required to pay substantial monetary damages to
Motorola, which are subject to trebling in the event of a finding by the court
of willful infringement. The grant of a preliminary or permanent injunction
could have an adverse effect on our business, including a substantial reduction
in our revenues and income, losses for an extended period of time and a
substantial depletion of our financial resources. In the event of an
injunction, we could attempt to obtain a license from Motorola to enable us to
continue to sell products incorporating the technology. However, we may not be
able to enter into any royalty or licensing agreements on terms acceptable to
us or at all. We could also attempt to develop a different technology and
modify the design of our products in an effort to avoid infringement of
Motorola's patents. However, we are not currently engaged in any development
efforts in this regard, and we cannot be sure that any efforts would be
successful. Even if successful, these efforts would require a substantial
period of time to complete and we cannot be sure that these efforts would
result in competitive products.
9
<PAGE>
In connection with the Motorola litigation, we have incurred and expect to
continue to incur substantial legal and other expenses. In addition, the
Motorola litigation has diverted and is expected to continue to divert the
efforts and attention of our management and technical personnel. Accordingly,
whether or not we are ultimately successful on the merits, the expenses and
diversion of resources associated with the Motorola litigation could have a
material adverse effect on our business and operating results. If the Motorola
lawsuit were to be resolved by a settlement, we might be required to make
substantial payments to Motorola or to grant a cross-license to Motorola to
utilize our technology, which could also hurt our business and operating
results.
Our business is exposed to additional risks because we have significant
international sales and operations.
Our sales to customers located in Asia accounted for 74%, 77% and 76% of our
total revenues in the years ended December 31, 1996, 1997 and 1998,
respectively, and 77% and 99% of total revenues in the six months ended June
30, 1998 and 1999, respectively. The predominance of our sales are in Asia,
mostly in Taiwan and China, because our customers are primarily motherboard or
modem manufacturers that are located there. In many cases, our indirect OEM
customers specify that our products be included on the modem boards or
motherboards that they purchase from board manufacturers, and we sell our
products directly to the board manufacturers for resale to our indirect OEM
customers. Industry statistics indicate that approximately two thirds of modems
manufactured in Asia are sold back to OEMs located in the United States. Due to
the industry-wide concentration of modem manufacturers in Asia, we believe that
a high percentage of our future sales will continue to be concentrated with
Asian customers. As a result, our future operating results could be uniquely
affected by a variety of factors outside of our control, including:
. political and economic instability,
. changes in tariffs, quotas, import restrictions and other trade barriers,
. difficulty in meeting export license requirements,
. delays in collecting accounts receivable,
. adverse tax consequences,
. changes in legislative or regulatory requirements, and
. fluctuations in the value of Asian currencies relative to the U.S.
dollar.
To successfully expand our international sales, we must strengthen foreign
operations, hire additional personnel and recruit additional international
distributors and resellers. This will require significant management attention
and financial resources. To the extent that we are unable to effect these
additions in a timely manner, we may not be able to maintain or increase
international market demand for our products, and our operating results could
be adversely affected.
Continuing decreases in the average selling prices of our products could
materially adversely affect our operating results.
Product sales in the connectivity industry have been characterized by
continuing erosion of average selling prices. Price erosion experienced by any
company can cause revenues and gross margins to decline, and negatively affect
operating results. The average selling price of our products has decreased by
approximately 40% from October 1995 to June 30, 1999. We expect this trend to
continue. This erosion is due to a number of factors, including:
. competitive pricing pressures from other sellers of connectivity
solutions,
. rapid technological change resulting in rapid introductions of new
products,
. continuing price performance enhancements by our competitors, and
. customers of PC-Tel who negotiate price reductions in exchange for longer
term purchase commitments.
In addition, we believe that the widespread adoption of industry standards
in the soft modem industry is likely to further erode average selling prices,
particularly for analog modems. Decreasing average selling prices
10
<PAGE>
in our products could result in decreased revenue even if the number of units
that we sell increases. Therefore, we must continue to develop and introduce
next-generation products with enhanced functionalities that can be sold at
higher gross margins. Our failure to do this could cause our revenues and gross
margin to decline.
Our gross margins may vary based on the mix of sales of our products and
services, and these variations will directly affect our quarterly operating
results.
We derive a significant portion of our sales from our software-based
connectivity products. We expect margins on newly-introduced products generally
to be higher than our existing products. However, due in part to the
competitive pricing pressures that affect our products and in part to
increasing component and manufacturing costs, we expect margins from both
existing and future products to decrease over time. In addition, licensing
revenues from our products historically have provided higher margins than of
our product sales. Changes in the mix of products sold and the percentage of
our sales in any quarter attributable to products as compared to licensing
revenues will cause our quarterly results to vary and could adversely affect
our operating results.
Our quarterly operating results may fluctuate significantly, and these
fluctuations may cause our stock price to fall.
Our quarterly and annual operating results have varied in the past and are
expected to vary in the future depending upon a number of factors. As a result,
we believe that quarter-to-quarter comparisons of our financial results are not
necessarily meaningful, and you should not rely on them as an indication of
future performance. The operating results of companies in our industry have in
the past experienced significant quarter-to-quarter fluctuations. If our
revenues for a quarter fall below our expectations and we are not able to
quickly reduce our operating expenses in response, our operating results for
that quarter would be negatively affected. In addition, it is likely that in
some future quarter our operating results may be below the expectations of
public market analysts and investors and, as a result, our stock price may
fall.
Seasonal trends in sales of our software-based connectivity products may affect
our quarterly operating results.
We have experienced and expect to continue to experience seasonality in
sales of our connectivity products. These seasonal trends materially affect our
quarter-to-quarter operating results. Our revenues are higher during the back-
to-school and holiday seasons which fall in the third and fourth calendar
quarters. Revenue and operating results in our third and fourth quarters are
typically higher relative to other quarters because many purchasers of PCs make
purchase decisions based on their calendar year-end budgeting requirements. As
a result, we generally expect revenue levels and operating results for the
first quarter to be less than those for the preceding quarter.
We are currently expanding our sales in international markets, particularly
in Asia, Europe and South America. We expect our third quarter to reflect the
effects of summer slowing of international business activity and spending
activity generally associated with that time of year, particularly in Europe.
To the extent that our revenue in Asia, Europe or other parts of the world
increase in future periods, we expect our period-to-period revenues to reflect
seasonal buying patterns in these markets.
We expect that our operating expenses will increase substantially in the future
and these increased expenses may adversely affect our ability to remain
profitable.
Although we have been profitable in recent years, we may not remain
profitable on a quarterly or annual basis in the future. We anticipate that our
expenses will increase substantially in the foreseeable future as we:
. further develop and introduce new applications and functionality for our
host signal processing technology,
. explore emerging product opportunities in digital technologies and
wireless and cable communications,
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. expand our distribution channels, both domestically and in our
international markets, and
. pursue strategic relationships and acquisitions.
In order to maintain profitability we will be required to increase our
revenue to meet these additional expenses. Any failure to significantly
increase our revenue as we implement our product, service, distribution and
strategic relationship strategies would have a negative effect on our operating
results.
We must accurately forecast our customer demand for our modem products. If
there is an unexpected fluctuation in demand for our products, we may incur
excessive operating costs or lose product revenues.
We must forecast and place purchase orders for specialized semiconductor
chips, the ASIC, CODEC and discrete access array, or DAA, components of our
modem products, several months before we receive purchase orders from our own
customers. This forecasting and order lead time requirement limits our ability
to react to unexpected fluctuations in demand for our products. These
fluctuations can be unexpected and may cause us to have excess inventory, or a
shortage, of a particular product. In the event that our forecasts are
inaccurate, we may need to write down excess inventory. For example, we were
required to write down inventory in the second quarter of 1996 in connection
with a product transition within our 14.4 Kbps product family. Similarly, if we
fail to purchase sufficient supplies on a timely basis, we may incur additional
rush charges or we may lose product revenues if we are not able to meet a
purchase order. These failures could also adversely affect our customer
relations. Significant write-downs of excess inventory or declines in inventory
value in the future could adversely affect our financial results.
Any delays in our normally lengthy sales cycles could result in significant
fluctuations in our quarterly operating results.
Sales cycles for our products with major customers are lengthy, often
lasting six months or longer. In addition, it can take an additional six months
or more before a customer commences volume production of equipment that
incorporates our products. Sales cycles with our major customers are lengthy
for a number of reasons:
. our OEM customers usually complete a lengthy technical evaluation of our
products, over which we have no control, before placing a purchase order,
. the commercial integration of our products by an OEM is typically limited
during the initial release to evaluate product performance, and
. the development and commercial introduction of products incorporating new
technologies frequently are delayed.
A significant portion of our operating expenses is relatively fixed and is
based in large part on our forecasts of volume and timing of orders. The
lengthy sales cycles make forecasting the volume and timing of product orders
difficult. In addition, the delays inherent in lengthy sales cycles raise
additional risks of customer decisions to cancel or change product phases. If
customer cancellations or product changes were to occur, this could result in
the loss of anticipated sales without sufficient time for us to reduce our
operating expenses. If this were to occur, our operating results for the
quarter would be adversely affected.
Other third parties may also assert that our products infringe their
intellectual property rights.
In addition to our ongoing patent litigation with Motorola, we have
received, and may receive in the future, communications from third parties
asserting that our products infringe on their intellectual property rights.
These claims could affect our relationships with existing customers and may
prevent potential future customers from purchasing our products or licensing
our technology. Because we depend upon a limited number of products, any claims
of this kind, whether they are with or without merit, could be time consuming,
result in costly litigation, cause product shipment delays or require us to
enter into royalty or licensing agreements. In the event that we do not prevail
in litigation, we could be prevented from selling our products or be required
to
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<PAGE>
enter into royalty or licensing agreements on terms which may not be acceptable
to us. We could also be prevented from selling our products or be required to
pay substantial monetary damages.
We have received communications from third parties, including Motorola,
Lucent and Dr. Brent Townshend, claiming to own patent rights in technologies
that are part of communications standards adopted by the ITU, such as v.90,
v.34, v.42bis and v.32bis, and other common communications standards. These
third parties claim that our products utilize such patented technologies and
have requested that we enter into license agreements with them. At various
times we have engaged in negotiations with, and are continuing to negotiate
with, Lucent to obtain licenses under its patents. Motorola has refused to
conduct further negotiations with us to license its patents and we are in
litigation with Motorola in connection with its patent infringement claims. To
date, we have not obtained any licenses from Lucent, Motorola or Dr. Townshend,
because we believe that Lucent, Motorola and Dr. Townshend have requested
license fees or cross licenses of our portfolio of intellectual property on
terms that are not fair, reasonable and nondiscriminatory as required by the
ITU. Should we cross license our intellectual property in order to obtain
licenses, we may no longer be able to offer a unique product.
In addition, new patent applications may be currently pending or filed in
the future by third parties covering technology that we use currently or may
use in the future. Pending U.S. patent applications are confidential until
patents are issued, and thus it is impossible to ascertain all possible patent
infringement claims against us. We believe that several of our competitors,
including Motorola, Lucent and ESS Technology, may have a strategy of
protecting their market share by filing intellectual property claims against
their competitors and may assert claims against us in the future. The legal and
other expenses and diversion of resources associated with any such litigation
could materially and adversely affect our business, financial condition and
results of operations.
In addition, some of our customer agreements include an indemnity clause
that obligates us to defend and pay all damages and costs finally awarded by a
court should third parties assert patent and/or copyright claims against our
customers. As a result, we may be held responsible for infringement claims
asserted against our customers.
We have established and recorded on a monthly basis a financial per-unit
reserve for payment of future license fees based upon our estimate as to the
likely amount of the licensing fees that we may be required to pay in the event
that licenses are obtained. We believe that it is typical for participants in
the modem industry to obtain licenses in exchange for grants of cross licenses
rather than for payment of fees and we have based our estimates on our
understanding of the license fee practices of other segments of our industry.
Our reserves may not be adequate because of factors outside of our control and
because these license fee practices in the modern industry may not be
applicable to our experience.
If we cannot retain our executive officers and our key personnel our business
may be adversely affected.
Our past performance has been and our future performance is substantially
dependent on the performance of our current executive officers and certain key
engineering, managerial, sales, marketing, financial, technical and customer
support personnel. If we lost the services of one or more of our executives or
key employees, a replacement could be difficult to recruit and our business
could be adversely affected.
In August 1999, we hired William F. Roach as our new President and Chief
Operating Officer. If for any reason Mr. Roach is not successful, our business
may be adversely affected.
We maintain "key person" life insurance policies on Peter Chen, our Chairman
and Chief Executive Officer, William Wen-Liang Hsu, our Vice President,
Engineering, and Han-Chung Yeh, our Vice President, Technology, in the face
amount of $1 million for each individual. However, these insurance policies may
not adequately compensate for the loss of services of any of these individuals.
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Our success depends on our ability to attract and retain qualified technical,
sales, support and other administrative personnel.
We intend to hire a significant number of additional engineering, sales,
support, marketing and finance personnel in the future. Competition for
personnel, especially engineers and marketing and sales personnel in Silicon
Valley, is intense. We expect competition for qualified personnel to remain
intense, and we may not succeed in attracting or retaining personnel. If we do
not attract qualified personnel, this could adversely affect our business.
We are particularly dependent on our ability to identify, attract, motivate
and retain qualified engineers with the requisite education, backgrounds and
industry experience. As of June 30, 1999, we employed a total of 58 people in
our engineering department, over half of whom have advanced degrees. In the
past we have experienced difficulty in recruiting qualified engineering
personnel, especially developers, on a timely basis. If we are not able to hire
at the levels that we plan, our ability to continue to develop products and
technologies responsive to our markets will be impaired.
Technical and customer support is also critical to our future success
because our products and the related technologies are rapidly evolving and many
customers require technical support in implementing our products. If we are
unable to provide comprehensive technical support services satisfactory to our
existing and prospective customers, our ability to establish and expand our
presence in the connectivity markets may be adversely affected.
As we continue to develop new products for the emerging broadband and
Internet markets, our expanded business focus has also placed greater emphasis
on our need for additional sales and marketing personnel. Hiring additional
personnel in this area will be important for us to effectively achieve customer
acceptance in our targeted markets.
We have experienced significant growth in our business in recent periods and
failure to manage our growth could strain our management and other resources.
Our ability to successfully sell our products and implement our business
plan in rapidly evolving markets requires an effective management planning
process. Future expansion efforts could be expensive and put a strain on our
management and resources. We have increased, and plan to continue to increase,
the scope of our operations at a rapid rate. Our headcount has grown and will
continue to grow substantially. At December 31, 1998, we had a total of 95
employees and at June 30, 1999, we had a total of 125 employees. In addition,
we expect to continue to hire a significant number of new employees. To
effectively manage our growth, we must maintain and enhance our financial and
accounting systems and controls, integrate new personnel and manage expanded
operations.
If we are unable to expand our customer base, our ability to sustain our
revenue growth rates may be adversely affected.
To date, we have principally relied upon our direct sales organization for
product sales to smaller accounts. Our direct sales efforts have focused
principally on board manufacturers and smaller PC OEMs. To increase penetration
of our target customer base, including large, tier-one, OEMs, we must
significantly increase the size of our direct sales force and organize and
deploy sales teams targeted at specific domestic tier-one OEM accounts. If we
are unable to expand our sales to additional OEMs, our revenue growth rates may
be adversely affected.
We are subject to additional risks because we rely on independent companies to
manufacture, assemble and test our products. If these companies do not meet
their commitments to us, our ability to sell products to our customers would be
impaired.
We do not have our own manufacturing, assembling or testing operations.
Instead, we rely on independent companies to manufacture, assemble and test the
semiconductor chips which are integral components of our
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products. Most of these companies are located outside of the United States.
There are many risks associated with our relationships with these independent
companies, including reduced control over:
. delivery schedules,
. quality assurance,
. manufacturing costs,
. capacity during periods of excess demand, and
. availability of access to process technologies.
In addition, the location of these independent parties outside of the United
States creates additional risks resulting from the foreign regulatory,
political and economic environments in which each of these companies exists.
While to date we have not experienced any material problems, failures or delays
by our manufacturers to provide the semiconductor chips that we require for our
products, or any material change in the financial arrangements we have with
these companies, could have an adverse impact on our ability to meet our
customer product requirements.
We are a fabless company and the majority of our products and related
components are manufactured by five principal companies: Taiwan Semiconductor
Manufacturing Corporation, ST Microelectronics, Kawasaki/LSI, Silicon Labs and
Delta Integration. We expect to continue to rely upon these third parties for
these services. Currently, the DAA chips used in our soft modem products are
provided by a sole source, Silicon Labs, on a purchase order basis, and we have
only a limited guaranteed supply arrangement under a contract with our
supplier. We are currently in the process of qualifying a second source for our
DAA chips. Although we believe that we would be able to qualify an alternative
manufacturing source for DAA chips within a relatively short period of time,
such a transition, if necessary, could result in loss of purchase orders or
customer relationships, which could adversely affect our operating results.
We rely heavily on our intellectual property rights which offer only limited
protection against potential infringers. If we cannot protect these rights,
this could adversely affect our business.
Our success is heavily dependent upon our proprietary technology. We rely
primarily on a combination of patent, copyright and trademark laws, trade
secrets, confidentiality procedures and contractual provisions to protect our
proprietary rights. These means of protecting our proprietary rights may not be
adequate. We hold a total of 32 patents, a number of which cover technology
that is considered essential for ITU standard communications solutions, and
also have 26 additional patent applications pending or filed. These patents may
never be issued. These patents, both issued and pending, may not provide
sufficiently broad protection against third party infringement lawsuits or they
may not prove enforceable in actions against alleged infringers.
Despite precautions that we take, it may be possible for unauthorized third
parties to copy aspects of our current or future products or to obtain and use
information that we regard as proprietary. We may provide our licensees with
access to our data model and other proprietary information underlying our
licensed applications. Additionally, our competitors may independently develop
similar or superior technology. Finally, policing unauthorized use of software
is difficult and some foreign laws, including those of various countries in
Asia, do not protect our proprietary rights to the same extent as United States
laws. 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. Litigation could result in
substantial costs and diversion of resources and could have a negative effect
on our financial results.
Undetected software errors or failures found in new products may result in loss
of customers or delay in market acceptance of our products.
Our products may contain undetected software errors or failures when first
introduced or as new versions are released. Despite testing by us and by
current and potential customers, errors may be found in new products after
commencement of commercial shipments, resulting in loss of customers or delay
in market acceptance.
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<PAGE>
Potential Year 2000 issues could adversely affect our business or operating
results.
The Year 2000 issue refers to computer programs which use two digits rather
than four to define a given year and which might read a date using "00" as the
year 1900 rather than the Year 2000. As a result, many companies' systems and
software may need to be upgraded or replaced in order to function correctly
after December 31, 1999.
Our Software. In the ordinary course of our business, we test and evaluate
our software modems. We believe that our current products are Year 2000
compliant, meaning that the use or occurrence of dates on or after January 1,
2000 will not materially affect the performance of our software products or the
ability of our products to transmit data involving dates. However, our
connectivity products are incorporated into computer products of our customers
which may not be Year 2000 compliant, or which may be perceived by their
markets as not meeting Year 2000 compliance requirements. As a result, it is
likely that any failure of the computer products into which our products may be
incorporated to be Year 2000 compliant, or any slowdown in the connectivity
markets as a result of Year 2000 compliance concerns, will hurt our product
sales. In addition, we believe that the purchasing patterns of customers and
potential customers may be affected by Year 2000 issues as companies expend
significant resources to correct or upgrade their current software systems for
Year 2000 compliance. These expenditures may result in reduced funds available
to purchase our products. To the extent Year 2000 issues cause a significant
delay in, or cancellation of, decisions to purchase our products or services,
our business would suffer.
Third Party Equipment And Software. We use third party equipment and
software that may not be Year 2000 compliant. This equipment and software
includes our key internal systems such as for our internal accounting systems
or controls. If this equipment or software does not operate properly with
regard to the Year 2000, we may incur unexpected expenses to remedy any
problems. These costs may materially adversely affect our business. In
addition, if our key internal systems fail as a result of Year 2000 problems,
we could incur substantial costs and disruption of our business.
Compliance. To date, we have not incurred any material costs directly
associated with Year 2000 compliance efforts, except for compensation expense
associated with salaried employees who have devoted some of their time to Year
2000 assessment and remediation efforts. We do not expect the total cost of
Year 2000 problems to be material to our business, financial condition or
operating results. However, during the months prior to the century change, we
will continue to evaluate new versions of our products, new software and
information systems provided by third parties and any new infrastructure
systems that we acquire, to determine whether they are Year 2000 compliant.
Despite our current assessment, we may not identify and correct all significant
Year 2000 problems on a timely basis. Year 2000 compliance efforts may involve
significant time and expense and unremediated problems could harm our business,
financial condition and operating results. We currently do not have any
estimate of potential costs related to potential Year 2000 problems. We
currently have no contingency plans to address the risks associated with
unremediated Year 2000 problems.
Risks Related to Our Industry
If the market for applications using our host signal processing technology does
not grow as we anticipate, or if our products are not accepted in this market,
our business will be adversely affected.
Our success depends on the growth of the market for applications using our
host signal processing technology. This market has only recently begun to
develop and may not develop at the growth rates that have been suggested by
industry estimates. Market demand for host signal processing technology depends
primarily upon the cost and performance benefits relative to other competing
solutions. For example, soft modems have only recently begun to gain acceptance
in the modem market. Although we have shipped a significant number of soft
modems since we began commercial sales of these products in October 1995, the
current level of demand for soft modems may not be sustained or may not grow.
If customers do not accept soft modems or the market for soft modems does not
grow, our business will be adversely affected.
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Further, we are in the process of developing next generation products and
applications which improve and extend upon our host signal processing
technology, such as a G.Lite modem solution, an external modem product and a
remote access solution. If these products are not accepted in our markets when
they are introduced, our revenues and profitability will be adversely affected.
Our business, operating results and financial condition will be adversely
impacted if we fail to compete successfully in our connectivity product market,
which is highly competitive.
The connectivity device market is intensely competitive. We may not be able
to compete successfully against current or potential competitors, and our
failure to do so will adversely affect our business, operating results and
financial condition. Our current competitors include 3Com, Conexant, ESS
Technology, Lucent Technologies and Motorola. Motorola introduced soft modems
in the third quarter of 1998 and Conexant introduced soft modems in the fourth
quarter of 1998. We expect competition to increase in the future as current
competitors enhance their product offerings, new suppliers enter the
connectivity device market, new communication technologies are introduced and
additional networks are deployed.
We may in the future also face competition from other suppliers of products
based on host signal processing technology or on new or emerging communication
technologies, which may render our existing or future products obsolete or
otherwise unmarketable. We believe that these competitors may include Alcatel,
Analog Devices, Aware, Broadcom, Com21, Efficient Networks, Orckit, Terayon
Communications and Texas Instruments.
Compared to us, many of our competitors, including some of those described
above, have:
. longer operating histories than we do with more experience in designing
and selling connectivity products and services,
. greater presence in our connectivity product markets, which can provide
an immediate advantage in connection with new product introductions,
. greater name recognition, which can facilitate customer acceptance of new
products and technologies,
. access to larger customer bases,
. significantly greater financial resources, which could enable a
competitor to significantly reduce the price of new products below
prevailing market rates to capture market share,
. significantly greater research and development and other technical
resources, which may enable a competitor to respond more quickly than we
can to new or emerging technologies and changes in customer requirements,
or to introduce new products that are superior to our products or bundle
modem solutions with its other products, and
. significantly greater sales and marketing resources to devote to the
promotion, sale and support of competitive products.
We believe that the principal competitive factors required by users and
customers in the connectivity product market include compatibility with
industry standards, price, functionality, ease of use and customer service and
support. Although we believe that our products currently compete favorably with
respect to these factors, we may not be able to maintain our competitive
position against current and potential competitors.
Our industry is characterized by rapidly changing technologies and our future
success will depend on our ability to adapt to these technologies.
The connectivity product market is characterized by rapidly changing
technologies, limited product life cycles and frequent new product
introductions. To remain competitive in this market, we have been required to
introduce many products over a limited period of time. For example, we
introduced a 14.4 Kbps product in 1995, a 28.8 Kbps product in 1996, a 33.6
Kbps product in late 1996, a non-ITU standard 56 Kbps modem in the second half
of 1997 and a v.90 ITU standard 56 Kbps modem in early 1998. The market for
high speed
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data transmission is also characterized by several competing technologies that
offer alternative broadband solutions which allow for higher modem speeds and
faster Internet access. These competing broadband technologies include xDSL,
wireless and cable. However, substantially all of our current product revenue
is derived from sales of analog modems, which use a more conventional
technology. We must continue to develop and introduce technologically advanced
products that support one or more of these competing broadband technologies. If
we are not successful in our response, we will not be able to compete
effectively and our financial results will be adversely affected.
If we are unable to adapt our products to evolving industry standards, we will
not be able to meet the requirements of our customers.
The emergence of new industry standards may render our products unmarketable
or obsolete and may require us to incur substantial unanticipated costs to
develop products that comply with new standards. The emphasis on communications
standards in the connectivity product market may cause OEMs and end users to
delay purchasing activities on a market-wide basis until vendors redesign and
redevelop connectivity products to suit new industry communications standards.
For example, we believe that the commercial introduction in 1997 of 56 Kbps
modems based on incompatible standards created uncertainty in the modem
industry generally, which adversely affected our operating results in the first
two quarters of 1998. Because we intend to introduce products and applications
to support broadband communications, our financial performance will depend on
the announcement and acceptance of industry standards as they relate to
different broadband technologies such as G.Lite and ADSL, and our ability to
design and develop products based on those standards. If we do not meet or
anticipate these standards, we will not be able to compete effectively and our
financial results will be adversely affected.
The success of our future products designed for the emerging broadband and
Internet markets will depend on the supporting infrastructure for these
markets. If this infrastructure fails to keep pace, our products will not be
accepted by customers.
The success of our future products for the broadband and Internet markets
will depend on the commercial availability and cost of other products and
systems, including switches, routers, multimedia and Internet servers,
code/decode equipment within telephony networks, and customer premises
equipment for the telephone company customers. If this infrastructure of
products and systems is not fully integrated into our markets, the
functionality and utility of our products, such as our G.Lite product designed
to increase the speed of Internet access and other interactive services, will
be impaired and will not be accepted by our markets. Many of the products and
systems necessary to support our connectivity products are still in the
implementation and testing stages of their development. We cannot assure you
that the suppliers of these products and systems will complete this development
and market these complementary products and components effectively. In
addition, we cannot predict that these products and systems, when combined with
our broadband products, will be a cost-effective means of delivering high speed
data transmission, for Internet and other interactive services.
Our products and those of our customers are subject to government regulations.
Changes in laws or regulations that negatively impact our products and
technologies could harm our business.
The jurisdiction of the Federal Communications Commission extends to the
entire communications industry, including our customers and their products and
services that incorporate our products. Future FCC regulations affecting the
broadband access services industry, our customers or our products may harm our
business. For example, FCC regulatory policies that affect the availability of
data and Internet services may impede our customers' penetration into their
markets or affect the prices that they are able to charge. In addition,
international regulatory bodies are beginning to adopt standards for the
communications industry. Delays caused by our compliance with regulatory
requirements may result in order cancellations or postponements of product
purchases by our customers, which would harm our business and adversely affect
our operating results and financial condition.
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Risks Related to this Offering
Shares eligible for sale in the near future may adversely affect the market
price for our common stock.
Sales of a substantial number of shares of our common stock in the public
market following this offering could adversely affect the market price for our
common stock. The number of shares of common stock available for sale in the
public market is limited by restrictions under federal securities law and under
agreements that our stockholders have entered into with the underwriters. Those
agreements restrict our stockholders from selling, pledging or otherwise
disposing of their shares for a period of 180 days after the date of this
prospectus without the prior written consent of Banc of America Securities LLC.
Banc of America Securities LLC may, however, in its sole discretion, release
all or any portion of the common stock from the restrictions of the lockup
agreements, although they have no current plans to do so. Upon completion of
this offering we will have outstanding 15,602,078 shares of common stock,
assuming no exercise of the underwriters' over allotment option and no exercise
of outstanding options or warrants. Of these shares, the 4,600,000 shares sold
in this offering are freely tradeable. The remaining 11,002,078 shares are
eligible for sale in the public market as follows:
<TABLE>
<CAPTION>
Approximate
Shares Eligible
Relevant Dates for Future Sale Comment
- ------------------------ --------------- ---------------------------------------------------
<S> <C> <C>
On effective date(1).... Shares sold in this offering and eligible for
sale under Rule 144(k)
90 days after effective Additional shares eligible for sale under
date(2)................ Rules 144 and 701
180 days after effective All shares subject to lock-up released; additional
date(2)................ shares eligible for sale under Rules 144 and 701
More than 181 days after Additional shares becoming eligible for sale under
effective date(2)...... Rule 144 more than 180 days from the effective date
</TABLE>
- --------
(1) Assumes no exercise of the underwriters' over-allotment option.
(2) Assumes an effective date of September 30, 1999.
In addition, as of June 30, 1999, there were outstanding options and
warrants to purchase 4,018,127 shares of common stock. All such options and
warrants are subject to lock-up agreements. Banc of America Securities LLC may,
in its sole discretion and at any time without notice, release all or any
portion of the securities subject to lock-up agreements.
Our current officers and directors own a significant portion of our stock and
accordingly, no corporate actions requiring stockholder approval can be
consummated without approval of this group.
Upon completion of this offering, our officers, directors and persons or
entities directly related to these individuals will together beneficially own
approximately 37% of the outstanding shares. In particular, WK Technology Funds
owns approximately 17.2% and Peter Chen owns 11.7% of the shares. As a result,
WK Technology Funds and our officers and directors, in general, will be able to
control most matters requiring stockholder approval. These matters would
include the election of our directors and approval of potential mergers,
consolidations or sales of all or substantially all of our assets.
Our stock will likely be subject to substantial price and volume fluctuations
due to a number of factors, many of which are beyond our control.
Stock prices and trading volumes for many communications companies fluctuate
widely for a number of reasons, including some reasons that may be unrelated to
their businesses or operating results, such as changes in analysts' estimates,
the presence or absence of short-selling of common stock and events affecting
other companies that the market deems to be comparable. This market volatility,
as well as general domestic or international economic, market and political
conditions, could negatively affect the market price of our common stock
without regard to our operating performance.
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<PAGE>
Provisions in our charter documents may inhibit a change of control or a change
of management which may adversely affect the market price for our common stock.
Provisions of our charter documents specify procedures for nominating and
electing directors and submitting proposals for consideration at stockholder
meetings. Some of these provisions could discourage potential acquisition
proposals, delay or prevent a change in control transaction and have the effect
of discouraging others from making tender offers for our shares. As a result,
these provisions may prevent the market price of our common stock from
reflecting the effects of actual or rumored takeover attempts. These same
provisions may also inhibit changes in our management.
Upon the closing of the offering, our board of directors will have the
authority to issue up to 5,000,000 shares of preferred stock in one or more
series. The board of directors can fix the price, rights, preferences,
privileges and restrictions of this preferred stock without any further vote or
action by our stockholders. The rights of the holders of our common stock will
be subject to, and may be adversely affected by, the rights of the holders of
any preferred stock that may be issued in the future. Further, the issuance of
shares of preferred stock may delay or prevent a change in control transaction
without further action by the our stockholders. As a result, the market price
of the our common stock may be adversely affected.
Our securities have no prior market, and we cannot assure you that our stock
price will not decline after the offering.
The trading market price of our common stock may decline below the initial
public offering price. In addition, an active public market for our common
stock may not develop or be sustained after this offering. Before this
offering, there has not been a public market for our common stock. The initial
public offering price will be determined by negotiations between PC-Tel and the
representatives of the underwriters.
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
This prospectus, including the sections entitled "Prospectus Summary," "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and "Business," contains forward-looking statements.
These statements relate to future events or our future financial performance,
and involve known and unknown risks, uncertainties, and other factors that may
cause our actual results, levels of activity, performance or achievements to be
materially different from any future results, levels of activity, performance
or achievements expressed or implied by these forward-looking statements. These
risks and other factors include among other things, those listed under "Risk
Factors" and elsewhere in this prospectus. In some cases, you can identify
forward-looking statements by terminology such as "may," "will," "should,"
"expects," "intends," "plans," "anticipates," "believes," "estimates,"
"predicts," "potential," "continue," or the negative of these 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 "Risk
Factors." These factors may cause our actual results to differ materially from
any forward-looking statement.
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USE OF PROCEEDS
We estimate that we will receive net proceeds of $66,648,000 from the sale
of 4,600,000 shares of common stock based on an assumed initial offering price
of $16.00 per share (or $76,915,000 assuming the underwriters' over-allotment
option of $690,000 shares is exercised in full) after deducting estimated
offering expenses and underwriting discounts and commissions.
The principal purposes of this offering are to obtain additional capital,
create a public market for our common stock and facilitate our future access to
public securities markets.
We currently expect to use $15.7 million of the proceeds of this offering to
repay bank debt. Had this offering closed on June 30, 1999, the amount used to
repay bank debt would have equaled $16.0 million. This debt bears interest at
the bank's prime interest rate plus 0.5%. Absent such prepayment, this debt is
to be repaid in 60 monthly payments ending in January 2004. The prepayment of
this debt will result in a 3% penalty. We entered into this debt to fund our
acquisition in December 1998 of Communications Systems Division from General
DataComm Inc.
We will use the remaining proceeds from this offering for general corporate
purposes, including working capital. We also may use a portion of the net
proceeds to acquire complementary products, technologies or businesses.
However, we currently have no commitments or agreements and are not involved in
any negotiations with respect to any transactions. Pending use of the net
proceeds of this offering, we intend to invest the net proceeds in short-term,
interest-bearing securities.
DIVIDEND POLICY
We have never declared or paid any dividends on our capital stock. We
currently expect to retain future earnings, if any, for use in the operation
and expansion of our business and do not anticipate paying any cash dividends
in the foreseeable future.
21
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 1999 (i) on
an actual basis, and (ii) on a pro forma basis adjusted to give effect to the
receipt by us of the estimated net proceeds from the sale of 4,600,000 shares
of common stock in this offering at an assumed initial public offering price of
$16.00 per share and the repayment of outstanding bank debt for $16.0 million
as of June 30, 1999. The adjusted balance sheet data as of June 30, 1999 also
reflects the write-off of deferred debt issuance costs and the expense of the
prepayment penalty related to the bank debt.
The outstanding share information in the table excludes, as of June 30,
1999, 3,815,710 shares of common stock subject to outstanding stock options
under our 1995 and 1997 stock plans, and 202,417 shares of common stock
issuable upon exercise of outstanding warrants. The outstanding share
information in the table also does not reflect option grants under our 1997
stock plan made during the period between July 1 and August 3, 1999 for the
purchase of 565,390 shares, including an option grant to purchase 400,000
shares of common stock to Mr. William F. Roach, who became our President and
Chief Operating Officer in August 1999.
<TABLE>
<CAPTION>
June 30, 1999
------------------------------
Pro Forma
After the
Actual Offering
------------- ---------------
(in thousands, except share
and per share data)
<S> <C> <C>
Current portion of long-term debt............... $ 1,847 $ --
------------- -------------
Long-term debt, net of current portion.......... 13,630 --
------------- -------------
Stockholders' equity:
Preferred stock: par value $0.001 per share,
aggregate liquidation preference of $10,015,
9,385,548 shares authorized, 8,510,748 issued
and outstanding, actual; zero shares issued
and outstanding pro forma after the offering.. 9 --
Common stock: par value $0.001 per share,
50,000,000 shares authorized, 2,491,330 issued
and outstanding, actual; 15,602,078 shares
issued and outstanding, pro forma after the
offering...................................... 2 16
Additional paid-in-capital...................... 12,881 79,524
Deferred compensation........................... (2,162) (2,162)
Retained earnings............................... 7,131 5,735
------------- -------------
Total stockholders' equity...................... 17,861 83,113
------------- -------------
Total capitalization............................ $ 33,338 $ 83,113
============= =============
</TABLE>
22
<PAGE>
DILUTION
Net tangible book value per share of common stock represents the amount of
our total tangible assets less total liabilities, divided by the number of
shares of common stock outstanding. Dilution in net tangible book value per
share represents the difference between the amount per share paid by purchasers
of shares of common stock in this offering and the pro forma as adjusted net
tangible book value per share immediately after the completion of this
offering.
Our pro forma net tangible book value as of June 30, 1999 was approximately
$6.7 million, or $0.61 per share of common stock. Pro forma net tangible book
value per share represents total tangible assets less total liabilities,
divided by the number of outstanding shares of common stock. Our pro forma net
tangible book value per share stated here gives effect to the conversion of all
outstanding shares of preferred stock into 8,510,748 shares of common stock
effective immediately upon the closing of this offering. After giving effect to
the sale of the 4,600,000 shares of common stock offered by us at an assumed
initial public offering price of $16.00 per share and after deducting
underwriting discounts and estimated offering expenses, the pro forma as
adjusted net tangible book value at June 30, 1999 would have been approximately
$73.4 million, or approximately $4.70 per share of common stock. This
represents an immediate increase in net tangible book value of $4.09 per share
to existing stockholders and an immediate dilution in net tangible book value
of $11.30 per share to new investors of common stock in this offering. The
following table illustrates this dilution on a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $16.00
------
Pro forma net tangible book value per share at June 30, 1999.. $0.61
-----
Increase per share attributable to this offering.............. 4.09
-----
Pro forma as adjusted net tangible book value per share after
this offering................................................ 4.70
------
Dilution per share to new investors........................... $11.30
======
</TABLE>
- --------
The table above excludes, as of June 30, 1999, 3,815,710 shares of common
stock subject to outstanding options under our 1995 and 1997 stock plans, and
202,417 shares of common stock issuable upon exercise of outstanding warrants.
To the extent options or warrants are exercised, there will be further dilution
to new investors.
The following table sets forth, on a pro forma basis adjusted for the
offering as of June 30, 1999, the differences between the number of shares of
common stock purchased from us, the total consideration paid and the average
price per share paid by existing stockholders and by new investors, before
deducting underwriting discounts and commissions and estimated offering
expenses, at an assumed initial public offering price of $16.00 per share.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------ ------------------- Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.......... 11,002,078 70.5% $10,156,798 12.1% $ 0.92
New investors.................. 4,600,000 29.5% 73,600,000 87.9% 16.00
---------- ----- ----------- -----
Total........................ 15,602,078 100.0% $83,756,798 100.0%
========== ===== =========== =====
</TABLE>
- --------
If the underwriters' over-allotment option is exercised in full, the
percentage of shares of common stock held by existing stockholders after this
offering would be reduced to approximately 67.5% and the number of shares of
common stock held by new investors would increase to 5,290,000 or approximately
32.5% of the total number of shares of common stock outstanding after this
offering.
23
<PAGE>
Selected Consolidated Financial Data
The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations", our Consolidated Financial Statements and related
notes and other financial information appearing elsewhere in this prospectus.
The statement of operations data for the years ended December 31, 1996, 1997
and 1998 and the balance sheet data as of December 31, 1997 and 1998 are
derived from audited financial statements included elsewhere in this
prospectus. The statement of operations data for the period from inception to
December 31, 1994 and year ended December 31, 1995 and the balance sheet data
as of December 31, 1994, 1995 and 1996 are derived from audited financial
statements not included in this prospectus. The balance sheet data as of June
30, 1999 and the statement of operations data for the six months ended June 30,
1998 and 1999 are unaudited, have been prepared on the same basis as the
audited statements and, in the opinion of management, contain all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
representation of PC-Tel's operating results for such periods and financial
condition at such date. The operating results for the six-month period ended
June 30, 1999 are not necessarily indicative of the results to be expected for
any other interim period or any future fiscal year.
<TABLE>
<CAPTION>
Period From Six Months
February 10, 1994 Year Ended December 31, Ended June 30,
(inception) to ---------------------------------------- -----------------
December 31, 1994 1995 1996 1997 1998 1998 1999
----------------- --------- --------- --------- --------- ------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................ $ -- $ 191 $ 16,573 $ 24,009 $ 33,004 $12,343 $33,046
Cost of revenues........ -- 106 9,182 12,924 13,878 5,948 16,997
----- --------- --------- --------- --------- ------- -------
Gross profit............ -- 85 7,391 11,085 19,126 6,395 16,049
----- --------- --------- --------- --------- ------- -------
Operating expenses:
Research and
development........... 198 822 2,152 3,348 4,932 2,455 4,423
Sales and marketing.... 42 275 839 3,168 5,624 2,407 4,945
General and
administrative........ 43 115 477 1,612 2,169 791 2,063
Acquired in-process
research and
development........... -- -- -- -- 6,130 -- --
Amortization of
deferred compensation
expense............... -- -- 41 -- 43 10 164
----- --------- --------- --------- --------- ------- -------
Total operating
expenses............ 283 1,212 3,509 8,128 18,898 5,663 11,595
----- --------- --------- --------- --------- ------- -------
Income (loss) from
operations............. (283) (1,127) 3,882 2,957 228 732 4,454
----- --------- --------- --------- --------- ------- -------
Other income (expense),
net:
Interest income........ 4 35 127 299 504 254 303
Interest expense....... -- -- -- -- (25) (11) (895)
----- --------- --------- --------- --------- ------- -------
Total other income
(expense), net...... 4 35 127 299 479 243 (592)
----- --------- --------- --------- --------- ------- -------
Income (loss) before
provision for income
taxes.................. (279) (1,092) 4,009 3,256 707 975 3,862
Provision for income
taxes.................. 1 1 1,005 955 212 292 1,158
----- --------- --------- --------- --------- ------- -------
Net income (loss)....... $(280) $ (1,093) $ 3,004 $ 2,301 $ 495 $ 683 $ 2,704
===== ========= ========= ========= ========= ======= =======
Basic earnings per
share.................. $ -- $ -- $ 4.79 $ 1.13 $ 0.21 $ 0.29 $ 1.10
===== ========= ========= ========= ========= ======= =======
Diluted earnings per
share.................. $ -- $ -- $ 0.29 $ 0.20 $ 0.04 $ 0.06 $ 0.21
===== ========= ========= ========= ========= ======= =======
Shares used in computing
basic earnings per
share.................. -- -- 627 2,032 2,355 2,320 2,461
Shares used in computing
diluted earnings per
share.................. -- -- 10,280 11,645 12,325 12,400 12,638
<CAPTION>
As of December 31,
---------------------------------------------------------- June 30,
1994 1995 1996 1997 1998 1999
----------------- --------- --------- --------- --------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and short-term
investments............ $ 594 $ 1,676 $ 5,585 $ 6,685 $ 12,988 $23,534
Working capital......... 702 3,068 6,236 12,840 16,313 18,778
Total assets............ 747 3,980 14,110 23,148 45,996 50,483
Long term debt, net of
current portion........ -- 3 5 38 14,709 13,630
Total stockholders'
equity................. 746 3,228 6,689 13,610 15,139 17,861
</TABLE>
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with our
Consolidated Financial Statements and related notes appearing elsewhere in this
prospectus. Except for historical information, the following discussion
contains forward-looking statements that involve risks and uncertainties,
including, among other things, statements regarding our anticipated revenues,
profits, costs and expenses, revenue mix and plans for addressing Year 2000
issues. Such forward-looking statements include, among others, those statements
including the words, "may", "will", "plans", "seeks", "expects," "anticipates,"
"intends," "believes" and similar language. Our actual results may differ
significantly from those discussed in the forward-looking statements. Factors
that might cause future results to differ materially from those discussed in
the forward-looking statements include, but are not limited to, those discussed
in "Risk Factors" and elsewhere in this prospectus.
Overview
We provide cost-effective software-based connectivity solutions that address
Internet access and other communications requirements for existing analog and
emerging broadband networks. Our communications products enable Internet access
through desktop PCs, notebook computers and non-PC devices. From our inception
in February 1994 through the end of 1995, we were a development stage company
primarily engaged in product development, product testing and the establishment
of strategic relationships with customers and suppliers. From 1996 to 1999, our
total headcount increased to support corporate growth from 18 at the end of
1995 to 125 at June 30, 1999. We first recognized revenue on product sales in
the fourth quarter of 1995, and became profitable in 1996, our first full year
of product shipments. Revenues increased from $16.6 million in 1996 to $24.0
million in 1997 to $33.0 million in 1998. Revenues for the six months ended
June 30, 1999 were $33.0 million.
We sell soft modems to manufacturers and distributors principally in Asia
through our sales personnel, independent sales representatives and
distributors. Our sales to manufacturers and distributors in Asia were 74.4%,
77.1% and 75.9% of our total sales for the years ended 1996, 1997 and 1998,
respectively, and 76.9% and 98.6% for the six months ended June 30, 1998 and
1999, respectively. The predominance of our sales are in Asia because our
customers are primarily motherboard and modem manufacturers, and the majority
of these manufacturers are located in Asia. In many cases, our indirect OEM
customers specify that our products be included on the modem boards or
motherboards that they purchase from the board manufacturers, and we sell our
products directly to the board manufacturers for resale to our indirect OEM
customers. Industry statistics indicate that approximately two-thirds of modems
manufactured in Asia are sold back to OEMs located in the United States.
We recognize revenues from product sales to customers upon shipment. We
provide for estimated sales returns, allowances and discounts related to such
sales at the time of shipment. We recognize revenues from product sales to
distributors upon a "sell through" basis from the distributor to the end user.
We recognize revenues from non-recurring engineering contracts as contract
milestones are achieved.
In the fourth quarter of 1998, we acquired substantially all of the assets
and selected liabilities of Communications Systems Division of General
DataComm, Inc., for a total purchase price of $17.0 million. We began to
recognize revenues in the three months ended June 30, 1999 from licensing the
patent portfolio that we acquired in this acquisition. These revenues are
recognized based on confirmation from licensees of the royalty payments due to
us.
25
<PAGE>
Results of Operations
The following table sets forth the results of our operations expressed as a
percentage of total revenues.
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
------------------------- ------------------
1996 1997 1998 1998 1999
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues........................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues................ 55.4 53.8 42.0 48.2 51.4
------- ------- ------- -------- --------
Gross profit.................. 44.6 46.2 58.0 51.8 48.6
------- ------- ------- -------- --------
Operating expenses:
Research and development...... 13.0 13.9 14.9 19.9 13.4
Sales and marketing........... 5.1 13.2 17.0 19.5 15.0
General and administrative.... 2.9 6.7 6.6 6.4 6.2
Acquired in-process research
and development.............. -- -- 18.6 -- --
Amortization of deferred
compensation expense......... 0.2 -- 0.1 0.1 0.5
------- ------- ------- -------- --------
Total operating expenses.... 21.2 33.8 57.2 45.9 35.1
------- ------- ------- -------- --------
Operating income................ 23.4 12.4 0.8 5.9 13.5
------- ------- ------- -------- --------
Other income (expense), net:
Interest income............... 0.8 1.2 1.5 2.1 0.9
Interest expense.............. -- -- (0.1) (0.1) (2.7)
------- ------- ------- -------- --------
Total other income
(expense), net............. 0.8 1.2 1.4 2.0 (1.8)
Income before provision for
income taxes................... 24.2 13.6 2.2 7.9 11.7
Provision for income taxes...... 6.1 4.0 0.6 2.4 3.5
------- ------- ------- -------- --------
Net income...................... 18.1% 9.6% 1.6% 5.5% 8.2%
======= ======= ======= ======== ========
</TABLE>
Six Months Ended June 30, 1998 and 1999
(All amounts in tables, other than percentages, are in thousands)
Revenues
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended
June 30,
---------------
1998 1999
------- -------
<S> <C> <C>
Revenues....................................................... $12,343 $33,046
% change from prior period..................................... N/A 167.7%
</TABLE>
- --------------------------------------------------------------------------------
Our historical revenues primarily consisted of product sales of soft modems
to board manufacturers and distributors in Asia.
The 167.7% increase in revenues for the six months ended June 30, 1999 over
the same period in the previous year was attributable to an increase in unit
sales in 1999. We believe that this unit increase was due principally to the
general acceptance of our products in the low cost, or sub-$1,000, PC
marketplace, the increase of market share of our MicroModem product and the
certification by Microsoft of its Windows 98 logo for our products. The
benefit of increase of sales volume was partly offset by downward pressure on
average selling prices and sales discounts to customers.
26
<PAGE>
Gross Profit
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------
1998 1999
-------- --------
<S> <C> <C>
Gross profit................................................. $ 6,395 $ 16,049
Percentage of revenue........................................ 51.8% 48.6%
% change from prior period................................... N/A 151.0%
</TABLE>
- --------------------------------------------------------------------------------
Cost of revenues consists primarily of chipsets which we purchase from third
party manufacturers and also includes amortization of intangibles related to
our acquisition of the Communications Systems Division in December 1998,
accrued intellectual property royalties, cost of operations, reserves for
inventory obsolescence and distribution costs. The royalties accrued are our
best estimate based on royalty agreements already signed, or in negotiation, as
well as advice from patent counsel. Upon consummation of the Communications
Systems Division acquisition, we reduced our royalty reserves because we
believe that we can obtain necessary licenses of the patent portfolio in
exchange for grants of cross licenses rather than the payment of fees.
Gross profit increased $9.7 million, or 151.0%, to $16.0 million for the six
months ended June 30, 1999 from $6.4 million for the same period the previous
year. The increase in gross profit was the direct result of increased revenues.
However, as a percentage of revenues, gross profit decreased from 51.8% for the
six months ended June 30, 1998 to 48.6% for the same period in 1999. Average
selling prices decreased faster than the rate of cost reduction, which
adversely effected our gross profit margins. We believe that decreases in the
average selling price of our products through volume discounts have resulted in
our attaining greater market share.
Research and Development
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------
1998 1999
-------- --------
<S> <C> <C>
Research and development.................................... $ 2,455 $ 4,423
Percentage of revenue....................................... 19.9% 13.4%
% change from prior period.................................. N/A 80.2%
</TABLE>
- --------------------------------------------------------------------------------
Research and development expenses include compensation costs for software
and hardware development, prototyping, certification and pre-production costs.
We expense all research and development costs as incurred.
Research and development expenses increased for the six months ended June
30, 1999 due to the addition of personnel for new product development in the
G.Lite, modem riser card and HIDRA projects and engineering work related to
v.90 modems. As a percentage of revenues, research and development decreased
for the six months ended June 30, 1999 because revenue increased proportionally
greater than research and development expenses. Approximately 70% of all
research and development expenses are payroll related. The headcount in this
area increased approximately 87% from the same period in the prior year, which
included 18 additional staff members from the Communications Systems Division
acquisition in December 1998. We expect that our research and development
expenses will increase in absolute dollars due to the anticipated additional
headcount and continued efforts in broadband product development.
Sales and Marketing
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------
1998 1999
-------- --------
<S> <C> <C>
Sales and marketing......................................... $ 2,407 $ 4,945
Percentage of revenue....................................... 19.5% 15.0%
% change from prior period.................................. N/A 105.4%
</TABLE>
- --------------------------------------------------------------------------------
27
<PAGE>
Sales and marketing expenses consist primarily of personnel costs, sales
commissions and marketing costs. Marketing costs include promotional goods,
trade shows, press tours and advertisements in trade magazines.
Sales and marketing expenses increased $2.5 million for the six months ended
June 30, 1999, but decreased as a percentage of total revenues, compared to the
same period in the prior year. The dollar increase reflects the addition of
sales and marketing personnel to develop new accounts, support customers, and
drive new product developments and product launches. We also expanded our sales
regions geographically to include Japan and Korea. The increase in sales and
marketing expenses is also due to increased governmental telephony
certification of our products in Austria, Belgium, Denmark, Finland, France,
Germany, Ireland, Italy, the Netherlands, Norway, Portugal, Spain, Sweden,
Switzerland and the United Kingdom, the production of sales materials, travel
costs, trade shows and press tours.
General and Administrative
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------
1998 1999
-------- ---------
<S> <C> <C>
General and administrative.................................. $ 791 $ 2,063
Percentage of revenue....................................... 6.4% 6.2%
% change from prior period.................................. N/A 160.8%
- --------------------------------------------------------------------------------
General and administrative expenses include costs associated with our
general management, human resources and finance functions as well as
professional service charges, such as legal, tax and accounting fees. Other
general expenses include rent, insurance, utilities, travel and other operating
expenses to the extent not otherwise allocated to other functions.
These general and administrative expenses increased $1.3 million for the six
months ended June 30, 1999, over the same period in the prior year but
decreased as a percentage of total revenues, compared to the same period in the
prior year. This increase reflected additional legal costs related to contract
negotiations, patent submissions, additional tax planning, as well as
litigation expenses related to the Motorola lawsuit. We also incurred
additional expenses related to the increase in staff.
Amortization of Deferred Compensation Expense
- --------------------------------------------------------------------------------
<CAPTION>
Six Months Ended
June 30,
------------------
1998 1999
-------- ---------
<S> <C> <C>
Amortization of deferred compensation expense............... $ 10 $ 164
Percentage of revenue....................................... 0.1% 0.5%
% change from prior period.................................. N/A 1,540%
</TABLE>
- --------------------------------------------------------------------------------
In connection with the grant of stock options to employees, we amortized
$164,000 in deferred compensation for the six months ended June 30, 1999. The
deferred compensation expense related to the grant of stock options to
employees for the six months ended June 30, 1998 was $10,000. We expect that
the deferred compensation expense will increase to approximately $340,000 per
quarter through the third quarter of 2003, based on option grant activity
through August 3, 1999.
Other Income (Expense), Net
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------
1998 1999
-------- ---------
<S> <C> <C>
Other income (expense), net................................ $ 243 $ (592)
Percentage of revenue...................................... 2.0% (1.8)%
% change from prior period................................. N/A (343.6)%
</TABLE>
- --------------------------------------------------------------------------------
28
<PAGE>
Other income (expense), net, consists of interest income, net of interest
expense. Interest income is expected to fluctuate over time. Interest expense
will continue to consist primarily of interest on capital leases and the $16.3
million loan issued to acquire Communications Systems Division. Other income
(expense), net, decreased $835,000 for the six months ended June 30, 1999 over
the same period for the prior year. The decrease was due primarily to the
interest expense related to the bank loan issued to acquire the Communications
Systems Division. We intend to repay the bank loan following completion of the
offering.
Provision for Income Taxes
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------
1998 1999
-------- --------
<S> <C> <C>
Provision for income taxes.................................. $ 292 $ 1,158
Effective tax rate.......................................... 30.0% 30.0%
% change from prior period.................................. N/A 296.6%
</TABLE>
- --------------------------------------------------------------------------------
Provision for income taxes increased for the six months ended June 30, 1999
over the same period for the prior year due to higher taxable income, while the
effective tax rate remained constant at 30%.
Year Ended December 31, 1996, 1997 and 1998
Revenues
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Revenues............................................. $16,573 $24,009 $33,004
% change from prior period........................... N/A 44.9% 37.5%
- --------------------------------------------------------------------------------
Revenues increased 37.5% for 1998 due to an increase in unit sales over
1997. This unit increase was due principally to acceptance of our products in
the marketplace following the certification by Microsoft of its Windows 95 and
98 logos for our products and the launch of our v.90 soft modem products early
in 1998. The benefit of increased sales volume was partly offset by downward
pressure on prices throughout the industry.
Revenues for 1997 increased 44.9% reflecting a doubling in unit sales over
the same period in 1996. This revenue growth was fueled by the introduction of
our K56Flex soft modem in late 1997. The benefit of increased sales volume was
partly offset by downward pressure on prices throughout the industry.
Gross Profit
- --------------------------------------------------------------------------------
<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Gross profit......................................... $ 7,391 $11,085 $19,126
Percentage of revenue................................ 44.6% 46.2% 58.0%
% change from prior period........................... N/A 50.0% 72.5%
</TABLE>
- --------------------------------------------------------------------------------
Gross profit increased $8.0 million, or 72.5%, for 1998 and increased as a
percentage of revenues to 58.0% from 46.2% in 1997. The increase was due to the
increase in revenues and lower unit costs obtained through volume discounts
from our semiconductor vendors, which were partly offset by declining selling
prices throughout the industry. The increase was also due in part to a $3.0
million reversal in royalty reserves in the fourth quarter of 1998. Upon
consummation of the Communications Systems Division acquisition in December
1998, we reduced our royalty reserves because we believe that in some instances
we can obtain necessary licenses of third party technologies in exchange for
grants of cross licenses of our patent portfolio rather than the payment of
license fees or royalties. Without considering the $3.0 million reversal in
royalty reserves, gross profit as a percentage of revenues would have been
48.9% in 1998.
29
<PAGE>
The increase in gross profit as a percentage of revenues from 1996 to 1997
reflects the change in the mixture of sales toward higher margin modems,
economies of scale and lower reserves required for product obsolescence. The
addition of personnel in the operations area enabled us to focus on better
managing product cost, improving product transition strategies and reducing
inventory levels.
Research and Development
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Research and development................................ $2,152 $3,348 $4,932
Percentage of revenue................................... 13.0% 13.9% 14.9%
% change from prior period.............................. N/A 55.6% 47.3%
- --------------------------------------------------------------------------------
Research and development expenses increased $1.6 million, or 47.3%, for
1998. The increase was due to the addition of research and development
personnel to facilitate new product development for our v.90, G.Lite and Modem
Riser products.
Research and development expenses increased $1.2 million in 1997, reflecting
the growth in our software development team to facilitate new product
development for our K56Flex and v.90 products.
Sales and Marketing
- --------------------------------------------------------------------------------
<CAPTION>
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Sales and marketing..................................... $ 839 $3,168 $5,624
Percentage of revenue................................... 5.1% 13.2% 17.0%
% change from prior period.............................. N/A 277.6% 77.5%
- --------------------------------------------------------------------------------
Sales and marketing expenses increased $2.5 million for 1998. We continued
to develop our sales organization in 1998 to expand into different distribution
channels, particularly the OEM channel. Consequently, sales and marketing
personnel grew by approximately 63% to develop new accounts, support customers
and drive new product developments and product launches. Sales and marketing
expenses in 1998 also reflected higher sales commissions and increased
promotional activity including increased spending in trade shows and press
tours.
Sales and marketing expenses increased $2.3 million for 1997, reflecting the
addition of sales and marketing personnel to support customers, develop new
accounts and expand our business geographically. Higher sales and marketing
expenses in 1997 also included increased commission expenses due to higher
revenues, increased promotional activity, the production of sales material and
the costs of trade shows and press tours.
General and Administrative
- --------------------------------------------------------------------------------
<CAPTION>
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
General and administrative.............................. $ 477 $1,612 $2,169
Percentage of revenue................................... 2.9% 6.7% 6.6%
% change from prior period.............................. N/A 237.9% 34.6%
</TABLE>
- --------------------------------------------------------------------------------
General and administrative expenses increased $557,000 for 1998. This
increase reflected additional legal costs related to the negotiation and review
of an increased number of contracts, an increase in patent submissions, tax
planning and litigation expenses related to the Motorola lawsuit.
General and administrative expenses increased $1.1 million for 1997,
reflecting higher costs associated with the expansion of our infrastructure,
including increased personnel required to implement and sustain a financial
reporting structure and increased expenses resulting from the move to a larger
facility.
30
<PAGE>
Acquired In-Process Research & Development
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ------
<S> <C> <C> <C>
Acquired in-process research & development.................... -- -- $6,130
Percentage of revenue......................................... -- -- 18.6%
% change from prior period.................................... N/A -- --
</TABLE>
- --------------------------------------------------------------------------------
Upon completion of our acquisition of the Communications Systems Division in
December 1998, we immediately expensed $6.1 million, representing purchased in-
process technology that had not yet reached technological feasibility and had
no alternative future use. The value assigned to purchased in-process
technology, based on a percentage of completion discounted cash flow method,
was determined by identifying research projects in areas for which
technological feasibility has not been established. The value was determined by
estimating the costs to develop the purchased in-process technology into
commercially viable products, estimating the resulting net cash flows from such
projects, and discounting the net cash flows back to their present value. The
discount rate includes a risk-adjusted discount rate to take into account the
uncertainty surrounding the successful development of the in-process
technology. The valuation includes cash inflows from in-process technology
through 2002 with revenues commencing in 1999 and increasing significantly in
2000 before declining in 2002. A royalty payment of 3% was assumed from in-
process technology to existing technology, based on management's estimate of a
patent license rate. The HIDRA and industrial modem projects were approximately
56% complete at the time of the valuation and the expected timeframe for
achieving these product releases was assumed to be in the second half of 1999.
The DSL project was approximately 56% complete at the time of the valuation and
the expected timeframe for achieving this product release is assumed to be in
early 2000. Significant remaining development efforts must be completed in the
next six to 18 months in order for the projects of the Communications Systems
Division to become implemented in a commercially viable timeframe.
Amortization of Deferred Compensation Expense
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1997 1998
------ ----- -----
<S> <C> <C> <C>
Amortization of deferred compensation expense........... $ 41 $ -- $ 43
Percentage of revenue................................... 0.2% -- 0.1%
% change from prior period.............................. N/A -- --
- --------------------------------------------------------------------------------
In connection with the grant of stock options to employees, we amortized
$43,000 in deferred compensation for the year ended December 31, 1998. There
was no deferred compensation expense for the year ended December 31, 1997. The
deferred compensation expense related to the grant of stock options to
employees for the year ended December 31, 1996 was $41,000.
Other Income (Expense), Net
- --------------------------------------------------------------------------------
<CAPTION>
1996 1997 1998
------ ----- -----
<S> <C> <C> <C>
Other income (expense), net............................. $ 127 $ 299 $ 479
Percentage of revenue................................... 0.8% 1.2% 1.4%
% change from prior period.............................. N/A 135.4% 60.2%
- --------------------------------------------------------------------------------
Other income (expense), net, increased $180,000 for 1998. The increase was
due to higher average cash balances.
Provision for Income Taxes
- --------------------------------------------------------------------------------
<CAPTION>
1996 1997 1998
------ ----- -----
<S> <C> <C> <C>
Provision for income taxes.............................. $1,005 $ 955 $ 212
Effective tax rate...................................... 25.1% 29.3 % 30.0 %
% change from prior period.............................. N/A (5.0)% (77.8)%
</TABLE>
- --------------------------------------------------------------------------------
31
<PAGE>
Provision for income taxes decreased $743,000, or 77.8%, for 1998 due to
lower gross profits, while the effective tax rate for 1998 remained at 30.0%.
Income taxes remained relatively constant for 1997 and 1996. The lower
effective tax rate for 1996 was due to the benefit realized from net operating
losses carried forward from our inception.
We have deferred tax assets on our balance sheet as of December 31, 1998
amounting to $4.2 million. We believe that our expected effective tax rate will
be below the statutory tax rate due to our research and development tax credits
and the increase in international sales through our wholly owned subsidiaries.
32
<PAGE>
Quarterly Results of Operations
The following table presents our operating results for each of the six
quarters up to and including the period ended June 30, 1999. The information
for each of these quarters is unaudited and has been prepared on the same basis
as the audited financial statements appearing elsewhere in this prospectus. In
the opinion of management, all necessary adjustments consisting only of normal
recurring adjustments, have been included to present fairly the unaudited
quarterly results when read in conjunction with our audited Consolidated
Financial Statements and the related notes appearing elsewhere in this
prospectus. These operating results are not necessarily indicative of the
results of any future period.
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30,
1998 1998 1998 1998 1999 1999
-------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $5,515 $6,828 $9,063 $11,598 $15,156 $17,890
Cost of revenues........ 2,533 3,415 4,902 3,028 7,926 9,071
------ ------ ------ ------- ------- -------
Gross profit........... 2,982 3,413 4,161 8,570 7,230 8,819
------ ------ ------ ------- ------- -------
Operating expenses:
Research and
development........... 1,129 1,326 1,283 1,194 2,043 2,380
Sales and marketing.... 1,068 1,339 1,713 1,504 2,298 2,647
General and
administrative........ 384 407 423 955 815 1,248
Acquired in-process
research and
development........... -- -- -- 6,130 -- --
Amortization of
deferred compensation
expense............... -- 10 17 16 16 148
------ ------ ------ ------- ------- -------
Total operating
expenses............. 2,581 3,082 3,436 9,799 5,172 6,423
------ ------ ------ ------- ------- -------
Operating income
(loss)................. 401 331 725 (1,229) 2,058 2,396
------ ------ ------ ------- ------- -------
Other income (expense),
net:
Interest income........ 106 148 140 110 116 187
Interest expense....... (5) (6) (6) (8) (453) (442)
------ ------ ------ ------- ------- -------
Total other income
(expense), net....... 101 142 134 102 (337) (255)
------ ------ ------ ------- ------- -------
Income (loss) before
provision for income
taxes.................. 502 473 859 (1,127) 1,721 2,141
Provision (benefit) for
income taxes........... 151 141 258 (338) 516 642
------ ------ ------ ------- ------- -------
Net income (loss)....... $ 351 $ 332 $ 601 $ (789) $ 1,205 $ 1,499
====== ====== ====== ======= ======= =======
<CAPTION>
Quarter Ended
---------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30,
1998 1998 1998 1998 1999 1999
-------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues........ 45.9 50.0 54.1 26.1 52.3 50.7
------ ------ ------ ------- ------- -------
Gross profit........... 54.1 50.0 45.9 73.9 47.7 49.3
------ ------ ------ ------- ------- -------
Operating expenses:
Research and
development........... 20.5 19.4 14.2 10.3 13.5 13.3
Sales and marketing.... 19.4 19.6 18.9 13.0 15.1 14.8
General and
administrative........ 7.0 6.0 4.7 8.2 5.4 7.0
Acquired in-process
research and
development........... 0.0 0.0 0.0 52.9 0.0 0.0
Amortization of
deferred compensation
expense............... -- 0.1 0.1 0.1 0.1 0.8
------ ------ ------ ------- ------- -------
Total operating
expenses............. 46.9 45.1 37.9 84.5 34.1 35.9
------ ------ ------ ------- ------- -------
Operating income
(loss)................. 7.2 4.9 8.0 (10.6) 13.6 13.4
------ ------ ------ ------- ------- -------
Other income (expense),
net:
Interest income........ 1.9 2.2 1.5 1.0 0.8 1.1
Interest expense....... (0.1) (0.1) -- (0.1) (3.0) (2.5)
------ ------ ------ ------- ------- -------
Total other income
(expense), net....... 1.8 2.1 1.5 0.9 (2.2) (1.4)
------ ------ ------ ------- ------- -------
Income (loss) before
provision for income
taxes.................. 9.0 7.0 9.5 (9.7) 11.4 12.0
Provision (benefit) for
income taxes........... 2.7 2.1 2.8 (2.9) 3.4 3.6
------ ------ ------ ------- ------- -------
Net income (loss)....... 6.3% 4.9% 6.7% (6.8)% 8.0% 8.4%
====== ====== ====== ======= ======= =======
</TABLE>
33
<PAGE>
Our quarterly operating results have varied significantly in the past and
may vary significantly in the future depending on a number of factors, many of
which are beyond our control. Our revenues have been negatively affected by
market-wide delays in purchasing activities associated with the anticipated
announcement by the ITU of the v.90 standard whereas our revenues have been
positively affected by the market acceptance of our soft modems. We have also
experienced seasonality in our quarterly operating results. A detailed
discussion of these and other factors are described under Risk Factors
elsewhere in this prospectus. Our gross profit for the fourth quarter ended
December 31, 1998 was favorably impacted by the reversal of $3.0 million in
royalty reserves. Without considering the reversal, gross profit as a
percentage of revenues would have been 48.0% in the fourth quarter of 1998.
Liquidity and Capital Resources
Six Months Ended June 30, 1998 and 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C>
Net cash provided by operating activities..................... $ 1,080 $12,262
Net cash used in investing activities......................... (149) (6,980)
Net cash provided by (used in) financing activities........... 4,756 (1,018)
Cash and short-term investments at end of period.............. 12,988 23,534
Working capital............................................... N/A 18,778
- --------------------------------------------------------------------------------
</TABLE>
The increase in net cash provided by operating activities for the six months
ended June 30, 1999 compared to 1998 was primarily due to better collection in
accounts receivable due to the use of letters of credit and a higher net income
in 1999. Net cash used in investing activities for the six months ended June
30, 1999 reflected the purchases of short-term investments, property and
equipment, while net cash used in financing activities for the six months ended
June 30, 1999 reflected the repayment of principal of the notes payable
arrangements associated with the Communications Systems Division acquisition.
As of June 30, 1999, we had $23.5 million in cash and cash equivalents and
short-term investments and working capital of $18.8 million. As of June 30,
1999, we had outstanding debt of $15.5 million under notes payable arrangements
which we will repay for $15.7 million, including a prepayment penalty,
following the closing of this offering.
Year Ended December 31, 1996, 1997 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- --------
<S> <C> <C> <C>
Net cash provided by operating activities......... $ 4,753 $ 917 $ 2,719
Net cash provided by (used in) investing
activities....................................... (1,258) 576 (17,344)
Net cash provided by (used in) financing
activities....................................... 414 (393) 20,928
Cash and equivalents at end of period............. 5,585 6,685 12,988
Working capital................................... 6,236 12,840 16,313
- ------------------------------------------------------------------------------
</TABLE>
Since our inception through December 31, 1998, we have funded our operations
primarily through the sale of convertible preferred stock and cash generated
from operations. We received $388,000 and $5.0 million from the sale of
convertible preferred stock in 1996 and 1998, respectively. Net cash provided
by operating activities for 1996, 1997 and 1998 were $4.8 million, $917,000 and
$2.7 million, respectively. The decrease in net cash provided by operating
activities for 1997 compared to 1996 was primarily due to increased working
capital requirements associated with higher revenues as well as lower net
income in 1997. The increase in net cash provided by operating activities for
1998 compared to 1997 was primarily due to higher net income before considering
the write-off of acquired in-process research and development and also
increased accruals.
34
<PAGE>
Net cash provided by (used for) investing activities was $(1.3) million,
$576,000 and $(17.3) million for 1996, 1997 and 1998, respectively. Net cash
provided by investing activities for 1997 reflected proceeds from the sale of
short-term investments, net of purchases of property and equipment, while net
cash used in investing activities for 1998 represented the Communications
Systems Division acquisition, and purchases of property, plant and equipment.
The timing and amount of future capital expenditures will depend primarily on
our growth. Our principal commitments consist of leases for our office
facilities as well as other general obligations under our capital leases. We
anticipate that we will relocate to larger office facilities within the next
six months and we expect to incur additional capital expenditures of
approximately $500,000 per year. We currently have no other material
commitments for capital expenditures.
As of June 30, 1999, we had $23.5 million in cash and cash equivalents and
short-term investments and working capital of $18.8 million. In December 1998,
we became obligated under notes payable in the aggregate principal amount of
$16.3 million in connection with the acquisition of Communications Systems
Division. We intend to repay these notes following the closing of this
offering. In connection with these notes payable, we issued a warrant to
purchase 200,000 shares of Series C preferred stock at an exercise price of
$8.00 per share. The warrants are immediately exercisable and expire ten years
from the date of issuance. The fair value of the warrants at the date of the
issuance was estimated to be $1.4 million. We recorded the fair value of the
warrants as a deferred charge which will be amortized over the term of the
notes.
We believe that the net proceeds from the offering, together with existing
sources of liquidity, will be sufficient to meet our working capital and
anticipated capital expenditure requirements for at least the next 12 months.
Thereafter, we may require additional funds to support our working capital
requirements or for other purposes, and may seek, even before such time, to
raise additional funds through public or private equity or debt financing or
from other sources. Additional financing may not be available at all, and if it
is available, such financing may not be obtainable on terms acceptable to us or
that are not dilutive to our stockholders.
Recent Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position No. 98-1 "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use," which we adopted in fiscal 1999. SOP
No. 98-1 requires entities to capitalize certain costs related to internal-use
software once certain criteria has been met. The adoption did not have a
material impact on our financial position or results of operations.
In April 1998, the American Institute of Certified Public Accountants issued
SOP No. 98-5 "Reporting on the Costs of Start-Up Activities," which we adopted
in fiscal 1999. SOP No. 98-5 requires that all start-up costs related to new
operations must be expensed as incurred. In addition, all start-up costs that
were previously capitalized must be written off when SOP No. 98-5 is adopted.
The adoption did not have a material impact on our financial position or
results of operations.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
requires certain accounting and reporting standards for derivative financial
instruments and hedging activities. We are subject to SFAS No. 133 for the
first quarter beginning January 1, 2001. Because we do not currently hold any
derivative instruments and do not engage in hedging activities, we do not
believe that the adoption of SFAS No. 133 will have a material impact on our
financial position or results of operations.
Qualitative and Quantitative Disclosures About Market and Interest Rate Risk
We are exposed to minimal market risks. We manage the sensitivity of our
results of operations to these risks by maintaining a conservative investment
portfolio, which is comprised solely of highly-rated, short-term investments.
We do not hold or issue derivative, derivative commodity instruments or other
financial
35
<PAGE>
instruments for trading purposes. We are exposed to currency fluctuations, as
we sell our products internationally. We manage the sensitivity of our
international sales by denominating all transactions in U.S. dollars.
We may be exposed to interest rate risks, as we may use additional financing
to fund additional acquisitions and fund other capital expenditures. The
interest rate that we may be able to obtain on financings will depend on market
conditions at that time and may differ from the rates we have secured in the
past.
Year 2000 Compliance
We have completed our initial assessment of the potential overall impact of
the impending century change on our business, financial condition and operating
results. Based on our current assessment, we believe the current versions of
our products are Year 2000 compliant. However, our products operate in complex
network environments and directly or indirectly interact with a number of other
hardware and software systems that we cannot adequately evaluate for Year 2000
compliance.
We may face claims based on Year 2000 problems in other companies' products,
or issues arising from the integration of multiple products within an overall
system. We have not been a party to any litigation or arbitration proceeding
involving our products or services related to Year 2000 compliance issues. We
may in the future be required to defend our products or services in such
proceedings, or to negotiate resolutions of claims based on Year 2000 issues.
We have reviewed our internal management information and other critical
business systems to identify any Year 2000 problems. We also have communicated
with the external vendors that supply us with material software and information
systems and with significant suppliers to determine their Year 2000 readiness.
Based on our vendors' representations, we believe that the third-party hardware
and software we use is Year 2000 compliant.
To date, we have not incurred any material costs directly associated with
Year 2000 compliance efforts, except for compensation expense associated with
salaried employees who have devoted some of their time to Year 2000 assessment
and remediation efforts. We do not expect the total cost of Year 2000 problems
to be material to our business, financial condition or operating results.
However, during the months prior to the century change, we will continue to
evaluate new versions of our products, new software and information systems
provided by third parties and any new infrastructure systems that we acquire,
to determine whether they are Year 2000 compliant. Despite our current
assessment, we may not identify and correct all significant Year 2000 problems
on a timely basis. Year 2000 compliance efforts may involve significant time
and expense and unremediated problems could harm our business, financial
condition and operating results. We currently do not have any estimate of
potential costs related to potential Year 2000 problems. We currently have no
contingency plans to address the risks associated with unremediated Year 2000
problems.
36
<PAGE>
BUSINESS
Overview
We are a leading developer and supplier of cost-effective software-based
connectivity solutions. Our solutions enable Internet access and other
communications applications through existing analog and emerging broadband
networks. We have developed a proprietary software architecture that
substantially reduces the hardware, space and power requirements of
conventional hardware-based connectivity devices. Our software architecture is
also easily upgradeable, minimizing the risk of technological obsolescence. Our
communications products are designed to enable widespread Internet access and
other communication applications through, desktop PCs, notebook computers and
non-PC devices.
We are a pioneer in developing host signal processing technology, a
proprietary set of algorithms that enables cost-effective software-based
digital signal processing solutions. Host signal processing technology utilizes
the computational and processing resources of a host central processing unit
rather than requiring additional special-purpose hardware. The reduction of
hardware components in our architecture reduces space requirements by 50% and
power requirements by 70% compared to conventional solutions. The first
implementation of our host signal processing technology was in a software
modem, or soft modem, in 1995. Through June 1999, we have shipped 11.3 million
soft modems. Based on our unit shipments in 1998, we believe we are the largest
worldwide producer of soft modems, representing 68% of all soft modems sold
that year, as estimated by Vision Quest 2000. We also believe that in 1998 we
sold 6% of all analog modems estimated by Dataquest to have been 59.1 million
units. Various OEMs, including Acer, Dell, emachines, Fujitsu and Sharp, have
integrated our soft modems into their products.
We continue to innovate and expand upon our successful host signal
processing architecture so that we can provide high speed connectivity
solutions for broadband communications, including xDSL, cable and wireless
communications. These emerging opportunities include connectivity solutions for
client-side applications, enterprise servers, service providers and industrial
markets. We have extended our host signal processing architecture and have
developed a G.Lite solution, LiteSpeed, that enables downstream broadband data
transmission speeds of up to 1.5 Mbps and upstream broadband data transmission
speeds of 512 Kbps over existing copper telephone lines. We expect to begin
shipments of this product in the first half of 2000.
We also have developed an embedded solution for non-PC devices that either
do not use a central processing unit or lack the excess processing capacity
necessary to support our host signal processing solution. These devices include
Internet appliances, such as set-top boxes and webphones, video game consoles
and remote monitoring devices. By offering reductions in size, cost and power
consumption, we also believe that this solution is ideal for service providers
and server-side applications such as single and multi-port remote access
servers and concentrators.
We enhanced our position as an intellectual property leader with the
acquisition of our Communications Systems Division from General DataComm, Inc.
in the fourth quarter of 1998. As a result of this acquisition and our own
intellectual property development efforts, we hold 32 patents, a number of
which cover technology that is considered essential for International
Telecommunication Union, or ITU, standard communications solutions. We also
have 26 additional patent applications pending or filed.
Industry Overview
In recent years, dramatic increases in business and consumer demand for
multimedia information, entertainment and voice and data communication have
resulted in a corresponding increase in demand for high speed remote access.
The accelerated growth of content-rich applications, which require high
bandwidth, has changed the nature of information networks. High-speed
connectivity is now a requirement for business, government, academic and home
environments. Businesses, ranging from large and small corporate enterprises to
home offices, are increasingly dependent upon data networks, not only for
communication within the office, but also to exchange information among
corporate sites, remote locations, telecommuters, business partners,
37
<PAGE>
suppliers and customers. Consumers are also increasingly accessing data
networks such as the Internet to communicate, collect and publish information
and conduct retail purchases.
These market trends have resulted in a significant increase in the demand
for connectivity devices. International Data Corporation estimates that by
2003, the number of Internet connectivity devices will grow to over 722
million.
Analog Connectivity Solutions
Although there has been significant publicity given to broadband
connectivity, the majority of Internet access is still through dial-up, or
analog, connections. Analog technology converts digital data into an analog
signal for transmission over telephone networks, and executes the reverse
analog-to-digital signal conversion to enable the host device to receive the
transmitted data. Analog modems, which, according to Dataquest, comprised 90%
of the modem market in 1998, are primarily utilized by PC devices. Dataquest
estimates that 59.1 million analog modems were sold in 1998, and expects this
number to reach 74.8 million units in 2001. Although the number of analog
modems is expected to grow in the near future, new technologies have emerged to
address the volume of bandwidth intensive data and demand for enhanced
multimedia capabilities.
Broadband Connectivity Solutions
The data transmission constraints of copper telephone wires have led the
communications industry to focus on broadband communications. In order to
address the demand for high-speed connectivity, telecommunications service
providers have developed and deployed cost-effective technologies in their
networks. However, the lack of ubiquitous low-cost, high-bandwidth connectivity
from the backbone network to the customer premises has been the underlying
issue preventing the majority of the market from taking advantage of the array
of high-bandwidth network services. Although the broadband access market is
underdeveloped, its potential size has attracted a high level of attention.
Telephone, cable and satellite companies each have different strategies and
capabilities for providing this broadband connectivity to the Internet. Each
has its advantages based on price, performance and availability.
Digital Subscriber Line. DSL utilizes the ubiquitous, existing public
switched telephone network, or PSTN, infrastructure, without the need for
expensive additions and upgrades. DSL technologies dramatically increase the
data transmission capacity of standard telephone lines and are expected to
enable a wide range of new services including high speed Internet access and
digital television. Most of the businesses and homes today are connected to the
PSTN by twisted-pair copper wire. It is estimated that there are nearly 700
million copper wire access lines in existence today worldwide, and that more
than 95% consist of a single twisted-pair copper wire.
A wide array of DSL technologies known as xDSL products are rapidly
emerging. The "x" in xDSL represents the various kinds of digital subscriber
line technologies. Each type of DSL has distinguishing advantages and
disadvantages, depending on a variety of bandwidth and deployment features
suitable for different applications. DSL is either symmetric, which delivers
the same data rate both downstream and upstream, or asymmetric, which delivers
faster data rates downstream than upstream. The other distinguishing feature is
the data rate itself. DSL technologies allow for the transmission of data at
speeds ranging from 128 Kbps to 52 Mbps depending on the distance between the
central office and the subscriber. Common types of DSL technologies include:
ADSL. Asymmetric digital subscriber line, or ADSL, allows more bandwidth
downstream than upstream. This asymmetry, combined with "always-on" access,
makes ADSL ideal for Internet surfing, video-on-demand and remote local
area network access. Users of these applications typically download much
more information than they send. In order to implement an ADSL solution, a
splitter, which is a device that separates the voice signal from the data
signal, must be installed both at the head-end and at the customer's
premises. This process of installing splitters for each subscriber means a
service truck needs to be sent to each customer site in order to initiate
service. This process is expensive and time consuming
38
<PAGE>
and ultimately slows the overall service deployment. ADSL provides speeds
up to 8 Mbps downstream and up to 1 Mbps upstream, depending on the line
conditions and the length of the loop.
G.Lite. G.Lite is a lower-speed version of ADSL that will eliminate the
need for the service provider to install a splitter at the customer's
premises. G.Lite allows for a downstream data transmission rate of up to
1.5 Mbps and an upstream data transmission rate of up to 512 Kbps, and is
expected to be as simple as the "plug-and-play" nature of traditional,
analog dial-up modems.
G.SHDSL. Single-pair HDSL, or G.SHDSL, requires only a single copper
twisted-pair and has a maximum loop length of 10,000 feet from the
telephone company's central office. G.SHDSL can offer symmetrical data
transmission rates of up to 1.544 Mbps. Since G.SHDSL uses only one copper
twisted-pair, the capacity of existing infrastructure is greatly increased.
VDSL. Very-high-bit-rate digital subscriber line, or VDSL, technology is
the fastest DSL technology, supporting a maximum downstream rate of 52 Mbps
and an upstream rate of 10 Mbps over a single copper twisted-pair wire. The
one limitation of VDSL is that the maximum loop length is only between
1,000 and 4,500 feet from the telephone company's central office.
Wireless. The main alternatives in wireless broadband access are wireless
and broadband satellite. Wireless provides advantages over wireline, the
primary benefits being speed and ease of installation. The strength of wireless
is that it can quickly provide high-speed Internet access within a 10, 20 or 35
mile radius depending on the frequency band used. In the next several years,
wireless is expected to help unlock broadband competition thereby enabling new
operators to bypass existing wireline networks and deliver local and long
distance telephone service and Internet access services.
Cable Modems. Designed to provide broadband Internet access, cable modems
are targeted primarily at the consumer market. Cable lines pass by more than
100 million North American homes, but only 20% of those homes can now get cable
modem service. Cable lines offer downstream transmission speeds of up to 36
Mbps and upstream transmission speeds of up to 10 Mbps. In order to fully
realize the benefits of two way communications, cable operators must upgrade
their networks to improve the provisioning of existing cable services and to
support high-speed data and other new services.
Non-PC Connectivity
While existing Internet connectivity devices are primarily PC-based,
development of enabling technologies and the growth in consumer dependence are
spurring the deployment of non-PC devices. These devices include Internet
appliances such as set-top boxes and webphones, video game consoles and remote
monitoring devices. International Data Corporation predicts that as many as 42%
of all Internet access devices will be in the form of non-PC devices by 2001.
However, it is difficult to integrate modem functionality into these compact
devices due to the limited availability of power and space.
Server-Side
As the number of connectivity devices increases, service providers will be
required to increase the number of server-side access ports to ensure
reliability and quality service for their customers. Presently, communications
equipment providers are limited to using either expensive multiport chips or a
single modem port per chip. Internet service providers and other service
providers who locate their server-side equipment at the telephone companies'
central offices do not have the space or power available to accommodate the
expected growth in demand for client-side access. Service providers are
demanding connectivity solutions that increase the density of modem ports per
chip while reducing cost, space and power requirements.
Evolution from Hardware to Software-based Connectivity Solutions
The rapid development of emerging technologies for broadband access combined
with changing industry standards and protocols is driving manufacturers to turn
towards software-based connectivity solutions as
39
<PAGE>
opposed to conventional hardware connectivity solutions. Further, trends such
as the acceptance of alternative access devices, the significant increase in
available processing power, cost reduction pressures and space and power
constraints have permitted software-based products to emerge as viable and
cost-effective alternatives.
One of the primary reasons that PC manufacturers have been better able to
utilize software-based solutions has been the dramatic increase in central
processing unit processing power. Prior to the introduction of Intel's 266 MHz
Pentium II processor, most PCs lacked the processing power required to
effectively utilize software-based connectivity solutions. By 1998, a majority
of the PCs shipped were equipped with CPUs equivalent to or exceeding the
processing power of Intel's 350 MHz Pentium II. This significant increase in
processing power is expected to continue into the future as demonstrated by
Intel's announcement of its intention to deliver 1.0 GHz processors by 2001.
With microprocessor performance continuing to rapidly increase, technologies
that support software algorithms running off the central processing unit,
rather than on extraneous hardware, will become increasingly valuable and
feasible.
Another significant trend driving the growth of software-based solutions is
the increasing pressure on OEMs to reduce costs. With the market acceptance of
low-cost, or sub-$1,000, PCs and a general decline in PC selling prices, OEMs
are demanding further price reductions, from suppliers of central processing
units and motherboard manufacturers. As a result, central processing unit
suppliers and motherboard manufacturers are increasingly employing software-
based solutions as a cost-effective way to meet these demands. This response
eliminates additional, special purpose hardware and replaces it with integrated
software. As a result, Cahners In-Stat estimates analog soft-modem annual sales
will grow from five million units in 1998 to over 40 million units by 2000.
Software-based solutions are also increasingly utilized to address the power
and space requirements of non-PC devices. The limited availability of power and
space in these devices has hindered the successful integration of hardware-
based modem functionality. Because soft modems shift processing capacity into
software and, thus, significantly reduce power and space constraints, they are
increasingly integrated as a critical part in the development of the non-PC
device market.
PC-Tel Solution
We are a leading developer and supplier of cost-effective software-based
connectivity solutions that address Internet access and other communications
through existing analog and emerging broadband networks. These solutions are
based on our proprietary software algorithms which enable the movement of core
signal processing capabilities out of hardware and into software. Our host
signal processing architecture allows us to develop connectivity solutions that
provide significant benefits over traditional hardware-based solutions,
including:
Extensibility and Scaleability. Our host signal processing architecture
allows us to quickly and cost-effectively develop new products to
capitalize on rapidly growing market segments. We believe that we can use
our intellectual property portfolio to readily adapt to the speed and
design requirements of additional emerging connectivity technologies. For
example, in response to growing market acceptance, we have developed a host
signal processing architecture solution for G.Lite, which we call
LiteSpeed, that enables downstream data transmission speeds of up to 1.5
Mbps and upstream data transmission speeds of up to 512 Kbps over existing
copper telephone lines. As the broadband market develops, we believe we can
capitalize on our proprietary technology to continue the cost-effective
migration from hardware into software.
Cost Effectiveness. By shifting the composition of connectivity devices
from hardware into software, we are able to significantly reduce the
hardware required in conventional connectivity solutions. Our proprietary
software-based solution eliminates extraneous hardware and reduces our
customers' manufacturing costs, while still offering superior or comparable
performance. For example, our host signal processing technology eliminates
as much as 40% of the hardware used in conventional connectivity solutions.
40
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Upgradeability, Adaptability and Flexibility. The software component of
our architecture is upgradeable, minimizing the risk of technological
obsolescence. By embedding core functionality in software, performance
upgrades and the adaptation to new standards and protocols can be
accomplished quickly and easily through software downloads rather than
through costly replacements of existing hardware. For example, customers
who purchased our 33.6K modems are able to easily upgrade the product to an
ITU-compliant 56K modem through a simple software download. Ease of
upgradeability is of considerable value in the rapidly changing
communications marketplace and a substantial competitive advantage over
conventional connectivity solutions. In addition, our LiteSpeed DSL
technology will also provide a similar capability in offering an end-user
the ability to easily upgrade to higher bandwidth services. Further, our
G.Lite technology is completely compatible with analog transmission
networks, offering the user complete flexibility in choosing access
technology and transmission speed. By providing connectivity solutions that
can be easily adapted to new standards and protocols, we reduce
interoperability obstacles, which simplifies purchasing decisions and
accelerates deployment times for OEMs.
Reduced Space and Power Requirements. The reduction of hardware
components enabled by our host signal processing architecture provides the
dual benefits of 50% reduced space and 70% lower power requirements
compared to conventional solutions. These benefits enable connectivity
capabilities in non-PC devices that are difficult to implement with
conventional hardware-based solutions. In addition, the efficiency of our
proprietary algorithms increases the modem port density per chip in server-
side devices, reducing power requirements and heat generation.
PC-Tel Strategy
PC-Tel's goal is to be the leading provider of cost-effective software-based
connectivity solutions that enable Internet access and other communication
applications through existing analog and emerging broadband networks. Key
elements of our strategy include:
Target Emerging High-Growth Communications Technologies. We identify
emerging high-growth communications technologies and develop innovative
software-based connectivity solutions to capitalize on these new market
opportunities as they gain acceptance. Our software-based technology is
extensible, allowing us to quickly and cost-effectively develop new
applications. We have recently leveraged our core technologies to design
and develop a fully functional software-based G.Lite solution, LiteSpeed.
In addition, we are currently developing implementation options for
extending HSP technology into the emerging wireless data network market,
which includes devices that offer high speed access to Internet connections
as well as wireless connections to computing on Internet devices within
homes and businesses. We believe that our communications technology will
enable us to develop significant applications in the broadband modem
markets.
Continue To Enhance Software-Based Solutions. We are committed to
enhancing the scope of our host signal processing technology to further
reduce the number of hardware components in our software-based solutions.
We believe that our success in minimizing the hardware content of our soft
modems will continue to enhance our ability to address emerging markets in
non-PC devices that require smaller designs and reduced power consumption.
This reduction of hardware content provides numerous benefits for our OEM
customers, including:
. reducing costs,
. decreasing board space,
. decreasing inventory,
. minimizing technological obsolescence,
. accelerating time to market, and
. streamlining production flow.
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In addition, because of the software-based functionality of our products, we
have developed a core expertise in ensuring the compatibility of our host
signal processing products with multiple operating systems including Linux,
OS/2, Windows 3.1, 95, 98, 2000, NT and CE, and VXWorks.
Enable Migration to Emerging Communications Technologies. We aim to
develop innovative products based on our host signal processing
architecture that enable existing platforms to migrate to emerging
broadband communications technologies. The current level of processing
power available in PCs and non-PC devices does not support the amount of
signal processing calculations required for higher speed broadband
applications without overloading the central processing unit. For these
applications, we have developed an accelerated host signal processing
architecture that adds low-cost, application-specific hardware to
efficiently handle a portion of the signal processing load. Accelerated
host signal processing architecture enables us to deliver an ideal platform
from which to migrate to a full host signal processing solution for next
generation devices.
Extend Our Intellectual Property Leadership Position and Establish
Industry Standards. We are actively extending our intellectual property
position through rapid internal development, strategic acquisitions and
licensing of innovative communications technology. We hold 32 patents, with
an additional 26 patents pending. We are actively pursuing the filing of
additional patent applications to cover our intellectual property
advancements. We believe that these intellectual property advancements will
optimize the performance, efficiency and cost of our software-based
connectivity solutions. Our intellectual property leadership position
allows us to establish industry standards so that we can be well positioned
to implement leading-edge second generation connectivity solutions in
technologies in advance of our competitors.
License Proprietary Digital Signal Processing Solutions. We are
developing and intend to license reference designs for digital signal
processing communications applications in non-PC devices. By using low cost
digital signal processing chips coupled with our software-based technology,
we are providing enhanced throughput and capacity per chip. In addition,
because our digital signal processing algorithms are highly efficient, we
can enable cost savings by reducing space requirements, lowering power
consumption and port density for remote access.
Products
Current Products
In the fourth quarter of 1998, we began shipping our newest product, the
MicroModem. This product integrates our host signal processing technology with
a micro form-factor DAA. Our patented MicroModem features reduce power and size
requirements and replace approximately 90 discrete hardware components with two
mini DAA chips. The MicroModem has recently been certified as being compatible
with the telecommunications standards of most industrialized countries,
allowing OEMs to accomplish seamless global interoperability.
As illustrated in Figure 1 below, in contrast to the conventional hardware
modem, our host signal processing soft architecture replaces the memory chip,
digital signal processing chip, universal asynchronous receiver and
transmitter, or UART, and controller chip with customized software that draws
upon the excess capacity of the host central processing unit. A single
proprietary Application Specific Integrated Circuit, or ASIC, acts as interface
between the analog and digital data. We have further reduced the cost, size and
design effort required for standardized worldwide PC modem use by using an
integrated Data Access Arrangement, or DAA, and a coder/decoder, or CODEC. This
integration reduces the number of components in a conventional DAA by
approximately 40%.
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FIGURE 1--CONVENTIONAL DSP vs. HSP MODEM ARCHITECTURE
Schematic with two boxes. Caption is "Modem Evolution". First box describes a
traditional hardware modem, second box describes PCtel's soft modem. Bottom
text caption "CODEC--performs analog-to-digital and digital-to-analog signal
conversions", "DAA--Data Access Arrangement interfaces and protects the modem
with the telecommunications network.", "CONTROLLER--controls data and error
compression function.", "DATAPUMP--performs modulation and demodulation
calculations.", "Memory--handles the data buffering.", "UART--Universal
Asynchronous Receive Transmit synchronizes incoming and outgoing data.",
"INTEGRATED SILICON DAA and CODEC--Direct Access Arrangement interfaces and
protects the modem with the telecommunications network while the CODEC performs
analog-to-digital and digital-to-analog conversion."
43
<PAGE>
Next Generation Products
We are currently focusing our design and development efforts in the
following application areas:
<TABLE>
<CAPTION>
Next Generation
Technology Product Description
- -------------------------------------------------------------------------------
<C> <S>
G.Lite We have developed a G.Lite solution, LiteSpeed, to
address the demand for DSL connectivity. LiteSpeed
uses less power and space and costs less than
conventional solutions for G.Lite. We expect to
commercially release this product in the first half of
2000.
- -------------------------------------------------------------------------------
USB External Modem We have developed our first external modem, which
connects through the Universal Serial Bus, or USB,
interface. The USB is an open specification developed
to advance the use of peripheral devices with personal
computers. Major PC manufacturers now ship machines
with USB enabled hardware predominantly to Europe due
to the continent's differing telephony standards. We
believe that our external modem will allow us to
capture significant revenue opportunities in the
peripheral device market.
- -------------------------------------------------------------------------------
Home Networking The number of private homes with multiple PCs or
multiple devices, such as printers, scanners and
notebook computers, has reached a critical mass,
driving consumer demand for home networking and shared
Internet access. In order to capitalize on this
emerging market opportunity, we are working with a
silicon supplier to include our soft modem on a
processor which will deliver home networking
functionality.
- -------------------------------------------------------------------------------
Industrial Modem We are developing a small hardware platform for the
non-PC market. This platform uses one low cost digital
signal processor and our software performs both the
controller and the digital signal processing
functions. The v.34 version of our industrial modem is
currently being tested.
- -------------------------------------------------------------------------------
Remote Access Solution We are developing a reference design to deliver the
functionality of six modem ports per digital signal
processing chip in a server-side modem solution. Our
innovative design would reduce power, cost and space
requirements to nearly one-sixth of those used today
by providing alternatives to expensive chips or a
single modem port per chip. We intend to license our
design to the leading companies in the growing remote
access solution marketplace, the first version which
will support three modems per DSP and is currently
being tested.
</TABLE>
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<PAGE>
Emerging Product Opportunities
In addition to our products currently under development, we continue to
explore emerging opportunities in the area of broadband communications.
<TABLE>
<CAPTION>
Emerging
Opportunities Product Description
- -------------------------------------------------------------------------------
<C> <S>
Wireless
- -------------------------------------------------------------------------------
Wireless Protocols Our HSP technology can be applied to various wireless
standards. We expect that the wireless solutions which
can take advantage of HSP architecture are optimal for
customers with capacity requirements between 19.2 Kbps
today, and up to 10 Mbps in the near future. We are
currently developing software enhancements to our
products in order to enable their use in wireless
environments with speeds of up to 384 Kbps by the end of
2000.
- -------------------------------------------------------------------------------
xDSL
- -------------------------------------------------------------------------------
ADSL We expect to begin developing a G.DMT modem in 2000 which
(G.DMT) will provide downstream transmission speeds of up to 512
Kbps and upstream transmission speeds of up to 8 Mbps.
G.DMT is a full-rate ADSL standard and is being endorsed
by the ITU as a worldwide standard.
- -------------------------------------------------------------------------------
G.SHDSL G.SHDSL modems will offer both downstream and upstream
transmission speeds of up to 1.5 Mbps. We have initiated
design and simulation studies for this product. These
efforts will position us to pursue the G.SHDSL
opportunity as it becomes widely adopted.
- -------------------------------------------------------------------------------
VDSL We intend to develop a VDSL modem once VDSL technologies
become more fully deployed. We expect that this
technology will provide downstream transmission speeds of
up to 52 Mbps and upstream transmission speeds of up to
10 Mbps.
- -------------------------------------------------------------------------------
Server Side
- -------------------------------------------------------------------------------
VPN Controller Our VPN Controller project is expected to enhance HIDRA
by integrating additional functionality to support
virtual private networks, or VPNs. The key to maximizing
the value of a VPN is the ability for companies to
upgrade their VPNs as their business needs change.
- -------------------------------------------------------------------------------
VOIP The Voice Over Internet Protocol, or VOIP, project is
expected to enhance the HIDRA solution by integrating
voice capability into the HIDRA infrastructure such that
HIDRA will be able to provide VOIP gateway functionality.
HIDRA will implement voice compression and packetization
along with the signaling and addressing gateway functions
required for a complete VOIP solution.
- -------------------------------------------------------------------------------
Cable
- -------------------------------------------------------------------------------
Cable Modem Cable modems connect PCs to the cable network and offer
downstream transmission speeds of up to 36 Mbps and
upstream transmission speeds of up to 10 Mbps. We are
researching cable technology to follow advancements and
will undertake an HSP cable modem development if and when
our studies show a significant advantage over existing
technologies.
</TABLE>
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<PAGE>
Intellectual Property Licensing
We also offer our software-based solutions through intellectual property
licensing and product royalty arrangements. Current licensees of our
intellectual property, principally ITU-standard technology, include modem and
semiconductor manufacturers, such as Conexant, Texas Instruments and U.S.
Robotics, and RISC processor manufacturers including Hitachi, Intel and NEC.
Customers
We sell our products directly and indirectly to the following principal
distributors and customers:
<TABLE>
<CAPTION>
Embedded
Modem Board Motherboard PC OEM Systems Systems
Distributors Manufacturers Manufacturers Companies Integrators Integrators
<S> <C> <C> <C> <C> <C>
Golden Way Amigo Asus Acer CTX Casio
InnoMicro Askey Computer Chaintech Dell Everex Fujitsu
Silicon
Application Aztech FIC emachines MicroCenter Intel
Corporation BTC Shuttle Fujitsu Mitsuba NEC
E-Tech Talent Trade Asia Mitac Tiny Yamaha
Zoltrix Sharp
TriGem
TwinHead
- -----------------------------------------------------------------------------------
</TABLE>
For the six months ended June 30, 1999, revenues derived from sales to
customers Talent Trade Asia, TriGem and Silicon Application Corporation
accounted for approximately 42%, 20%, and 10%, respectively, of product sales.
For the year ended December 31, 1998, revenues derived from sales to customers
Silicon Application Corporation, BTC, Askey Computer and Zoltrix accounted for
15%, 13%, 12% and 12%, respectively, of our product sales. No other customers
represented more than 10% of our product sales for these periods.
Sales, Marketing and Support
We sell our products directly to modem board and motherboard manufacturers
who assemble and distribute the end product both directly to OEMs and systems
integrators and indirectly through distributors. In the United States, we
primarily sell our products through direct sales. In Taiwan, we sell our
products through distributors such as Golden Way and Silicon Application
Corporation, and in Japan, through distributors such as InnoMicro. In many
cases, modems are manufactured by third parties on behalf of the final brand
name OEM. We focus on developing long-term customer relationships with our
direct and indirect customers. In many cases, our indirect OEM customers
specify that our products be included on the modem boards or motherboards that
they purchase from board manufacturers, and we sell our products directly to
the board manufacturers for resale to our indirect OEM customers.
We employ a direct sales force with a thorough level of technical expertise,
product background and industry knowledge. Our sales force includes a highly
trained team of application engineers to assist customers in designing, testing
and qualifying system designs that incorporate our products. Our sales force
also supports the sales efforts of our distributors. We believe the depth and
quality of our sales support team is critical to:
. achieving design wins,
. improving customers' time to market,
. maintaining a high level of customer satisfaction, and
. engendering customer loyalty for our next generation of products.
Our marketing strategy is focused on further building market awareness and
acceptance of our new products. We market our products directly to both
prospective and existing customers. Additionally, we undertake broad scale
marketing programs in conjunction with key local and global partners. Our
marketing organization also provides a wide range of programs, materials and
events to support the sales organization.
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<PAGE>
As of June 30, 1999, we employed 54 individuals in sales, marketing and
support and maintained regional sales support operations in Tokyo, Japan,
Taipei, Taiwan and Paris, France.
Research and Development
We recognize that a strong technical base is essential to our long term
success and have made a substantial investment in research and development. We
will continue to devote substantial resources to product development and patent
submissions. We monitor changing customer needs and work closely with our
customers, partners and market research organizations to track changes in the
marketplace, including emerging industry standards. As an example of our
commitment to technical leadership, we have developed expertise in the
following major areas:
. Digital Signal Processing Algorithms. This expertise enables us to
recognize ongoing revenue from the licensing of our reference designs, as
well as further optimization for our software digital signal processing
implementations.
. Software Digital Signal Processing. This expertise has allowed us to
provide the modem data pump functionality in the form of software. An
expensive and power consuming digital signal processing chip is no longer
needed.
. Modem Protocol. This expertise has enabled us to develop software
containing the necessary error correction and data compression protocols
such as v.42, v.42bis, MNP 2-5, Soft ATM and SAR.
. Telecommunications Infrastructure Interface. This expertise has allowed
us to develop the software connection to the public telephone network
through relays and the DAA. This portion of the software also performs
the functionality of the UART, controller and memory while eliminating
significant amounts of hardware.
. Microsoft Windows Device Drivers. We have developed software expertise in
working within the Windows environment. The interrupt-driven architecture
of Windows operating systems presents many difficulties for software-
based connectivity solutions, including latency and other technical
issues. We have patented these solutions.
. Central Processing Units and Operating Systems. We have demonstrated our
expertise in porting our soft modem solution to all Windows operating
systems, including Windows NT and Windows CE, in addition to other
operating systems, such as OS/2, VXWorks and Linux. We have also ported
our technology to various high performance processor platforms, such as
those from Advanced Micro Devices, Cyrix, ARM, Intel StrongARM and MIPS.
Expertise in these systems, which are utilized in embedded systems
applications, allows us to integrate our technology into devices such as
Internet appliances.
. Host Signal Processing Architecture. We have leveraged our leadership in
host signal processing and extended the architecture to include
innovations such as accelerated host signal processing, which will be
used in our future G.Lite product. This modification delivers maximum
software content along with any required application-specific hardware to
deliver the most cost-effective solution in the market.
These multiple areas of expertise represent distinct disciplines which are
combined in one unique cross-functional development team. Communications
Systems Division, which we acquired in December 1998, provides us with
additional areas of expertise, including the experience of successfully
introducing intellectual property for inclusion into ITU standards. We believe
these technical and organizational skills provide us significant competitive
advantages. As of June 30, 1999, we employed 58 employees in research and
development, 36 of whom have advanced degrees, including nine who have earned
PhDs.
Manufacturing
We outsource the manufacturing of our ASIC, CODEC and DAA chips to
independent foundries in order to avoid significant fixed overhead, staffing
and capital requirements associated with semiconductor fabrication.
47
<PAGE>
Our primary chipset suppliers are Delta Integration, Kawasaki/LSI, ST Micro
Electronics, Silicon Labs and Taiwan Semiconductor Manufacturing Corporation.
The major operations of each of these manufacturers meet ISO-9001 international
manufacturing standards. Our DAA chips are currently purchased from Silicon
Labs on a purchase order basis. We have a limited guaranteed supply of DAA
chips through a long-term contract arrangement with Silicon Labs. We have no
guaranteed supply or long-term contract agreements with any other of our
suppliers.
Licenses, Patents and Trademarks
We seek to protect our technology through a combination of patents,
copyrights, trade secret laws, trademark registrations, confidentiality
procedures and licensing arrangements. We hold a total of 32 patents and also
have 26 additional patent applications pending or filed. We believe that our
patent portfolio is one of the largest in the analog modem market. To
supplement our proprietary technology, we have licensed rights to use patents
held by third parties.
Our industry is characterized by frequent litigation regarding patent and
other intellectual property rights. We have been sued by Motorola, Inc. and by
ESS Technology on patent related claims. See "Business--Legal Proceedings" and
"Risk Factors--We have been sued by Motorola for patent infringement. If this
litigation resolves unfavorably to us, our business is likely to be harmed,"
and "--Other third parties may also assert that our products infringe their
intellectual property rights."
In addition, there are numerous risks that result from our reliance on our
proprietary technology in the conduct of our business. See "Risk Factors--We
rely heavily on our intellectual property rights which offer only limited
protection against potential infringers. If we cannot protect these rights,
this could adversely affect our business."
Competition
The connectivity device market is intensely competitive. Our current
competitors include 3Com, Conexant, ESS Technology, Lucent Technologies and
Motorola. Motorola introduced soft modems in the third quarter of 1998 and
Conexant introduced soft modems in the fourth quarter of 1998. We expect
competition to increase in the future as current competitors enhance their
product offerings, new suppliers enter the connectivity device market, new
communication technologies are introduced and additional networks are deployed.
We may in the future also face competition from other suppliers of products
based on host signal processing technology or new or emerging communication
technologies, which may render our existing or future products obsolete or
otherwise unmarketable. We believe that these competitors may include Analog
Devices, Alcatel, Aware, Broadcom, Com21, Efficient Networks, Orckit, Terayon
Communications and Texas Instruments.
Compared to us, many of our competitors, including those described above,
have:
. longer operating histories with more experience in designing and selling
connectivity device products and services,
. greater presence in our connectivity device markets, which can provide an
immediate advantage in marketing new product introductions,
. greater name recognition, which can facilitate customer acceptance of new
products and technologies,
. access to a larger customer base,
. substantially greater financial resources, which could enable a
competitor to significantly reduce the price of new products below
prevailing market rates to capture market share,
. significantly greater research and development and other technical
resources, which may enable a competitor to respond more quickly to new
or emerging technologies and changes in customer requirements, or to
introduce new products that are superior to our products, and
48
<PAGE>
. significantly greater sales and marketing resources to devote to the
promotion, sale and support of competitive products which could be
deployed to overcome business challenges.
We believe that the principal competitive factors required by users and
customers in the connectivity device market include compatibility with industry
standards, price, functionality, ease of use and customer service and support.
We believe that our products currently compete favorably with respect to these
factors.
Employees
As of June 30, 1999, we employed 125 people full-time, including 54 in sales
and marketing, 58 in research and development, and 13 in general and
administrative functions. Over 50% of our employees have advanced degrees, with
10 having earned doctoral level degrees. None of our employees is represented
by a labor union. We consider our employee relations to be good.
Properties
Our administrative offices are located in San Jose, California, where we
currently lease approximately 32,000 square feet under a lease that expires in
2001. Our Communications System Division is located in Waterbury, Connecticut,
where we currently lease approximately 6,000 square feet under a lease that
expires in 2001. We also have a lease in Taipei, Taiwan for approximately 3,000
square feet which expires in 2002 and a lease in Tokyo, Japan for approximately
700 square feet which expires this June. We anticipate that we will relocate to
larger office facilities within the next six months.
Legal Proceedings
We have been sued by Motorola, Inc., for patent infringement in an action
filed in the fall of 1998. See "Risk Factors--We have been sued by Motorola for
patent infringement. If this litigation resolves unfavorably to us, our
business is likely to be harmed."
In April 1999, ESS Technology Inc. filed a complaint against us in the U.S.
District Court for the Northern District of California, alleging that we failed
to grant licenses for some of our ITU-related patents to ESS on fair,
reasonable and non-discriminatory terms. ESS's complaint includes claims based
on antitrust law, patent misuse, equitable estoppel, breach of contract
mandating specific performance and unfair competition. In its complaint, ESS
also seeks a declaration that some of our ITU-related patents are unenforceable
and that we should be ordered by the court to grant a license to ESS on fair,
reasonable and non-discriminatory terms.
Due to the nature of litigation generally and because the lawsuit brought by
ESS is at an early stage, we cannot ascertain the outcome of the final
resolution of the lawsuit, the availability of injunctive relief or other
equitable remedies, or estimate the total expenses, possible damages or
settlement value, if any, that we may ultimately incur in connection with ESS's
suit. This litigation could be time consuming and costly, and we will not
necessarily prevail given the inherent uncertainties of litigation. However, we
believe that we have valid defenses to this litigation, including the fact that
other companies license these ITU-related patents from us on the same terms
that are being challenged by ESS. We believe that it is unlikely this
litigation will have a material adverse effect on our financial condition or
results of operations. We are vigorously contesting, and intend to continue to
vigorously contest, all of ESS's claims. See "Risk Factors--Other third parties
may also assert that our products infringe their intellectual property rights."
49
<PAGE>
MANAGEMENT
Executive Officers and Directors
The following table sets forth information with respect to the executive
officers and directors of PC-Tel as of August 2, 1999.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Peter Chen............... 44 Chief Executive Officer, Chairman of the Board
William F. Roach......... 55 President and Chief Operating Officer
Andrew D. Wahl........... 50 Vice President, Finance, Chief Financial Officer
Steve Manuel............. 34 Vice President, Marketing
Frank Reo................ 54 Vice President, Business Development
William Wen-Liang Hsu.... 44 Vice President, Engineering, Director
Han Yeh.................. 45 Vice President, Technology, Director
Derek S. Obata........... 41 Vice President, Sales
Richard C.
Alberding(1)(2)......... 68 Director
Martin H. Singer(2)...... 48 Director
Wen C. Ko................ 50 Director
Giacomo Marini(1)........ 47 Director
Mike Min-Chu Chen........ 50 Director
</TABLE>
- --------
(1)Member of audit committee
(2)Member of compensation committee
Mr. Peter Chen co-founded PC-Tel in March 1994 and has served as Chief
Executive Officer and Chairman of the Board, since PC-Tel's inception. Mr. Chen
is also the cousin of one of our directors, Dr. Mike Min-Chu Chen. Mr. Chen has
over 14 years experience in data communications and modem development at
Digicom Systems, Inc. (a company which he co-founded), Cermetek, Inc., and
Anderson-Jacobson, Inc., all data communications companies. Mr. Chen has a
Bachelor of Science in Control Engineering from National Chiao-Tung University,
Taiwan, and holds a Master of Science in Electrical Engineering from Arizona
State University.
Mr. William F. Roach has been the President and the Chief Operations Officer
of PC-Tel since August 1999. From January 1997 until joining PC-Tel, Mr. Roach
served as a Senior Vice President, Worldwide Sales and Marketing for Maxtor
Corporation, a data storage company, from November 1996 to January 1997 as
Executive Vice President for Worldwide Marketing for Wyle Electronics, an
electronic component distribution company, and from 1989 to November 1996, as
Executive Vice President, Worldwide Sales, for Quantum Corporation, a data
storage company. Mr. Roach received a Bachelor of Science in Industrial
Economics from Purdue University.
Mr. Andrew D. Wahl has been the Vice President of Finance and Chief
Financial Officer of PC-Tel since January 1997. From March 1995 to April 1996,
Mr. Wahl served as Chief Financial Officer and, from April 1996 to January
1997, as President and Chief Executive Officer for Designs for Education, Inc.,
an apparel company. From 1993 to March 1995, Mr. Wahl served as Chief Financial
and Operations Officer for StarBase Corporation, an object-oriented database
developer. Prior to that, Mr. Wahl held various senior positions in general
management, finance and management consulting. Mr. Wahl received a Bachelor of
Arts in Political Science from Villanova University and a Master in Business
Administration in Accounting from Rutgers University.
Mr. Steve Manuel has been Vice President of Marketing of PC-Tel since
September 1997. Prior to that, Mr. Manuel served as Vice President of Sales
between January 1997 and September 1997. From March 1992 to June 1995 he worked
at Logitech, Inc., a computer input devices company, where he served as the
Strategic OEM Account Development Manager and the Director of OEM Sales and
Marketing for the Imaging Division from June 1995 to January 1997. At Logitech,
Inc., Mr. Manuel was initially responsible for worldwide account
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management for numerous OEM customers, and later worldwide sales and sales
strategy development and implementation. Mr. Manuel received an Associate of
Science from Control Data Institute.
Mr. Frank V. Reo has been PC-Tel's Vice President of Business Development
since February 1998. From February 1993 to February 1998, Mr. Reo served
initially as Manager and later as Director of Business Development for the
modem group at Cirrus Logic, a semiconductor company. In this position, he was
responsible for product marketing, business development and applications
engineering. Mr. Reo is a graduate in electronic engineering from Philco
Technical Institute, Philadelphia.
Mr. William Wen-Liang Hsu co-founded PC-Tel and has served as the Vice
President of Engineering and a director since its inception in March 1994. From
August 1988 to March 1994, Mr. Hsu served in various positions with Sierra
Semiconductor, a semiconductor company, including Engineering Director. At
Sierra Semiconductor, Mr. Hsu managed a development group, and was responsible
for digital signal processing firmware development for modem products with
data, fax and voice features. Mr. Hsu received a Bachelor of Science in
Communication Engineering from National Chiao-Tung University, Taiwan, and a
Master of Science in Computer Engineering from Oregon State University.
Mr. Han Yeh co-founded PC-Tel and has served as the Vice President of
Technology and a director since its inception in March 1994. Mr. Yeh was a
staff engineer at Sierra Semiconductor, a semiconductor company, from September
1993 to March 1994. Mr. Yeh holds a Bachelor of Science in Control Engineering
from National Chiao-Tung University, Taiwan, and a Master of Science in
Electrical Engineering from New York State University at Stony Brook.
Mr. Derek S. Obata has been Vice President of Sales for PC-Tel since April
1998. From 1997 until joining PC-Tel, Mr. Obata was an independent consultant
providing strategic planning, business development, marketing and sales support
to emerging high technology companies. Mr. Obata served from 1996 to 1998 as
Vice President, Worldwide Sales for Network Peripherals Incorporated, a
networking company, and from 1992 to 1995 as Vice President, Worldwide Sales at
Ministor Peripherals Corporation, a data storage company. Prior to this period,
Mr. Obata served in a number of sales and sales management positions with
Conner Peripherals and Seagate Technologies, which are data storage companies.
Mr. Obata holds a Bachelor of Science in Engineering Sciences from the
University of California, Berkeley.
Mr. Richard C. Alberding has been a director of PC-Tel since August 1999.
Mr. Alberding retired from the Hewlett-Packard Company, a computer, peripherals
and measurement products company, in June 1991, serving at that time as an
Executive Vice President with responsibility for worldwide company sales,
support and administration activities for measurement and computation products,
as well as all corporate level marketing activities. Mr. Alberding is a
director of Digital Link Corporation, Digital Microwave Corporation (which
included a nine month period as interim Chairman/CEO), JLK Direct Distribution
Inc., Paging Network, Inc., Sybase Inc. and Walker Interactive Systems. Mr.
Alberding holds a B.A. degree in Business Administration/Marketing from Augusta
College in Rock Island, Illinois, and an Associate of Science degree in
Electrical Engineering from DeVry Technical Institute in Chicago.
Dr. Martin H. Singer has been a director of PC-Tel since August 1999. Since
December 1998, Dr. Singer has been President and CEO of SAFCO Technologies,
Inc., a wireless communications company. From 1994 to 1997, Mr. Singer served
as Vice-President and General Manger of the Wireless Access Business
Development Division for Motorola, Inc., a communications equipment company.
Prior to this period, Dr. Singer held senior management and technical positions
in Motorola, Inc., Tellabs, Inc., AT&T and Bell Labs. Dr. Singer holds a
Bachelor of Arts in Psychology from the University of Michigan, and a Master of
Arts and a Ph.D. in Experimental Psychology from Vanderbilt University.
Mr. Wen C. Ko has been a director for PC-Tel since May 1999. Since 1990, Mr.
Ko has served as Chairman of seven WK Investment Funds, which are high-tech
venture capital investment companies, and during 1992 to 1995 as Chairman of
Taipei Venture Capital Association. Prior to this, Mr. Ko served in a
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number of positions including Chairman & President and Computer Country Manager
at Hewlett Packard Taiwan Ltd., a computation and communication system
manufacturer and Research & Development Manager at International Business
Machines, an information system technology company. Mr. Ko holds a Bachelor of
Science in Electrical Engineering from National Cheng Kung University, Taiwan,
and a Master of Science in System Science from Michigan State University.
Mr. Giacomo Marini has been a director of PC-Tel since October 1996. Since
March 1995 Mr. Marini has served as President of MK Group LLC, a private
investment and management consulting business that invests in and advises high
technology companies, and from February 1998 to February 1999 as Interim Chief
Executive Officer at FutureTel, Inc., a digital video capture company. From
August 1993 to February 1995, Mr. Marini served as President and Chief
Executive Officer of Common Ground Software, Inc. (formerly No Hands Software,
Inc.), an electronic publishing software company. He is currently on the board
of various private companies. He holds a Computer Science Laureate Degree from
the University of Pisa, Italy.
Dr. Mike Min-Chu Chen has been a director of PC-Tel since February 1994 and
is the cousin of our Chief Executive Officer and Chairman of the Board, Peter
Chen. From May 1985 to August 1998, Dr. Chen served as the Executive Vice
President, Chief Executive Officer and Director of C & C International
Services, Inc., an engineering and procurement service company. From March 1987
to August 1998, Dr. Chen served as Executive Vice President, Chief Executive
Officer and Director of Act Engineering, Inc., an engineering design and
trading company. From December 1996 to February 1997, Dr. Chen served as
director of ERT Holding, Inc., a company engaged in the environmental rubber
recycling manufacturing business, and served as President of International
Operations from December 1996 to February 1997 and then as Chairman from
February 1997 to October 1997. He is currently on the board of various private
companies. Dr. Chen holds a Bachelor of Science in Naval Architecture from
National Taiwan Ocean University, a Master in Science in Mechanical Engineering
and Naval Architecture from National Taiwan University, Taiwan, and a Doctorate
in Ocean Engineering from Oregon State University.
Board Composition
Our board of directors currently consists of eight members. Upon completion
of this offering, our bylaws will provide for a classified board of directors
consisting of three classes of directors, each serving staggered three-year
terms. As a result, a portion of our board of directors will be elected each
year. Class I directors' terms will expire at the annual meeting of
stockholders to be held in 2000, Class II directors' terms will expire at the
annual meeting of stockholders to be held in 2001 and Class III directors'
terms will expire at the annual meeting of stockholders to be held in 2002. The
Class I directors will be Peter Chen and Han Yeh, the Class II directors will
be Wen C. Ko, Richard C. Alberding and William Wen-Liang Hsu, and the Class III
directors will be Mike Min-Chu Chen, Giacomo Marini and Martin H. Singer. At
each annual meeting of stockholders held after the initial classification, the
successors to directors whose terms will then expire will be elected to serve
from the time of election and qualification until the third annual meeting
following election. In addition, our bylaws provide that the authorized number
of directors may be changed by an amendment to the bylaws, duly adopted by the
board of directors or by the stockholders or by a duly adopted amendment to the
certificate of incorporation. Any additional directorships resulting from an
increase in the number of directors will be distributed among the three classes
so that, as nearly as possible, each class will consist of one-third of the
total number of directors. This classification of the board of directors may
delay or prevent a change in control of our company or in our management.
Executive officers are appointed by the board of directors in accordance
with our bylaws, subject to the rights, if any, of an officer under any
contract of employment.
Board Committees
We established an audit committee and a compensation committee in August
1999. The audit committee consists of Giacomo Marini and Richard C. Alberding.
The audit committee reviews our internal accounting
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procedures and consults with and reviews the services provided by our
independent accountants. The compensation committee consists of Richard C.
Alberding and Martin H. Singer. The compensation committee reviews and
recommends to the board of directors the compensation and benefits of all our
officers and directors, including stock compensation and loans, and establishes
and reviews general policies relating to the compensation and benefits of our
employees.
Compensation Committee Interlocks and Insider Participation
Prior to establishing the compensation committee, the board of directors as
a whole performed the functions delegated to the compensation committee. No
member of the board of directors or the compensation committee 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.
Director Compensation
We do not pay our directors cash compensation for their service as members
of the board of directors, although they are reimbursed for expenses in
connection with attendance at board and committee meetings. Under our 1998
director option plan, non employee directors automatically receive stock option
grants subject to the terms and conditions.
Limitations On Directors' Liability And Indemnification
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except liability for:
. any breach of their duty of loyalty to the corporation or its
stockholders;
. acts of omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
. any transaction from which the director derived an improper personal
benefit.
The limitations of liability do not apply to liabilities arising under the
federal securities laws and do not affect the availability of equitable
remedies such as injunctive relief or rescission.
Our certificate of incorporation and bylaws provide that we will indemnify
our directors and officers and may indemnify our employees and other agents to
the fullest extent permitted by law. We believe that indemnification under our
bylaws covers at least negligence and gross negligence on the part of
indemnified parties. Our bylaws also permit us to secure insurance on behalf of
any officer, director, employee or other agent for any liability arising out of
his or her actions in their capacity as an officer, director, employee or other
agent, regardless of whether the bylaws would permit indemnification.
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We have entered into agreements to indemnify our directors, executive
officers and controller, in addition to the indemnification provided for in our
bylaws. These agreements, among other things, provide for indemnification of
our directors, executive officers and controller for judgment, fines,
settlement amounts and expenses, including attorneys' fees incurred by the
director, executive officer or controller in any action or proceeding,
including any action by or in the right of PC-Tel, arising out of the person's
services as a director, executive officer or controller of us, any of our
subsidiaries or any other company or enterprise to which the person provides
services at our request. We believe that these provisions and agreements are
necessary to attract and retain qualified persons as directors and executive
officers.
The limited liability and indemnification provisions in our certificate of
incorporation and bylaws may discourage stockholders from bringing a lawsuit
against our directors for breach of their fiduciary duty and may reduce the
likelihood of derivative litigation against our directors and officers, even
though a derivative action, if successful, might otherwise benefit us and our
stockholders. A stockholder's investment in us may be adversely affected to the
extent we pay the costs of settlement or damage awards against our directors
and officers under these indemnification provisions.
At present, there is no pending litigation or proceeding involving any of
our directors, officers or employees in which indemnification is sought, nor
are we aware of any threatened litigation that may result in claims for
indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of us pursuant
to the foregoing provisions or otherwise, we have been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
Executive Compensation
Summary Compensation Table
The following table sets forth the compensation earned, awarded or paid for
services rendered to us in all capacities for the fiscal year ended December
31, 1998, by our Chief Executive Officer and our four next most highly
compensated executive officers who earned more than $100,000 in salary and
bonus during the fiscal year ended December 31, 1998 whom we refer to in this
prospectus collectively as the named executive officers:
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
------------------------------------- ------------
All Other Securities
Annual Underlying All Other
Salary ($) Bonus ($) Compensation ($) Options (#) Compensation ($)
---------- --------- ---------------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Peter Chen.............. $173,750 $56,316 -- 125,000 $102(1)
Chief Executive Officer
and Chairman
Andrew D. Wahl.......... 136,500 31,833 -- 15,000 288(1)
Vice President, Finance
and Chief Financial
Officer
William Wen-Liang Hsu... 136,876 31,244 -- 90,000 102(1)
Vice President,
Engineering
Han Yeh................. 136,876 31,244 -- 90,000 174(1)
Vice President,
Technology
Derek Obata............. 105,192 68,641 -- 195,000 72(1)
Vice President, Sales
</TABLE>
- --------
(1) Consists of premiums paid by us for term life insurance.
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OPTION GRANTS DURING LAST FISCAL YEAR
The following table shows information regarding stock options granted to the
named executive officers during the fiscal year ended December 31, 1998. The
potential realizable value is based on the assumption that our common stock
appreciates at the annual rate shown, compounded annually, from the date of
grant until the expiration of the ten-year term. These numbers are calculated
based on Securities and Exchange Commission requirements and do not reflect
projections or estimates of future stock price growth. Potential realizable
values are computed by:
. Multiplying the number of shares of common stock subject to a given
option by the exercise price;
. Assuming that the total stock value derived from that calculation
compounds at the annual 5% or 10% rate shown in the table for the entire
ten-year term of the option; and
. Subtracting from that result the total option exercise price.
Actual gains, if any, on stock option exercises will be dependent on the
future performance of the common stock. The percentage of total options is
based on an aggregate of 1,393,900 options granted by us during the fiscal year
ended December 31, 1998, to our employees, directors and consultants, including
the named executive officers. Options were granted with an exercise price equal
to the fair market value of our common stock, as determined in good faith by
our board of directors.
<TABLE>
<CAPTION>
Individual Grants
-------------------------------------------
Potential Realizable
% of Total Value at Assumed
Number of Options Annual Rates of
Securities Granted to Exercise Stock Appreciation
Underlying Employees Price for Option Term
Options During Per Expiration ---------------------
Name Granted (#) Period Share Date 5% ($) 10% ($)
- ---- ----------- ---------- -------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Peter Chen.............. 125,000(1) 8.97% $7.45 1/30/08 585,658 1,484,173
Andrew D. Wahl.......... 15,000(2) 1.08% $7.45 2/27/08 70,279 178,101
William Wen-Liang Hsu... 90,000(3) 6.46% $7.45 1/30/08 421,674 1,068,604
Han Yeh................. 90,000(4) 6.46% $7.45 1/30/08 421,674 1,068,604
Derek S. Obata.......... 130,000(5) 9.33% $7.45 3/31/08 609,084 1,543,540
65,000(6) 4.66% $4.85 4/30/08 198,259 502,427
</TABLE>
- --------
(1) As of June 30, 1999, 44,271 shares of the option to purchase 125,000 shares
of common stock have vested. The options for Mr. Chen vested as to 25% on
January 2, 1999, and the balance vests in a series of monthly installments
over the next three years of service.
(2) As of June 30, 1999, 5,000 shares of the option to purchase 15,000 shares
of common stock have vested. The options for Mr. Wahl vested as to 25% on
February 1, 1999, and the balance vests in a series of monthly installments
over the next three years of service.
(3) As of June 30, 1999, 31,875 shares of the option to purchase 90,000 shares
of common stock have vested. The options for Mr. Hsu vested as to 25% on
January 2, 1999, and the balance vests in a series of monthly installments
over the next three years of service.
(4) As of June 30, 1999, 31,875 shares of the option to purchase 90,000 shares
of common stock have vested. The options for Mr. Yeh vested as to 25% on
January 2, 1999, and the balance vests in a series of monthly installments
over the next three years of service.
(5) As of June 30, 1999, 32,500 shares of the option to purchase 130,000 shares
of common stock have vested. The options for Mr. Obata vested as to 25% on
April 20, 1999, and the balance vests in a series of yearly installments
over the next three years of service.
(6) The fair market value of our common stock on the date of grant was $7.45.
As of June 30, 1999, 18,958 shares of the non-qualified option to purchase
65,000 shares of common stock have vested. The shares for Mr. Obata under
this option vests five years from the anniversary date of the grant (April
20, 2003) or vesting may accelerate for a portion of the options based on a
performance based vesting schedule.
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AGGREGATE OPTION EXERCISES DURING LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information with respect to the named
executive officers concerning option exercises for the year ended December 31,
1998 and exercisable and unexercisable options held as of December 31, 1998.
The value of unexercised in-the-money options is based on a price of $9.25 per
share, the fair market value of our stock on December 31, 1998 as determined by
our board of directors, minus the per share exercise price, multiplied by the
number of shares underlying the option. As of June 30, 1999, no options to
purchase our common stock granted since January 1, 1998 have been exercised by
the named executive officers.
<TABLE>
<CAPTION>
Value of Unexercised
Number of Securities Underlying In-the-Money Options at
Options at December 31, 1998 December 31, 1998
----------------------------------- -------------------------
Exercisable Unexercisable Exercisable Unexercisable
--------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C>
Peter Chen.............. 87,502 162,498 $767,830 $554,045
Derek Obata............. -- 195,000 -- 520,000
Andrew Wahl............. 62,292 82,708 498,336 568,664
Han Yeh................. 45,000 135,000 394,875 556,875
William Wen-Liang Hsu... 45,000 135,000 394,875 556,875
</TABLE>
Incentive Stock Plans
1995 Stock Plan
Our 1995 stock plan provides for the granting to employees of incentive
stock options within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended, or the Code, and for the granting to employees and
consultants of nonstatutory stock options. The maximum aggregate number of
shares which may be optioned and sold under the 1995 stock plan is 3,200,000
shares of common stock. As of December 31, 1998, options to purchase an
aggregate of 662,753 shares of common stock were outstanding under the 1995
stock plan, with a weighted average exercise price of $0.234. The board of
directors has determined that no further options will be granted under the 1995
stock plan after this offering. The 1995 stock plan provides that in the event
of a merger of our company with or into another corporation, or the sale of
substantially all of our assets, each outstanding option will be assumed or
substituted for by the successor corporation. If the successor corporation
refuses to assume or substitute for the options, the options will terminate as
of the closing of the merger or sale of assets.
1997 Stock Plan
Our 1997 stock plan, as amended and restated August 3, 1999, provides for
the granting to employees of incentive stock options within the meaning of
Section 422 of the Code, and for the granting to employees and consultants of
nonstatutory stock options and stock purchase rights, or SPRs. The 1997 stock
plan was originally approved by the board of directors in November 1996 and was
amended by our board of directors in August 1999, and was approved by our
stockholders in August 1999. As of December 31, 1998, options to purchase an
aggregate of 2,422,555 shares of common stock were outstanding under the 1997
stock plan with a weighted price of $5.575. Unless terminated sooner, the 1997
stock plan will terminate automatically in 2007. A total of 5,500,000 shares of
common stock are currently reserved for issuance pursuant to the 1997 stock
plan, plus annual increases equal of the lesser of:
. 700,000 shares,
. 4% of the outstanding shares on such date, or
. a lesser amount determined by the board.
The 1997 stock plan may be administered by the board of directors or a
committee of the board. The board of directors or committee of the board has
the power to determine the terms of the options or SPRs granted, including the
exercise price, the number of shares subject to each option or SPR, the
exercisability
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thereof, and the form of consideration payable upon such exercise. In addition,
the board of directors or committee of the board has the authority to amend,
suspend or terminate the 1997 stock plan, provided that no such action may
affect any share of common stock previously issued and sold or any option
previously granted under the 1997 stock plan.
Options and SPRs granted under the 1997 stock plan are not generally
transferable by the optionee, and each option and SPR is exercisable during the
lifetime of the optionee only by such optionee. Options granted under the 1997
stock plan must generally be exercised within three months of the end of
optionee's status as an employee or consultant of our company, or within twelve
months after such optionee's termination by death or disability, but in no
event later than the expiration of the option's ten year term. The exercise
price of all incentive stock options granted under the 1997 stock plan must be
at least equal to 100% of the fair market value of the common stock on the date
of grant. The exercise price of nonstatutory stock options and SPRs granted
under the 1997 stock plan is determined by the board of directors or a
committee of the board, but with respect to nonstatutory stock options intended
to qualify as "performance based compensation" within the meaning of Section
162(m) of the Code, the exercise price must at least be equal to 100% of the
fair market value of the common stock on the date of grant. With respect to any
participant who owns stock possessing more than 10% of the voting power of all
classes of our outstanding capital stock, the exercise price of any incentive
stock option granted must equal at least 110% of the fair market value on the
grant date and the term of such incentive stock option must not exceed five
years. The term of all other options granted under the 1997 stock plan may not
exceed ten years.
The 1997 stock plan provides that in the event of a merger of our company
with or into another corporation, a sale of substantially all of our assets,
each option or right shall be assumed or an equivalent option or right
substituted by the successor corporation. If the outstanding options or rights
are not assumed or substituted as described in the preceding sentence, the
board of directors or a committee of the board shall provide for the optionee
to have the right to exercise the option or SPR as to all of the optioned
stock, including shares as to which it would not otherwise be exercisable for a
period of fifteen days from the date of such notice, and the option or SPR will
terminate upon the expiration of such period.
1998 Employee Stock Purchase Plan
Our 1998 employee stock purchase plan was adopted by the board of directors
in May 1998 but will not become effective until the closing date of this
offering. A total of 800,000 shares of common stock has been reserved for
issuance under the 1998 employee stock purchase plan, plus annual increases
equal to the lesser of:
. 350,000 shares,
. 2% of the outstanding stock on such date, or
. a lesser amount determined by the board of directors.
The 1998 employee stock purchase plan, which is intended to qualify under
Section 423 of the Code, contains successive six-month offering periods. The
offering periods generally start on the first trading day on or after February
15 and August 15 of each year, except for the first such offering period which
commences on the first trading day on or after the effective date of this
offering and ends on the last trading day on or before February 14, 2000.
Employees are eligible to participate if they are customarily employed by us
or any participating subsidiary for at least 20 hours per week and more than
five months in any calendar year. However any employee who:
. immediately after grant owns stock possessing 5% or more of the total
combined voting power or value of all classes of our capital stock, or
. whose rights to purchase stock under all employee stock purchase plans of
our company accrues at a rate which exceeds $25,000 worth of stock for
each calendar year
may not be granted an option to purchase stock under the 1998 employee stock
purchase plan.
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The 1998 employee stock purchase plan permits participants to purchase
common stock through payroll deductions of up to 15% of the participant's
compensation. The maximum number of shares a participant may purchase during a
single offering period is 2,000 shares.
Amounts deducted and accumulated by the participant are used to purchase
shares of common stock at the end of each offering period. The price of stock
purchased under the 1998 employee stock purchase plan is 85% of either the fair
market value of the common stock at the beginning or end of the offering period
whichever is lower. Participants may end their participation at any time during
an offering period, and they will be paid their payroll deductions to date.
Participation ends automatically upon termination of employment with us.
Rights granted under the 1998 employee stock purchase plan are not
transferable by a participant other than by will, the laws of descent and
distribution, or as otherwise provided under the 1998 employee stock purchase
plan. The 1998 employee stock purchase plan provides that, in the event of a
merger of our company with or into another corporation or a sale of
substantially all of our assets, each outstanding option may be assumed or
substituted for by the successor corporation. If the successor corporation
refuses to assume or substitute for the outstanding options, the offering
period then in progress will be shortened and a new exercise date, before the
date of the proposed sale or merger, will be set. The 1998 employee stock
purchase plan will terminate in 2008. The board of directors has the authority
to amend or terminate the 1998 employee stock purchase plan, except that no
such action may adversely affect any outstanding rights to purchase stock under
the 1998 employee stock purchase plan.
1998 Director Option Plan
Non employee directors are entitled to participate in the 1998 director
option plan. The 1998 director option plan was adopted by the board of
directors in May 1998, but it will not become effective until the closing date
of this offering. The 1998 director option plan has a term of ten years, unless
terminated sooner by the board of directors. A total of 200,000 shares of
common stock have been reserved for issuance under the 1998 director option
plan.
The 1998 director option plan provides for the automatic grant of options to
purchase 15,000 shares of common stock to each new non employee director upon
election to the board of directors. Options to purchase 15,000 shares will vest
one-third on each anniversary of its date of grant until the option is fully
vested, provided that the optionee continues to serve as a director on such
dates. After the initial 15,000 share option is granted to the non employee
director, he or she shall automatically be granted an option to purchase 7,500
shares on January 1 of each year, if on such date he or she shall have served
on the board of directors for at least six months. The 7,500 share options
shall vest completely on the anniversary of their date of grant, provided that
the optionee continues to serve as a director on such dates. All of the options
granted under the 1998 director option plan shall have a term of 10 years. The
exercise price of all options shall be 100% of the fair market value per share
of the common stock, generally determined with reference to the closing price
of the common stock as reported on the Nasdaq National Market on the date of
grant.
The 1998 director option plan provides that in the event of a merger of our
company with or into another corporation, a sale of substantially all of our
assets, each option or right shall be assumed or an equivalent option or right
substituted by the successor corporation. If the outstanding options or rights
are not assumed or substituted as described in the preceding sentence, the
board of directors or a committee of the board shall provide for the optionee
to have the right to exercise the option or SPR as to all of the optioned
stock, including shares as to which it would not otherwise be exercisable for a
period of thirty days from the date of such notice, and the option or SPR will
terminate upon the expiration of such period. Options granted under the 1998
director option plan must be exercised within three months of the end of the
optionee's tenure as a director of our company, or within twelve months after
such director's termination by death or disability, but in no event later than
the expiration of the option's ten year term. No option granted under the 1998
director option plan is transferable by the optionee other than by will or the
laws of descent and distribution, and each option is exercisable, during the
lifetime of the optionee, only by such optionee.
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401(k) Plan
Our 401(k) plan covers all of our employees beginning the first of the month
following the month of their employment. Pursuant to this plan, employees may
elect to contribute up to 15% of their current compenation to the 401(k) plan
up to the statutorily prescribed annual limit, which was $10,000 in 1998.
Contributions by employees to the 401(k) plan, and income earned on plan
contributions, are not taxable to employees until withdrawn. Further,
contributions by PC-Tel, if any, will be deductible by PC-Tel, when made.
Participating employees vest in employer contributions over five years at a
rate of 20% for each year of service. There have been no employer contributions
to the 401(k) plan during the year.
Employment Agreements and Change of Control Arrangements
We require each of our employees to enter into confidentiality agreements
prohibiting the employee from disclosing any of our confidential or proprietary
information. In addition, the agreements generally provide that upon
termination the employee will not solicit our employees. At the time of
commencement of employment, our employees also generally sign offer letters
specifying basic terms and conditions of employment. In general, our employees
are not subject to written employment agreements.
We entered into an agreement on March 31, 1998 with Derek S. Obata which
provides, among other things, that his employment is at-will, he will receive
an annual salary of $150,000 and that in the event of a change in control of
our company, he will be entitled to one year severance pay.
We entered into an agreement on July 20, 1999 with William F. Roach. The
agreement provides, among other things, that his employment will be at-will and
his annual salary will be initially set at $250,000 per year with an annual
bonus of $150,000 payable upon our achieving quarterly net income targets.
In addition, the agreement provides for Mr. Roach to be granted an option to
purchase 400,000 shares of our common stock which vests according to the
following schedule: 30% at the end of his first year of employment, 25% in
years two and three and 20% in year four. Vesting after the twelfth month of
employment is on a monthly basis. If this offering should take place within the
first year of his employment, 50% of his first year's options will vest at the
time of the offering, and the remaining 50% of his first year's options will
vest upon reaching the completion of his twelfth month of employment. In
addition, if his employment is terminated for any reason, other than for cause,
he will be entitled to one year of severance. If the termination occurs within
the first year of employment, he will be entitled to exercise his entire first
year stock options.
59
<PAGE>
CERTAIN TRANSACTIONS
Since January 1, 1995, there has not been, nor is there currently proposed,
any transaction or series of similar transactions to which we were or are to be
a party in which the amount exceeds $60,000, and in which any director,
executive officer, holder of more than 5% of our common stock or any member of
the immediate family of any of the foregoing persons had or will have a direct
or indirect material interest other than compensation agreements and other
agreements, which are described under "Management," and the transactions
described below.
Transactions with Directors, Executive Officers and 5% Stockholders
Series A preferred stock. Between February 10, 1994 and March 14, 1995 we
sold 4,413,333 shares of our common stock at a per share price between $0.10
and $0.30. On May 9, 1995 we effected a recapitalization of our outstanding
stock converting each share of common stock into 1 share of Series A preferred
stock. On June 29, 1995 we sold 222,222 shares of our Series A preferred stock
at a price per share of $0.30. The following table lists the number of shares
of Series A preferred stock sold to our directors, executive officers, or 5%
stockholders (and any members of the immediate family of such persons):
<TABLE>
<CAPTION>
Shares of
Series A
preferred stock
Purchaser purchased
--------- ---------------
<S> <C>
Peter & Sophia Chen......................................... 666,666
Han C. Yeh.................................................. 280,000
I-Chung Yeh................................................. 133,333
Der-Chin Yeh................................................ 66,666
Yan-Chiou Yeh............................................... 26,666
Mike Min-Chu Chen........................................... 666,666
Wen-Liang Hsu............................................... 200,000
Rai-Yei Lee................................................. 800,000
Steel Su.................................................... 800,000
Ming-Hsiung Michael Ho...................................... 106,666
</TABLE>
Series B preferred stock. Between October 18, 1995 and January 10, 1996 we
sold 3,250,000 shares of our Series B preferred stock at a price per share of
$1.20. The following table lists the number of shares of Series B preferred
stock sold to our directors, executive officers, and 5% stockholders (and any
members of the immediate family of such persons):
<TABLE>
<CAPTION>
Shares of
Series B
preferred stock
Purchaser purchased
--------- ---------------
<S> <C>
WK Technology Fund.......................................... 555,800
WK Technology Fund II....................................... 402,500
WK Technology Fund III...................................... 958,366
</TABLE>
Series C preferred stock. On February 4, 1998, we sold 625,200 shares of its
Series C preferred stock at a price per share of $8.00. The sale of Series C
preferred stock included, among others, the sale of 125,000 shares of Series C
preferred stock to WK Technology Funds, which is a holder of more than 5% of
our common stock. In addition, Wen C. Ko, one of our directors, is Chairman of
WK Technology Fund, WK Technology Fund II and WK Technology Fund III.
60
<PAGE>
Employment Agreements With Executive Officers
We entered into an agreement on March 31, 1998 with Derek S. Obata which
provides, among other things, that his employment is at-will and he will
receive an annual salary of $150,000.
We entered into an agreement on July 20, 1999 with William F. Roach. The
agreement provides, among other things, that his employment will be at-will and
his annual salary will be initially set at $250,000 per year with an annual
bonus of $150,000 payable upon our achieving quarterly net income targets.
In addition, the agreement provides for Mr. Roach to be granted an option to
purchase 400,000 shares of our common stock which vests according to the
following schedule: 30% at the end of his first year of employment, 25% in
years two and three and 20% in year four. Vesting after the twelfth month of
employment is on a monthly basis. If this offering should take place within the
first year of his employment, 50% of his first year's options will vest at the
time of the offering, and the remaining 50% of his first year's options will
vest upon reaching the completion of his twelfth month of employment. In
addition, if his employment is terminated for any reason, other than for cause,
he will be entitled to one year of severance. If the termination occurs within
the first year of employment, he will be entitled to exercise his entire first
year stock options.
Loan to Executive Officer
On August 3, 1999, our board authorized an unsecured loan to William F.
Roach, our President and Chief Operating Officer, pursuant to a full-recourse
promissory note, for a principal amount of $54,000 with a per annum interest
rate of 8%. The promissory note shall become immediately due and payable upon
the earlier of (i) one year from the date the promissory note is executed or
(ii) the termination of Mr. Roach's employment with us.
Other Transactions
Steel Su, a holder of more than 5% of our common stock and a member of our
board of directors from March 1995 until November 1997, served as the President
of BTC, a significant customer. For the years ended December 31, 1995, 1996,
1997 and 1998, the revenues generated from BTC were approximately $99,000,
$1,660,000, $2,153,000 and $4,953,000, respectively.
Indemnification
We have entered into indemnification agreements with each of our directors,
officers and controller. These indemnification agreements will require us to
indemnify our officers to the fullest extent permitted by Delaware law.
All future transactions, including any loans from us to our officers,
directors, principal stockholders or affiliates, will be approved by a majority
of the board of directors or, if required by law, a majority of disinterested
stockholders, and will be on terms no less favorable to us than could be
obtained from unaffiliated third parties.
61
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information known to us with respect to the
beneficial ownership of our common stock as of June 30, 1999, and as adjusted
to reflect the sale of common stock in this offering by:
. each stockholder known by us to own beneficially more than 5% of our
common stock,
. each of the named executive officers,
. each of our directors, and
. all of our directors and executive officers as a group.
The table below assumes no exercise of the underwriters' over-allotment
option. Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock subject to options or warrants held by that person that
are currently exercisable or will become exercisable within 60 days after June
30, 1999 are deemed outstanding, while such shares are not deemed outstanding
for purposes of computing percentage ownership of any other person. Unless
otherwise indicated in the footnotes below (i) the persons and entities named
in the table have sole voting and investment power with respect to all shares
beneficially owned, subject to community property laws where applicable and
(ii) except as set forth in the footnotes to the table, the address of each of
the individuals listed in the table is PC-Tel, Inc., 70 Rio Robles, San Jose,
California 95134. As of June 30, 1999, there were 11,204,495 shares of common
stock outstanding, as adjusted to reflect the conversion of all outstanding
shares of preferred stock and warrants upon closing of this offering.
<TABLE>
<CAPTION>
Shares
Beneficially Owned
---------------------------
Percent Percent
prior to after
Name of Beneficial Owner Number offering offering
- ------------------------ --------- -------- --------
<S> <C> <C> <C>
5% Stockholders
Entities affiliated with the WK Technology
Funds(1)......................................... 1,932,812 17.2 12.2
Steel Su(2)....................................... 599,479 5.1% 3.8%
Directors and Executive Officers
Peter Chen(3)..................................... 726,980 6.4 4.3
Andrew D. Wahl(4)................................. 89,583 * *
Steve Manuel(5)................................... 55,417 * *
William Wen-Liang Hsu(6).......................... 548,958 4.9 3.5
Han Yeh(7)........................................ 688,958 6.1 4.3
Derek S. Obata(8)................................. 54,176 * *
Frank Reo(9)...................................... 32,500 * *
Mike Min-Chu Chen(10)............................. 232,812 2.1 1.5
Giacomo Marini(11)................................ 26,146 * *
Richard C. Alberding.............................. 0 * *
William F. Roach.................................. 0 * *
Martin H. Singer.................................. 0 * *
Wen C. Ko(1)...................................... 1,932,812 17.2 12.2
All directors and executive officers as a group
(13 persons)(12)................................. 4,388,333 37.2 26.7
</TABLE>
- --------
*Less than 1% of the outstanding shares of common stock.
(1) Includes 555,800 shares held by WK Technology Fund, 402,500 shares held by
WK Technology Fund II, and 958,366 shares held by WK Technology Fund III
and options to purchase 16,146 shares of our common stock held by WK
Associates which are exercisable within 60 days of June 30, 1999. Wen C. Ko
is one of our directors and is Chairman of the WK Technology Funds. The WK
Technology Funds'
62
<PAGE>
principal addresses is 10th Floor, 115, Sec. 3, Ming Sheng East Road,
Taipei, Taiwan 23136. Mr. Ko disclaims beneficial ownership of the shares
held by WC Technology Fund, WC Technology Fund II, and WK Technology Fund
III, except to the extent of his pecuniary interest therein.
(2) Includes 583,333 shares held by Mr. Su individually and options to
purchase 16,146 shares exerciseable within 60 days of June 30, 1999.
(3) Includes 240,666 shares held by Mr. Chen with his wife as community
property, 333,333 owned by himself individually, and 8,000, held by each
of his minor children living at home, Robert and Michael Chen.
Additionally includes options held by Mr. Chen to purchase 136,981 shares
of our common stock exercisable within 60 days of June 30, 1999. Mr. Chen
disclaims beneficial ownership of the shares held by his children, except
to the extent of his pecuniary interest therein.
(4) Includes options to purchase 89,583 share of our common stock exercisable
within 60 days June 30, 1999.
(5) Includes options to purchase 55,417 shares of our common stock
exercisable within 60 days of June 30, 1999.
(6) Includes 285,300 shares held by the William Wen-Liang Hsu and Rai-Yun Lee
Family Trust, a revocable trust, over which shares Mr. Hsu has joint
dispositive power, 123,700 shares held by himself personally, 20,830 held
by each of his children living at home, Frederick and Joanne Hsu, 2,673
shares held by Hui-Ju Wang, Mr. Hsu's mother, and options to purchase
95,625 shares of our common stock exercisable within 60 days of June 30,
1999. Mr. Hsu disclaims the beneficial ownership of the shares held by
his children and mother, except to the extent of his pecuniary interest
therein.
(7) Includes 577,333 shares owned by Mr. Yeh individually. Additionally
includes 16,000 shares held by Emily C. Yeh, a minor daughter who lives
in Mr. Yeh's home, and options to purchase 95,625 share of our common
stock exercisable within 60 days of June 30, 1999. Mr. Yeh disclaims
beneficial ownership of the shares held by Emily G. Yeh, except to the
extent of his pecuniary interest therein.
(8) Includes options to purchase 54,167 shares of our common stock
exercisable within 60 days of June 30, 1999.
(9) Includes options to purchase 32,500 shares of our common stock
exercisable within 60 days of June 30, 1999.
(10) Includes 193,966 shares owned by Mr. Chen individually. Additionally
includes 11,350 shares held by each of his children living at home.
Willis and Thomas L. Chen, a minor son living at Mr. Chen's home, and
options to purchase 16,146 shares exercisable within 60 days of June 30,
1999. Mr. Chen disclaims beneficial ownership of the shares held by his
children, except to the extent of his pecuniary interest therein.
(11) Includes 12,800 shares held by Mr. Marini individually and options to
purchase 13,346 shares exerciseable within 60 days of June 30, 1999.
(12) Includes shares held by each director and executive officer and family
members in each of their households. Additionally includes options to
purchase our common stock, held by each director and executive officer,
exerciseable within 60 days of June 30, 1999.
63
<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
Upon completion of the offering we will be authorized to issue 50,000,000
shares of common stock, $0.001 par value, and 5,000,000 shares of undesignated
preferred stock, $0.001 par value. The following description of our capital
stock does not purport to be complete and is subject to and qualified in its
entirety by our certificate of incorporation and bylaws, which are included as
exhibits to the registration statement of which this prospectus forms a part,
and by the provisions of applicable Delaware law.
Common Stock
As of June 30, 1999, there were 11,002,078 shares of common stock
outstanding which were held of record by 163 stockholders, as adjusted to
reflect the conversion of all outstanding shares of preferred stock upon
closing of this offering.
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may
be applicable to any outstanding preferred stock, the holders of common stock
are entitled to receive ratably such dividends, if any, as may be declared from
time to time by the board of directors out of funds legally available for that
purpose. See "Dividend Policy." In the event of a liquidation, dissolution or
winding up of PC-Tel, the holders of common stock are entitled to share ratably
in all assets remaining after payment of liabilities, subject to prior
distribution rights of preferred stock, if any, then outstanding. The common
stock has no preemptive or conversion rights or other subscription rights.
There are no redemption or sinking fund provisions applicable to the common
stock. All outstanding shares of common stock are fully paid and nonassessable,
and the shares of common stock to be issued upon the closing of this offering
will be fully paid and nonassessable.
Preferred Stock
Immediately prior to this offering, our certificate of incorporation
provided for three series of preferred stock, Series A preferred stock of which
4,635,548 shares were issued and outstanding, Series B preferred stock, of
which 3,250,000 shares were issued and outstanding, and Series C preferred
stock, of which 625,200 shares were issued and outstanding. Upon the closing of
this offering, each outstanding share of Series A preferred stock, Series B
preferred stock, and Series C preferred stock will automatically convert into
one share of common stock.
Upon the closing of this offering, the board of directors will be
authorized, subject to any limitations prescribed by law, without stockholder
approval, from time to time to issue up to an aggregate of 5,000,000 shares of
preferred stock, $0.001 par value per share, in one or more series, each of the
series to have such rights and preferences, including voting rights, dividend
rights, conversion rights, redemption privileges and liquidation preferences,
as shall be determined by the board of directors. The rights of the holders of
common stock will be subject to, and may be adversely affected by, the rights
of holders of any preferred stock that may be issued in the future. Issuance of
preferred stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for others to acquire, or of discouraging others from
attempting to acquire, a majority of the outstanding voting stock of PC-Tel. We
have no present plans to issue any shares of preferred stock.
Warrants
At June 30, 1999, there were warrants outstanding to purchase a total of
200,000 shares of Series C preferred stock and 2,417 shares of common stock.
Upon the closing of this offering, the warrants to purchase 200,000 shares of
Series C preferred stock will become exercisable for an aggregate of 200,000
shares of common stock and will expire on December 31, 2008, unless earlier
exercised. The warrants to purchase 2,417 shares of common stock will expire on
February 4, 2001, unless earlier exercised. All warrants may be exercised on a
"net" basis whereby, in lieu of paying the exercise price in cash, the holder
may instruct us to retain a number of shares that has a fair market value at
the time of exercise equal to the aggregate exercise price.
64
<PAGE>
Registration Rights
The holders of 3,875,200 shares of common stock, and the holders of warrants
to purchase 200,000 shares of common stock or their permitted transferees, are
entitled to rights with respect to registration of the shares under the
Securities Act at any time after 180 days following the closing of this
offering. These rights are provided under the terms of an agreement between us
and the holders of registrable securities. Subject to limitations in the
agreement, the holders of at least 30% of the registrable securities then
outstanding may require, on two occasions beginning after the date of this
prospectus, that we use our best efforts to register the registrable securities
for public resale. If we register any of our securities either for our own
account or for the account of other security holders, the holders of
registrable securities are entitled to include their shares of common stock in
the registration, subject to the ability of the underwriters to limit the
number of shares included in the offering. The holders of registrable
securities may also require us to register all or a portion of their
registrable securities on Form S-3 when use of such form becomes available to
us, provided, among other limitations, that the proposed aggregate selling
price (net of any underwriters' discounts and expenses of sale) is at least
$1.0 million. All registration expenses must be borne by us and all selling
expenses relating to registrable securities must be borne by the holders of the
securities being registered.
Delaware Anti-Takeover Law and Charter and Bylaw Provisions
Provisions of Delaware law and our certificate of incorporation and bylaws
could make it more difficult to acquire us by means of a tender offer, a proxy
contest or otherwise and the removal of incumbent officers and directors. These
provisions, summarized below, are expected to discourage types of coercive
takeover practices and inadequate takeover bids and to encourage persons
seeking to acquire control of us to first negotiate with us. We believe that
the benefits of increased protection of our potential ability to negotiate with
the proponent of an unfriendly or unsolicited proposed to acquire or
restructure us outweigh the disadvantages of discouraging takeover or
acquisition proposals because, among other things, negotiation of these
proposals could result in an improvement of their terms.
We are subject to Section 203 of the Delaware General Corporation Law, an
anti-takeover law. In general, Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years following the date the person became
an interested stockholder, unless (with certain exceptions) the "business
combination" or the transaction in which the person became an interested
stockholder is approved in a prescribed manner. Generally, a "business
combination" includes a merger, asset or stock sale, or other transaction
resulting in a financial benefit to the interested stockholder. Generally, an
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years prior to the determination of
interested stockholder status, did own) 15% or more of a corporation's voting
stock. The existence of this provision would be expected to have an anti-
takeover effect with respect to transactions not approved in advance by the
board of directors, including discouraging attempts that might result in a
premium over the market price for the shares of common stock held by
stockholders.
Upon the closing of this offering, our certificate of incorporation and
bylaws will require that any action required or permitted to be taken by our
stockholders must be effected at a duly called annual or special meeting of the
stockholders and may not be effected by a consent in writing. In addition, upon
the close of this offering, special meetings of our stockholders may be called
only by the board of directors or some of our officers. Our certificate of
incorporation and bylaws also provide that, effective upon the closing of this
offering, our board of directors will be divided into three classes, with each
class serving staggered three-year terms. These provisions may have the effect
of deterring hostile takeovers or delaying changes in control or management of
PC-Tel.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is Norwest Bank
Minnesota, N.A. Its address is 161 North Concord Exchange, St. Paul, Minnesota,
55075 and its telephone number at this location is (615) 450-4189.
65
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock, and a
significant public market for the common stock may not develop or be sustained
after this offering. Future sales of substantial amounts of common stock
(including shares issued upon exercise of outstanding options and warrants) in
the public market following this offering could adversely affect market prices
prevailing from time to time and could impair our ability to raise capital
through sale of our equity securities. As described below, no shares currently
outstanding will be available for sale immediately after this offering because
of contractual restrictions on resale. Sales of substantial amounts of our
common stock in the public market after the restrictions lapse could adversely
affect the prevailing market price and our ability to raise equity capital in
the future.
Upon completion of this offering we will have outstanding 15,602,078 shares
of common stock (based upon shares outstanding as of June 30, 1999), assuming
no exercise of the underwriters' over-allotment option and no exercise of
outstanding options or warrants that do not expire prior to completion of this
offering. Of these shares, the 4,600,000 shares sold in this offering will be
freely tradable without restriction under the Securities Act except for any
shares purchased by "affiliates" of PC-Tel as that term is defined in Rule 144
under the Securities Act.
The remaining 11,204,495 shares of common stock, including common stock
equivalents of 202,417 shares, held by existing stockholders were issued and
sold by us in reliance on exemptions from the registration requirements of the
Securities Act. All of our stockholders and all of our directors and officers
have entered into lock-up agreements with the underwriters that provide that we
and those holders of stock and options may not dispose of or hedge any common
stock or securities convertible into or exchangeable for shares of common
stock. These restrictions will be in effect for a period of 180 days after the
date of this prospectus. At any time and without notice, Banc of America
Securities LLC may, in its sole discretion, release all or some of the
securities from these lock-up agreements. In addition, holders of stock options
could exercise such options and sell some of the shares issued upon exercise as
described below:
<TABLE>
<CAPTION>
Approximate
Shares Eligible
Relevant Dates for Future Sale Comment
------------------------------ --------------- ------------------------------------------
<S> <C> <C>
On effective date(1).......... Shares sold in this offering and eligible
for sale under Rule 144(k)
90 days after effective Additional shares eligible for sale under
date(2)...................... Rules 144 and 701
180 days after effective All shares subject to lock-up released;
date(2)...................... additional shares eligible for sale under
Rules 144 and 701
More than 181 days after ef- Additional shares becoming eligible for
fective date(2).............. sale under Rule 144 more than 180 days
after the effective date
</TABLE>
--------
(1) Assumes no exercise of the underwriters' over-allotment option.
(2) Assumes an effective date of September 30, 1999.
In addition, as of June 30, 1999, there were outstanding options and
warrants to purchase 4,018,127 shares of common stock. All such options and
warrants are subject to lock-up agreements.
Rule 144
In general, under Rule 144, an affiliate of PC-Tel, or person (or persons
whose shares are aggregated) who has beneficially owned restricted shares for
at least one year, will be entitled to sell in any three-month period a number
of shares that does not exceed the greater of
. 1% of the then outstanding shares of common stock (approximately 15,804
shares immediately after this offering) or
66
<PAGE>
. the average weekly trading volume during the four calendar weeks
preceding the date on which notice of the sale is filed with the SEC.
Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about PC-Tel.
Rule 144(k)
Under Rule 144(k), a person who is not deemed to have been one of our
"affiliates" at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner other than an "affiliate," is
entitled to sell such shares without complying with the manner of sale, notice
filing, volume limitation or notice provisions of Rule 144. Therefore, unless
otherwise restricted, "144(k) shares" may be sold immediately upon the
completion of this offering.
Rule 701
Rule 701, as currently in effect, permits resale of shares in reliance upon
Rule 144 but without compliance with certain restrictions, including the
holding period requirement, of Rule 144. Any employee, officer or director of
or consultant to PC-Tel who purchased shares pursuant to a written compensatory
plan or contract may be entitled to rely on the resale provision of Rule 701.
Rule 701 permits affiliates to sell their Rule 701 shares under Rule 144
without complying with the holding period requirements of Rule 144. Rule 701
further provides that non-affiliates may sell such shares in reliance on Rule
144 without having to comply with the holding period, public information,
volume limitation or notice provisions of Rule 144. All holders of Rule 701
shares are required to wait until 90 days after the date of this Prospectus
before selling such shares. However, all Rule 701 shares are subject to lock-up
agreements and will only become eligible for sale at the earlier of the
expiration of the 180-day lock-up agreements or no sooner than 90 days after
the offering upon obtaining the prior written consent of Banc of America
Securities LLC.
We are unable to estimate the number of shares that will be sold under Rule
144, as this will depend on the market price for the common stock, the personal
circumstances of the sellers and other factors.
180 days following the date of this prospectus, we intend to file a
registration statement on Form S-8 under the Securities Act covering, among
other things, shares of common stock subject to outstanding options under the
1995 stock plan, the 1997 stock plan, the 1998 director option plan and the
1998 employee stock purchase plan. Based on the number of shares subject to
outstanding options as of September 30, 1999 and currently reserved for
issuance under the incentive plans, such registration statement would cover
approximately 9,700,000 shares. Such registration statement will automatically
become effective upon filing. Accordingly, shares registered under such
registration statement will, subject to Rule 144 volume limitations applicable
to affiliates of PC-Tel, be available for sale in the open market immediately
after the 180-day lock-up agreements expire.
Registration Rights
Also beginning six months after the date of this offering, holders of
3,875,200 shares of common stock, as converted, and the holders of warrants to
purchase 200,000 shares of common stock, as converted, or their permitted
transferees will be entitled to certain rights with respect to registration of
such shares for sale in the public market. See "Description of Capital Stock--
Registration Rights." Registration of such shares under the Securities Act
would result in such shares becoming freely tradable without restriction under
the Securities Act (except for shares purchase by affiliates) immediately upon
the effectiveness of such registration.
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<PAGE>
UNDERWRITING
We are offering the shares of common stock described in this prospectus
through a number of underwriters. Banc of America Securities LLC, Warburg
Dillon Read LLC and Needham & Company, Inc., are the representatives of the
underwriters. We have entered into an underwriting agreement with the
representatives. Subject to the terms and conditions of the underwriting
agreement, we have agreed to sell to the underwriters, and each of the
underwriters has agreed to purchase, the number of shares of common stock
listed next to its name in the following table:
<TABLE>
<CAPTION>
Number of
Underwriter Shares
----------- ---------
<S> <C>
Banc of America Securities LLC.....................................
Warburg Dillon Read LLC............................................
Needham & Company, Inc.............................................
---------
Total............................................................ 4,600,000
=========
</TABLE>
The underwriters initially will offer shares to the public at the price
specified on the cover page of this prospectus. The underwriters may allow to
some dealers a concession of not more than $ per share. The underwriters
also may allow, and any other dealers may reallow, a concession of not more
than $ per share to some other dealers. If all the shares are not sold at
the initial public offering price, the underwriters may change the offering
price and the other selling terms. The common stock is offered subject to a
number of conditions, including:
. receipt and acceptance of our common stock by the underwriters and
. the right to reject orders in whole or in part.
We have granted an option to the underwriters to buy up to 690,000
additional shares of common stock. These additional shares would cover sales of
shares by the underwriters which exceed the number of shares specified in the
table above. The underwriters have 30 days to exercise this option. If the
underwriters exercise this option, they will each purchase additional shares
approximately in proportion to the amounts specified in the table above.
We, all our stockholders and all of our officers and directors have entered
into lock-up agreements with the underwriters. Under those agreements, we and
those holders of stock and options may not dispose of or hedge any common stock
or securities convertible into or exchangeable for shares of common stock.
These restrictions will be in effect for a period of 180 days after the date of
this prospectus. At any time and without notice, Banc of America Securities LLC
may, in its sole discretion, release all or some of the securities from these
lock-up agreements.
We will indemnify the underwriters against some liabilities, including some
liabilities under the Securities Act. If we are unable to provide this
indemnification, we will contribute to payments the underwriters may be
required to make in respect of those liabilities.
The shares of common stock have been approved for listing on the Nasdaq
National Market under the symbol "PCTI."
In connection with this offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include:
. short sales,
. stabilizing transactions, and
. purchase to cover positions created by short sales.
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<PAGE>
Short sales involve the sale by the underwriters of a greater number of
shares than they are required to purchase in this offering. Stabilizing
transactions consist of bids or purchases made for the purpose of preventing or
retarding a decline in the market price of the common stock while this offering
is in progress.
The underwriters also may impose a penalty bid. This means that if the
representatives purchase shares in the open market in stabilizing transactions
or to cover short sales, the representatives can require the underwriters that
sold those shares as part of this offering to repay the underwriting discount
received by them.
The underwriters may engage in activities that stabilize, maintain or
otherwise affect the price of the common stock, including:
. over-allotment,
. stabilization,
. syndicate covering transactions, and
. imposition of penalty bids.
As a result of these activities, the price of the common stock may be higher
than the price that otherwise might exist in the open market. If the
underwriters commence these activities, they may discontinue them at any time.
The underwriters may carry out these transactions on the Nasdaq National
Market, in the over-the-counter market or otherwise.
The underwriters do not expect sales to discretionary accounts to exceed 5%
of the total number of shares of common stock offered by this prospectus.
Prior to this offering, there has been no public market for our common
stock. The initial public offering price will be negotiated between us and the
underwriters. Among the factors to be considered in such negotiations are:
. our history and prospects, and the history and prospectus of the industry
in which we compete,
. our past and present financial performance,
. an assessment of our management,
. the present state of our development,
. our prospects for future earnings,
. the prevailing market conditions of the applicable U.S. securities market
at the time of this offer,
. market valuations of publicly traded companies that we and the
underwriters believe to be comparable to us, and
. other factors deemed relevant by us and the underwriters.
The underwriters have reserved up to 200,000 shares of the common stock
offered hereby for sale to certain of our employees, directors, and friends at
the initial public offering price set forth on the cover page of this
prospectus. Such persons must commit to purchase no later than the close of
business on the day following the date of this prospectus. The number of shares
available for sale to the general public will be reduced to the extent such
persons purchase these reserved shares.
69
<PAGE>
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto,
California. Certain legal matters will be passed upon for the Underwriters by
Brobeck Phleger & Harrison, LLP, San Francisco, California. Certain legal
matters related to intellectual property will be passed on for PC-Tel by
Knobbe, Martens, Olson & Bear, LLP, Newport Beach, California.
EXPERTS
The consolidated financial statements and schedule of PC-Tel, Inc. included
in this prospectus and elsewhere in the registration statement have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their reports with respect thereto, and are included herein in reliance upon
the authority of said firm as experts in giving said reports.
The financial statements of the Communications Systems Division, a division
of General DataComm, Inc. included in this prospectus and elsewhere in the
registration statement have been audited by PricewaterhouseCoopers LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included herein, in reliance upon the authority of said firm
as experts in giving said report.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We filed with the Securities and Exchange Commission, Washington, D.C., a
registration statement on Form S-1 under the Securities Act with respect to the
shares of common stock sold in this offering. This prospectus does not contain
all the information set forth in the registration statement and the exhibits
and schedules thereto. For further information with respect to PC-Tel and our
common stock, we refer you to the registration statement and to the exhibits
and schedules that were filed with the registration statement. Statements
contained in this prospectus as to the contents of any contract or other
document that is filed as an exhibit to the registration statement are not
necessarily complete, and we refer you to the full text of the contract or
other document filed as an exhibit to the registration statement. A copy of the
registration statement may be inspected by anyone without charge at the Public
Reference Section of the Securities and Exchange Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of all
or any portion of the registration statement may be obtained from the Public
Reference Section of the Securities and Exchange Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, upon payment of prescribed fees. The Securities
and Exchange Commission maintains a World Wide Web site that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Securities and Exchange Commission. The
address of the site is http://www.sec.gov.
Upon completion of this offering, PC-Tel will become subject to the
information and periodic reporting requirements of the Securities Exchange Act
of 1934, and, in accordance with the requirements of the Securities Exchange
Act of 1934, will file periodic reports, proxy statements and other information
with the Securities and Exchange Commission. These periodic reports, proxy
statements and other information will be available for inspection and copying
at the regional offices, public reference facilities and web site of the
Securities and Exchange Commission referred to above.
70
<PAGE>
PC-TEL, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
PC-Tel, Inc.
Report of Independent Public Accountants............................... F-2
Consolidated Balance Sheets............................................ F-3
Consolidated Statements of Operations.................................. F-4
Consolidated Statements of Stockholders' Equity........................ F-5
Consolidated Statements of Cash Flows.................................. F-6
Notes to the Consolidated Financial Statements......................... F-7
Communications Systems Division, a division of General DataComm, Inc.
Report of Independent Public Accountants............................... F-22
Balance Sheets......................................................... F-23
Statements of Income and Divisional Equity............................. F-24
Statements of Cash Flows............................................... F-25
Notes to Financial Statements.......................................... F-26
Unaudited Pro Forma Condensed Combined Statement of Operations of PC-Tel,
Inc. and Communications Systems Divison
Pro Forma Condensed Combined Statement of Operations for the Year Ended
December 31, 1998 (unaudited)......................................... P-1
Notes to Pro Forma Condensed Combined Statement of Operations
(unaudited) .......................................................... P-3
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To PC-Tel, Inc.:
We have audited the accompanying consolidated balance sheets of PC-Tel, Inc.
(a Delaware corporation) and subsidiaries as of December 31, 1997 and 1998 and
the related consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended December 31, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of PC-Tel,
Inc. and subsidiaries as of December 31, 1997 and 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1998 in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
San Jose, California
March 4, 1999
F-2
<PAGE>
PC-TEL, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
December 31,
---------------
June 30, 1999
Pro Forma
June Stockholders'
30, Equity
1997 1998 1999 (Note 8)
------- ------- ------- -------------
(unaudited)
ASSETS
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............ $ 6,685 $12,988 $17,252
Short-term investments............... -- -- 6,282
Accounts receivable, net of allowance
for doubtful accounts of $604,
$1,689 and $3,382, respectively..... 6,058 12,931 5,516
Subscriptions receivable............. 5,002 -- --
Inventories.......................... 989 2,073 3,590
Prepaid expenses and other assets.... 926 264 472
Deferred tax asset................... 2,680 4,205 4,658
------- ------- -------
Total current assets............... 22,340 32,461 37,770
PROPERTY AND EQUIPMENT, net............ 713 1,042 1,475
GOODWILL AND OTHER INTANGIBLE ASSETS,
net................................... -- 10,812 9,730
OTHER ASSETS........................... 95 1,681 1,508
------- ------- -------
$23,148 $45,996 $50,483
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt.... $ -- $ 1,640 $ 1,847
Accounts payable..................... 1,577 5,155 3,564
Accrued royalties.................... 6,505 5,144 6,516
Income taxes payable................. -- 1,207 2,044
Accrued liabilities.................. 1,418 3,002 5,021
------- ------- -------
Total current liabilities.......... 9,500 16,148 18,992
------- ------- -------
LONG-TERM DEBT, net of current
portion............................... 38 14,709 13,630
------- ------- -------
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY:
Preferred stock, $0.001 par value;
aggregate liquidation preference of
$10,015 as of December 31, 1998 and
June 30, 1999
Authorized--9,385,548
Outstanding--7,885,548, 8,510,748,
8,510,748 and 0 shares pro forma,
respectively; subscribed--625,200,
0, 0 and 0 shares pro forma,
respectively....................... 9 9 9 $ --
Common stock, $0.001 par value
Authorized--50,000,000
Outstanding--2,208,990, 2,412,247,
2,491,330 and 11,002,078 shares pro
forma, respectively................ 2 2 2 11
Additional paid-in capital........... 9,667 10,915 12,881 12,881
Deferred compensation................ -- (214) (2,162) (2,162)
Retained earnings.................... 3,932 4,427 7,131 7,131
------- ------- ------- -------
Total stockholders' equity......... 13,610 15,139 17,861 17,861
------- ------- ------- -------
$23,148 $45,996 $50,483 $50,483
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
PC-TEL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Six Months
Ended
Year Ended December 31, June 30,
----------------------- ----------------
1996 1997 1998 1998 1999
------- ------- ------- ------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
REVENUES............................ $16,573 $24,009 $33,004 $12,343 $33,046
COST OF REVENUES.................... 9,182 12,924 13,878 5,948 16,997
------- ------- ------- ------- -------
GROSS PROFIT........................ 7,391 11,085 19,126 6,395 16,049
------- ------- ------- ------- -------
OPERATING EXPENSES:
Research and development.......... 2,152 3,348 4,932 2,455 4,423
Sales and marketing............... 839 3,168 5,624 2,407 4,945
General and administrative........ 477 1,612 2,169 791 2,063
Acquired in-process research and
development (Note 4)............. -- -- 6,130 -- --
Amortization of deferred
compensation..................... 41 -- 43 10 164
------- ------- ------- ------- -------
Total operating expenses........ 3,509 8,128 18,898 5,663 11,595
------- ------- ------- ------- -------
INCOME FROM OPERATIONS.............. 3,882 2,957 228 732 4,454
------- ------- ------- ------- -------
OTHER INCOME (EXPENSE), NET:
Interest income................... 127 299 504 254 303
Interest expense.................. -- -- (25) (11) (895)
------- ------- ------- ------- -------
Total other income (expense),
net............................ 127 299 479 243 (592)
------- ------- ------- ------- -------
INCOME BEFORE PROVISION FOR INCOME
TAXES.............................. 4,009 3,256 707 975 3,862
PROVISION FOR INCOME TAXES.......... 1,005 955 212 292 1,158
------- ------- ------- ------- -------
NET INCOME.......................... $ 3,004 $ 2,301 $ 495 $ 683 $ 2,704
======= ======= ======= ======= =======
Basic earnings per share............ $ 4.79 $ 1.13 $ 0.21 $ 0.29 $ 1.10
Diluted earnings per share.......... $ 0.29 $ 0.20 $ 0.04 $ 0.06 $ 0.21
Shares used in computing basic
earnings per share................. 627 2,032 2,355 2,320 2,461
Shares used in computing diluted
earnings per share................. 10,280 11,645 12,325 12,400 12,638
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
PC-TEL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
(Accumulated
Preferred Stock Common Stock Additional Deficit)/
---------------- ---------------- Paid-In Deferred Retained
Shares Amount Shares Amount Capital Compensation Earnings Total
--------- ------ --------- ------ ---------- ------------ ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31,
1995................... 7,562,208 $ 8 -- $-- $ 4,593 $ -- $(1,373) $ 3,228
Issuance of Series B
convertible preferred
stock for cash at
$1.20 per share....... 323,340 -- -- -- 388 -- -- 388
Issuance of common
stock on exercise of
stock options......... -- -- 1,454,999 1 27 -- -- 28
Stock compensation
expense for stock
option grants......... -- -- -- -- 41 -- -- 41
Net income............. -- -- -- -- -- -- 3,004 3,004
--------- --- --------- --- ------- ------- ------- -------
BALANCE, DECEMBER 31,
1996................... 7,885,548 8 1,454,999 1 5,049 -- 1,631 6,689
Subscription for Series
C convertible
preferred stock for
cash at $8.00 per
share, net of issuance
costs of $406......... 625,200 1 -- -- 4,595 -- -- 4,596
Issuance of common
stock on exercise of
stock options......... -- -- 753,991 1 23 -- -- 24
Net income............. -- -- -- -- -- -- 2,301 2,301
--------- --- --------- --- ------- ------- ------- -------
BALANCE, DECEMBER 31,
1997................... 8,510,748 9 2,208,990 2 9,667 -- 3,932 13,610
Issuance costs for
Series C convertible
preferred stock....... -- -- -- -- (44) -- -- (44)
Deferred compensation
expense for stock
option grants......... -- -- -- -- 257 (257) -- --
Stock compensation
expense for stock
option grants......... -- -- -- -- -- 43 -- 43
Issuance of common
stock on exercise of
stock options......... -- -- 203,257 -- 34 -- -- 34
Issuance of Series C
convertible stock
warrants in
conjunction with notes
payable............... -- -- -- -- 1,350 -- -- 1,350
Costs incurred related
to initial public
offering.............. -- -- -- -- (349) -- -- (349)
Net income............. -- -- -- -- -- -- 495 495
--------- --- --------- --- ------- ------- ------- -------
BALANCE, DECEMBER 31,
1998................... 8,510,748 9 2,412,247 2 10,915 (214) 4,427 15,139
Deferred compensation
expense for stock
option grants
(unaudited)........... -- -- -- -- 2,112 (2,112) -- --
Stock compensation
expense for option
grants (unaudited).... -- -- -- -- -- 164 -- 164
Issuance of common
stock on exercise of
stock options
(unaudited)........... -- -- 79,083 -- 10 -- -- 10
Costs incurred related
to initial public
offering (unaudited).. -- -- -- -- (156) -- -- (156)
Net income
(unaudited)........... -- -- -- -- -- -- 2,704 2,704
--------- --- --------- --- ------- ------- ------- -------
BALANCE, JUNE 30, 1999
(unaudited)............ 8,510,748 $ 9 2,491,330 $ 2 $12,881 $(2,162) $ 7,131 $17,861
========= === ========= === ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
PC-TEL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
-------------------------- ------------------
1996 1997 1998 1998 1999
------- ------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING AC-
TIVITIES:
Net income.................... $ 3,004 $ 2,301 $ 495 $ 683 $ 2,704
Adjustments to reconcile net
income to net cash provided
by operating activities:
Acquired in-process research
and development.............. -- -- 6,130 -- --
Depreciation and
amortization................. 59 193 303 139 1,350
Amortization of deferred debt
costs........................ -- -- -- -- 152
Increase in allowance for
doubtful accounts............ 70 534 1,085 484 1,693
Increase in inventory
reserves..................... 1,514 488 330 146 525
Stock compensation expense for
stock option grants.......... 41 -- 43 10 164
Changes in assets and
liabilities, net of
acquisitions:
(Increase) decrease in
accounts receivable......... (2,247) (4,363) (8,391) (3,196) 5,722
(Increase) decrease in
inventories................. (1,850) 869 (1,352) (135) (2,042)
(Increase) decrease in
prepaid expenses and other
assets...................... (16) (975) 598 685 (190)
Increase in deferred tax
asset....................... (2,489) (191) (1,525) (73) (453)
Increase in accounts payable
and accrued liabilities..... 1,053 1,170 5,157 516 428
Increase (decrease) in
accrued royalties........... 2,531 3,974 (1,361) 1,758 1,372
Increase (decrease) in income
taxes payable............... 2,532 (2,532) 1,207 63 837
Increase (decrease) in
deferred revenue............ 551 (551) -- -- --
------- ------- -------- -------- --------
Net cash provided by
operating activities........ 4,753 917 2,719 1,080 12,262
------- ------- -------- -------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property and
equipment.................... (310) (427) (512) (149) (698)
Proceeds from sale of
available-for-sale
investments.................. -- 1,003 -- -- 3,254
Purchase of available-for-sale
investments.................. (948) -- -- -- (9,536)
Purchase of Communications
Systems Division, net of cash
acquired..................... -- -- (16,832) -- --
------- ------- -------- -------- --------
Net cash provided by (used
in) investing activities.... (1,258) 576 (17,344) (149) (6,980)
------- ------- -------- -------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from notes payable... -- -- 16,313 -- --
Principal payments on notes
payable...................... -- -- -- -- (859)
Proceeds from issuance of
preferred stock.............. 388 -- 5,002 5,002 --
Costs incurred related to
issuance of preferred stock.. -- (406) (44) -- --
Costs incurred related to
proposed initial public
offering..................... -- -- (349) (262) (156)
Proceeds from issuance of
common stock................. 28 24 34 30 10
Principal payments on capital
lease obligations............ (2) (11) (28) (14) (13)
------- ------- -------- -------- --------
Net cash provided by (used
in) financing activities.... 414 (393) 20,928 4,756 (1,018)
------- ------- -------- -------- --------
Net increase in cash and cash
equivalents................. 3,909 1,100 6,303 5,687 4,264
CASH AND CASH EQUIVALENTS,
beginning of period........... 1,676 5,585 6,685 6,685 12,988
------- ------- -------- -------- --------
CASH AND CASH EQUIVALENTS, end
of period..................... $ 5,585 $ 6,685 $ 12,988 $ 12,372 $ 17,252
======= ======= ======== ======== ========
SUPPLEMENTAL CASH FLOW
INFORMATION:
Cash paid for interest........ $ -- $ -- $ 25 $ 11 $ 895
Cash paid for income taxes.... $ 961 $ 4,372 $ 462 $ 317 $ 775
Property and equipment
acquired under capital
leases....................... $ 7 $ 67 $ -- $ -- $ --
Issuance of warrants for
preferred and common stock... $ -- $ -- $ 1,400 $ 50 $ --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
PC-TEL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Information relating to the six months ended June 30, 1998 and June 30, 1999
is unaudited)
DECEMBER 31, 1998
1. ORGANIZATION AND OPERATIONS OF THE COMPANY:
PC-Tel, Inc. ("the Company") is a corporation that was originally
incorporated in California in February 1994. In July 1998, the Company
reincorporated in Delaware and this reincorporation has been reflected
retroactively in the accompanying consolidated financial statements. The
Company is a leading provider of software based connectivity solutions to
individuals and businesses worldwide. The Company designs, develops, produces
and markets advanced software-based high performance, low cost modems that are
flexible and upgradeable, with functionality that can include data/fax
transmission at various speeds, video conferencing and telephony features. The
Company's host signal processing software architecture utilizes the host PC's
central processing unit to perform digital signal processing and other
operations typically handled by dedicated hardware found in conventional
hardware-based modems. The Company's host signal processing technology allows
the elimination of this dedicated hardware, lowering costs and enhancing
capabilities.
The Company is subject to certain risks including, but not limited to,
competition from larger, more established companies, reliance on a limited
number of customers, dependence on new product introductions, short product
life cycles, the Company's ability to develop and bring to market new products
on a timely basis, volatility of the industry including technical obsolescence,
dependence on key employees and the ability to attract and retain additional
qualified personnel to manage the anticipated growth of the Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
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 and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the period.
Actual results could differ from those estimates.
Consolidation and Foreign Currency Translation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries after elimination of intercompany accounts
and transactions. The functional currency of the Company's subsidiaries is the
United States dollar, accordingly, all translation gains and losses resulting
from transactions denominated in currencies other than United States dollars
are included in net income. As of December 31, 1998, the Company has
subsidiaries in the Cayman Islands and Japan.
Cash and Cash Equivalents
For the purposes of the consolidated balance sheets and the consolidated
statements of cash flows, the Company considers all highly liquid debt
instruments or money-market type funds with an original maturity of three
months or less to be cash equivalents.
Short-Term Investments
At June 30, 1999, short-term investments consist of U.S. Government
investments with an original maturity of approximately four months and a
certificate of deposit with an original maturity in excess of three months.
These short-term investments are classified as available-for-sale and are
recorded at their fair value. If
F-7
<PAGE>
PC-TEL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
material, any unrealized gains or losses would be classified as Other
Comprehensive Income in the accompanying statement of stockholders' equity. As
of June 30, 1999, the cost and fair value of the short-term investments were
not materially different.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations
of credit risk consist primarily of cash investments and trade receivables. The
Company has cash investment policies that limit its investments to short-term,
low-risk investments. With respect to trade receivables, the Company's
customers are concentrated in the personal computer industry and modem board
manufacturer industry segment and in certain geographic locations. The Company
actively markets and sells products in Asia. The Company performs ongoing
evaluations of its customers' financial conditions and generally requires no
collateral. As of December 31, 1997, approximately 55% of gross accounts
receivable was concentrated with three customers. As of December 31, 1998,
approximately 54% of gross accounts receivable was concentrated with three
customers. As of June 30, 1999, approximately 48% of gross accounts receivable
was concentrated with three customers.
Inventories
Inventories are stated at the lower of cost or market and include material,
labor and overhead costs. Inventories at December 31, 1997 and 1998 and June
30, 1999 were composed of finished goods only. Inventories included certain
finished goods that were in excess of the Company's expected requirements and
the excess amounts were fully reserved as of December 31, 1997, 1998 and June
30, 1999. Due to competitive pressures and technological innovation, it is
possible these estimates could change in the near term.
Property and Equipment
Property and equipment are stated at cost and are depreciated using the
straight-line method over the estimated useful lives (three to seven years) of
the assets. Assets acquired under capital leases are recorded at the present
value of the related lease obligations and are depreciated on a straight-line
basis over the shorter of the estimated useful life or lease term. Included in
property and equipment are assets acquired under capital lease obligations with
an original cost of approximately $74,000. Accumulated amortization on the
leased assets was approximately $6,000 and $22,000 as of December 31, 1997 and
1998, respectively. Leasehold improvements are amortized over the corresponding
lease term.
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------
1997 1998 June 30, 1999
----- ------ -------------
(unaudited)
<S> <C> <C> <C>
Computer and office equipment................. $ 868 $1,296 $1,962
Furniture and fixtures........................ 119 264 271
Leasehold improvements........................ 6 55 72
----- ------ ------
Total property and equipment.............. 993 1,615 2,305
Less: Accumulated depreciation and
amortization................................. (280) (573) (830)
----- ------ ------
Property and equipment, net............... $ 713 $1,042 $1,475
===== ====== ======
</TABLE>
F-8
<PAGE>
PC-TEL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Accounting for Impairment of Long-Lived Assets
The Company assesses the need to record impairment losses on long-lived
assets used in operations when indicators of impairment are present. On an on-
going basis, management reviews the value and period of amortization or
depreciation of long-lived assets, including costs in excess of net assets of
businesses acquired. During this review, the significant assumptions used in
determining the original cost of long-lived assets are reevaluated. Although
the assumptions may vary from transaction to transaction, they generally
include revenue growth, operating results, cash flows and other indicators of
value. Management then determines whether there has been a permanent impairment
of the value of long-lived assets by comparing future estimated undiscounted
cash flows to the asset's carrying value. If the estimated future undiscounted
cash flows exceed the carrying value of the asset, a loss is recorded as the
excess of the asset's carrying value over fair value. To date, the Company has
not needed to record any impairment losses on long-lived assets.
Software Development Costs
The Company accounts for software development costs in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 86, "Accounting for
the Costs of Computer Software to be Sold, Leased or Otherwise Marketed." The
Company's products include a software component. The Company has expensed all
software development costs to date, and substantially all development costs
have been incurred prior to the Company's products attaining technological
feasibility.
Revenue Recognition
Revenues consist primarily of sales of products to original equipment
manufactures ("OEMs") and distributors. Revenues from sales to OEMs are
recognized upon shipment. The Company provides for estimated sales returns and
allowances related to sales to OEMs at the time of shipment. Revenues from
sales to distributors are made under agreements allowing price protection and
rights of return on unsold products. In the fourth quarter of 1998, the Company
began to record revenue relating to sales to distributors upon sell-through
from the distributor to the end customer. Prior to this change, the Company
recognized revenues upon shipment to distributors, net of reserves for
estimated returns and price protection arrangements. This change did not have a
material effect on the Company's financial statements.
The Company has also generated revenues from engineering contracts. Revenues
from engineering contracts are recognized as contract milestones are achieved.
Royalty revenue is recognized when confirmation of royalties due to the Company
is received from licensees.
Stock-Based Compensation
The Company accounts for stock based compensation in accordance with SFAS
No. 123 "Accounting for Stock-Based Compensation." SFAS No. 123 permits the use
of either a fair value based method or the method defined in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees",
("APB No. 25"), to account for stock-based compensation arrangements. Companies
that elect to employ the valuation method provided in APB No. 25 are required
to disclose the pro forma net income (loss) that would have resulted from the
use of the fair value based method. The Company has elected to continue to
determine the value of stock-based compensation arrangements under the
provisions of APB No. 25 and, accordingly, it has included the pro forma
disclosures required under SFAS No. 123 in Note 8.
Earnings Per Share
The Company computes earnings per share in accordance with SFAS No. 128,
"Earnings Per Share". SFAS No. 128 requires companies to compute net income per
share under two different methods, basic and
F-9
<PAGE>
PC-TEL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
diluted, and present per share data for all periods in which a statement of
operations is presented. Basic earnings per share is computed by dividing net
income per share by the weighted average number of shares of common stock
outstanding.
Diluted earnings per share is computed using the weighted average number of
common stock and common stock equivalents outstanding during the period. Common
stock equivalents consist of preferred stock using the "if converted" method
and stock options and warrants using the treasury stock method. Preferred
stock, common stock options and warrants are excluded from the computation of
diluted earnings per share if their effect is anti-dilutive.
Pursuant to the Securities and Exchange Commission Staff Accounting Bulletin
No. 98, convertible preferred stock and common stock issued or granted for
nominal consideration prior to the anticipated effective date of the proposed
initial public offering must be included in the calculation of basic and
diluted net income per common share as if they had been outstanding for all
periods presented. To date, the Company has not had any issuances or grants for
nominal consideration.
The following table provides a reconciliation of the numerators and
denominators used in calculating basic and diluted earnings per share for the
three years ended December 31, 1998 and for the six months ended June 30, 1998
and June 30, 1999, respectively (in thousands, except per share data):
<TABLE>
<CAPTION>
Six Months
Ended
Year Ended December 31, June 30,
----------------------- ---------------
1996 1997 1998 1998 1999
------- ------- ------- ------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net income............................. $ 3,004 $ 2,301 $ 495 $ 683 $ 2,704
======= ======= ======= ======= =======
Basic earnings per share:
Weighted average common shares
outstanding......................... 627 2,032 2,355 2,320 2,461
------- ------- ------- ------- -------
Basic earnings per share............... $ 4.79 $ 1.13 $ 0.21 $ 0.29 $ 1.10
======= ======= ======= ======= =======
Diluted earnings per share:
Weighted average common shares
outstanding......................... 627 2,032 2,355 2,320 2,461
common stock option grants and
outstanding warrants................ 1,848 1,727 1,518 1,687 1,666
Weighted average preferred stock
outstanding......................... 7,805 7,886 8,452 8,393 8,511
------- ------- ------- ------- -------
Total weighted average common shares
and common stock equivalents........ 10,280 11,645 12,325 12,400 12,638
------- ------- ------- ------- -------
Diluted earnings per share............. $ 0.29 $ 0.20 $ 0.04 $ 0.06 $ 0.21
======= ======= ======= ======= =======
</TABLE>
Comprehensive Income
Effective January 1, 1998, the Company adopted SFAS No. 130 "Reporting
Comprehensive Income." Comprehensive income is to include amounts which have
been previously excluded from net income and reflected instead in stockholders'
equity. For all periods presented, comprehensive income is the same as reported
net income.
The Cost of Computer Software Developed or Obtained for Internal Use
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") No. 98-1 "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use,"
F-10
<PAGE>
PC-TEL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
which the Company adopted in fiscal 1999. SOP No. 98-1 requires entities to
capitalize certain costs related to internal-use software once certain criteria
has been met. The adoption did not have a material impact on the Company's
financial position or results of operations.
Costs of Start-Up Activities
In April 1998, the American Institute of Certified Public Accountants issued
SOP No. 98-5 "Reporting on the Costs of Start-Up Activities," which the Company
adopted in fiscal 1999. SOP No. 98-5 requires that all start-up costs related
to new operations must be expensed as incurred. In addition, all start-up costs
that were previously capitalized must be written off when SOP No. 98-5 is
adopted. The adoption did not have a material impact on the Company's financial
position or results of operations.
Proposed Initial Public Offering
The Board of Directors has approved a plan to file a registration statement
with the Securities and Exchange Commission to register shares of its common
stock in connection with a proposed initial public offering ("IPO"). Costs
incurred by the Company related to the IPO have been recorded within the
consolidated statements of stockholders' equity. If the Company is not able to
complete the IPO, these capitalized costs would be expensed in the consolidated
statements of operations.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
requires certain accounting and reporting standards for derivative financial
instruments and hedging activities. The Company becomes subject to SFAS No. 133
for the first quarter beginning after January 1, 2001. Because the Company does
not currently hold any derivative instruments and does not engage in hedging
activities, the adoption of SFAS No. 133 is not expected to have a material
impact on the financial position or results of operations of the Company.
3. RISKS AND UNCERTAINTIES:
For the year ended December 31, 1998, the Company's purchases of integrated
circuits were primarily concentrated with a limited number of vendors. If these
vendors were unable to provide integrated circuits in a timely manner and the
Company was unable to find alternative vendors, the Company's business,
operating results and financial condition could be adversely affected.
The majority of the Company's revenues are derived from a limited number of
products utilizing host signal processing technology. The market for these
products is characterized by frequent transitions in which products rapidly
incorporate new features and performance standards. A failure to develop
products with required feature sets or performance standards or a delay in
bringing a new product to market could adversely affect the Company's operating
results.
4. ACQUISITIONS:
Communications Systems Division
On December 22, 1998, the Company acquired substantially all of the assets
and certain of the liabilities of Communications Systems Division ("CSD"), a
division of General DataComm, Inc., for a total purchase
F-11
<PAGE>
PC-TEL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
price of approximately $17 million. The acquisition, which was accounted for as
a purchase, was paid for in cash and financed primarily with notes payable. In
conjunction with the acquisition, the Company and one of its wholly owned
subsidiaries entered into Notes Payable arrangements for approximately $16.3
million (Note 5). The consolidated statement of operations for the year ended
December 31, 1998, includes the results of operations of CSD from the date of
acquisition. The excess purchase price over the net tangible assets acquired
was $16.8 million of which $6.1 million was allocated to in-process research
and development and $10.7 million was allocated to other intangible assets.
Amounts allocated to other intangible assets (classified as Goodwill and Other
Intangible Assets, net in the accompanying consolidated balance sheets) include
patents and intellectual property of $8.7 million, work force of $1.3 million
and goodwill of $671,000, all of which are being amortized over their useful
lives which was five years on a weighted average basis. The allocation of
purchase price is a preliminary estimate by management and is subject to
further adjustment.
Upon completion of the CSD acquisition, the Company immediately expensed
$6.1 million representing purchased in-process technology that had not yet
reached technological feasibility and had no alternative future use. The value
assigned to purchased in-process technology, based on a percentage of
completion discounted cash flow method, was determined by identifying research
projects in areas for which technological feasibility has not been established.
The value was determined by estimating the costs to develop the purchased in-
process technology into commercially viable products, estimating the resulting
net cash flows from such projects and discounting the net cash flows back to
their present value. The discount rate includes a risk adjusted discount rate
to take into account the uncertainty surrounding the successful development of
the purchased in-process technology. The valuation includes cash inflows from
in-process technology through 2002 with revenues commencing in 1999 and
increasing significantly in 2000 before declining in 2002. A royalty payment of
3% was assumed from in-process technology to existing technology, based on
management's estimate of a patent license rate. The High Density Remote Access
System and industrial modem projects were approximately 56% complete at the
time of the valuation and the expected timeframe for achieving these product
releases was assumed to be in the second half of 1999. The DSL project was
approximately 56% complete at the time of the valuation and the expected time
frame for achieving this product release is assumed to be in early 2000. The
percentage complete calculations for all projects were estimated based on
research and development expenses incurred to date and management estimates of
remaining development costs. Significant remaining development efforts must be
completed in the next 6 to 18 months in order for CSD's projects to become
implemented in a commercially viable timeframe. If these projects are not
successfully developed, the Company's future revenue and profitability may be
adversely affected. Additionally, the value of other intangible assets acquired
may become impaired.
The unaudited pro forma financial information for the years ended December
31, 1997 and 1998 is presented below as if CSD had been acquired on January 1,
1997.
<TABLE>
<CAPTION>
Year Ended
December 31,
---------------
1997 1998
------- -------
<S> <C> <C>
Revenues.................................................. $28,573 $35,632
Net income................................................ $ 2,272 $ 2,978
Diluted net income per share.............................. $ 0.20 $ 0.24
</TABLE>
5. NOTES PAYABLE:
On December 22, 1998, the Company and one of its wholly owned subsidiaries,
each entered into a note payable arrangement ("the Notes Payable") with a bank.
The Notes Payable are for a total amount of $16.3 million. The Notes Payable
bear interest at the bank's prime interest rate plus 0.5% (8.25% at
December 31, 1998) and are subject to certain financial and non-financial
covenants. In addition, the bank
F-12
<PAGE>
PC-TEL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
received a primary security interest in all assets, including intellectual
property, of the Company. The Notes Payable are to be repaid in 59 equal
monthly installments of approximately $258,000 and a final payment of
approximately $5.9 million in January 2004. The Company will be required to pay
a 3% penalty if the Notes Payable are paid prior to maturity. No payments on
the Notes Payable were required to be made by December 31, 1998.
As of December 31, 1998, the aggregate principal maturities of the Notes
Payable are as follows (in thousands):
<TABLE>
<S> <C>
1999.............................................................. $1,614
2000.............................................................. 1,936
2001.............................................................. 2,111
2002.............................................................. 2,291
2003.............................................................. 2,489
2004.............................................................. 5,882
</TABLE>
In connection with the Notes Payable, the Company issued a warrant to
purchase 200,000 shares of Series C preferred stock at an exercise price of
$8.00 per share. The warrants are immediately exercisable and expire ten years
from the date of issuance. The fair value of the warrants at the date of the
issuance was estimated to be approximately $1.4 million using the Black-Scholes
option pricing model. The Company has recorded the fair value of the warrants
as a deferred charge which will be amortized over the term of the Notes
Payable.
6. COMMITMENTS AND CONTINGENCIES:
The Company leases its facilities under operating leases which expire
through September 2001. In addition, the Company leases certain of its
equipment under capital leases. As of December 31, 1998, the future minimum
lease commitments under all leases were as follows (in thousands):
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------- ---------
<S> <C> <C>
1999..................................................... $29 $ 647
2000..................................................... 4 517
2001..................................................... 4 62
2002..................................................... 3 --
--- ------
Total minimum lease payments............................. 40 $1,226
======
Less: Amounts representing interest...................... (4)
---
Present value of minimum lease payments.................. $36
===
</TABLE>
Rent expense under operating leases for the years ended December 31, 1996,
1997 and 1998 was approximately $139,000, $248,000 and $364,000, respectively.
As of December 31, 1997 and 1998, the Company has accrued royalties of
approximately $6.5 million and $5.1 million, respectively. The Company has
entered into royalty agreements in fiscal 1998 and continues to negotiate
royalty agreements with several other third parties. Accordingly, the Company
has accrued its best estimate of the amount of royalties payable based on
royalty agreements already signed or in negotiation, as well as advice from
patent counsel. Should the final agreements result in royalty rates
significantly different from these assumptions, the Company's business,
operating results and financial condition could be materially and adversely
affected.
During 1998, Motorola, Inc. ("Motorola") filed an action for patent
infringement against the Company (and one other defendant) of seven Motorola
patents. In its complaint, Motorola seeks damages for the
F-13
<PAGE>
PC-TEL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Company's alleged infringement, including treble damages for the Company's
alleged willful infringement and an injunction against the Company. Motorola is
also seeking attorney's fees and costs.
The Company filed an answer to Motorola's complaint denying infringement of
the seven asserted Motorola patents and asserted that each patent is invalid or
unenforceable. In addition, the Company asserted counterclaims and declaratory
relief for invalidity and/or unenforceability and noninfringements of each of
the seven asserted Motorola patents. By its counterclaims, the Company seeks
compensatory and punitive damages, an injunction against Motorola, and an award
of treble damages for Motorola's violation of the Federal and state antitrust
laws, and for violation of Massachusetts General Law. The Company also seeks
its costs and attorney's fees in this action. An initial conference with the
Court under Delaware local rule was held in April 1999 and discovery started in
June 1999.
Due to the nature of litigation generally and because the lawsuit brought by
Motorola is at an early stage, management cannot ascertain the availability of
injunctive relief or other equitable remedies or estimate the total expenses,
possible damages or settlement value, if any, that may ultimately be incurred
in connection with Motorola's suit. However, management believes, based on the
advice of legal counsel, that the Company has meritorious defenses to the
allegations contained in Motorola's complaint. This litigation could be time
consuming and costly, and the Company will not necessarily prevail given the
inherent uncertainties of litigation. In the event that the Company does not
prevail in litigation, the Company could be prevented from selling soft modem
products or be required to enter into royalty or licensing agreements or pay
monetary damages. Such royalty or licensing agreements, if required, may not be
available on terms acceptable to the Company or at all. In the event of a
successful claim against the Company, the Company's financial position and
results of operations could be materially adversely affected.
7. PREFERRED STOCK:
Series A convertible preferred stock ("Series A"), Series B convertible
preferred stock ("Series B") and Series C convertible preferred stock ("Series
C") consist of the following, net of issuance costs (dollars in thousands):
<TABLE>
<CAPTION>
December 31,
--------------
June 30,
1997 1998 1999
------ ------ -----------
(unaudited)
<S> <C> <C> <C>
Series A:
$0.001 par value; Authorized--4,635,548
Outstanding--4,635,548 shares; liquidation pref-
erence of $1,113................................ $ 5 $ 5 $ 5
Series B:
$0.001 par value; Authorized--3,250,000
Outstanding--3,250,000 shares; liquidation pref-
erence of $3,900................................ 3 3 3
Series C:
$0.001 par value; Authorized--1,500,000
Outstanding or subscribed--625,200 shares;
liquidation preference of $5,002................ 1 1 1
------ ------ ---
$ 9 $ 9 $ 9
====== ====== ===
</TABLE>
The Series C preferred stock was subscribed as of December 31, 1997 and was
subsequently issued, and payment was received, in February 1998. Accordingly, a
subscription receivable of approximately $5.0 million was recorded as a current
asset at December 31, 1997 in the accompanying consolidated balance sheets.
F-14
<PAGE>
PC-TEL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The rights, restrictions and preferences of the Series A, Series B and
Series C (collectively "convertible preferred stock") are as follows:
. In the event of any liquidation, dissolution or winding up of the
Company, either voluntary or involuntary, the holders of Series C shares
shall be entitled to receive $8.00 per share, prior and in preference to
any distribution of the assets or surplus funds to the holders of Series
A, Series B and common stock, plus all declared but unpaid dividends on
each share of Series C. After payment of the full amount due to the
holders of Series C, the holders of Series A and Series B shall be
entitled to receive, prior to any distribution of the Company's assets or
property to the holders of common stock, the amount of $0.24 and $1.20
per share, respectively, plus all declared but unpaid dividends on each
share of Series A and Series B. The Series A and Series B shall rank on
parity as to the receipt of any respective preferential amount for Series
A and Series B shares. After payment of the full amount to Series A,
Series B and Series C shareholders, the holders of common stock shall be
entitled to receive an amount per share equal to $82,000 divided by the
number of common shares outstanding at the time of distribution
(excluding shares of common then issuable upon conversion of the
convertible preferred stock). Any remaining assets shall be distributed
ratably to the holders of convertible preferred stock and common stock,
each share of preferred being treated as the number of shares of common
into which it could then be converted.
. Each share of convertible preferred stock is convertible, at the option
of the shareholder, into one share of common stock, subject to
adjustments to prevent dilution as provided in the respective stock
agreements.
. The holders of convertible preferred stock are entitled to the number of
votes equal to the number of shares of common stock into which each share
of convertible preferred stock could be converted.
. Each share of convertible preferred stock will automatically convert into
common stock in the event of the closing of an underwritten public
offering of the Company's common stock from which the Company receives
gross proceeds in excess of $15,000,000 and for which the offering price
is not less than $16.00 per share.
. Each convertible preferred stock shareholder is entitled to receive
annual dividends at a rate of $0.019 per Series A share, $0.096 per
Series B share and $0.64 per Series C share when, and if, declared by the
Board of Directors. No dividends shall be paid on shares of Series A or
Series B or common stock until total dividends have been paid, declared
or set apart for Series C shareholders. Series A, Series B and Series C
shareholders shall receive dividends prior to payment of dividends on
common stock. Dividends are non-cumulative. No dividends have been
declared to date.
8. COMMON STOCK:
As of June 30, 1999, the Company had reserved shares of its common stock for
future issuance as follows (unaudited):
<TABLE>
<S> <C>
Conversion of Series A preferred stock............................ 4,635,548
Conversion of Series B preferred stock............................ 3,250,000
Conversion of Series C preferred stock............................ 625,200
Conversion of Series C and common stock warrants.................. 202,417
1995 and 1997 Stock Option Plans.................................. 4,208,670
Director Option Plan and Employee Stock Purchase Plan............. 1,000,000
----------
13,921,835
==========
</TABLE>
F-15
<PAGE>
PC-TEL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Unaudited Pro Forma Stockholders' Equity
The Board of Directors have authorized the filing of a registration
statement with the Securities and Exchange commission to register shares of its
common stock in connection with a proposed initial public offering ("IPO"). If
the IPO is consummated under the terms presently anticipated, all of the
currently outstanding preferred stock will be converted into 8,510,748 shares
of common stock upon the closing of the IPO. The effect of the conversion has
been reflected as unaudited pro forma stockholders' equity in the accompanying
balance sheet as of June 30, 1999.
Stock Option Plans
The Company has two stock option plans, the 1995 Stock Option Plan ("1995
Plan") and the 1997 Stock Option Plan ("1997 Plan"). Under the 1995 Plan and
the 1997 Plan, the Board of Directors may grant to employees and consultants
options and/or purchase rights to purchase the Company's common stock at terms
and prices determined by the Board of Directors. The number of authorized
shares available for issuance under the 1995 Plan was 3,200,000. As of December
31, 1998, the number of shares that remain available to be granted under the
1995 Plan is 152,673. The number of authorized shares available for issuance
under the 1997 Plan is 3,500,000. As of December 31, 1998, the number of shares
that remain available to be granted under the 1997 Plan is 1,049,772.
In May 1998, the Board of Directors approved an increase in the number of
authorized shares available for issuance under the 1997 Plan to 4,500,000
shares of common stock. In August 1999, the Board of Directors approved the
amendment and restatement of the 1997 Plan and approved an additional increase
in the number of authorized shares available for issuance under the 1997 Plan
to 5,500,000 shares of common stock. The increase to 5,500,000 authorized
shares requires stockholder approval. The number of authorized shares under the
1997 Plan will increase annually by an amount equal to the lesser of (i)
700,000 shares, (ii) 4% of the outstanding shares on such date or (iii) a
lesser amount determined by the Board of Directors. The exercise price and
vesting of all grants are to be determined by the Board of Directors. Options
granted under the 1997 Plan expire 10 years from the date of grant. The 1997
Plan will terminate in 2007.
1998 Director Option Plan ("Directors Plan")
The Directors Plan will not become effective until the effectiveness of the
proposed initial public offering. A total of 200,000 shares of common stock
have been reserved for issuance under the Directors Plan. The 1998 Director's
Plan provides for the automatic grant of 15,000 shares of common stock to each
new non-employee director upon election to the Board of Directors. The 15,000
share options will vest one-third as of each anniversary of its date of grant
until the option is fully vested, provided that the optionee continues to serve
as a director on such dates. After the initial 15,000 share option is granted
to the non-employee director, he or she shall automatically be granted an
option to purchase 7,500 shares each year on January 1, if on such date he or
she shall have served on the Board of Directors for at least six months. The
7,500 share options shall vest completely on the anniversary of their date of
grant, provided that the optionee continues to serve as a director on such
dates. All of the options granted under the 1998 Director's Plan shall have a
term of 10 years. The exercise price of all options shall be 100% of the fair
market value per share of the common stock, generally determined with reference
to the closing price of the common stock as reported on the Nasdaq National
Market on the date of grant.
Employee Stock Purchase Plan ("Purchase Plan")
In May 1998, a total of 800,000 shares of common stock were reserved for
future issuance under the Purchase Plan, plus annual increases equal to the
lesser of (i) 350,000 shares (ii) 2% of the outstanding shares on such date or
(iii) a lesser amount determined by the Board of Directors. The Purchase Plan
will enable eligible employees to purchase common stock at the lower of 85% of
the fair market value of the Company's
F-16
<PAGE>
PC-TEL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
common stock on the first or last day of each six-month offering period. The
first offering period will begin upon the closing date of the proposed initial
public offering. The Purchase Plan will terminate in 2008.
Nonqualified options granted under the 1995 Plan and 1997 Plan must be
issued at a price equal to at least 85% of the fair market value of the
Company's common stock at the date of grant. The options may be exercised at
any time within ten years of the date of grant or within ninety days of
termination of employment, or such shorter time as may be provided in the stock
option agreement, and vest over a vesting schedule determined by the Board of
Directors.
Deferred Compensation
In connection with the grant of certain stock options to employees during
fiscal 1998 and the six months ended June 30, 1999, the Company recorded
deferred compensation of $257,000 and $2.1 million, respectively, representing
the difference between the estimated fair value of the common stock for
accounting purposes and the option exercise price of such options at the date
of grant. Such amount is presented as a reduction of stockholders' equity and
is amortized ratably over the vesting period of the applicable options. During
1996, the Company granted options to purchase shares of common stock at an
exercise price below the fair value of the Company's common stock at the date
of grant. Compensation expense of $41,000 was recognized in relation to those
grants in the year ended December 31, 1996. The amortization expense relates to
options awarded to employees in all operating expense categories. The
amortization of deferred compensation has not been separately allocated to
these categories. The amount of deferred compensation expense to be recorded in
future periods could decrease if options for which accrued but unvested
compensation has been recorded are forfeited.
Valuation of Stock Options
Pro forma information regarding net income and net income per share is
required by SFAS No. 123 and has been determined as if the Company had
accounted for its stock options under the fair value method of SFAS No. 123.
The fair value for the stock options was estimated at the date of grant using
the Black-Scholes option pricing model with the following assumptions for
fiscal years 1996, 1997 and 1998: risk-free interest rates in the range of 5.2%
to 6.5%; dividend yields of zero; an estimated volatility factor of the market
price of the Company's common stock in the range of 40% to 55%; and an expected
life of the option of six months after vest date. The weighted-average
estimated fair value of options granted during fiscal 1996, 1997 and 1998 was
$0.37, $2.32 and $3.43 per share, respectively.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility and
expected option life. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options.
F-17
<PAGE>
PC-TEL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the option vesting periods. The Company's
pro forma net income (loss) would have been approximately $3.0 million, $2.0
million and $(984,000) for fiscal years 1996, 1997 and 1998, respectively. Pro
forma diluted net income (loss) per share would have been $0.29, $0.17 and
($0.42) for fiscal years 1996, 1997 and 1998, respectively.
The following table summarizes stock option activity under the 1995 Plan and
1997 Plan:
<TABLE>
<CAPTION>
Options Outstanding
----------------------------
Options Weighted Average
Available Shares Exercise Price
---------- ---------- ----------------
<S> <C> <C> <C>
Balance, December 31, 1995........ 437,003 2,762,997 $0.02
Granted......................... (674,670) 674,670 $0.26
Exercised....................... -- (1,454,999) $0.02
Forfeited....................... 237,667 (237,667) $0.05
---------- ---------- -----
Balance, December 31, 1996........ -- 1,745,001 $0.12
Authorized...................... 1,500,000 --
Granted......................... (1,172,830) 1,172,830 $2.32
Exercised....................... -- (753,991) $0.03
Forfeited....................... 95,590 (95,590) $0.91
---------- ---------- -----
Balance, December 31, 1997........ 422,760 2,068,250 $1.36
Authorized...................... 2,000,000 -- --
Granted......................... (1,393,900) 1,393,900 $8.13
Exercised....................... -- (203,257) $0.17
Forfeited....................... 173,585 (173,585) $2.52
---------- ---------- -----
Balance, December 31, 1998........ 1,202,445 3,085,308 $4.43
Granted (unaudited)............. (893,193) 893,193 $9.83
Exercised (unaudited)........... -- (79,083) $0.12
Forfeited (unaudited)........... 83,708 (83,708) $7.18
---------- ---------- -----
Balance, June 30, 1999
(unaudited)...................... 392,960 3,815,710 $5.72
========== ========== =====
</TABLE>
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------- ---------------------------
Number Weighted- Number
Outstanding at Average Weighted- Exercisable Weighted-
Range of December 31, Remaining Average Exercise December 31, Average
Exercise Prices 1998 Contractual Life (Years) Price 1998 Exercise Price
- --------------- -------------- ------------------------ ---------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
$0.02-$0.12 389,583 7.09 $0.07 307,832 $0.05
$0.48-$0.48 528,000 8.00 $0.48 283,190 $0.48
$1.25-$2.00 423,200 8.10 $1.40 197,721 $1.39
$2.35-$3.50 244,000 8.33 $3.01 99,968 $3.00
$4.50-$4.85 87,500 9.12 $4.76 8,438 $4.50
$7.45-$9.25 1,413,025 9.32 $8.24 30,355 $7.45
--------- -------
3,085,308 $4.43 927,504
========= =======
</TABLE>
Warrants
In connection with the issuance of the Series C preferred stock, the Company
issued warrants to a Company advisor to acquire 31,260 shares of common stock
at $6.96 per share. The warrants expired unexercised in February 1999. The fair
value of this warrant at the date of issuance was $50,000 and this
F-18
<PAGE>
PC-TEL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
amount has been included as an issuance cost of the Series C preferred stock.
The Company also issued warrants to acquire 2,417 shares of common stock at
$8.00 in February 1998. The warrants expire in February 2001 and the fair value
at the date of issuance was not material. See Note 5 for warrants to purchase
200,000 shares of Series C preferred stock issued in conjunction with the
Company's Notes Payable arrangements.
9. INCOME TAXES:
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". SFAS No. 109 requires that deferred taxes be
calculated using an asset and liability approach under which deferred income
taxes are provided based upon enacted tax laws and rates applicable to the
periods in which the taxes become payable.
The domestic and foreign components of income before provision for income
taxes were as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1996 1997 1998
-------- ------- --------
<S> <C> <C> <C>
Domestic........................................ $ 4,009 $ 2,438 ($1,390)
Foreign......................................... -- 818 2,097
-------- ------- --------
$ 4,009 $ 3,256 $ 707
======== ======= ========
The provision for income taxes consisted of the following (in thousands):
<CAPTION>
Year Ended December 31,
---------------------------
1996 1997 1998
-------- ------- --------
<S> <C> <C> <C>
Current:
Federal....................................... $ 2,848 $ 827 $ 1,188
State......................................... 646 237 482
Foreign....................................... -- 82 67
-------- ------- --------
3,494 1,146 1,737
-------- ------- --------
Deferred:
Federal....................................... (2,152) (240) (942)
State......................................... (337) 49 (583)
-------- ------- --------
(2,489) (191) (1,525)
-------- ------- --------
$ 1,005 $ 955 $ 212
======== ======= ========
The provision for income taxes differs from the amount computed by applying
the Federal statutory income tax rate as follows (in thousands):
<CAPTION>
Year Ended December 31,
---------------------------
1996 1997 1998
-------- ------- --------
<S> <C> <C> <C>
Provision at Federal statutory rate............. $ 1,403 $ 1,140 $ 247
State income tax, net of Federal benefit........ 241 95 25
Change in valuation allowance................... (577) -- --
Foreign taxes in excess of statutory rate....... -- 82 67
R & D credit.................................... -- (224) (310)
Other........................................... (62) (138) 183
-------- ------- --------
$ 1,005 $ 955 $ 212
======== ======= ========
</TABLE>
F-19
<PAGE>
PC-TEL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The net deferred tax asset consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------
1997 1998
------ ------
<S> <C> <C>
Accrued royalties............................................. $2,070 $1,152
Inventory reserve............................................. 58 262
Deferred amortization of purchased assets..................... -- 2,302
California income tax payable................................. 82 --
Other cumulative temporary differences........................ 470 489
------ ------
$2,680 $4,205
====== ======
</TABLE>
Other cumulative temporary differences consist of items currently deductible
for financial reporting purposes, but not for tax purposes. These items are
primarily estimated reserves and accruals. The realization of the deferred tax
asset is dependent on generating sufficient taxable income in future years.
Although realization is not assured, management believes it is more likely than
not that the deferred tax asset will be realized. The amount of the deferred
tax asset considered realizable, however, could be reduced in the near term if
estimates of future taxable income during future years is reduced.
10. RELATED PARTY TRANSACTIONS:
The President of a significant customer of the Company was a member of the
Company's Board of Directors from inception to November 1, 1997. For the years
ended December 31, 1996 and 1997, revenues generated from sales to this related
party customer were approximately $1.7 million and $2.2 million, respectively.
11. INDUSTRY SEGMENT, CUSTOMER AND GEOGRAPHIC INFORMATION:
Effective January 1, 1998, the Company adopted SFAS No. 131, ("SFAS 131")
"Disclosures About Segments of an Enterprise and Related Information." SFAS No.
131 establishes standards for business segments of a company and related
disclosures. The Company is organized based upon the nature of the products it
offers. Under this organizational structure, the Company operates in one
segment, that segment being software-based modems using host signal processing
technology. The Company markets its products worldwide through its sales
personnel, independent sales representatives and distributors.
The Company's sales to customers outside of the United States, as a percent
of total revenues, are as follows:
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
--------------------------- -------------------
1996 1997 1998 1998 1999
------- ------- ------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Taiwan................... 37% 46% 48% 62% 21%
China (Hong Kong)........ 15% 20% -- -- 47%
Singapore................ 19% 9% -- -- 2%
Rest of Asia............. 3% 2% 28% 15% 29%
Other.................... 9% 2% 1% 3% --
------- ------- ------- -------- --------
83% 79% 77% 80% 99%
======= ======= ======= ======== ========
</TABLE>
F-20
<PAGE>
PC-TEL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Sales to major customers representing greater than 10% of total revenues are
as follows:
<TABLE>
<CAPTION>
Six Months
Year Ended December 31, Ended June 30,
--------------------------- -----------------
Customer 1996 1997 1998 1998 1999
-------- ------- ------- ------- ------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
A, related party (See
Note 10)................ 10% 9% 13% 5% --
B........................ 16% 4% 12% 21% 6%
C........................ 5% 6% 15% 11% 10%
D........................ 22% 20% 4% 15% 1%
E........................ 13% -- -- -- --
F........................ -- 18% 12% 12% 3%
G........................ -- -- 8% -- 20%
H........................ -- -- 3% -- 42%
</TABLE>
As of December 31, 1997, the Company's long-lived assets were primarily
located in the United States. The Company's long-lived assets, comprising
primarily intangible assets, by geographic region as of December 31, 1998 and
June 30, 1999 are as follows:
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
------------ -----------
(unaudited)
<S> <C> <C>
United States....................................... $5,357 $5,314
Cayman Islands...................................... $8,178 $7,399
</TABLE>
F-21
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Management of
General DataComm, Inc.:
In our opinion, the accompanying balance sheets and the related statements
of income and divisional equity and of cash flows present fairly, in all
material respects, the financial position of the Communications Systems
Division, a division of General DataComm, Inc., at September 30, 1998 and 1997,
and the results of its operations and its cash flows for each of the years then
ended, in conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers LLP
Stamford, Connecticut
December 15, 1998
F-22
<PAGE>
COMMUNICATIONS SYSTEMS DIVISION
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
-------------
1998 1997
------ ------
(in
thousands)
<S> <C> <C>
ASSETS
Assets:
Fixed assets, net.............................................. $ 119 $ 117
Capitalized software........................................... 1,993 1,359
Security deposit and accrued interest.......................... 8 --
Patents........................................................ -- --
------ ------
Total assets................................................. $2,120 $1,476
====== ======
LIABILITIES
Liabilities:
Income taxes payable........................................... $ 568 $ 940
Deferred income tax liabilities................................ 251 535
------ ------
Total liabilities............................................ 819 1,475
------ ------
Divisional Equity................................................ 1,301 1
------ ------
Total liabilities and divisional equity...................... $2,120 $1,476
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE>
COMMUNICATIONS SYSTEMS DIVISION
STATEMENTS OF INCOME AND DIVISIONAL EQUITY
<TABLE>
<CAPTION>
For the years
ended
September 30,
-------------
1998 1997
------ ------
(in
thousands)
<S> <C> <C>
Licensing revenues............................................... $3,531 $4,564
Operating Expenses:
General and Administrative..................................... 135 83
Selling and Marketing.......................................... 174 146
Research and Development....................................... 1,209 685
------ ------
1,518 914
Net income before income taxes................................... 2,013 3,650
Income tax provision............................................. 819 1,475
------ ------
Net income..................................................... $1,194 $2,175
Divisional equity at beginning of year........................... $ 1 $ 133
Cash transfer from (to) parent................................... 106 (2,307)
------ ------
Divisional equity at end of year............................... $1,301 $ 1
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE>
COMMUNICATIONS SYSTEMS DIVISION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years
ended
September 30,
--------------
1998 1997
------ ------
(in
thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income................................................... $1,194 $2,175
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation expense....................................... 78 62
Increase in security deposit............................... (8) --
(Decrease) increase in income taxes payable................ (372) 940
(Decrease) increase in deferred income taxes............... (284) 526
------ ------
Net cash provided by operating activities................ 608 3,703
------ ------
Cash flows from investing activities:
Acquisition of property, plant and equipment................. (80) (37)
Capitalized software development costs....................... (634) (1,359)
------ ------
Net cash used in investing activities.................... (714) (1,396)
Net cash borrowed from (transferred to) GDC.................. 106 (2,307)
------ ------
Net increase in cash and cash equivalents................ -- --
Cash and cash equivalents at beginning of year................. -- --
------ ------
Cash and cash equivalents at end of year....................... $ -- $ --
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE>
COMMUNICATIONS SYSTEMS DIVISION
NOTES TO FINANCIAL STATEMENTS
1. Description of Business and Summary of Significant Accounting Policies
Description of Business
Communications Systems Division (the "Company") is a division of General
DataComm, Inc., which is a subsidiary of General DataComm Industries, Inc.
("GDC"). The Company, which is principally comprised of scientists and
engineers, develops, patents and licenses advanced modem and access
technologies.
Basis of Presentation
The Company's balance sheets and statements of operations include assets,
liabilities, revenues and expenses that are specifically identifiable to the
Company. In addition, GDC provides certain services, as discussed in Note 6,
which are allocated to the Company.
Cash
All cash balances are transferred to GDC as they arise.
Property, Plant and Equipment
Property, plant and equipment are stated at cost and depreciated or
amortized using the straight-line method over their estimated useful lives.
Capitalized Software Development Costs
Software development costs are capitalized for those products that have met
the requirements of technological feasibility. When the products under
development begin to be sold, such capitalized costs will be amortized on a
product-by-product basis over the estimated economic life of the product. No
amortization was recorded in either fiscal 1998 or fiscal 1997 as the products
in development had reached the technological feasibility stage but had not
reached the marketability stage. Unamortized costs are reviewed for
recoverability and, if necessary, are adjusted so as not to exceed estimated
net realizable value.
Patents
The Company holds various technology patents. The third party cost of these
patents has been fully amortized. Registration costs are expensed as incurred.
Revenue Recognition
The Company has entered into numerous technology licensing agreements
whereby licensees pay the Company fees for the use or sale of specific patented
technology. Technology licensing fee revenue is recognized in the period
received, or alternatively, may be accrued when readily determinable.
Income Taxes
Income taxes are calculated in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." This
statement requires that deferred income taxes reflect the impact of temporary
differences in bases of assets and liabilities recognized for financial
reporting purposes and amounts recognized for tax purposes. As a division, the
Company is included in the consolidated income tax returns of GDC, however, the
Company's provision for income taxes has been calculated on a separate return
basis.
F-26
<PAGE>
COMMUNICATIONS SYSTEMS DIVISION
NOTES TO FINANCIAL STATEMENTS--(Continued)
Employee Benefits and Incentive Plans
The Company's employees participate in plans for post-retirement benefits,
post-employment benefits, stock option plans, and retirement savings and
deferred profit sharing plans, which are sponsored by GDC. No assets,
liabilities or expenses have been reflected in the balance sheets and
statements of operations related to the post-retirement and post-employment
plans, as it is not practical to segregate these amounts.
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 and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods presented. Actual results could differ from those estimates.
For example, the markets the Company is involved in are characterized by
intense competition, rapid technological development and frequent new product
introductions, all of which could impact the future value of the Company's
capitalized software.
2. Property, Plant and Equipment
Property, plant and equipment consists of:
<TABLE>
<CAPTION>
September
30,
--------- Estimated
1998 1997 Useful Life
---- ---- -------------
<S> <C> <C> <C>
Test equipment and fixtures, office equipment...... $651 $578 2 to 10 years
Less: accumulated depreciation................... 532 461
---- ----
$119 $117
==== ====
</TABLE>
Depreciation expense amounted to $78 and $62 in fiscal 1998 and 1997,
respectively.
3. Income Taxes
For purposes of the financial statements, income taxes are provided on a
stand-alone basis as if the Company is a separate entity.
The provision for income taxes consists of the following amounts:
<TABLE>
<CAPTION>
September
30,
-----------
1998 1997
---- ------
<S> <C> <C>
Current:
State.......................................................... $146 $ 246
Federal........................................................ 422 694
---- ------
568 940
Deferred:
State.......................................................... $ 66 $ 144
Federal........................................................ 185 391
---- ------
251 535
---- ------
Total provision.............................................. $819 $1,475
==== ======
</TABLE>
F-27
<PAGE>
COMMUNICATIONS SYSTEMS DIVISION
NOTES TO FINANCIAL STATEMENTS--(Continued)
The tax effects of temporary differences which give rise to deferred income
tax assets and liabilities consisted of the following:
<TABLE>
<CAPTION>
September
30,
------------
1998 1997
----- -----
<S> <C> <C>
Deferred income tax assets:
Property, plant and equipment............................... $ 3 $ 8
Deferred income tax liabilities:
Capitalized software........................................ (254) (543)
----- -----
Net deferred income tax liabilities....................... $(251) $(535)
===== =====
</TABLE>
4. Operating Leases
GDC entered into an operating lease on June 1, 1998 to provide separate
facilities for the operation of the Company. Such lease expires in May 2001.
The lease contains renewal options and provisions for payment by the lessee of
executory costs (taxes, maintenance and insurance).
The following is a schedule of the future minimum payments under the lease
as of September 30, 1998:
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
1999 $50
2000 50
2001 33
</TABLE>
Rent expense under the lease was $17 for the year ended September 30, 1998.
Prior to June 1, 1998, the operations of the Company were conducted in
facilities shared with other GDC operations. The amounts allocated by GDC,
which are included in the statements of income, were $74 and $100 for
September 30, 1998 and 1997, respectively.
5. Employment Incentive Plans
Stock Option Plans
Officers and key employees of GDC may be granted incentive stock options at
an exercisable price equal to or greater than the market price on the date of
grant and non-incentive stock options at an exercisable price equal to or less
than the market price on the date of grant. While individual options can be
issued under various provisions, most options, once granted, generally vest in
increments of 25% per year over a four-year period and expire within ten
years.
F-28
<PAGE>
COMMUNICATIONS SYSTEMS DIVISION
NOTES TO FINANCIAL STATEMENTS--(Continued)
The following summarizes activity related to the Company in fiscal 1997 and
1998 under these stock option plans:
<TABLE>
<CAPTION>
Weighted
Average
Shares Exercise Price
------- --------------
<S> <C> <C>
Options outstanding, September 30, 1996 (10,497
exercisable)..................................... 79,747 $6.49
Options granted................................... 86,530 7.44
Options exercised................................. -- --
Options cancelled or expired...................... (53,890) 6.50
------- -----
Options outstanding, September 30, 1997 (20,097
exercisable)..................................... 112,387 6.60
Options granted................................... 85,750 4.32
Options exercised................................. -- --
Options cancelled or expired...................... (11,450) 7.14
------- -----
Options outstanding, September 30, 1998 (30,632
exercisable)..................................... 186,687 $6.96
======= =====
</TABLE>
The following summarizes additional information related to the Company
regarding options outstanding and exercisable options as of September 30, 1998:
<TABLE>
<CAPTION>
Options Outstanding at September Options Exercisable at
30, 1998 September 30, 1998
----------------------------------- Weighted ------------------------
Weighted Average Weighted
Number Average Contractual Average
Exercise of Exercise Life Number Contractual
Prices Shares Price (Years) of Shares Price
-------- ------- -------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
$ 3.38-$ 4.81 65,947 $ 3.81 9.47 197 $ 4.81
$ 5.25-$ 6.75 89,540 6.34 7.98 19,035 5.63
$ 7.31-$ 9.63 25,700 8.95 7.46 9,900 6.83
$10.00-$15.50 5,500 10.92 7.69 1,500 11.83
------- ------ ---- ------ ------
186,687 $ 6.96 8.43 30,632 $ 6.96
</TABLE>
The weighted average option price of exercisable options was $6.96 and $6.60
at September 30, 1998 and 1997, respectively. All options granted during the
two fiscal years ended September 30, 1998 were granted at an option price equal
to fair market value at date of grant.
Employee Retirement Savings and Deferred Profit Sharing Plan
Under the retirement savings provisions of GDC's retirement plan established
under Section 401(k) of the Internal Revenue Code, employees are generally
eligible to contribute to the plan after three months of continuous service, in
amounts determined by the plan. GDC contributes an additional 50 percent of the
employee contribution up to certain limits (not to exceed 2 percent of total
eligible compensation). Employees become fully vested in GDC's contributions
after three years of continuous service, death, disability or upon reaching age
65. The amounts contributed related to the Company's employees for the years
ended September 30, 1998 and 1997 were $28 and $33, respectively.
The deferred profit sharing provisions of the plan include retirement and
other related benefits for substantially all of GDC's full-time employees.
Contributions under the plan are funded annually and are based, at a minimum,
upon a formula measuring profitability in relation to revenues. Additional
amounts may be contributed at the discretion of GDC. There were no such
contributions for fiscal 1998 or 1997.
F-29
<PAGE>
COMMUNICATIONS SYSTEMS DIVISION
NOTES TO FINANCIAL STATEMENTS--(Continued)
6. Related Party Transactions and Net Equity
The Company is comprised of intellectual property and property, plant and
equipment and certain employees that GDC has contributed to the business. All
of the Company's cash transactions are managed by GDC. All intercompany
accounts which represent all contributed property and the net amounts funded by
GDC to date are included in divisional equity.
In addition, in fiscal 1998 and fiscal 1997, the Company performed product
development work on behalf of GDC. The cost of such work, estimated to be $434
and $480, respectively in fiscal 1998 and fiscal 1997, has been excluded from
the operating costs included in the Company's statements of income, as these
costs have been fully reimbursed by GDC.
GDC provides accounting, treasury, tax and audit, legal, medical and risk
insurance services and various other services to the Company. An allocation
related to these costs has been made and is included in the statements of
income.
F-30
<PAGE>
PC-TEL, INC. AND COMMUNICATIONS SYSTEMS DIVISION
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(unaudited)
In December 1998, PC-Tel, Inc. (the "Company" or "PC-Tel") completed the
acquisition of substantially all the assets and certain liabilities of
Communications Systems Division, a division of General DataComm, Inc., a
Delaware corporation ("CSD"). CSD develops patents and licenses advanced modem
and access technologies. The acquisition of CSD has been accounted for as a
purchase.
The accompanying pro forma condensed combined statement of operations for
PC-Tel's fiscal year ended December 31, 1998 assumes that the acquisition took
place as of January 1, 1998, and combines PC-Tel's statement of operations for
the year ended December 31, 1998 and CSD's statement of operations for its
fiscal year ended September 30, 1998. No pro forma condensed balance sheet is
required as the acquisition of CSD took place in December 1998 and is already
reflected in PC-Tel's consolidated balance sheet as of December 31, 1998,
included elsewhere in this Prospectus. The pro forma condensed combined
statement of operations for the year ended December 31, 1998 does not include
the effect of any nonrecurring charges directly attributable to the
acquisition.
The purchase price allocation reflected in the accompanying pro forma
condensed combined statement of operations has been prepared on an estimated
basis. The effects resulting from any differences in the final allocation of
the purchase price are not expected to have a material effect on the Company's
financial statements.
The accompanying pro forma condensed combined statement of operations should
be read in conjunction with the historical financial statements and related
notes thereto for both PC-Tel and CSD, which are included in this Prospectus.
P-1
<PAGE>
PC-TEL, INC. AND COMMUNICATIONS SYSTEMS DIVISION
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31, 1998
---------------------------------------------
Historical Historical Pro Forma Pro Forma
PC-Tel CSD(a) Adjustments Combined
---------- ---------- ----------- ---------
(unaudited)
<S> <C> <C> <C> <C>
REVENUES $33,004 $3,531 $ (903)(b) 35,632
COST OF REVENUES................ 13,878 -- (2,162)(c) 16,040
------- ------ -------
GROSS PROFIT.................... 19,126 3,531 19,592
------- ------ -------
OPERATING EXPENSES:
Research and development...... 4,932 1,209 6,141
Sales and marketing........... 5,624 174 5,798
General and administrative.... 2,169 135 2,304
Acquired in-process research
and development.............. 6,130 -- (6,130)(d) --
Amortization of deferred
compensation................. 43 -- 43
------- ------ -------
Total operating expenses.... 18,898 1,518 14,286
------- ------ -------
INCOME FROM OPERATIONS.......... 228 2,013 5,306
------- ------ -------
OTHER INCOME (EXPENSE), net:
Interest income............... 504 -- 504
Interest expense.............. (25) -- (1,530)(e) (1,555)
------- ------ -------
Total other income
(expense), net............. 479 -- (1,051)
------- ------ -------
INCOME BEFORE PROVISION FOR
INCOME TAXES................... 707 2,013 4,255
PROVISION FOR INCOME TAXES...... 212 819 246 (f) 1,277
------- ------ -------
NET INCOME...................... $ 495 $1,194 $ 2,978
======= ====== =======
BASIC NET INCOME PER SHARE...... $ 0.21 $ 1.26
======= =======
DILUTED NET INCOME PER SHARE.... $ 0.04 $ 0.24
======= =======
SHARES USED IN COMPUTING BASIC
EARNINGS PER SHARE............. 2,355 2,355
SHARES USED IN COMPUTING DILUTED
EARNINGS PER SHARE............. 12,325 12,325
</TABLE>
P-2
<PAGE>
PC-TEL, INC. AND COMMUNICATIONS SYSTEMS DIVISION
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(unaudited)
Note 1. Pro Forma Adjustments
Certain pro forma adjustments have been made to the accompanying pro forma
condensed combined statement of operations as described below:
(a) Includes CSD's historical condensed statement of operations for the
year ended September 30, 1998.
(b) Reflects the elimination of revenues from licensing arrangements
between the Company and CSD.
(c) Reflects the amortization of goodwill and other intangibles acquired
of $10.8 million for CSD which will be amortized on a straight line basis
over their estimated weighted average useful lives of five years.
(d) Eliminates the acquired in-process research and development expense
of approximately $6.1 million associated with the acquisition of CSD.
(e) Reflects the interest expense and amortization of deferred finance
charges on the debt incurred for the CSD acquisition.
(f) Reflects adjustment to record a provision for income taxes in
accordance with PC-Tel's effective tax rate for fiscal 1998.
P-3
<PAGE>
Inside back cover
Background of space shot of planet earth. Text captions "PCtel Technology for
connectivity," "Broadband," "Wireless," "Remote Access," "Analog," and
"solutions"
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4,600,000 Shares
[ PCtel Logo appears here ]
----------------
Prospectus
, 1999
----------------
Banc of America Securities LLC
Warburg Dillon Read LLC
Needham & Company, Inc.
Until , 1999, all dealers that buy, sell or trade the common stock
may be required to deliver a prospectus, regardless of whether they are
participating in this offering. This is in addition to the dealers' obligation
to deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by PC-Tel in connection with
the sale of common stock being registered. All amounts are estimates except the
SEC registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee................................................ $ 23,530
NASD filing fee..................................................... 9,000
Nasdaq National Market listing fee.................................. 90,000
Printing and engraving costs........................................ 150,000
Legal fees and expenses............................................. 790,000
Accounting fees and expenses........................................ 300,000
Blue sky fees and expenses.......................................... 15,000
Transfer agent and registrar fees................................... 17,000
Directors and officers insurance.................................... 300,000
Miscellaneous expenses.............................................. 105,470
----------
Total............................................................. $1,800,000
==========
</TABLE>
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law permits a corporation to
include in its charter documents, and in agreements between the corporation and
its directors, officers and controller provisions expanding the scope of
indemnification beyond that specifically provided by the current law.
Article Ninth of our amended and restated certificate of incorporation
provides for the indemnification of directors and officers to the fullest
extent permissible under Delaware law.
Article VI of our bylaws provides for the indemnification of officers,
directors and third parties acting on behalf of PC-Tel if such person acted in
good faith and in a manner reasonably believed to be in and not opposed to our
best interest, and, with respect to any criminal action or proceeding, the
indemnified party had no reason to believe his or her conduct was unlawful.
We have entered into indemnification agreements with our directors and
executive officers, in addition to indemnification provided for in our bylaws,
and intended to enter into indemnification agreements with any new directors
and executive officers in the future. The indemnification agreements may
require us, among other things, to indemnify our directors and officers against
certain liability that may arise by reason of their status or service as
directors and officers (other than liabilities arising from willful misconduct
of culpable nature), to advance their expenses incurred as a result of any
proceeding against them as to which they could be indemnified, and to obtain
directors and officers' insurance, if available on reasonable terms.
Reference is also made to Section 8 of the Underwriting Agreement contained
in Exhibit 1.1 hereto, indemnifying officers and directors of PC-Tel against
certain liabilities.
Item 15. Recent Sales of Unregistered Securities
Since inception, we have issued unregistered securities to a limited number
of persons, as described below. None of these transactions involved any
underwriters, underwriting discounts or commissions, or any public offering,
and we believe that each transaction was exempt from the registration
requirements of the Securities Act by virtue of Section 4(2) thereof,
Regulation D promulgated thereunder or Rule 701 pursuant to compensatory
benefit plans and contracts relating to compensation as provided under such
Rule 701. The
II-1
<PAGE>
recipients of securities in each such transaction represented their intention
to acquire the securities for investment only and not with a view to or for
sale in connection with any distribution thereof, and appropriate legends were
affixed to the share certificates and instruments issued in such transactions.
All recipients had adequate access, through their relationships with us, to
information about us.
1. On or about February 10, 1994 we issued 2,800,000 shares of our
common stock at a per share price of $0.10 for an aggregate purchase price
of $420,000 to our founders and certain individuals with whom we had a pre-
existing business or personal relationship.
2. On or about November 4, 1994 we issued 1,613,333 shares of our common
stock at a per share price of $0.25 for an aggregate purchase price of
$605,000 to certain individuals with whom we had a pre-existing business or
personal relationship.
3. On May 9, 1995 we effected a recapitalization of our outstanding
stock with our then current stockholders by which each share of our common
stock was converted into one (1) share of Series A preferred stock and
through which we received no consideration.
4. On June 29, 1995 we sold 222,222 shares of our Series A preferred
stock at a per share price of $0.30 for an aggregate purchase price of
$100,000 to certain individuals with whom we had a pre-existing business or
personal relationship.
5. Between October 18, 1995 and on or about January 10th of 1996 we sold
3,250,000 shares of our Series B preferred stock at a per share price of
$l.20 to certain individuals with whom we had a pre-existing business or
personal relationship.
6. On October 4, 1995, we effected, by amendment to our articles of
incorporation, a 3 for 2 reverse stock split of our then outstanding
capital stock.
7. On February 4, 1998 we sold 625,200 shares of our Series C preferred
stock at a per share price of $8.00 for an aggregate purchase price of
$5,00l,600 to certain accredited investors, as that term is defined under
Rule 50l of the Securities Act. State Street Securities, Needham & Company,
Inc. and Beckman White & Reed acted as placement agents for us and, as
partial consideration for services performed, Beckman White & Reed received
a one-year warrant to purchase 31,260 shares of our common stock at an
exercise price of $6.96 per share and State Street Securities, Edward
Gibstein, Mitchell Segal, and Irving Minnaker each received three-year
warrants to purchase an aggregate of 2,417 shares of our common stock at an
exercise price of $8.00.
8. On December 31, 1998 we issued ten (10) year warrants to purchase an
aggregate of 200,000 shares of our Series C preferred stock at an exercise
price of $8.00 to Pentech Financial Services, Inc. and PFF Bank & Trust,
Inc. in connection with the Technology Alliance Group acquisition from
General DataCom, Inc.
9. From inception to December 3l, 1998, we issued and sold an aggregate
of 2,412,247 shares of our common stock to employees, consultants, and
directors for an aggregate consideration of $83,421 pursuant to exercise of
options granted under our 1995 stock plan, 1997 stock plan, and our 1997
stock plan as amended August 3, 1999.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
*1.1 Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation of the Registrant,
as currently in effect.
*3.2 Form of Amended and Restated Certificate of Incorporation of the
Registrant to be filed after the closing of the offering made under
this Registration Statement.
3.3 Amended and Restated Bylaws of the Registrant.
II-2
<PAGE>
*4.1 Specimen common stock certificate.
4.2 Warrant to purchase shares of Series C preferred stock of the
Registrant issued to Pentech Financial Services, Inc.
4.3 Warrant to purchase shares of Series C preferred stock of the
Registrant issued to PFF Bank and Trust, Inc.
4.4 Warrant to purchase shares of common stock of the Registrant issued
to Edward Gibstein.
4.5 Warrant to purchase shares of common stock of the Registrant issued
to Irving Minnaker.
4.6 Warrant to purchase shares of common stock of the Registrant issued
to Mitchell Segal.
4.7 Warrant to purchase shares of common stock of the Registrant issued
to State Street Securities, Inc.
4.8 Amended and Restated Rights Agreement dated December 31, 1997.
4.9 Addendum to the Amended and Restated Rights Agreement by and between
the Registrant and PFF Bank and Trust, Inc. dated February 1, 1999.
4.10 Addendum to the Amended and Restated Rights Agreement by and between
the Registrant and Pentech Financial Services, Inc. dated February 1,
1999.
*5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1 Form of Indemnification Agreement between PC-Tel and each of its
directors and officers.
10.2 1995 Stock Option Plan and form of agreements thereunder.
10.3 1997 Stock Option Plan, as amended and restated, August 3, 1999, and
form of agreements thereunder.
10.4 1998 director option plan and form of agreements thereunder.
10.5 1998 employee stock purchase plan and form of agreements thereunder.
10.6 Employment offer letter between Derek S. Obata and the Registrant
dated March 31, 1998.
10.7 Employment offer letter between William F. Roach and the Registrant
dated July 19, 1999.
10.8 Sublease between KLA-Tencor Corporation and the Registrant dated
September 24, 1998.
10.9 Commercial Security Agreement by and between the Registrant and PPF
Bank and Trust and related documents.
10.10 Asset Purchase Agreement by and among PC-Tel, Inc., PC-Tel Global
Technologies, Ltd. And General Datacomm, Inc. dated as of December
22, 1998.
10.11 Escrow Agreement by and between the Registrant and General DataComm,
Inc. dated December 22, 1998.
10.12 Bonus Pool Disbursement Agreement by and between the Registrant and
General DataComm, Inc. dated December 22, 1998.
10.13 Form of Acquisition Bonus Agreement by and between the Registrant and
General DataComm, Inc. dated on December 22, 1998.
10.14 Direct Sales Agreement by and between PC-Tel Global Technologies,
Ltd. and Kawasaki LSI U.S.A. dated December 4, 1998.
10.15 Volume Purchase Agreement dated June 1, 1998 by and between Silicon
Laboratories, Inc. and the Registrant.
21.1 List of Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP, Independent Public Accountants.
23.2 Consent of PricewaterhouseCoopers, Independent Accountants.
*23.3 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation
(included in Exhibit 5.1).
24.1 Power of Attorney (see Pages II-5 and II-6).
27.1 Financial Data Schedule.
* To be filed by amendment.
II-3
<PAGE>
(b) Financial Statement Schedules
Schedule II Valuation and Qualifying Accounts and Reserves (included on
pages S-1 and S-2 of this registration statement).
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
Item 17. Undertakings
We hereby undertake to provide to the Underwriters at the closing specified
in the Underwriting Agreement certificates in such denominations and registered
in such names as required by the Underwriters to permit prompt delivery to each
purchaser.
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement or otherwise, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by director,
officer or controlling person in connection with the securities being
registered hereunder, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
We hereby undertake that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Santa Clara, State of
California, on the 6th day of August, 1999.
PC-Tel, Inc.
/s/ Peter Chen
By: _________________________________
Peter Chen, Chief Executive
Officer and Chairman
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Peter Chen and Andrew D. Wahl and each of them,
his attorneys-in-fact, each with the power of substitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration
Statement, and to sign any registration statement for the same offering covered
by this Registration Statement that is to be effective upon filing pursuant to
Rule 462(b) promulgated under the Securities Act of 1933, as amended, and all
post-effective amendments thereto, and to file the same, with all exhibits
thereto and all 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 and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that such attorneys-in-fact and agents or any of them, or
his or their 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/ Peter Chen Chief Executive Officer August 6, 1999
______________________________________ and Chairman of the Board
(Peter Chen) (Principal Executive
Officer)
/s/ William F. Roach President and Chief August 6, 1999
______________________________________ Operating Officer
(William F. Roach)
/s/ Andrew D. Wahl Vice President, Finance August 6, 1999
______________________________________ and Chief Financial
(Andrew D. Wahl) Officer (Principal
Financial Officer)
/s/ William Wen-Liang Hsu Vice President, August 6, 1999
______________________________________ Engineering Director
(William Wen-Liang Hsu)
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Han Yeh Vice President, Technology August 6, 1999
______________________________________ Director
(Han Yeh)
/s/ Richard C. Alberding Director August 6, 1999
______________________________________
(Richard C. Alberding)
/s/ Martin H. Singer Director August 6, 1999
______________________________________
(Martin H. Singer)
/s/ Wen C. Ko Director August 6, 1999
______________________________________
(Wen C. Ko)
/s/ Michael Min-Chu Chen Director August 6, 1999
______________________________________
(Michael Min-Chu Chen)
/s/ Giacomo Marini Director August 6, 1999
______________________________________
</TABLE> (Giacomo Marini)
II-6
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To PC-Tel, Inc.:
We have audited, in accordance with generally accepted auditing standards,
the financial statements of PC-Tel, Inc. (a Delaware corporation) included in
this Registration Statement and have issued our report thereon dated March 4,
1999. Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying schedule is the
responsibility of the Company's management and is presented for the purpose of
complying with the Securities and Exchange Commission's rules and is not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, fairly states in all material respects the financial data
required to be set forth herein in relation to the basic financial statements
taken as a whole.
Arthur Andersen LLP
San Jose, California
March 4, 1999
S-1
<PAGE>
PC-TEL, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Charged to
Beginning of Costs and Balance at
Description Period Expenses Deductions End of Period
----------- ------------ ---------- ---------- -------------
<S> <C> <C> <C> <C>
Year Ended December 31, 1996:
Allowance for doubtful
accounts................... $ -- $ 70 $ -- $ 70
Year Ended December 31, 1997:
Allowance for doubtful
accounts................... $ 70 $ 534 $ -- $ 604
Year Ended December 31, 1998:
Allowance for doubtful
accounts................... $604 $3,356 $(2,271) $1,689
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
Number Description
------ -----------
*1.1 Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation of the Registrant,
as currently in effect.
*3.2 Form of Amended and Restated Certificate of Incorporation of the
Registrant to be filed after the closing of the offering made under
this Registration Statement.
3.3 Amended and Restated Bylaws of the Registrant.
*4.1 Specimen common stock certificate.
4.2 Warrant to purchase shares of Series C preferred stock of the
Registrant issued to Pentech Financial Services, Inc.
4.3 Warrant to purchase shares of Series C preferred stock of the
Registrant issued to PFF Bank and Trust, Inc.
4.4 Warrant to purchase shares of common stock of the Registrant issued
to Edward Gibstein.
4.5 Warrant to purchase shares of common stock of the Registrant issued
to Irving Minnaker.
4.6 Warrant to purchase shares of common stock of the Registrant issued
to Mitchell Segal.
4.7 Warrant to purchase shares of common stock of the Registrant issued
to State Street Securities, Inc.
4.8 Amended and Restated Rights Agreement dated December 31, 1997.
4.9 Addendum to the Amended and Restated Rights Agreement by and between
the Registrant and PFF Bank and Trust, Inc. dated February 1, 1999.
4.10 Addendum to the Amended and Restated Rights Agreement by and between
the Registrant and Pentech Financial Services, Inc. dated February 1,
1999.
*5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1 Form of Indemnification Agreement between PC-Tel and each of its
directors and officers.
10.2 1995 Stock Option Plan and form of agreements thereunder.
10.3 1997 Stock Option Plan, as amended and restated, August 3, 1999, and
form of agreements thereunder.
10.4 1998 director option plan and form of agreements thereunder.
10.5 1998 employee stock purchase plan and form of agreements thereunder.
10.6 Employment offer letter between Derek S. Obata and the Registrant
dated March 31, 1998.
10.7 Employment offer letter between William F. Roach and the Registrant
dated July 19, 1999.
10.8 Sublease between KLA-Tencor Corporation and the Registrant dated
September 24, 1998.
10.9 Commercial Security Agreement by and between the Registrant and PPF
Bank and Trust and related documents.
10.10 Asset Purchase Agreement by and among PC-Tel, Inc., PC-Tel Global
Technologies, Ltd. And General Datacomm, Inc. dated as of December
22, 1998.
10.11 Escrow Agreement by and between the Registrant and General DataComm,
Inc. dated December 22, 1998.
10.12 Bonus Pool Disbursement Agreement by and between the Registrant and
General DataComm, Inc. dated December 22, 1998.
10.13 Form of Acquisition Bonus Agreement by and between the Registrant and
General DataComm, Inc. dated on December 22, 1998.
<PAGE>
EXHIBIT INDEX
Number Description
------ -----------
10.14 Direct Sales Agreement by and between PC-Tel Global Technologies,
Ltd. and Kawasaki LSI U.S.A. dated December 4, 1998.
10.15 Volume Purchase Agreement dated June 1, 1998 by and between Silicon
Laboratories, Inc. and the Registrant.
21.1 The subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP, Independent Public Accountants.
23.2 Consent of PricewaterhouseCoopers, Independent Accountants.
*23.3 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation
(included in Exhibit 5.1).
24.1 Power of Attorney (see Pages II-5 and II-6).
27.1 Financial Data Schedule.
* To be filed by amendment
<PAGE>
EXHIBIT 3.1
RESTATED
CERTIFICATE OF INCORPORATION
OF PC-TEL, INC.
PC-Tel, Inc., a corporation organized and existing under the laws of the
State of Delaware, hereby certifies as follows:
A. The name of the corporation is PC-Tel, Inc. The corporation was
originally incorporated under the same name and the original Certificate of
Incorporation of the corporation was filed with the Secretary of State of the
State of Delaware on July 6, 1998.
B. This Certificate of Incorporation has been duly adopted in accordance
with the provisions of the General Corporation Law of the State of Delaware by
the Board of Directors and the Stockholders of the corporation.
C. Pursuant to Sections 242 and 245 of the General Corporation Law of the
State of Delaware, this Certificate of Incorporation restates and integrates and
further amends the provisions of the Certificate of Incorporation of this
corporation.
D. The text of the Certificate of Incorporation is hereby amended and
restated in its entirety to read as follows:
Article I.
The name of the corporation is PC-Tel, Inc. (the "Company").
Article II.
The address of the Company's registered office in the State of Delaware is
1209 Orange Street, City of Wilmington, County of New Castle, Delaware 19801.
The name of its registered agent at such address is The Corporation Trust
Company.
<PAGE>
Article III.
The purpose of the Company is to engage in any lawful act or activity for
which corporations may be organized under the General Corporation Law of
Delaware.
Article IV.
This corporation is authorized to issue two classes of stock to be
designated respectively Preferred Stock ("Preferred") and Common Stock
("Common"). This Corporation is authorized to issue 20,000,000 shares of Common,
$0.001 par value. This corporation is authorized to issue three series of
Preferred which shall be known as Series A Preferred Stock (the "Series A
Preferred") consisting of 4,635,548 shares, $0.001 par value, Series B Preferred
Stock (the "Series B Preferred") consisting of 3,250,000 shares, $0.001 par
value, and Series C Preferred Stock (the "Series C Preferred") consisting of
1,500,000 shares, $0.001 par value. Except as specifically set forth herein,
reference hereafter to "Preferred Stock" or "Preferred" shall mean the Series A
Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock.
Upon the automatic conversion of all outstanding shares of Preferred in
accordance with the provisions of Article IV, Section 4(b) of this Restated
Certificate of Incorporation (the "Automatic Conversion Event"), the Company
shall immediately thereafter be authorized to issue two classes of stock to be
designated, respectively, Common Stock and Preferred Stock. The total number of
shares of Common Stock which the Company shall have the authority to issue shall
be 50,000,000, $.001 par value, and the total number of shares of Preferred
Stock the Company shall have the authority to issue shall be 5,000,000, $.001
par value. Immediately following any Automatic Conversion Event, the Preferred
Stock may be issued from time to time in one or more series pursuant to a
resolution or resolutions providing for such issue duly adopted by the Board of
Directors (authority to do so being hereby expressly vested in the Board). The
Board of Directors is further authorized to determine or alter the rights,
preferences, privileges and restrictions granted to or imposed upon any wholly
unissued series of Preferred Stock and to fix the number of shares of any series
of Preferred Stock and the designation of any such series of Preferred Stock.
The Board of Directors, within the limits and restrictions stated in any
resolution or resolutions of the Board of Directors originally fixing the number
of shares constituting any series, may increase or decrease (but not below the
number of shares in any such series then outstanding), the number of shares of
any series subsequent to the issue of shares of that series.
Immediately following any automatic Conversion Event, the Board of
Directors of the Company is authorized, without the further consent or approval
of the stockholders of the Company to amend and restate this Restated
Certificate of Incorporation to show the authorized class of capital stock as
set forth in the preceding paragraph and to eliminate all references in this
Restated Certificate of Incorporation to the rights, preferences, privileges and
restrictions of the Series of Preferred Stock including those set forth in this
Article IV (and, in connection with any such amendment and restatement, to
renumber the remaining Articles).
-2-
<PAGE>
The relative rights, preferences, privileges and restrictions granted to or
imposed upon the respective classes of the shares of capital stock or the
holders thereof are as set forth below.
Section 1. Dividend Rights of Preferred. The holders of the Series A
---------- ----------------------------
Preferred, Series B Preferred and Series C Preferred shall be entitled to
receive, prior and in preference to any distribution of dividends to the holders
of the Common, when and as declared by the Board of Directors, out of any funds
legally available therefor, dividends at the rate of $0.019, $0.096 and $0.64
per annum per share, respectively. No dividends shall be paid on any shares of
Series A Preferred, Series B Preferred or Common during any fiscal year of the
corporation until dividends in the total amount set forth above per share of
Series C Preferred per annum on the shares of Series C Preferred shall have been
paid or declared and set apart during that fiscal year. Dividends declared
herein shall not be cumulative and no right to such dividends shall accrue to
holders of Series A Preferred, Series B Preferred or Series C Preferred unless
declared by the Board of Directors.
Section 2. Liquidation Preference. In the event of any liquidation,
---------- ----------------------
dissolution or winding up of the corporation, either voluntary or involuntary,
distributions to the shareholders of the corporation shall be made in the
following manner:
(a) In the event of any liquidation, dissolution or winding up of the
corporation, the holders of Series C Preferred shall be entitled to receive,
prior and in preference to any distribution of any assets or property of the
corporation to the holders of the Series A Preferred, Series B Preferred and
Common, an amount per share equal to $8.00 for each share of Series C Preferred
then held by them, adjusted for any combinations, consolidations or stock
distributions or dividends with respect to such shares and, in addition, an
amount equal to all declared but unpaid dividends, if any, with respect to such
shares. In the event the assets of the corporation are insufficient to pay the
entire liquidation of the Series C Preferred, then the holders of the Series C
Preferred will share ratably in such assets in proportion to the number of
shares held. After payment of the full amount due the holders of Series C
Preferred, the holders of the Series A Preferred and Series B Preferred shall be
entitled to receive, prior to any distribution of any assets or property of the
corporation to the holders of Common, an amount per share equal to $0.24 and
$1.20, respectively, then held by them, adjusted for any combinations,
consolidations or stock distributions or dividends with respect to such shares
and, in addition, an amount equal to all declared but unpaid dividends, if any,
with respect to such shares. In the event that the assets of the corporation
are insufficient to pay the entire liquidation preference of the Series A
Preferred and Series B Preferred, the holders of the Series A Preferred and
Series B Preferred will share ratably in such assets in proportion to their
respective per share liquidation preference and the number of shares held.
After payment of the full amount due the holders of the Series A Preferred and
Series B Preferred, the holders of the Common shall be entitled to receive,
prior to any further distribution of any assets or property of the corporation,
an amount per share equal to the quotient that results from dividing (i) $82,000
by (ii) the total number of shares of Common outstanding at the time of such
distribution (excluding shares of Common then issuable upon conversion of the
Preferred). In the event that the assets of the corporation are insufficient to
pay the entire liquidation preference of the Common, the holders of the Common
will share ratably in such assets in proportion to their respective per share
liquidation preference and the number of shares held. After payment has been
made to the holders
-3-
<PAGE>
of the Series A, Series B and Series C Preferred Stock and the holders of the
Common of the full amounts to which they shall be entitled as aforesaid, any
remaining assets shall be distributed ratably to the holders of the
corporation's Preferred and Common, each share of Preferred being treated for
such purpose as the number of shares of Common into which it could then be
converted.
(b) For purposes of this Section 2, a merger or consolidation of the
corporation with or into any other corporation or corporations, or the merger of
any other corporation or corporations into the corporation, in which
consolidation or merger the shareholders of the corporation receive
distributions in cash or securities of another corporation or corporations as a
result of such consolidation or merger, or a sale of all or substantially all of
the assets of the corporation (a "Liquidation Event"), shall be treated as a
liquidation, dissolution or winding up, unless the shareholders of this
corporation hold at least 50% of the outstanding voting equity securities of the
surviving corporation; provided that nothing contained in this subsection (b)
shall limit the right of a holder of Preferred to convert such shares into
Common prior to the effective date of any such transaction.
(c) Any securities to be delivered to the holders of the Preferred
and/or Common pursuant to Section 2(b) above shall be valued as follows:
(i) Securities not subject to investment letter or other similar
restrictions on free marketability:
(1) If traded on a securities exchange or the NASDAQ National
Market, the value shall be deemed to be the average of the closing prices of the
securities on such exchange over the 30-day period ending three (3) days prior
to the closing;
(2) If actively traded over-the-counter, the value shall be
deemed to be the average of the closing bid prices over the 30-day period ending
three (3) days prior to the closing; and
(3) If there is no active public market, the value shall be
the fair market value thereof, as determined in good faith by the Board of
Directors of the corporation. The holders of more than 50% of the outstanding
shares of Series C Preferred shall have the right to challenge any determination
by the Board of fair market value pursuant to this Section 2(c)(i)(3), in which
case the determination of fair market value shall be made by an independent
appraiser selected jointly by the Board and the challenging parties, the cost of
such appraisal to be borne equally by the corporation and the challenging
parties.
(ii) The method of valuation of securities subject to investment
letter or other restrictions on free marketability shall be to make an
appropriate discount from the market value determined as above in (i)(1), (2) or
(3) to reflect the approximate fair market value thereof, as determined in good
faith by the Board of Directors of the corporation.
Section 3. Redemption. The Preferred shall not be redeemable.
---------- ----------
-4-
<PAGE>
Section 4. Conversion. The holders of the Series A Preferred, Series B
---------- ----------
Preferred and Series C Preferred shall have conversion rights as follows (the
"Conversion Rights"):
(a) Right to Convert. Each share of Series A Preferred, Series B
----------------
Preferred and Series C Preferred shall be convertible, at the option of the
holder thereof, at any time after the date of issuance of such share, at the
office of the corporation or any transfer agent for the Preferred, into such
number of fully paid and nonassessable shares of Common as is determined by
dividing $0.24 in the case of the Series A Preferred, $1.20 in the case of the
Series B Preferred and $8.00 in the case of the Series C Preferred,
respectively, by the Conversion Price for such series, determined as hereinafter
provided, in effect at the time of conversion. The price at which shares of
Common shall be deliverable upon conversion of shares of Preferred (the
"Conversion Price") shall initially be $0.24 in the case of the Series A
Preferred, $1.20 in the case of the Series B Preferred, and $8.00 in the case of
the Series C Preferred, respectively, per share of Common. Such initial
Conversion Price shall be subject to adjustment as hereinafter provided. Upon
conversion, all declared and unpaid dividends on the Preferred shall be paid
either in cash or in shares of Common, at the election of the corporation,
wherein the shares of Common shall be valued at the fair market value at the
time of such conversion, as determined by the Board.
(b) Automatic Conversion. Each share of Preferred shall
--------------------
automatically be converted into shares of Common at the then effective
Conversion Price for each such series upon (i) the closing of a firm commitment
underwritten public offering pursuant to an effective registration statement
under the Securities Act of 1933, as amended (the "Act"), covering the offer and
sale of Common for the account of the corporation to the public at an aggregate
gross offering price of not less than Fifteen Million Dollars ($15,000,000) and
a price per share to the public equal to or greater than Twelve Dollars ($12.00)
if the public offering occurs within one year of the initial issuance of the
Series C Preferred and Sixteen Dollars ($16.00) if the public offering occurs at
any time thereafter, as adjusted for subsequent stock splits, stock dividends
and combinations, or (ii) the receipt of the corporation of the affirmative vote
at a duly noticed shareholders meeting or pursuant to a duly solicited written
consent of the holders of more than a majority of the Series A Preferred, a
majority of the Series B Preferred and a majority of the Series C Preferred,
each voting as a separate series. In the event of the automatic conversion of
the Preferred upon a public offering as aforesaid, the person(s) entitled to
receive the Common Stock issuable upon such conversion of Preferred shall not be
deemed to have converted such Preferred until immediately prior to the closing
of such sale of securities.
(c) Mechanics of Conversion. No fractional shares of Common shall be
-----------------------
issued upon conversion of Preferred. In lieu of any fractional shares to which
the holder would otherwise be entitled, the corporation shall pay cash equal to
such fraction multiplied by the then effective Conversion Price for each Series
of Preferred. Before any holder of Preferred shall be entitled to convert the
same into full shares of Common, he shall surrender the certificate or
certificates therefor, duly endorsed, at the office of the corporation or of any
transfer agent for the Preferred, and shall give written notice to the
corporation at such office that he elects to convert the same. The corporation
shall, as soon as practicable thereafter, issue and deliver at such office to
such holder of Preferred, a certificate or certificates for the number of shares
of Common to which he shall be
-5-
<PAGE>
entitled as aforesaid and a check payable to the holder in the amount of any
cash amounts payable as the result of a conversion into fractional shares of
Common. Except as set forth in Section 4(a) above, such conversion shall be
deemed to have been made immediately prior to the close of business on the date
of such surrender of the shares of Preferred to be converted, and the person or
persons entitled to receive the shares of Common issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such shares
of Common on such date. If the conversion is in connection with an underwritten
offer of securities registered pursuant to the Act, the conversion may, at the
option of any holder tendering Preferred for conversion, be conditioned upon the
closing with the underwriter of the sale of securities pursuant to such
offering, in which event the person(s) entitled to receive the Common issuable
upon such conversion of the Preferred shall not be deemed to have converted such
Preferred until immediately prior to the closing of such sale of securities.
(d) Adjustments to Conversion Price.
-------------------------------
(i) Special Definitions. For purposes of this subsection 4(d),
-------------------
the following definitions shall apply:
(A) "Option" shall mean rights, options or warrants to
------
subscribe for, purchase or otherwise acquire either Common or Convertible
Securities.
(B) "Convertible Securities" shall mean any evidences of
----------------------
indebtedness, shares or other securities convertible into or exchangeable for
Common.
(C) "Additional Shares of Common" shall mean all shares of
---------------------------
Common issued (or, pursuant to Section 4(d)(iii), deemed to be issued) by this
Corporation after the date on which the first share of Preferred was issued,
other than shares of Common issued or issuable:
(1) upon conversion of shares of Preferred;
(2) as a dividend or distribution on Preferred or any
event for which adjustment is made pursuant to subparagraphs 4(d)(vi),
(vii) and (viii) hereof;
(3) pursuant to equipment lease financing transactions
approved by the Board of Directors;
(4) shares of Common to directors and employees of, and
consultants to, the corporation in a manner determined by the Board of
Directors;
(5) in connection with bona fide acquisitions, strategic
licensing transactions, mergers or similar transactions, the terms of which
are approved by the Board of Directors; or
-6-
<PAGE>
(6) by way of dividend or other distribution on shares of
Common excluded from the definition of Additional Shares of Common by the
foregoing clause(s) (A), (B), (C) (D), (E) or this clause (F).
(ii) No Adjustment of Conversion Price. No adjustment in the number
---------------------------------
of shares of Common into which any series of Preferred is convertible shall be
made, by adjustment in the Conversion Price then in effect for such series in
respect of the issuance of Additional Shares of Common or otherwise, unless the
consideration per share for an Additional Share of Common issued or deemed to be
issued by this corporation is less than the Conversion Price of such series of
Preferred in effect on the date of, and immediately prior to, the issue of such
Additional Share of Common.
(iii) Deemed Issuances of Additional Shares of Common.
-----------------------------------------------
(A) Options and Convertible Securities. In the event the
----------------------------------
corporation at any time or from time to time shall issue any Options or
Convertible Securities or shall fix a record date for the determination of
holders of any class of securities entitled to receive any such Options or
Convertible Securities, then the maximum number of shares (as set forth in the
instrument relating thereto without regard to any provisions contained therein
for a subsequent adjustment of such number) of Common issuable upon the exercise
of such Options or, in the case of Convertible Securities and Options therefor,
the conversion or exchange of such Convertible Securities, shall be deemed to be
Additional Shares of Common issued as of the time of such issue or, in the case
such a record date shall have been fixed, as of the close of business on such
record date, provided that Additional Shares of Common shall not be deemed to
have been issued with respect to an adjustment of the Conversion Price unless
the consideration per share (determined pursuant to subsection 4(d)(v) hereof)
of such Additional Shares of Common would be less than the Conversion Price in
effect on the date of and immediately prior to such issue, or such record date,
as the case may be, and provided further that in any such case in which
Additional Shares of Common are deemed to be issued:
(1) no further adjustment in the Conversion Price shall be
made upon the subsequent issue of Convertible Securities or shares of
Common upon the exercise of such Options or conversion or exchange of such
Convertible Securities;
(2) if such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase or
decrease in the consideration payable to the corporation, or decrease or
increase in the number of shares of Common issuable, upon the exercise,
conversion or exchange thereof, the Conversion Price computed upon the
original issue thereof (or upon the occurrence of a record date with
respect thereto), and any subsequent adjustments based thereon, shall, upon
any such increase or decrease becoming effective, be recomputed to reflect
such increase or decrease insofar as it affects such Options or the rights
of conversion or exchange under such Convertible Securities;
-7-
<PAGE>
(3) upon the expiration of any such Options or any rights of
conversion or exchange under such Convertible Securities which shall not
have been exercised, the Conversion Price computed upon the original issue
thereof (or upon the occurrence of a record date with respect thereto) and
any subsequent adjustments based thereon shall, upon such expiration, be
recomputed as if:
(a) in the case of Convertible Securities or Options for
Common only the Additional Shares of Common issued were the shares of
Common, if any, actually issued upon the exercise of such Options or the
conversion or exchange of such Convertible Securities and the consideration
received therefor was the consideration actually received by the
corporation for the issue of such exercised Options plus the consideration
actually received by the corporation upon such exercise or for the issue of
all such Convertible Securities which were actually converted or exchanged,
plus the additional consideration, if any, actually received by the
corporation upon such conversion or exchange, and
(b) in the case of Options for Convertible Securities
only the Convertible Securities, if any, actually issued upon the exercise
thereof were issued at the time of issue of such Options, and the
consideration received by the corporation for the Additional Shares of
Common deemed to have been then issued was the consideration actually
received by the corporation for the issue of such exercised Options, plus
the consideration deemed to have been received by the corporation
(determined pursuant to subsection 4(d)(v)) upon the issue of the
Convertible Securities with respect to which such Options were actually
exercised;
(4) no readjustment pursuant to clause (B) or (C) above
shall have the effect of increasing the Conversion Price to an amount which
exceeds the lower of (i) the Conversion Price on the original adjustment
date, or (ii) the Conversion Price that would have resulted from any
issuance of Additional Shares of Common between the original adjustment
date and such readjustment date;
(5) in the case of any Options which expire by their terms
not more than 30 days after the date of issue thereof, no adjustment of the
Conversion Price shall be made until the expiration or exercise of all such
Options issued on the same date, whereupon such adjustment shall be made in
the same manner provided in clause (C) above; and
(6) if such record date shall have been fixed and such
Options or Convertible Securities are not issued on the date fixed
therefor, the adjustment previously made in the Conversion Price which
became effective on such record date shall be canceled as of the close of
business on such record date, and thereafter the Conversion Price shall be
adjusted pursuant to this subsection 4(d)(iii) as of the actual date of
their issuance.
-8-
<PAGE>
(B) Stock Dividends, Stock Distributions and Subdivisions.
-----------------------------------------------------
In the event the corporation at any time or from time to time shall declare or
pay any dividend or make any other distribution on the Common payable in Common,
or effect a subdivision of the outstanding shares of Common (by reclassification
or otherwise than by payment of a dividend in Common), then and in any such
event, Additional Shares of Common shall be deemed to have been issued:
(1) in the case of any such dividend or distribution,
immediately after the close of business on the record date for the
determination of holders of any class of securities entitled to receive
such dividend or distribution, or
(2) in the case of any such subdivision, at the close of
business on the date immediately prior to the date upon which such
corporate action becomes effective.
If such record date shall have been fixed and such dividend shall not have
been paid on the date fixed therefor, the adjustment previously made in the
Conversion Price which became effective on such record date shall be canceled as
of the close of business on such record date, and thereafter the Conversion
Price shall be adjusted pursuant to this subsection 4(d)(iii) as of the time of
actual payment of such dividend.
(iv) Adjustment of Conversion Price Upon Issuance of Additional
----------------------------------------------------------
Shares of Common.
----------------
(A) As to the Conversion Price of the Series C Preferred
(but not the Series B Preferred), in the event the corporation shall issue,
within two years of the initial issuance of Series C Preferred, Additional
Shares of Common (including Additional Shares of Common deemed to be issued
pursuant to subsection 4(d)(iii), but excluding Additional Shares of Common
issued pursuant to subsection 4(d)(iii)(B), which event is dealt with in
subsection 4(d)(vi) hereof), without consideration or for a consideration per
share less than the Conversion Price of the Series C Preferred in effect on the
date of and immediately prior to such issue, then and in such event, the
Conversion Price of the Series C Preferred shall be reduced, concurrently with
such issue, to a price (calculated to the nearest cent) determined by
multiplying such Conversion Price by a fraction (x) the numerator of which shall
be the sum of (1) the aggregate consideration received by the corporation for
the Series C Preferred, plus (2) the aggregate consideration received by the
corporation for the Additional Shares of Common, and (y) the denominator of
which shall be the sum of (1) the number of shares of Series C Preferred
outstanding immediately prior to such issue plus (2) the number of such
Additional Shares of Common so issued; provided that the Conversion Price of the
Series C Preferred shall not be reduced below the Conversion Price of the Series
B Preferred in effect at the time of such issuance.
(B) As to the Conversion Price of the Series B Preferred and
Series C Preferred, in the event that the corporation shall issue, at any time
as to the Series B Preferred and more than two years after the initial issuance
of Series C Preferred as to the Series C Preferred, Additional Shares of Common
(including Additional Shares of Common deemed to be issued
-9-
<PAGE>
pursuant to subsection 4(d)(iii), but excluding Additional Shares of Common
issued pursuant to subsection 4(d)(iii)(B), which event is dealt with in
subsection 4(d)(vi) hereof), without consideration or for a consideration per
share less than the Conversion Price of the Series B Preferred or Series C
Preferred in effect on the date of and immediately prior to such issue, then and
in such event, the Conversion Price of the Series B Preferred and/or Series C
Preferred, as the case may be, shall be reduced, concurrently with such issue,
to prices (calculated to the nearest cent) determined by multiplying each such
Conversion Price by a fraction (x) the numerator of which shall be (1) the
number of shares of Common outstanding immediately prior to such issue, plus (2)
the number of shares of Common which the aggregate consideration received by the
corporation for the total number of Additional Shares of Common so issued would
purchase at that Conversion Price, and (y) the denominator of which shall be (1)
the number of shares of Common outstanding immediately prior to such issue plus
(2) the number of such Additional Shares of Common so issued.
For the purposes of this subsection 4(d)(iv), all shares of Common issuable
upon exercise, conversion or exchange of outstanding Options or Convertible
Securities, as the case may be, shall be deemed to be outstanding, and
immediately after any Additional Shares of Common are deemed issued pursuant to
subsection 4(d)(iii) above, such Additional Shares of Common shall be deemed to
be outstanding. The Conversion Price shall not be so reduced at such time if
the amount of such reduction would be an amount less than $0.01, but any such
amount shall be carried forward and reduction with respect thereto made at the
time of and together with any subsequent reduction which, together with such
amount and any other amount or amounts so carried forward, shall aggregate $0.01
or more.
(v) Determination of Consideration. For purposes of this subsection
------------------------------
4(d), the consideration received by the corporation for the issue of any
Additional Shares of Common shall be computed as follows:
(A) Cash and Property. Such consideration shall:
-----------------
(1) insofar as it consists of cash, be computed at the
aggregate amount of cash received by the corporation excluding amounts paid
or payable for accrued interest or accrued dividends;
(2) insofar as it consists of property other than cash, be
computed at the fair value thereof at the time of such issue, as determined
in good faith by the Board of Directors; and
(3) in the event Additional Shares of Common are issued
together with other shares or securities or other assets of the corporation
for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (A) and (B)
above, as determined in good faith by the Board of Directors.
(B) Options and Convertible Securities. The consideration per
----------------------------------
share received by the corporation for Additional Shares of Common deemed to have
been issued
-10-
<PAGE>
pursuant to subsection 4(d)(iii)(A), relating to Options and Convertible
Securities, shall be determined by dividing
(1) the total amount, if any, received or receivable by the
corporation as consideration for the issue of such Options or Convertible
Securities, plus the minimum aggregate amount of additional consideration
(as set forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such
consideration) payable to the corporation upon the exercise of such Options
or the conversion or exchange of such Convertible Securities, or in the
case of Options for Convertible Securities, the exercise of such Options
for Convertible Securities and the conversion or exchange of such
Convertible Securities, by
(2) the maximum number of shares of Common (as set forth in
the instruments relating thereto, without regard to any provision contained
therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities.
(vi) Adjustments for Subdivisions, Combinations or Consolidation of
--------------------------------------------------------------
Common. In the event the outstanding shares of Common shall be subdivided (by
- ------
stock split or otherwise), into a greater number of shares of Common, the
Conversion Price then in effect shall, concurrently with the effectiveness of
such subdivision, be proportionately decreased. In the event the outstanding
shares of Common shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common, the Conversion Price then
in effect shall, concurrently with the effectiveness of such combination or
consolidation, be proportionately increased.
(vii) Adjustments for Other Distributions. In the event the
-----------------------------------
corporation at any time or from time to time makes, or fixes a record date for
the determination of holders of Common entitled to receive any distribution
payable in securities of the corporation other than shares of Common Stock and
other than as otherwise adjusted in this Section 4(d), then and in each such
event provision shall be made so that the holders of Preferred shall receive
upon conversion thereof, in addition to the number of shares of Common
receivable thereupon, the amount of securities of the corporation which they
would have received had their Preferred been converted into Common on the date
of such event and had they thereafter, during the period from the date of such
event to and including the date of conversion, retained such securities
receivable by them as aforesaid during such period, subject to all other
adjustments called for during such period under this Section 4 with respect to
the rights of the holders of the Preferred.
(viii) Adjustments for Reorganization, Reclassification, Exchange
-----------------------------------------------------------
and Substitution. If the Common issuable upon conversion of the Preferred shall
- ----------------
be changed into the same or a different number of shares of any other class or
classes of stock or other securities or property, whether by reorganization
(unless such reorganization is deemed a liquidation under Section 2(b) hereof),
reclassification or otherwise (other than a subdivision or combination of shares
provided for above), the Conversion Price then in effect shall, concurrently
with the effectiveness
-11-
<PAGE>
of such reorganization or reclassification, be proportionately adjusted such
that the Preferred shall be convertible into, in lieu of the number of shares of
Common which the holders would otherwise have been entitled to receive, a number
of shares of such other class or classes of stock or other securities or
property equivalent to the number of shares of Common that would have been
subject to receipt by the holders upon conversion of the Preferred immediately
before such event; and, in any such case, appropriate adjustment shall be made
in the application of the provisions herein set forth with respect to the rights
and interest thereafter of the holders of the Preferred, to the end that the
provisions set forth herein (including provisions with respect to changes in and
other adjustments of the Conversion Price) shall thereafter be applicable, as
nearly as reasonably may be, in relation to any shares of stock or other
property thereafter deliverable upon the conversion of the Preferred.
(e) No Impairment. The corporation will not, by amendment of its
-------------
Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the corporation but will at
all times in good faith assist in the carrying out of all the provisions of this
Section 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Preferred against impairment.
(f) Certificate as to Adjustments. Upon the occurrence of each
-----------------------------
adjustment or readjustment of the Conversion Price pursuant to this Section 4,
the corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Preferred a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
The corporation shall, upon the written request at any time of any holder of
Preferred, furnish or cause to be furnished to such holder a like certificate
setting forth (i) such adjustments and readjustments, (ii) the Conversion Price
at the time in effect, and (iii) the number of shares of Common and the amount,
if any, of other property which at the time would be received upon the
conversion of Preferred.
(g) Notices of Record Date. In the event that this corporation shall
----------------------
propose at any time:
(i) to declare any dividend or distribution upon its Common
shares, whether in cash, property, stock or other securities, whether or not a
regular cash dividend and whether or not out of earnings or earned surplus;
(ii) to offer for subscription pro rata to the holders of any
class or series of its stock any additional shares of stock of any class or
series or other rights;
(iii) to effect any reclassification or recapitalization of its
Common shares outstanding involving a change in the Common shares; or
(iv) to merge or consolidate with or into any other corporation,
or sell, lease or convey all or substantially all its property or business, or
to liquidate, dissolve or wind up;
-12-
<PAGE>
then, in connection with each such event, this corporation shall send to the
holders of the Preferred shares:
(A) at least 20 days' prior written notice of the date on
which a record shall be taken for such dividend, distribution or subscription
rights (and specifying the date on which the holders of Common shares shall be
entitled thereto) or for determining rights to vote in respect of the matters
referred to in (iii) and (iv) above; and
(B) in the case of the matters referred to in (iii) and (iv)
above, at least 20 days' prior written notice of the date when the same shall
take place (and specifying the date on which the holders of Common shares shall
be entitled to exchange their Common shares for securities or other property
deliverable upon the occurrence of such event).
Each such written notice shall be delivered personally or given by first
class mail, postage prepaid, addressed to the holders of Preferred shares at the
address for each such holder as shown on the books of this corporation.
Section 5. Voting Rights.
---------- -------------
(a) Each holder of shares of Series A Preferred, Series B Preferred
and Series C Preferred shall be entitled to the number of votes equal to the
number of shares of Common Stock into which such Series A Preferred, Series B
Preferred or Series C Preferred could then be converted (with any fractional
share determined on an aggregate conversion basis being rounded to the nearest
whole share), and with respect to such vote, such holder shall have full voting
rights and powers equal to the voting rights and powers of the holders of Common
Stock (except as otherwise expressly provided herein or as required by law,
voting together with holders of Common Stock, with respect to any question upon
which holders of Common Stock have the right to vote), and shall be entitled,
notwithstanding any provision hereof, to notice of any shareholder's meeting in
accordance with the bylaws of the corporation.
(b) The holders of Series C Preferred, voting together as a single
class, shall be entitled to elect one (1) member of the corporation's board of
directors. The holders of Series B Preferred, voting together as a single class,
shall be entitled to elect two (2) members of the corporation's board of
directors. The holders of the Common Stock (including the Series A Preferred on
an as-converted basis) shall be entitled to elect the remaining members of the
corporation's board of directors.
(c) In the case of any vacancy in the office of a director
occurring among the directors elected by the holders of Series C Preferred,
Series B Preferred or the Common Stock and Series A Preferred pursuant to 5(b)
hereof, the remaining director or directors so elected by the holders of the
Series C Preferred, Series B Preferred or the Common Stock and Series A
Preferred may, by affirmative vote of a majority thereof (or the remaining
director so elected if there is but one, or if there is no such director
remaining, by the affirmative vote of the holders of a majority of shares of
that class) elect a successor or successors to hold the office for the unexpired
term of the director
-13-
<PAGE>
or director whose place or places shall be vacant. Any director who shall have
been elected by the holders of a majority of the Series C Preferred, Series B
Preferred or the Common Stock and Series A Preferred or any director so elected
as provided in the preceding sentence hereof, may be removed during the
aforesaid term of office, whether with or without cause, only by the affirmative
vote of the holders of a majority of the Series C Preferred, Series B Preferred
or the Common Stock and Series A Preferred, as the case may be.
Section 6. Protective Provisions.
---------- ---------------------
(a) So long as any shares of Preferred are outstanding, the
corporation shall not without first obtaining the approval (by vote or written
consent, as provided by law) of the holders of at least a majority of the then
outstanding shares of Preferred, voting as a separate class:
(A) amend or repeal any provision of, or add any provision to,
the corporation's Articles of Incorporation if such action would adversely alter
or change the rights, preferences, privileges or powers of, or the restrictions
provided for the benefit of, the Preferred;
(B) authorize or issue any new class or series of stock having
any preference or priority as to dividends or assets superior to any such
preference or priority of the Preferred;
(C) reclassify any shares of Common or any other shares of the
corporation into shares having any preference or priority as to dividends or
assets superior to any such preference or priority of the Preferred; or
(D) engage in a merger, acquisition or sale of all or
substantially all of the assets of the corporation, if such merger, acquisition
or sale of assets would constitute a "reorganization" as that term is defined in
Section 181 of the California Corporations Code.
(b) So long as any shares of Series B Preferred are outstanding, the
corporation shall not without first obtaining the approval (by vote or written
consent, as provided by law) of the holders of at least a majority of the then
outstanding shares of Series B Preferred, voting as a separate class:
(A) liquidate or dissolve the corporation;
(B) create or issue any new class or series of stock or any
other securities convertible into equity securities of the corporation (a)
having preference over the Series B Preferred with respect to voting, dividends
upon liquidation, or (b) having rights similar to any of the rights of the
Series B Preferred under this Section 6(b);
(C) amend or repeal any provision of, or add any provision to,
this corporation's Articles of Incorporation if such action would adversely
alter or change the rights, preferences or privileges or powers of, or the
restrictions provided for the benefit of, the Series B
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<PAGE>
Preferred; or
(D) reclassify or recapitalize any of the corporation's
outstanding capital stock.
(c) So long as not less than 300,000 shares of Series C Preferred
remain outstanding, the corporation shall not, without first obtaining the
approval (by vote or written consent, as provided by law) of the holders of a
majority of the then outstanding shares of Series C Preferred, voting as a
separate class:
(A) engage in a merger, acquisition or sale of all or
substantially all of the assets of the corporation, if such merger, acquisition
or sale of assets would constitute a "reorganization" as that term is defined in
Section 181 of the California Corporations Code;
(B) enter into any agreement that would restrict the
corporation's ability to perform its obligations under the Series C Preferred
Stock Purchase Agreement between the Company and the original purchasers of the
Series C Preferred initially issued by the corporation, or any ancillary
agreements attached as exhibits thereto; or
(C) issue additional shares of Common, other than (1) shares of
Common specified pursuant to Section 4(d)(i)(C)(4) of Article IV (2) shares
issued in a transaction or a series of related transactions involving the
issuance of no more than 20% of the shares of Common outstanding as of December
31, 1997 (including for such purposes all shares of Common reserved for issuance
upon exercise of options outstanding at December 31, 1997 in the determination
of outstanding shares) or (3) shares issued pursuant to the conversion of
Preferred or in connection with an event provided for in Section 4(d)(vi) of
Article IV.
(d) So long as not less than 300,000 shares of Series C Preferred
remain outstanding, the corporation shall not, without first obtaining the
approval (by vote or written consent, as provided by law) of at least 75% of the
directors constituting the Board of Directors of the corporation:
(A) sell, convey or otherwise dispose of or encumber its
property or business, except for sales or dispositions in the ordinary course of
business, and encumbrances securing borrowings of less than $5 million;
(B) borrow in excess of $5 million;
(C) materially change the corporations's business model or
focus;
(D) create a non-wholly-owned subsidiary;
(E) transact business with any affiliate of the corporation on
terms less favorable than the corporation could obtain from an unrelated third
party; or
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<PAGE>
(F) amend or modify the corporation's bylaws.
(e) The holders of Preferred shall vote separately on matters
that by law are subject to a separate class or series vote.
Section 7. Status of Converted Shares of Preferred. Any shares of
---------- ---------------------------------------
Preferred converted into shares of Common shall revert to the status of
authorized and unissued shares of Preferred of the same series as the converted
shares, and may thereafter, in the discretion of the Board of Directors, be sold
or reissued from time to time as part of such series, subject to the terms and
conditions herein set forth.
Section 8. Repurchase of Shares. In connection with repurchases by the
---------- --------------------
corporation of its Common Stock pursuant to its agreements with certain of the
holders thereof providing for such repurchases in the event of the termination
of the status of such holder as an employee, director or consultant to the
Company, each holder of Preferred Stock shall be deemed to have consented, for
purposes of Sections 502, 503 and 506 of the California General Corporation Law,
to distributions made by the corporation with respect to such repurchases.
Section 9. Residual Rights. All rights accruing to the outstanding shares
--------- ---------------
of this corporation not expressly provided for to the contrary herein shall be
vested in the Common.
Article V.
The Company is to have perpetual existence.
Article VI.
Elections of directors need not be by written ballot unless a stockholder
demands election by written ballot at the meeting and before voting begins or
unless the Bylaws of the Company shall so provide.
Article VII.
The number of directors which constitute the whole Board of Directors of
the Company shall be designated in the Bylaws of the Company.
Article VIII.
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, alter, amend or repeal
the Bylaws of the Company.
-16-
<PAGE>
Article IX.
(a) To the fullest extent permitted by the Delaware General Corporation Law
as the same exists or as may hereafter be amended, a director of the Company
shall not be personally liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director.
(b) The Company shall indemnify to the fullest extent permitted by law any
person made or threatened to be made a party to an action or proceeding, whether
criminal, civil, administrative or investigative, by reason of the fact that he,
his testator or intestate is or was a director, officer or employee of the
Company or any predecessor of the Company, or serves or served at any other
enterprise as a director, officer or employee at the request of the Company or
any predecessor to the Company.
(c) Neither any amendment nor repeal of this Article IX, nor the adoption
of any provision of the Company's Certificate of Incorporation inconsistent with
this Article IX, shall eliminate or reduce the effect of this Article IX, in
respect of any matter occurring, or any action or proceeding accruing or arising
or that, but for this Article IX, would accrue or arise, prior to such
amendment, repeal or adoption of an inconsistent provision.
Article X.
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Company may be kept
(subject to any provision contained in the statutes) outside of the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Company.
Article XI.
Vacancies created by the resignation of one or more members of the Board of
Directors and newly created directorships, created in accordance with the Bylaws
of this Company, may be filled by the vote of a majority, although less than a
quorum, of the directors then in office, or by a sole remaining director.
Article XII.
Advance notice of new business and stockholder nominations for the election
of directors shall be given in the manner and to the extent provided in the
Bylaws of the Company.
-17-
<PAGE>
Article XIII.
Following the effectiveness of the registration of any class of securities
of the Corporation pursuant to the requirements of the Securities Exchange Act
of 1934, as amended, no action shall be taken by the stockholders of the
Corporation except at an annual or special meeting of the stockholders called in
accordance with the Bylaws and no action shall be taken by the stockholders by
written consent.
Article XIV.
Stockholders shall be entitled to cumulative voting rights in the election
of directors as set forth in this Article XIV and the Bylaws of the Company, but
only until cumulative voting rights are not required under Section 2115 of the
California Corporations Code. Subject to such limitation, at all elections of
directors of the Company, each holder of stock or of any class or classes or of
a series or series thereof shall be entitled to as many votes as shall equal the
number of votes which (except for this provision as to cumulative voting) such
stockholder would be entitled to cast for the election of directors with respect
to such stockholder's shares of stock multiplied by the number of directors to
be elected, and such stockholder may cast all of such votes for a single
director or may distribute them among the number of directors to be voted for,
or for any two or more of them as such stockholder may see fit. At such time as
cumulative voting rights are not required under Section 2115 of the California
Corporations Code, this Article XIII shall no longer be effective and may be
deleted herefrom upon any restatement of this Certificate of Incorporation.
Article XV.
The Company reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
-18-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Certificate of
Incorporation to be signed by Peter Chen, its President and Chief Executive
Officer, effective July 31, 1998.
/s/ Peter Chen
-------------------------------------------------
Peter Chen, President and Chief Executive Officer
-19-
<PAGE>
Exhibit 3.3
BYLAWS
OF
PC-TEL, INC.
a Delaware Corporation
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I CORPORATE OFFICES................................................. 1
1.1 REGISTERED OFFICE................................................ 1
1.2 OTHER OFFICES.................................................... 1
ARTICLE II MEETINGS OF STOCKHOLDERS......................................... 1
2.1 PLACE OF MEETINGS................................................ 1
2.2 ANNUAL MEETING................................................... 1
2.3 SPECIAL MEETING.................................................. 1
2.4 NOTICE OF STOCKHOLDERS' MEETINGS................................. 2
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS.. 2
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE..................... 3
2.7 QUORUM........................................................... 3
2.8 ADJOURNED MEETING; NOTICE........................................ 4
2.9 VOTING........................................................... 4
2.10 WAIVER OF NOTICE................................................. 4
2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.......... 5
2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS...... 5
2.13 PROXIES.......................................................... 6
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE............................ 6
2.15 CONDUCT OF BUSINESS.............................................. 6
ARTICLE III DIRECTORS....................................................... 7
3.1 POWERS.......................................................... 7
3.2 NUMBER.......................................................... 7
3.3 CLASSES OF DIRECTORS............................................ 7
3.4 RESIGNATION AND VACANCIES....................................... 7
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE........................ 8
3.6 REGULAR MEETINGS................................................ 9
3.7 SPECIAL MEETINGS; NOTICE........................................ 9
3.8 QUORUM.......................................................... 9
3.9 WAIVER OF NOTICE................................................ 9
3.10 ADJOURNED MEETING; NOTICE........................................ 10
3.11 CONDUCT OF BUSINESS.............................................. 10
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING................ 10
3.13 FEES AND COMPENSATION OF DIRECTORS............................... 10
3.14 REMOVAL OF DIRECTORS............................................. 10
-i-
<PAGE>
TABLE OF CONTENTS
(continued)
Page
----
ARTICLE IV COMMITTEES....................................................... 11
4.1 COMMITTEES OF DIRECTORS.......................................... 11
4.2 COMMITTEE MINUTES................................................ 11
4.3 MEETINGS AND ACTION OF COMMITTEES................................ 11
ARTICLE V OFFICERS.......................................................... 12
5.1 OFFICERS......................................................... 12
5.2 APPOINTMENT OF OFFICERS.......................................... 12
5.3 REMOVAL AND RESIGNATION OF OFFICERS.............................. 12
5.4 CHAIRMAN OF THE BOARD............................................ 13
5.5 CHIEF EXECUTIVE OFFICER.......................................... 13
5.6 PRESIDENT........................................................ 13
5.7 VICE PRESIDENT................................................... 13
5.8 SECRETARY........................................................ 14
5.9 CHIEF FINANCIAL OFFICER.......................................... 14
5.10 ASSISTANT SECRETARY.............................................. 15
5.11 AUTHORITY AND DUTIES OF OFFICERS................................. 15
ARTICLE VI INDEMNITY........................................................ 15
6.1 THIRD PARTY ACTIONS.............................................. 15
6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION.................... 16
6.3 SUCCESSFUL DEFENSE............................................... 17
6.4 DETERMINATION OF CONDUCT......................................... 17
6.5 PAYMENT OF EXPENSES IN ADVANCE................................... 17
6.6 INDEMNITY NOT EXCLUSIVE.......................................... 17
6.7 INSURANCE INDEMNIFICATION........................................ 18
6.8 THE CORPORATION.................................................. 18
6.9 EMPLOYEE BENEFIT PLANS........................................... 18
6.10 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES...... 18
ARTICLE VII RECORDS AND REPORTS............................................. 19
7.1 MAINTENANCE AND INSPECTION OF RECORDS............................ 19
7.2 INSPECTION BY DIRECTORS.......................................... 19
7.3 REPRESENTATION OF SHARES OF OTHER CORPORATIONS................... 19
ARTICLE VIII GENERAL MATTERS................................................ 20
8.1 CHECKS.......................................................... 20
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS................ 20
-ii-
<PAGE>
TABLE OF CONTENTS
(continued)
Page
----
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES........................... 20
8.4 SPECIAL DESIGNATION ON CERTIFICATES.............................. 21
8.5 LOST CERTIFICATES................................................ 21
8.6 CONSTRUCTION; DEFINITIONS........................................ 21
8.7 DIVIDENDS........................................................ 21
8.8 FISCAL YEAR...................................................... 22
8.9 SEAL............................................................. 22
8.10 TRANSFER OF STOCK................................................ 22
8.11 STOCK TRANSFER AGREEMENTS........................................ 22
8.12 REGISTERED STOCKHOLDERS.......................................... 22
ARTICLE IX AMENDMENTS....................................................... 23
ARTICLE X DISSOLUTION....................................................... 23
ARTICLE XI CUSTODIAN........................................................ 23
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES...................... 23
11.2 DUTIES OF CUSTODIAN.............................................. 24
ARTICLE XII LOANS TO OFFICERS............................................... 24
-iii-
<PAGE>
BYLAWS
------
OF
--
PC-TEL, INC.
------------
ARTICLE I
CORPORATE OFFICES
-----------------
1.1 REGISTERED OFFICE
-----------------
The registered office of the Corporation shall be 1209 Orange Street, in
the City of Wilmington, County of New Castle, State of Delaware, 19801. The
name of the registered agent of the Corporation at such location is The
Corporation Trust Company.
1.2 OTHER OFFICES
-------------
The board of directors may at any time establish other offices at any place
or places where the Corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
2.1 PLACE OF MEETINGS
-----------------
Meetings of stockholders shall be held at any place, within or outside the
State of Delaware, designated by the board of directors. In the absence of any
such designation, stockholders' meetings shall be held at the registered office
of the Corporation.
2.2 ANNUAL MEETING
--------------
The annual meeting of stockholders shall be held each year on a date and at
a time designated by the board of directors. At the meeting, directors shall be
elected and any other proper business may be transacted.
2.3 SPECIAL MEETING
---------------
A special meeting of the stockholders may be called at any time by the (i)
board of directors, (ii) the chairman of the board, (iii) the president, or (iv)
the chief executive officer.
Prior to such time as a Registration Statement regarding the sale of the
Corporation's Common Stock to the public is declared effective by the Securities
and Exchange Commission, a
<PAGE>
special meeting of the stockholders may be called at any time by one or more
stockholders holding a majority of the outstanding voting shares.
If a special meeting is called by any person other than the board of
directors, the request shall be in writing, specifying the time of such meeting
and the general nature of the business proposed to be transacted, and shall be
delivered personally or sent by registered mail or by telegraphic or other
facsimile transmission to the chairman of the board, the president, any vice
president, or the secretary of the corporation. No business may be transacted
at such special meeting otherwise than specified in such notice. The officer
receiving the request shall cause notice to be promptly given to the
stockholders entitled to vote, in accordance with the provisions of Sections 2.4
and 2.5 of this Article II, that a meeting will be held at the time requested by
the person or persons who called the meeting, not less than thirty-five (35) nor
more than sixty (60) days after the receipt of the request. If the notice is
not given within twenty (20) days after the receipt of the request, the person
or persons requesting the meeting may give the notice. Nothing contained in
this paragraph of this Section 2.3 shall be construed as limiting, fixing, or
affecting the time when a meeting of stockholders called by action of the board
of directors may be held.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
--------------------------------
All notices of meetings with stockholders shall be in writing and shall be
sent or otherwise given in accordance with Section 2.6 of these Bylaws not less
than ten (10) nor more than sixty (60) days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notice shall specify the
place, date and hour of the meeting, and, in the case of a special meeting, the
purpose or purposes for which the meeting is called.
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS
---------------------------------------------------------------
To be properly brought before an annual meeting or special meeting,
nominations for the election of director or other business must be (a) specified
in the notice of meeting (or any supplement thereto) given by or at the
direction of the board of directors, (b) otherwise properly brought before the
meeting by or at the direction of the board of directors, or (c) otherwise
properly brought before the meeting by a stockholder. For such nominations or
other business to be considered properly brought before the meeting by a
stockholder, such stockholder must have given timely written notice and in
proper form of his intent to bring such business before such meeting. To be
timely, such stockholder's notice must be delivered to or mailed and received by
the secretary of the Corporation not less than one hundred twenty (120) days
prior to the date of the Corporation's proxy statement released to stockholders
in connection with the Corporation's previous year's annual meeting of
stockholders. To be in proper form, a stockholder's notice to the secretary
shall set forth:
(i) the name and address of the stockholder who intends to make the
nominations, propose the business, and, as the case may be, the
name and address of the
-2-
<PAGE>
person or persons to be nominated or the nature of the business
to be proposed;
(ii) a representation that the stockholder is a holder of record of
stock of the Corporation entitled to vote at such meeting and,
if applicable, intends to appear in person or by proxy at the
meeting to nominate the person or persons specified in the
notice or introduce the business specified in the notice;
(iii) if applicable, a description of all arrangements or
understandings between the stockholder and each nominee and any
other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made
by the stockholder;
(iv) such other information regarding each nominee or each matter of
business to be proposed by such stockholder as would be
required to be included in a proxy statement filed pursuant to
the proxy rules of the Securities and Exchange Commission had
the nominee been nominated, or intended to be nominated, or the
matter been proposed, or intended to be proposed by the board
of directors; and
(v) if applicable, the consent of each nominee to serve as director
of the Corporation if so elected.
The chairman of the meeting may refuse to acknowledge the nomination of any
person or the proposal of any business not made in compliance with the foregoing
procedure.
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
--------------------------------------------
Written notice of any meeting of stockholders, if mailed, is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the Corporation. An
affidavit of the secretary or an assistant secretary or of the transfer agent of
the Corporation that the notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein.
2.7 QUORUM
------
The holders of a majority of the stock issued and outstanding and entitled
to vote thereat, present in person or represented by proxy, shall constitute a
quorum at all meetings of the stockholders for the transaction of business
except as otherwise provided by statute or by the Certificate of Incorporation.
If, however, such quorum is not present or represented at any meeting of the
stockholders, then either (i) the chairman of the meeting, or (ii) the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum is present or
-3-
<PAGE>
represented. At such adjourned meeting at which a quorum is present or
represented, any business may be transacted that might have been transacted at
the meeting as originally noticed.
When a quorum is present or represented at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which, by express provisions of the statutes or
of the Certificate of Incorporation, a different vote is required, in which case
such express provision shall govern and control the decision of the question.
2.8 ADJOURNED MEETING; NOTICE
-------------------------
When a meeting is adjourned to another time or place, unless these Bylaws
otherwise require, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the Corporation may transact any business that
might have been transacted at the original meeting. If the adjournment is for
more than 30 days, or if after the adjournment a new record date is fixed for
the adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
2.9 VOTING
------
The stockholders entitled to vote at any meeting of stockholders shall be
determined in accordance with the provisions of Sections 2.12 and 2.14 of these
Bylaws, subject to the provisions of Sections 217 and 218 of the General
Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgors
and joint owners of stock and to voting trusts and other voting agreements).
Except as may be otherwise provided in the Certificate of Incorporation,
each stockholder shall be entitled to one vote for each share of capital stock
held by such stockholder.
2.10 WAIVER OF NOTICE
----------------
Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the Certificate of Incorporation or these
Bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice unless so
required by the Certificate of Incorporation or these Bylaws.
-4-
<PAGE>
2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
-------------------------------------------------------
Notwithstanding the following provisions of this Section 2.11, effective
upon the listing of the Common Stock of the Corporation on the Nasdaq Stock
Market and the registration of any class of securities of the Corporation
pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the stockholders of the Corporation may not take action by written consent
without a meeting but must take any such actions at a duly called annual or
special meeting.
Except as otherwise provided in this Section 2.11, any action required by
this chapter to be taken at any annual or special meeting of stockholders of a
Corporation, or any action that may be taken at any annual or special meeting of
such stockholders, may be taken without a meeting, without prior notice, and
without a vote if a consent in writing, setting forth the action so taken, is
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing. If the action which is consented to is such as
would have required the filing of a certificate under any section of the General
Corporation Law of Delaware if such action had been voted on by stockholders at
a meeting thereof, then the certificate filed under such section shall state, in
lieu of any statement required by such section concerning any vote of
stockholders, that written notice and written consent have been given as
provided in Section 228 of the General Corporation Law of Delaware.
2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS
-----------------------------------------------------------
In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
or entitled to express consent to corporate action in writing without a meeting,
or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the board of directors may fix, in advance, a record date, which shall
not be more than 60 nor less than 10 days before the date of such meeting, nor
more than 60 days prior to any other action.
If the board of directors does not so fix a record date, the fixing of such
record date shall be governed by the provisions of Section 213 of the General
Corporation Law of Delaware.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the board of directors may fix a new record date for the
adjourned meeting.
-5-
<PAGE>
2.13 PROXIES
-------
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for him by a written proxy, signed by
the stockholder and filed with the secretary of the Corporation, but no such
proxy shall be voted or acted upon after 3 years from its date, unless the proxy
provides for a longer period. A proxy shall be deemed signed if the
stockholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the stockholder or the
stockholder's attorney-in-fact. The revocability of a proxy that states on its
face that it is irrevocable shall be governed by the provisions of Section
212(c) of the General Corporation Law of Delaware.
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE
-------------------------------------
The officer who has charge of the stock ledger of a Corporation shall
prepare and make, at least 10 days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least 10 days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The stock ledger shall
also be produced and kept at the time and place of the meeting during the whole
time thereof, and may be inspected by any stockholder who is present. The stock
ledger shall be the only evidence as to who are the stockholders entitled to
examine the stock ledger, the list of stockholders or the books of the
Corporation, or to vote in person or by proxy at any meeting of stockholders and
of the number of shares held by each such stockholder.
2.15 CONDUCT OF BUSINESS
-------------------
Meetings of stockholders shall be presided over by the chairman of the
board, if any, or in his absence by the president, or in his absence by a vice
president, or in the absence of the foregoing persons by a chairman designated
by the board of directors, or in the absence of such designation by a chairman
chosen at the meeting. The secretary shall act as secretary of the meeting, but
in his absence the chairman of the meeting may appoint any person to act as
secretary of the meeting. The chairman of any meeting of stockholders shall
determine the order of business and the procedures at the meeting, including
such matters as the regulation of the manner of voting and conduct of business.
-6-
<PAGE>
ARTICLE III
DIRECTORS
---------
3.1 POWERS
------
Subject to the provisions of the General Corporation Law of Delaware and
any limitations in the Certificate of Incorporation or these Bylaws relating to
action required to be approved by the stockholders or by the outstanding shares,
the business and affairs of the Corporation shall be managed and all corporate
powers shall be exercised by or under the direction of the board of directors.
3.2 NUMBER
------
The authorized number of directors of the Corporation shall be eight (8).
No reduction of the authorized number of directors shall have the effect of
removing any director before that director's term of office expires.
3.3 CLASSES OF DIRECTORS
--------------------
At such time as a Registration Statement regarding the sale of the
Corporation's Common Stock to the public is declared effective by the Securities
and Exchange Commission, the Directors shall be divided into three classes
designated as Class I, Class II and Class III, respectively. Directors shall be
assigned to each class in accordance with a resolution or resolutions adopted by
the Board of Directors. At the first annual meeting of stockholders following
the closing of the Initial Public Offering, the term of office of the Class I
Directors shall expire and Class I Directors shall be elected for a full term of
three years. At the second annual meeting of stockholders following the closing
of the Initial Public Offering, the term of office of the Class II Directors
shall expire and Class II Directors shall be elected for a full term of three
years. At the third annual meeting of stockholders following the closing of the
Initial Public Offering, the term of office of the Class III Directors shall
expire and Class III Directors shall be elected for a full term of three years.
At each succeeding annual meeting of stockholders, Directors shall be elected
for a full term of three years to succeed the Directors of the class whose terms
expire at such annual meeting.
Notwithstanding the foregoing provisions of this Article, each Director
shall serve until his successor is duly elected and qualified or until his
earlier death, resignation or removal. No decrease in the number of Directors
constituting the Board of Directors shall shorten the term of any incumbent
Director.
3.4 RESIGNATION AND VACANCIES
-------------------------
Any director may resign at any time upon written notice to the Corporation.
Stockholders may remove directors with or without cause. Any vacancy occurring
in the board of directors with or without cause may be filled by a majority of
the remaining members of the board of directors,
-7-
<PAGE>
although such majority is less than a quorum, or by a plurality of the votes
cast at a meeting of stockholders, and each director so elected shall hold
office until the expiration of the term of office of the director whom he has
replaced.
Unless otherwise provided in the Certificate of Incorporation or these
Bylaws:
(i) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all
of the stockholders having the right to vote as a single class
may be filled by a majority of the directors then in office,
although less than a quorum, or by a sole remaining director.
(ii) Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the
provisions of the Certificate of Incorporation, vacancies and
newly created directorships of such class or classes or series
may be filled by a majority of the directors elected by such
class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
Corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may apply to the Court of Chancery for a decree summarily
ordering an election as provided in Section 211 of the General Corporation Law
of Delaware.
If, at the time of filling any vacancy or any newly created directorship,
the directors then in office constitute less than a majority of the whole board
(as constituted immediately prior to any such increase), then the Court of
Chancery may, upon application of any stockholder or stockholders holding at
least 10% of the total number of the shares at the time outstanding having the
right to vote for such directors, summarily order an election to be held to fill
any such vacancies or newly created directorships, or to replace the directors
chosen by the directors then in office as aforesaid, which election shall be
governed by the provisions of Section 211 of the General Corporation Law of
Delaware as far as applicable.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
----------------------------------------
The board of directors of the Corporation may hold meetings, both regular
and special, either within or outside the State of Delaware.
Unless otherwise restricted by the Certificate of Incorporation or these
Bylaws, members of the board of directors, or any committee designated by the
board of directors, may participate in a meeting of the board of directors, or
any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
-8-
<PAGE>
3.6 REGULAR MEETINGS
----------------
Regular meetings of the board of directors may be held without notice at
such time and at such place as shall from time to time be determined by the
board.
3.7 SPECIAL MEETINGS; NOTICE
------------------------
Special meetings of the board of directors for any purpose or purposes may
be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the Corporation. If the notice is mailed, it
shall be deposited in the United States mail at least 4 days before the time of
the holding of the meeting. If the notice is delivered personally or by
telephone or by telegram, it shall be delivered personally or by telephone or to
the telegraph company at least 48 hours before the time of the holding of the
meeting. Any oral notice given personally or by telephone may be communicated
either to the director or to a person at the office of the director who the
person giving the notice has reason to believe will promptly communicate it to
the director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of the
Corporation.
3.8 QUORUM
------
At all meetings of the board of directors, a majority of the authorized
number of directors shall constitute a quorum for the transaction of business
and the act of a majority of the directors present at any meeting at which there
is a quorum shall be the act of the board of directors, except as may be
otherwise specifically provided by statute or by the Certificate of
Incorporation.
3.9 WAIVER OF NOTICE
----------------
Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the Certificate of Incorporation or these
Bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the directors, or members of a committee of directors, need be specified in
any written waiver of notice unless so required by the Certificate of
Incorporation or these Bylaws.
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3.10 ADJOURNED MEETING; NOTICE
-------------------------
If a quorum is not present at any meeting of the board of directors, then
the directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum is present.
3.11 CONDUCT OF BUSINESS
-------------------
Meetings of the board of directors shall be presided over by the chairman
of the board, if any, or in his absence by the chief executive officer, or in
their absence by a chairman chosen at the meeting. The secretary shall act as
secretary of the meeting, but in his absence the chairman of the meeting may
appoint any person to act as secretary of the meeting. The chairman of any
meeting shall determine the order of business and the procedures at the meeting.
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
-------------------------------------------------
Unless otherwise restricted by the Certificate of Incorporation or these
Bylaws, any action required or permitted to be taken at any meeting of the board
of directors, or of any committee thereof, may be taken without a meeting if all
members of the board or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the board or committee.
3.13 FEES AND COMPENSATION OF DIRECTORS
----------------------------------
Unless otherwise restricted by the Certificate of Incorporation or these
Bylaws, the board of directors shall have the authority to fix the compensation
of directors. The directors may be paid their expenses, if any, of attendance
at each meeting of the board of directors and may be paid a fixed sum for
attendance at each meeting of the board of directors or a stated salary as
director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
3.14 REMOVAL OF DIRECTORS
--------------------
Unless otherwise restricted by statute, by the Certificate of Incorporation
or by these Bylaws, any director or the entire board of directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors. If at any time a class or series
of shares is entitled to elect one or more directors, the provisions of this
Article 3.14 shall apply to the vote of that class or series and not to the vote
of the outstanding shares as a whole.
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ARTICLE IV
COMMITTEES
----------
4.1 COMMITTEES OF DIRECTORS
-----------------------
The board of directors may, by resolution passed by a majority of the whole
board, designate one or more committees, with each committee to consist of one
or more of the directors of the Corporation. The board may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the board of
directors to act at the meeting in the place of any such absent or disqualified
member. Any such committee, to the extent provided in the resolution of the
board of directors or in the Bylaws of the Corporation, shall have and may
exercise all the powers and authority of the board of directors in the
management of the business and affairs of the Corporation, and may authorize the
seal of the Corporation to be affixed to all papers that may require it; but no
such committee shall have the power or authority to (i) amend the Certificate of
Incorporation (except that a committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares of stock adopted
by the board of directors as provided in Section 151(a) of the General
Corporation Law of Delaware, fix any of the preferences or rights of such shares
relating to dividends, redemption, dissolution, any distribution of assets of
the Corporation or the conversion into, or the exchange of such shares for,
shares of any other class or classes or any other series of the same or any
other class or classes of stock of the Corporation), (ii) adopt an agreement of
merger or consolidation under Sections 251 or 252 of the General Corporation Law
of Delaware, (iii) recommend to the stockholders the sale, lease or exchange of
all or substantially all of the Corporation's property and assets, (iv)
recommend to the stockholders a dissolution of the Corporation or a revocation
of a dissolution, or (v) amend the Bylaws of the Corporation; and, unless the
board resolution establishing the committee, the Bylaws or the Certificate of
Incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend, to authorize the issuance of stock, or to adopt
a certificate of ownership and merger pursuant to Section 253 of the General
Corporation Law of Delaware.
4.2 COMMITTEE MINUTES
-----------------
Each committee shall keep regular minutes of its meetings and report the
same to the board of directors when required.
4.3 MEETINGS AND ACTION OF COMMITTEES
---------------------------------
Meetings and actions of committees shall be governed by, and held and taken
in accordance with, the provisions of Article III of these Bylaws, Section 3.5
(place of meetings and meetings by telephone), Section 3.6 (regular meetings),
Section 3.7 (special meetings and notice), Section 3.8
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(quorum), Section 3.9 (waiver of notice), Section 3.10 (adjournment and notice
of adjournment), Section 3.11 (conduct of business) and 3.12 (action without a
meeting), with such changes in the context of those Bylaws as are necessary to
substitute the committee and its members for the board of directors and its
members; provided, however, that the time of regular meetings of committees may
also be called by resolution of the board of directors and that notice of
special meetings of committees shall also be given to all alternate members, who
shall have the right to attend all meetings of the committee. The board of
directors may adopt rules for the government of any committee not inconsistent
with the provisions of these Bylaws.
ARTICLE V
OFFICERS
--------
5.1 OFFICERS
--------
The officers of the Corporation shall be a chief executive officer, one or
more vice presidents, a secretary and a chief financial officer. The
Corporation may also have, at the discretion of the board of directors, a
chairman of the board, a president, a chief operating officer, one or more
executive, senior or assistant vice presidents, assistant secretaries and any
such other officers as may be appointed in accordance with the provisions of
Section 5.2 of these Bylaws. Any number of offices may be held by the same
person.
5.2 APPOINTMENT OF OFFICERS
-----------------------
Except as otherwise provided in this Section 5.2, the officers of the
Corporation shall be appointed by the board of directors, subject to the rights,
if any, of an officer under any contract of employment. The board of directors
may appoint, or empower an officer to appoint, such officers and agents of the
business as the Corporation may require (whether or not such officer or agent is
described in this Article V), each of whom shall hold office for such period,
have such authority, and perform such duties as are provided in these Bylaws or
as the board of directors may from time to time determine. Any vacancy
occurring in any office of the Corporation shall be filled by the board of
directors or may be filled by the officer, if any, who appointed such officer.
5.3 REMOVAL AND RESIGNATION OF OFFICERS
-----------------------------------
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the board of directors at any regular or
special meeting of the board or, except in the case of an officer chosen by the
board of directors, by any officer upon whom such power of removal may be
conferred by the board of directors or, in the case of an officer appointed by
another officer, by such other officer.
Any officer may resign at any time by giving written notice to the
Corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in
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that notice; and, unless otherwise specified in that notice, the acceptance of
the resignation shall not be necessary to make it effective. Any resignation is
without prejudice to the rights, if any, of the Corporation under any contract
to which the officer is a party.
5.4 CHAIRMAN OF THE BOARD
---------------------
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise and perform
such other powers and duties as may from time to time be assigned to him by the
board of directors or as may be prescribed by these Bylaws. If there is no
chief executive officer, then the chairman of the board shall also be the chief
executive officer of the Corporation and shall have the powers and duties
prescribed in Section 5.5 of these Bylaws.
5.5 CHIEF EXECUTIVE OFFICER
-----------------------
The Chief Executive Officer of the Corporation shall, subject to the
control of the Board of Directors, have general supervision, direction and
control of the business and the officers of the Corporation. He or she shall
preside at all meetings of the stockholders and, in the absence or nonexistence
of a Chairman of the Board at all meetings of the Board of Directors. He or she
shall have the general powers and duties of management usually vested in the
chief executive officer of a Corporation, including general supervision,
direction and control of the business and supervision of other officers of the
Corporation, and shall have such other powers and duties as may be prescribed by
the Board of Directors or these Bylaws.
The Chief Executive Officer shall, without limitation, have the authority
to execute bonds, mortgages and other contracts requiring a seal, under the seal
of the Corporation, except where required or permitted by law to be otherwise
signed and executed and except where the signing and execution thereof shall be
expressly delegated by the Board of Directors to some other officer or agent of
the Corporation.
5.6 PRESIDENT
---------
Subject to such supervisory powers as may be given by these Bylaws or the
Board of Directors to the Chairman of the Board or the Chief Executive Officer,
if there be such officers, the president shall have general supervision,
direction and control of the business and supervision of other officers of the
Corporation, and shall have such other powers and duties as may be prescribed by
the Board of Directors or these Bylaws. In the event a Chief Executive Officer
shall not be appointed, the President shall have the duties of such office.
5.7 VICE PRESIDENT
--------------
In the absence or disability of the president, the vice presidents, if any,
in order of their rank as fixed by the board of directors or, if not ranked, a
vice president designated by the board of directors, shall perform all the
duties of the chief executive officer and when so acting shall have all the
powers of, and be subject to all the restrictions upon, the chief executive
officer. The vice
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presidents shall have such other powers and perform such other duties as from
time to time may be prescribed for them respectively by the board of directors,
these Bylaws, the chief executive officer or the chairman of the board.
5.8 SECRETARY
---------
The secretary shall keep or cause to be kept, at the principal executive
office of the Corporation or such other place as the board of directors may
direct, a book of minutes of all meetings and actions of directors, committees
of directors, and stockholders. The minutes shall show the time and place of
each meeting, whether regular or special (and, if special, how authorized and
the notice given), the names of those present at directors' meetings or
committee meetings, the number of shares present or represented at stockholders'
meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal executive
office of the Corporation or at the office of the Corporation's transfer agent
or registrar, as determined by resolution of the board of directors, a share
register, or a duplicate share register, showing the names of all stockholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates evidencing such shares, and the number and date of
cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings of
the stockholders and of the board of directors required to be given by law or by
these Bylaws. He shall keep the seal of the Corporation, if one be adopted, in
safe custody and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or by these Bylaws.
5.9 CHIEF FINANCIAL OFFICER
-----------------------
The chief financial officer shall keep and maintain, or cause to be kept
and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the Corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The chief financial officer shall deposit all money and other valuables in
the name and to the credit of the Corporation with such depositaries as may be
designated by the board of directors. He shall disburse the funds of the
Corporation as may be ordered by the board of directors, shall render to the
chief executive officer and directors, whenever they request it, an account of
all of his transactions as treasurer and of the financial condition of the
Corporation, and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or these Bylaws.
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5.10 ASSISTANT SECRETARY
-------------------
The assistant secretary, or, if there is more than one, the assistant
secretaries in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the secretary or in the event of his or her inability
or refusal to act, perform the duties and exercise the powers of the secretary
and shall perform such other duties and have such other powers as the board of
directors or the stockholders may from time to time prescribe.
5.11 AUTHORITY AND DUTIES OF OFFICERS
--------------------------------
In addition to the foregoing authority and duties, all officers of the
Corporation shall respectively have such authority and perform such duties in
the management of the business of the Corporation as may be designated from time
to time by the board of directors or the stockholders.
ARTICLE VI
INDEMNITY
---------
6.1 THIRD PARTY ACTIONS
-------------------
The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by an agent of the Corporation), or is or was serving at
the request of the Corporation, any predecessor of the Corporation, or any
subsidiary of the Corporation, as a director or officer of another corporation,
partnership, joint venture trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, any predecessor
of the Corporation, or any subsidiary of the Corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he reasonably believed to be in or
not opposed to the best interest of the Corporation, any predecessor of the
Corporation, or any subsidiary of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his conduct
was unlawful.
The Corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by an agent of the Corporation), or is or was serving at
the request of the Corporation, any predecessor of the Corporation, or any
subsidiary of the Corporation, as an employee or agent of another corporation,
partnership, joint
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venture trust or other enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Corporation, any predecessor of the Corporation, or any
subsidiary of the Corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best interest
of the Corporation, any predecessor of the Corporation, or any subsidiary of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION
---------------------------------------------
The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation, any predecessor of the Corporation,
or any subsidiary of the Corporation, to procure a judgment in its favor by
reason of the fact that he is or was a director or officer of the Corporation,
any predecessor of the Corporation, or any subsidiary of the Corporation, or is
or was serving at the request of the Corporation, any predecessor of the
Corporation, or any subsidiary of the Corporation, as a director or officer of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if he
acted in good faith and in manner he reasonably believed to be in or not opposed
to the best interests of the Corporation, any predecessor of the Corporation, or
any subsidiary of the Corporation, and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the Corporation, any predecessor of the
Corporation, or any subsidiary of the Corporation, unless and only to the extent
that the Delaware Court of Chancery or the court in which such action or suit
was brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Delaware
Court of Chancery or such other court shall deem proper.
The Corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation, any predecessor of the Corporation,
or any subsidiary of the Corporation, to procure a judgment in its favor by
reason of the fact that he is or was an employee or agent of the Corporation,
any predecessor of the Corporation, or any subsidiary of the Corporation, or is
or was serving at the request of the Corporation, any predecessor of the
Corporation, or any subsidiary of the Corporation, as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement of such
action or suit if he acted in good faith and in manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, any predecessor
of the Corporation, or any subsidiary of the Corporation, and except that no
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indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation, any
predecessor of the Corporation, or any subsidiary of the Corporation, unless and
only to the extent that the Delaware Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Delaware Court of Chancery or such other court shall deem proper.
6.3 SUCCESSFUL DEFENSE
------------------
To the extent that a director, officer, employee or agent of the
Corporation, any predecessor of the Corporation, or any subsidiary of the
Corporation, has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Sections 6.1 and 6.2, or in defense of
any claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
6.4 DETERMINATION OF CONDUCT
------------------------
Any indemnification under Sections 6.1 and 6.2 (unless ordered by a court)
shall be made by the Corporation only as authorized in the specific case upon a
determination that the indemnification of the director, officer, employee or
agent is proper in the circumstances because he has met the applicable standard
of conduct set forth in Sections 6.1 and 6.2. Such determination shall be made
(1) by the board of Directors or the Executive Committee by a majority vote of a
quorum consisting of directors who were not parties to such action, suit or
proceeding, or (2) or if such quorum is not obtainable or, even if obtainable, a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or (3) by the stockholders.
6.5 PAYMENT OF EXPENSES IN ADVANCE
------------------------------
Expenses incurred in defending a civil or criminal action, suit or
proceeding shall be paid by the Corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of the director, officer, employee or agent to repay such amount if it
shall ultimately be determined that he is not entitled to be indemnified by the
Corporation as authorized in this Article VI.
6.6 INDEMNITY NOT EXCLUSIVE
-----------------------
The indemnification and advancement of expenses provided or granted
pursuant to the other subsections of this section shall not be deemed exclusive
of any other rights or limiting any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any by-law,
certificate of incorporation, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another while holding such office.
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6.7 INSURANCE INDEMNIFICATION
-------------------------
The Corporation shall have the power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
Corporation, any predecessor of the Corporation, or any subsidiary of the
Corporation, or is or was serving at the request of the Corporation, as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of this Article VI.
6.8 THE CORPORATION
---------------
For purposes of this Article VI, references to "the Corporation" shall
include, in addition to the resulting Corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
and subject to the provisions of this Article VI (including, without limitation
the provisions of Section 6.4) with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
6.9 EMPLOYEE BENEFIT PLANS
----------------------
For purposes of this Article VI, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably deemed to have acted in a manner "not opposed to the best interests
of the Corporation" as referred to in this Article VI.
6.10 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES
-----------------------------------------------------------
The indemnification and advanced of expenses provided by, or granted
pursuant to, this Article VI shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
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ARTICLE VII
RECORDS AND REPORTS
-------------------
7.1 MAINTENANCE AND INSPECTION OF RECORDS
-------------------------------------
The Corporation shall, either at its principal executive office or at such
place or places as designated by the board of directors, keep a record of its
stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these Bylaws as amended to date,
accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent, shall,
upon written demand under oath stating the purpose thereof, have the right
during the usual hours for business to inspect for any proper purpose the
Corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
Corporation at its registered office in Delaware or at its principal place of
business.
7.2 INSPECTION BY DIRECTORS
-----------------------
Any director shall have the right to examine the Corporation's stock
ledger, a list of its stockholders and its other books and records for a purpose
reasonably related to his position as a director. The Court of Chancery is
hereby vested with the exclusive jurisdiction to determine whether a director is
entitled to the inspection sought. The Court may summarily order the
Corporation to permit the director to inspect any and all books and records, the
stock ledger, and the stock list and to make copies or extracts therefrom. The
Court may, in its discretion, prescribe any limitations or conditions with
reference to the inspection, or award such other and further relief as the Court
may deem just and proper.
7.3 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
----------------------------------------------
The chairman of the board, the chief executive officer, any vice president,
the chief financial officer, the secretary or assistant secretary of this
Corporation, or any other person authorized by the board of directors or the
chief executive officer or a vice president, is authorized to vote, represent,
and exercise on behalf of this Corporation all rights incident to any and all
shares of any other corporation or corporations standing in the name of this
Corporation. The authority granted herein may be exercised either by such
person directly or by any other person authorized to do so by proxy or power of
attorney duly executed by such person having the authority.
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ARTICLE VIII
GENERAL MATTERS
---------------
8.1 CHECKS
------
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the Corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
------------------------------------------------
The board of directors, except as otherwise provided in these Bylaws, may
authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
Corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the Corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES
--------------------------------------
The shares of a corporation shall be represented by certificates, provided
that the board of directors of the Corporation may provide by resolution or
resolutions that some or all of any or all classes or series of its stock shall
be uncertificated shares. Any such resolution shall not apply to shares
represented by a certificate until such certificate is surrendered to the
Corporation. Notwithstanding the adoption of such a resolution by the board of
directors, every holder of stock represented by certificates and upon request
every holder of uncertificated shares shall be entitled to have a certificate
signed by, or in the name of the Corporation by the chairman or vice-chairman of
the board of directors, or the president or vice-president, and by the treasurer
or an assistant treasurer, or the secretary or an assistant secretary of such
Corporation representing the number of shares registered in certificate form.
Any or all of the signatures on the certificate may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate has to be such officer, transfer agent or
registrar before such certificate is issued, it may be issued by the Corporation
with the same effect as if he were such officer, transfer agent or registrar at
the date of issue.
The Corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, upon the books and records of the Corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend
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on fully paid shares, the Corporation shall declare a dividend upon partly paid
shares of the same class, but only upon the basis of the percentage of the
consideration actually paid thereon.
8.4 SPECIAL DESIGNATION ON CERTIFICATES
-----------------------------------
If the Corporation is authorized to issue more than one class of stock or
more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the Corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the Corporation shall issue to represent
such class or series of stock a statement that the Corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences, and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
8.5 LOST CERTIFICATES
-----------------
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the Corporation and cancelled at the same time. The Corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the Corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the Corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate or uncertificated shares.
8.6 CONSTRUCTION; DEFINITIONS
-------------------------
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Delaware General Corporation Law shall
govern the construction of these Bylaws. Without limiting the generality of this
provision, the singular number includes the plural, the plural number includes
the singular, and the term "person" includes both a Corporation and a natural
person.
8.7 DIVIDENDS
---------
The directors of the Corporation, subject to any restrictions contained in
the Certificate of Incorporation, may declare and pay dividends upon the shares
of its capital stock pursuant to the General Corporation Law of Delaware.
Dividends may be paid in cash, in property, or in shares of the Corporation's
capital stock.
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<PAGE>
The directors of the Corporation may set apart out of any of the funds of
the Corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve. Such purposes shall include but not
be limited to equalizing dividends, repairing or maintaining any property of the
Corporation, and meeting contingencies.
8.8 FISCAL YEAR
-----------
The fiscal year of the Corporation shall be fixed by resolution of the
board of directors and may be changed by the board of directors.
8.9 SEAL
----
The Corporation may adopt a corporate seal, which may be altered at
pleasure, and may use the same by causing it or a facsimile thereof to be
impressed or affixed or in any other manner reproduced.
8.10 TRANSFER OF STOCK
-----------------
Upon surrender to the Corporation or the transfer agent of the Corporation
of a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignation or authority to transfer, it shall be the duty of the
Corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate, and record the transaction in its books.
8.11 STOCK TRANSFER AGREEMENTS
-------------------------
The Corporation shall have power to enter into and perform any agreement
with any number of stockholders of any one or more classes of stock of the
Corporation to restrict the transfer of shares of stock of the Corporation of
any one or more classes owned by such stockholders in any manner not prohibited
by the General Corporation Law of Delaware.
8.12 REGISTERED STOCKHOLDERS
-----------------------
The Corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends and
to vote as such owner, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
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<PAGE>
ARTICLE IX
AMENDMENTS
----------
The original or other Bylaws of the Corporation may be adopted, amended or
repealed by the stockholders entitled to vote; provided, however, that the
Corporation may, in its Certificate of Incorporation, confer the power to adopt,
amend or repeal Bylaws upon the directors. The fact that such power has been so
conferred upon the directors shall not divest the stockholders of the power, nor
limit their power to adopt, amend or repeal Bylaws.
ARTICLE X
DISSOLUTION
-----------
If it should be deemed advisable in the judgment of the board of directors
of the Corporation that the Corporation should be dissolved, the board, after
the adoption of a resolution to that effect by a majority of the whole board at
any meeting called for that purpose, shall cause notice to be mailed to each
stockholder entitled to vote thereon of the adoption of the resolution and of a
meeting of stockholders to take action upon the resolution.
At the meeting a vote shall be taken for and against the proposed
dissolution. If a majority of the outstanding stock of the Corporation entitled
to vote thereon votes for the proposed dissolution, then a certificate stating
that the dissolution has been authorized in accordance with the provisions of
Section 275 of the General Corporation Law of Delaware and setting forth the
names and residences of the directors and officers shall be executed,
acknowledged, and filed and shall become effective in accordance with Section
103 of the General Corporation Law of Delaware. Upon such certificate's
becoming effective in accordance with Section 103 of the General Corporation Law
of Delaware, the Corporation shall be dissolved.
ARTICLE XI
CUSTODIAN
---------
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES
-------------------------------------------
The Court of Chancery, upon application of any stockholder, may appoint one
or more persons to be custodians and, if the Corporation is insolvent, to be
receivers, of and for the Corporation when:
(i) at any meeting held for the election of directors the
stockholders are so divided that they have failed to elect
successors to directors whose terms have expired or would have
expired upon qualification of their successors; or
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<PAGE>
(ii) the business of the Corporation is suffering or is threatened
with irreparable injury because the directors are so divided
respecting the management of the affairs of the Corporation
that the required vote for action by the board of directors
cannot be obtained and the stockholders are unable to
terminate this division; or
(iii) the Corporation has abandoned its business and has failed
within a reasonable time to take steps to dissolve, liquidate
or distribute its assets.
11.2 DUTIES OF CUSTODIAN
-------------------
The custodian shall have all the powers and title of a receiver appointed
under Section 291 of the General Corporation Law of Delaware, but the authority
of the custodian shall be to continue the business of the Corporation and not to
liquidate its affairs and distribute its assets, except when the Court of
Chancery otherwise orders and except in cases arising under Sections 226(a)(3)
or 352(a)(2) of the General Corporation Law of Delaware.
ARTICLE XII
LOANS TO OFFICERS
-----------------
The Corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the Corporation or of its
subsidiaries, including any officer or employee who is a Director of the
Corporation or its subsidiaries, whenever, in the judgment of the Board of
Directors, such loan, guarantee or assistance may reasonably be expected to
benefit the Corporation. The loan, guarantee or other assistance may be with or
without interest and may be unsecured, or secured in such manner as the Board of
Directors shall approve, including, without limitation, a pledge of shares of
stock of the Corporation. Nothing in this Bylaw shall be deemed to deny, limit
or restrict the powers of guaranty or warranty of the Corporation at common law
or under any statute.
-24-
<PAGE>
EXHIBIT 4.2
WARRANT
TO PURCHASE SHARES OF SERIES C PREFERRED STOCK
OF
PC-TEL, INC.
A Delaware Corporation
THIS WARRANT HAS BEEN, AND THE SHARES OF SERIES C PREFERRED STOCK WHICH MAY BE
PURCHASED PURSUANT TO THE EXERCISE OF THIS WARRANT (THE "WARRANT SHARES") WILL
BE, ACQUIRED SOLELY FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR RESALE IN
CONNECTION WITH, ANY DISTRIBUTION THEREOF. NEITHER THIS WARRANT OR THE WARRANT
SHARES (TOGETHER, THE "SECURITIES") HAVE BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS.
THE SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF SUCH REGISTRATION OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY AND ITS COUNSEL THAT SUCH DISPOSITION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE SECURITIES ACT AND OF ANY APPLICABLE
STATE SECURITIES LAWS.
Warrant No.: C-1 Issuance Date: December 31, 1998
THIS CERTIFIES THAT, for value received, Pentech Financial Services, Inc., a
California corporation (the "Holder") is entitled to subscribe for a purchase
from PC-Tel, Inc., a Delaware Corporation (the "Company"), 190,000 fully paid
and nonassessable shares (as adjusted pursuant to Section 2 hereof) (the
"Warrant Shares") of Series C Preferred Stock of the Company ("Series C
Preferred Stock") at the purchase price of $8.00 per share (as adjusted pursuant
to Section 2 hereof) (the "Exercise Price"), upon the terms and subject to the
conditions hereinafter set forth:
1. EXERCISE RIGHTS.
----------------
(a) Cash Exercise. The purchase rights represented by this Warrant may be
-------------
exercised by the Holder at any time and from time to time during the term
hereof, in whole or in part, by delivery to the principal offices of the Company
of this Warrant and a completed and duly executed Notice of Cash Exercise, in
the form attached as Exhibit A hereto, accompanied by payment to the Company of
---------
an amount equal to the Exercise Price then in effect multiplied by the number of
Warrant Shares to be purchased by the Holder in connection with such cash
exercise of this Warrant, which amount may be paid, at the election of the
Holder, by wire transfer or delivery of a certified check payable to the order
of the Company.
(b) Net Issue Exercise.
------------------
(i) In lieu of exercising the purchase rights represented by this
Warrant on a cash basis pursuant to Section 1(a) hereof, the Holder may elect to
exercise such rights represented
<PAGE>
by this Warrant at any time and from time to time during the term hereof, in
whole or in part, on a net-issue basis by electing to receive the number of
Warrant Shares which are equal in value to the value of this Warrant (or any
portion thereof to be canceled in connection with such net-issue exercise) at
the time of any such net-issue exercise, by delivery to the principal offices of
the Company of this Warrant and a completed and duly executed Notice of Net-
Issue Exercise, in the form attached as Exhibit B hereto, properly marked to
---------
indicate (A) the number of Warrant Shares to be delivered to the Holder in
connection with such net-issue exercise, (B) the number of Warrant Shares with
respect to which the Warrant is being surrendered in payment of the aggregate
Exercise Price for the Warrant Shares to be delivered to the Holder in
connection with such net-issue exercise, and (C) the number of Warrant Shares
which remain subject to the Warrant after such net-issue exercise, if any (each
as determined in accordance with Section 1(b)(ii) hereof).
(ii) In the event that the Holder shall elect to exercise the rights
represented by this Warrant in whole or in part on a net-issue basis pursuant to
this Section 1(b) the Company shall issue to the Holder the number of Warrant
Shares determined in accordance with the following formula:
X = Y (A-B)
-------
A
X = the number of Warrant Shares to be issued to the Holder in
connection with such net-issue exercise.
Y = the number of Warrant Shares subject to this Warrant.
A = the Fair Market Value of one share of Series C Preferred Stock.
B = the Exercise Price in effect as of the date of such net-issue
exercise (as adjusted pursuant to Section 2 hereof)
(c) Fair Market Value. For purposes of this Section 1, the "Fair
-----------------
Market Value" of the Series C Preferred Stock shall have the following meanings:
(i) If the Series C Preferred Stock is not listed for trading on
a national securities exchange or admitted for trading on a national market
system, then the Fair Market Value of Series C Preferred Stock shall be deemed
to be the fair market value of Series C Preferred Stock as determined in good
faith from time to time by the Board of Directors of the Company (the "Board of
Directors"), and receipt and acknowledgement of this Warrant by the Holder shall
be deemed to be an acknowledgement and acceptance of any such determination of
the fair market value of Series C Preferred Stock by the Board of Directors as
the final and binding determination of such fair market value of purposes of
this Warrant.
(ii) If the Series C Preferred Stock is listed for trading on a
national securities exchange or admitted for trading on a national market
system, then the Fair Market Value of Series C Preferred Stock shall be deemed
to be the closing price quoted on the principal securities
-2-
<PAGE>
exchange on which the Series C Preferred Stock is listed for trading, or if not
so listed, the average of the closing bid and asked prices for Series C
Preferred Stock quoted on the national market system on which Series C Preferred
Stock is admitted for trading, each as published in the Western Edition of The
Wall Street Journal, in each case for the ten (10) trading days prior to the
date of determination of Fair Market Value for Series C Preferred Stock in
accordance herewith.
(d) Additional Conditions to Exercise of Warrant. Unless there is a
--------------------------------------------
registration statement declared or ordered effective by the Securities and
Exchange Commission (the "Commission") under the Securities Act which includes
the Warrant Shares to be issued upon the exercise of the rights represented by
this Warrant, such rights may not be exercised unless and until:
(i) the Company shall have received an Investment Representation
Statement in the form attached as Exhibit C hereto, certifying that, among other
---------
things, the Warrant Shares to be issued upon the exercise of the rights
represented by this Warrant are being acquired for investment and not with a
view to any sale or distribution thereof;
(ii) each certificate evidencing the Warrant Shares to be issued
upon the exercise of the rights represented by this Warrant shall be stamped or
imprinted with a legend substantially in the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT") AND
ARE "RESTRICTED SECURITIES" AS DEFINED IN RULE 144 PROMULGATED UNDER
THE SECURITIES ACT. SUCH SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED, HYPOTHECATED OR OTHERWISE DISTRIBUTED EXCEPT (i) PURSUANT TO
A REGISTRATION STATEMENT DECLARED OR ORDERED EFFECTIVE BY THE
SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT COVERING
SUCH SECURITIES, OR (ii) IN COMPLIANCE WITH RULE 144, OR (iii)
PURSUANT TO AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER OF SUCH
SECURITIES THAT SUCH REGISTRATION OR RULE 144 COMPLIANCE IS NOT
REQUIRED UNDER THE SECURITIES ACT AS TO SUCH SALE, OFFER OF SALE,
PLEDGE, HYPOTHECATION OR OTHER DISTRIBUTION. THIS CERTIFICATE MUST BE
SURRENDERED TO THE ISSUER HEREOF OR ITS TRANSFER AGENT AS A CONDITION
PRECEDENT TO THE TRANSFER OF ANY INTEREST IN THE SECURITIES
REPRESENTED HEREBY.
(e) Fractional Shares. Upon the exercise of the rights
-----------------
represented by this Warrant, the Company shall not be obligated to issue
fractional shares of Series C Preferred Stock, and in lieu thereof, the Company
shall pay to the Holder an amount in cash equal to the Fair Market
-3-
<PAGE>
Value per share of Series C Preferred Stock immediately prior to such exercise
multiplied by such fraction (rounded to the nearest cent).
(f) Record Ownership of Warrant Shares. The Warrant Shares shall be
----------------------------------
deemed to have been issued, and the person in whose name any certificate
representing Warrant Shares shall be issuable upon the exercise of the rights
represented by this Warrant (as indicated in the appropriate Notice of Exercise)
shall be deemed to have become the holder of record of (and shall be treated for
all purposes as the record holder of) the Warrant Shares represented thereby,
immediately prior to the close of business on the date or dates upon which the
rights represented by this Warrant are exercised in accordance with the terms
hereof.
(g) Stock Certificates. In the event of any exercise of the rights
------------------
represented by this Warrant, certificates for the Warrant Shares so purchased
pursuant hereto shall be delivered to the Holder within a reasonable time and,
unless this Warrant has been fully exercised or has expired, a new Warrant
representing the Warrant Shares with respect to which this Warrant shall not
have been exercised shall also be issued to the Holder within such time.
(h) Issue Taxes. The issuance of certificates for shares of Series C
-----------
Preferred Stock upon the exercise of the rights represented by this Warrant
shall be made without charge to the Holder for any issuance tax in respect
thereof, provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the issuance and
delivery of any certificate in a name other than that of the Holder of the
Warrant.
2. ADJUSTMENT RIGHTS.
-----------------
(a) Right to Adjustment. The number of Warrant Shares purchasable upon
-------------------
the exercise of the rights represented by this Warrant, and the Exercise Price
therefor, shall be subject to adjustment from time to time upon the occurrence
of certain events, as follows:
(i) Reclassifications. In the event of a reclassification of the
-----------------
Series C Preferred Stock other than by stock split, subdivision, consolidation
or combination thereof, the Company shall execute a new Warrant, the terms of
which provide that the holder of this Warrant shall have the right to exercise
the rights represented by such new Warrant, the kind and amount of shares of
stock, other securities, money and property receivable upon such
reclassification by a holder of an equivalent number of shares of Series C
Preferred Stock. Such new Warrant shall provide for adjustments which are as
equivalent as practicable to the adjustments provided for in this Section 2. The
provisions of this Section 2(a)(i) shall apply with equal force and effect to
all successive reclassifications of the Series C Preferred Stock.
(ii) Stock Splits, Dividends, Combinations and Consolidations. In
--------------------------------------------------------
the event of a stock split, stock dividend or subdivision of or in respect of
the outstanding shares of Series C Preferred Stock, the number of Warrant Shares
issuable upon the exercise of the rights represented by this Warrant immediately
prior to such stock split, stock dividend or subdivision shall be
proportionately increased and the Exercise Price then in effect shall be
proportionately decreased, effective at the close of business on the date of
such stock split, stock dividend or subdivision, as the
-4-
<PAGE>
case may be. In the event of a reverse stock split, consolidation, combination
or other similar event of or in respect of the outstanding shares of Series C
Preferred Stock, the number of Warrant Shares issuable upon the exercise of the
rights represented by this Warrant immediately prior to such reverse stock
split, consolidation, combination or other similar event shall be
proportionately decreased and the Exercise Price shall be proportionately
increased, effective at the close of business on the date of such reverse stock
split, consolidation, combination or other similar event, as the case may be.
(iii) Mergers and Consolidations; Sales of Assets or Stock. In
----------------------------------------------------
the event of a merger or consolidation of the Company with or into another
corporation, limited liability company, general or limited partnership, joint
venture, association or other legal entity (other than (A) a merger or
consolidation pursuant to which the Company is the surviving corporation and the
shareholders of the Company immediately preceding such merger or consolidation
continue to own at least fifty percent (50%) of the capital stock of the Company
entitled to vote following the closing of such merger or consolidation and which
does not result in any reclassification of the Warrant Shares issuable upon the
exercise of the rights represented by this Warrant, or (B) the sale of all or
substantially all of the assets or capital stock of the Company, the Company, or
any successor corporation or other legal entity, as the case may be, shall
execute a new Warrant, the terms of which provide that the holder of this
Warrant shall have the right to exercise the rights represented by such new
Warrant, and procure upon such exercise and payment of the same aggregate
Exercise Price then in effect, in lieu of the shares of Series C Preferred Stock
theretofore issuable upon exercise of the rights represented by this Warrant,
the kind and amount of shares of stock, other securities, money and property
receivable upon such merger, consolidation or sale of assets or capital stock by
a holder of an equivalent number of shares of Series C Preferred Stock. Such new
Warrant shall provide for adjustments which are as equivalent as practicable to
the adjustments provided for in this Section 2. The provisions of this Section
2(a)(iii) shall apply with equal force and effect to all successive mergers,
consolidations and sales of assets and capital stock of the Series C Preferred
Stock.
(b) Adjustment Notices. Upon any adjustment of the Exercise Price, and
------------------
any increase or decrease in the number of Warrant Shares subject to this
Warrant, in accordance with this Section 2, the Company, within sixty (60) days
thereafter, shall give written notice thereof to the Holder at the address of
such Holder as shown on the books of the Company, which notice shall state the
Exercise price as adjusted and, if applicable, the increased or decreased number
of Warrant Shares subject to this Warrant, setting forth in reasonable detail
the method of calculation of each such adjustment.
3. TRANSFER OF WARRANT.
-------------------
(a) This Warrant and the rights represented hereby are not
transferable, except in accordance with the conditions set forth in Section 3.
In order to effect any transfer of all or a portion of this Warrant or the
Warrant Shares, the Holder hereof shall deliver to the Company a completed and
duly executed Notice of Transfer, in the form attached as Exhibit D hereto.
---------
-5-
<PAGE>
(b) Additional Conditions to Transfer of Warrant. Unless there is a
--------------------------------------------
registration statement declared or ordered effective by the commission under the
Securities Act which includes this Warrant, the Warrant may not be transferred
unless and until:
(i) the Company shall have received an Investment Representation
Statement, in the form attached as Exhibit E hereto, certifying that, among
---------
other things, this Warrant is being acquired for investment and not with a view
to any sale or distribution thereof, and
(ii) the Company shall have received a written notice from the
Holder which describes the manner and circumstances of the proposed transfer
accompanied by a written opinion of Holder's legal counsel, in form and
substance reasonably satisfactory to the Company, stating that such transfer is
exempt from the registration and prospectus delivery requirements of the
Securities Act and all applicable state securities laws.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
---------------------------------------------
represents and warrants to the Holder as follows:
(a) This Warrant has been duly authorized and validly executed and
delivered by the Company and constitutes a valid and legally binding obligation
of the Company enforceable against the Company in accordance with its terms.
(b) The Warrant Shares have been duly and validly authorized and
reserved for issuance by the Company upon the exercise of the rights represented
by this Warrant and, when issued upon the exercise of such rights in accordance
with the terms and conditions hereof, the Warrant Shares will be (A) duly
authorized and validly issued, fully paid and nonassessable shares of Series C
Preferred Stock, (B) free from all preemptive rights, rights of first refusal or
first offer, taxes, liens, charges or other encumbrances with respect to the
issuance thereof by the Company, and (C) free of any restrictions on the
transfer thereof other than restrictions on transfer under applicable federal
and state securities laws. At all times during the term hereof, the Company
shall have authorized and reserved for issuance a sufficient number of shares of
Series C Preferred Stock to provide for the exercise of the rights represented
by this Warrant.
(c) The due execution and delivery of this Warrant are not, and the
issuance of the Warrant Shares upon the exercise of the rights represented by
this Warrant in accordance with the terms hereof will not, conflict with the
Articles of Incorporation or Bylaws of the Company, each as amended to the date
of issuance hereof.
5. REPRESENTATION AND WARRANTIES OF THE HOLDER. The Holder hereby
-------------------------------------------
represents and warrants to the Company as follows:
(a) This Warrant is being acquired for such Holder's own account, for
investment and not with a view to, or for resale in connection with, any
distribution or public offering thereof within the meaning of the Securities
Act. Upon the exercise of the rights represented by this Warrant, the Holder
shall, if so requested by the Company, confirm in writing, in a form reasonably
-6-
<PAGE>
satisfactory to the Company, that the Warrant Shares issuable upon the exercise
of such rights are being acquired for investment and not with a view toward
distribution or resale thereof.
(b) The Holder understands that the Warrant and the Warrant Shares
have not been registered under the Securities Act by reason of their issuance in
a transaction exempt from the registration and prospectus delivery requirements
of the Securities Act pursuant to Section 4(2) thereof, and that such Warrant
and the Warrant Shares, as the case may be, must be held by the Holder
indefinitely, and therefore, that the Holder must bear the economic risk of such
investment, unless a subsequent disposition thereof is registered under the
Securities Act or is exempt from such registration requirements. The Holder
further understands that the Warrant Shares have not been qualified under the
California Securities Law of 1968 (the "California Law") by reason of their
issuance in a transaction exempt from the qualification requirements of the
California Law pursuant to Section 25102(f) thereof, which exemption depends
upon, among other things, the bona fide nature of such Holder's investment
intent expressed herein.
(c) The Holder has such knowledge and experience in financial and
business matters that it is capable of evaluating the merits and risks of the
purchase of this Warrant and the Warrant Shares and of protecting its interests
in connection therewith.
(d) The Holder is able to bear the economic risk of the purchase of
the Warrant Shares pursuant to the terms of this Warrant.
6. NO SHAREHOLDER RIGHTS. The Holder of this Warrant (and any transferee
---------------------
hereof) shall not be entitled to vote on matters submitted for the approval of
consent of the shareholders of the Company or to receive dividends declared on
or in respect of shares of Series C Preferred Stock, or otherwise be deemed to
be the holder of Series C Preferred Stock or any other capital stock or other
securities of the Company which may at any time be issuable upon the exercise of
the rights represented hereby for any purpose, nor shall anything contained
herein be construed to confer upon the Holder (or any transferee hereof) any of
the rights of a shareholder of the Company or any right to vote for the election
of directors or upon any matter submitted for the approval or consent of the
shareholders, or to give or withhold consent to any corporate action (whether
upon any recapitalization, issuance of stock, reclassification of stock, merger
or consolidation, conveyance, or otherwise) or to receive notice of meetings, or
to receive dividends or subscription rights or otherwise until this Warrant
shall have been exercised and the Warrant Shares issuable upon the exercise of
the rights represented hereby shall have become deliverable as provided herein.
7. INVESTOR RIGHTS. Subject to the requisite approval from the holders of
---------------
Series B Preferred Stock and the Series C Preferred Stock, the Company agrees to
grant the Holder those rights as set forth in the Amended and Restated Rights
Agreement, dated December 31, 1997.
8. EXPIRATION OF WARRANT. This Warrant shall expire, and the rights
---------------------
represented hereby may no longer be exercised on the close of business on the
tenth anniversary of the date of issuance hereof.
-7-
<PAGE>
9. LOCK-UP AGREEMENT. The Holder hereby agrees that, upon request of the
-----------------
Company or the managing underwriter of a public offering of any securities of
the Company, such Holder shall not sell, make any short sale of, loan, grant any
option for the purchase of, or otherwise dispose of all or any portion of the
Warrant Shares without the prior written consent of the Company or the managing
underwriter, as the case may be, for such period of time (not to exceed one
hundred eighty (180) days from the date upon which the registration statement
relating to such public offering is declared or ordered effective by the
Securities and Exchange Commission) as may be requested by the Company or the
underwriters, as the case may be.
10. MISCELLANEOUS.
-------------
(a) Governing Law. This Warrant is being delivered in the State of
-------------
California, and shall be construed and enforced in accordance with and governed
by the laws of such State. The parties expressly stipulate that any litigation
under this Warrant shall be brought in the State courts of the County of Santa
Clara, California, and in the United States District Court for the Northern
District of California. The parties agree to submit to the jurisdiction and
venue of such courts.
(b) Notice Procedures. Any written notice by the Company required
-----------------
hereunder shall be made by hand delivery or first class mail, postage prepaid,
address to the Holder at the address set forth on the books of the Company.
(c) Successors and Assigns. The terms of this Warrant shall be binding
----------------------
upon and shall inure to the benefit of any successors or assigns of the Company
and of the Holder or Holders of this Warrant and the Warrant Shares issued or
issuable upon the exercise of the rights represented by this Warrant.
(d) Entire Agreement. This Warrant constitutes the full and entire
----------------
understanding and agreement between the parties with respect to the subject
matter hereof and supersedes in their entirety any prior or contemporaneous
agreements by and between the Company and the Holder with respect to such
matters.
(e) Further Assurances: No Impairment. The Company shall not, by
---------------------------------
amendment of its Articles of Incorporation or through any other means, directly
or indirectly, avoid or seek to avoid the observance or performance of any of
the terms of this Warrant and shall at all times in good faith assist in the
carrying out of all such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the holder of this
Warrant against impairment. The Company shall at no time close its transfer
books against the transfer of this Warrant or of any Warrant Shares issued or
issuable upon the exercise of the rights represented by this Warrant in any
manner which interferes with a timely exercise of such rights. The Company shall
not, by any action, seek to avoid the observance or performance of any of the
terms of this Warrant, but shall at all times in good faith seek to carry out
all such terms and take all such actions as may be necessary or appropriate in
order to protect the rights of the Holder under this Warrant against impairment.
-8-
<PAGE>
(f) Lost Warrant. Upon receipt of evidence reasonably satisfactory to
------------
the Company of the loss, theft, destruction or mutilation of this Warrant and,
in the case of any such loss, theft or destruction, upon delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of any such mutilation, upon surrender and cancellation of such
Warrant, the Company at the Holder's expense shall execute and deliver to the
Holder, in lieu thereof, a new Warrant of like date and tenor.
(g) Amendments. This Warrant and any provision hereof may be amended,
----------
waived or terminated (either generally or in a particular instance,
retroactively or prospectively and for a specified period of time or
indefinitely) only by a written instrument signed by the Company and the Holder,
or, in the event of any partial transfer of the rights represented by this
Warrant, the Holders of rights to purchase more than fifty percent (50%) of the
Warrant Shares issuable upon exercise of the rights represented by this Warrant,
and with the same consent the Company may enter into a supplementary agreement
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of this Warrant or the Warrants, as the case
may be, provided, however, that no such amendment, waiver, termination or
supplemental agreement shall reduce the aforesaid percentage which is required
for consent to any amendment, waiver, termination or supplemental agreement
without the consent of all of the Holders of the rights represented by this
Warrant.
-9-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer.
Issued this 31st day of December, 1998
PC-TEL, INC.,
a Delaware corporation
By: /s/ Peter Chen
----------------------------
Name: Peter Chen
--------------------------
Title: President & CEO
-------------------------
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
Acknowledged and Accepted:
PENTECH FINANCIAL SERVICES, INC.
A California corporation
By: /s/ Benjamin E. Millerbis
------------------------------------
Name: Benjamin E. Millerbis
---------------------------------
Title: President
--------------------------------
Date:
----------------------------------
-10-
<PAGE>
EXHIBIT A
---------
NOTICE OF CASH EXERCISE
To: PC-TEL, Inc.
70 Rio Robles
San Jose, CA 95134
1. The undersigned hereby elects to purchase _______ shares of Series C
Preferred Stock of PC-TEL, Inc., a Delaware corporation (the "Company"),
pursuant to the terms of Warrant No. ____, issued on ________________, 199__, to
and in the name of Pentech Financial Services, Inc., a copy of which is attached
hereto (the "Warrant"), and tenders herewith full payment of the aggregate
Exercise Price for such shares in accordance with the terms of the Warrant.
2. Please issue a certificate or certificates representing said shares of
Series C Preferred Stock in such name or names as specified below:
Pentech Financial Services, Inc.
a California corporation
310 West Hamilton Avenue, Suite 202
Campbell, CA 95008
3. The undersigned hereby represents and warrants that the aforesaid
shares of Series C Preferred Stock are being acquired for the account of the
undersigned for investment and not with a view to, or for resale in connection
with, the distribution thereof, and that the undersigned has no present
intention of distributing or reselling such shares and all representations and
warranties of the undersigned set forth in attached Warrant are true and correct
as of the date hereof. In support thereof, the undersigned has executed an
Investment Representation Statement, in the form attached as Exhibit C to the
Warrant, concurrently herewith.
Pentech Financial Services, Inc.,
a California corporation
By:
--------------------------------
Name:
-------------------------------
Title:
------------------------------
Date:
-------------------------------
<PAGE>
EXHIBIT B
---------
NOTICE OF NET-ISSUE EXERCISE
To: PC-TEL, Inc.
70 Rio Robles
San Jose, CA 95134
1. The undersigned hereby elects to purchase ____________ shares of Series
C Preferred Stock of PC-TEL, Inc., a Delaware corporation (the "Company"), on a
net-issue basis pursuant to the terms of Warrant No. _______________, issued on
_______________, 199__, to ______________________ and in the name of Pentech
Financial Services, Inc., a copy of which is attached hereto (the "Warrant").
2. Net-Issue Information:
(a) Number of Shares of Series C Preferred Stock to be Delivered: ______
(b) Number of Shares of Series C Preferred Stock Surrendered:___________
(c) Number of Shares Remaining Subject to Warrant: _____________________
3. Please issue a certificate or certificates representing said shares of
Series C Preferred Stock in such name or names as specified below:
Pentech Financial Services, Inc.
310 West Hamilton Avenue, Suite 202
Campbell, CA 95008
4. The undersigned hereby represents and warrants that the aforesaid
shares of Series C Preferred Stock are being acquired for the account of the
undersigned for investment and not with a view to, or for resale in connection
with, the distribution thereof, and that the undersigned has no present
intention of distributing or reselling such shares and all representations and
warranties of the undersigned set forth in attached Warrant are true and correct
as of the date hereof. In support thereof, the undersigned has executed an
Investment Representation Statement, in the form attached as Exhibit C to the
Warrant, concurrently herewith.
Pentech Financial Services, Inc.,
a California corporation
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
Date:
-------------------------------
<PAGE>
Date:__________________
-2-
<PAGE>
EXHIBIT C
---------
INVESTMENT REPRESENTATION STATEMENT
PURCHASER: Pentech Financial Services, Inc.
SELLER: PC-TEL, Inc.
COMPANY: PC-TEL, Inc.
SECURITY: Series C Preferred Stock Issued Upon The Exercise Of Warrant
No. _____________ Issued On _____________________, 199__.
AMOUNT: _______________ SHARES
DATE: __________________
The undersigned hereby represent and warrants to PC-TEL, Inc., a Delaware
corporation (the "Company"), as follows:
1. I am aware of the business affairs, financial condition and results of
operations of the Company and have acquired sufficient information about the
Company to reach an informed and knowledgeable investment decision to acquire
the Securities. I am purchasing the Securities for my own account for
investment purposes only and not with a view to, or for the resale in connection
with, any "distribution" thereof for purposes of the Securities Act of 1933, as
amended (the "Securities Act").
2. I understand that the Securities have not been registered under the
Securities Act in reliance upon a specific exemption therefrom, which exemption
depends upon, among other things, the bona fide nature of my investment intent
as expressed herein. I understand that, in the view of the Securities and
Exchange Commission (the "Commission"), the statutory basis for such exemption
may be unavailable if my representation was predicated solely upon a present
intention to hold the Securities for the minimum capital gains period specified
under tax statutes, for a deferred sale, for or until an increase or decrease in
the market price of the Securities, or for a period of one year or any other
fixed period in the future.
3. I further understand that the Securities must be held indefinitely
unless subsequently registered under the Securities Act or unless an exemption
from registration is otherwise available. In addition, I understand that the
certificate evidencing the Securities will be imprinted with a legend which
prohibits the transfer of the Securities unless they are registered or such
registration is not required in the opinion of counsel for the Company.
4. I am familiar with the provisions of Rule 144, promulgated under the
Securities Act, which, in substance, permits limited public resale of
"restricted securities" acquired, directly or
<PAGE>
indirectly, from the issuer thereof, in a non-public offering subject to the
satisfaction of certain conditions.
5. I further understand that in the event all of the applicable
requirements of Rule 144 are not satisfied, registration under the Securities
Act, compliance with Regulation A, or some other registration exemption will be
required; and that, notwithstanding the fact that Rule 144 is not exclusive, the
Staff of the Commission has expressed its opinion that persons proposing to sell
private placement securities other than in a registered offering and otherwise
than pursuant to Rule 144 will have a substantial burden of proof in
establishing that an exemption from registration is available for such offers or
sales, and that such persons and their respective brokers who participate in
such transactions do so at their own risk.
Pentech Financial Services, Inc.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
Date:
----------------------------
-2-
<PAGE>
EXHIBIT D
---------
NOTICE OF TRANSFER
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto _________________________ the right represented by Warrant No.
_______________, issued on _________________, 199__, to and in the name of
____________________________, to purchase ______________ shares of Series C
Preferred Stock of PC-TEL, Inc., a Delaware corporation (the "Company"), a copy
of which is attached hereto (the "Warrant"), and appoints
________________________________ as attorney-in-fact to transfer such right on
the books of the Company with full power of substitution in the premises.
Dated: _________________________ Pentech Financial Services, Inc.,
a California corporation
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
(Signature must conform in all respects to
name of the Holder as set forth on the face
of the Warrant)
310 West Hamilton Avenue, Suite 202
Campbell, CA 95008
Signed in the presence of:
- ----------------------------------
<PAGE>
EXHIBIT E
---------
INVESTMENT REPRESENTATION STATEMENT
PURCHASER: Pentech Financial Services, Inc., a California corporation
----------------------------------------------------------
TRANSFEROR:
---------------------------
COMPANY: PC-TEL, Inc.
SECURITY: WARRANT NO. ___________, ISSUED ON ______________, 199 .
AMOUNT: ____________ SHARES
DATE: __________________
The undersigned hereby represent and warrants to PC-TEL, Inc., a Delaware
corporation (the "Company"), as follows:
1. I am aware of the business affairs, financial condition and results of
operations of the Company and have acquired sufficient information about the
Company to reach an informed and knowledgeable investment decision to acquire
the Securities. I am purchasing the Securities for my own account for investment
purposes only and not with a view to, or for the resale in connection with, any
"distribution" thereof for purposes of the Securities Act of 1933, as amended
(the "Securities Act").
2. I understand that the Securities have not been registered under
the Securities Act in reliance upon a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of my
investment intent as expressed herein. I understand that, in the view of the
Securities and Exchange Commission (the "Commission"), the statutory basis for
such exemption may be unavailable if my representation was predicated solely
upon a present intention to hold the Securities for the minimum capital gains
period specified under tax statutes, for a deferred sale, for or until an
increase or decrease in the market price of the Securities, or for a period of
one year or any other fixed period in the future.
3. I further understand that the Securities must be held indefinitely
unless subsequently registered under the Securities Act or unless an exemption
from registration is otherwise available. In addition, I understand that the
certificate evidencing the Securities will be imprinted with a legend which
prohibits the transfer of the Securities unless they are registered or such
registration is not required in the opinion of counsel for the Company.
4. I am familiar with the provisions of Rule 144, promulgated under the
Securities Act, which, in substance, permits limited public resale of
"restricted securities" acquired, directly or indirectly, from the issuer
thereof, in a non-public offering subject to the satisfaction of certain
conditions.
5. I further understand that in the event all of the applicable
requirements of Rule 144 are not satisfied, registration under the Securities
Act, compliance with Regulation A, or some other
<PAGE>
registration exemption will be required; and that, notwithstanding the fact that
Rule 144 is not exclusive, the Staff of the Commission has expressed its opinion
that persons proposing to sell private placement securities other than in a
registered offering and otherwise than pursuant to Rule 144 will have a
substantial burden of proof in establishing that an exemption from registration
is available for such offers or sales, and that such persons and their
respective brokers who participate in such transactions do so at their own risk.
Date: ___________________________ Pentech Financial Services, Inc.,
a California corporation
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
Date:
----------------------------
-2-
<PAGE>
EXHIBIT 4.3
WARRANT
TO PURCHASE SHARES OF SERIES C PREFERRED STOCK
OF
PC-TEL, INC.
A Delaware Corporation
THIS WARRANT HAS BEEN, AND THE SHARES OF SERIES C PREFERRED STOCK WHICH MAY BE
PURCHASED PURSUANT TO THE EXERCISE OF THIS WARRANT (THE "WARRANT SHARES") WILL
BE, ACQUIRED SOLELY FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR RESALE IN
CONNECTION WITH, ANY DISTRIBUTION THEREOF. NEITHER THIS WARRANT OR THE WARRANT
SHARES (TOGETHER, THE "SECURITIES") HAVE BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS.
THE SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF SUCH REGISTRATION OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY AND ITS COUNSEL THAT SUCH DISPOSITION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE SECURITIES ACT AND OF ANY APPLICABLE
STATE SECURITIES LAWS.
Warrant No.: C-2 Issuance Date: December 31, 1998
THIS CERTIFIES THAT, for value received, PFF Bank and Trust, Inc., a California
corporation (the "Holder") is entitled to subscribe for a purchase from PC-Tel,
Inc., a Delaware Corporation (the "Company"), 10,000 fully paid and
nonassessable shares (as adjusted pursuant to Section 2 hereof) (the "Warrant
Shares") of Series C Preferred Stock of the Company ("Series C Preferred Stock")
at the purchase price of $8.00 per share (as adjusted pursuant to Section 2
hereof) (the "Exercise Price"), upon the terms and subject to the conditions
hereinafter set forth:
1. EXERCISE RIGHTS.
---------------
(a) Cash Exercise. The purchase rights represented by this Warrant
-------------
may be exercised by the Holder at any time and from time to time during the term
hereof, in whole or in part, by delivery to the principal offices of the Company
of this Warrant and a completed and duly executed Notice of Cash Exercise, in
the form attached as Exhibit A hereto, accompanied by payment to the Company of
---------
an amount equal to the Exercise Price then in effect multiplied by the number of
Warrant Shares to be purchased by the Holder in connection with such cash
exercise of this Warrant, which amount may be paid, at the election of the
Holder, by wire transfer or delivery of a certified check payable to the order
of the Company.
(b) Net Issue Exercise.
------------------
(i) In lieu of exercising the purchase rights represented by
this Warrant on a cash basis pursuant to Section 1(a) hereof, the Holder may
elect to exercise such rights represented
<PAGE>
by this Warrant at any time and from time to time during the term hereof, in
whole or in part, on a net-issue basis by electing to receive the number of
Warrant Shares which are equal in value to the value of this Warrant (or any
portion thereof to be canceled in connection with such net-issue exercise) at
the time of any such net-issue exercise, by delivery to the principal offices of
the Company of this Warrant and a completed and duly executed Notice of Net-
Issue Exercise, in the form attached as Exhibit B hereto, properly marked to
---------
indicate (A) the number of Warrant Shares to be delivered to the Holder in
connection with such net-issue exercise, (B) the number of Warrant Shares with
respect to which the Warrant is being surrendered in payment of the aggregate
Exercise Price for the Warrant Shares to be delivered to the Holder in
connection with such net-issue exercise, and (C) the number of Warrant Shares
which remain subject to the Warrant after such net-issue exercise, if any (each
as determined in accordance with Section 1(b)(ii) hereof).
(ii) In the event that the Holder shall elect to exercise the
rights represented by this Warrant in whole or in part on a net-issue basis
pursuant to this Section 1(b) the Company shall issue to the Holder the number
of Warrant Shares determined in accordance with the following formula:
X = Y (A-B)
-------
A
X = the number of Warrant Shares to be issued to the Holder in
connection with such net-issue exercise.
Y = the number of Warrant Shares subject to this Warrant.
A = the Fair Market Value of one share of Series C Preferred
Stock.
B = the Exercise Price in effect as of the date of such net-issue
exercise (as adjusted pursuant to Section 2 hereof)
(c) Fair Market Value. For purposes of this Section 1, the "Fair
-----------------
Market Value" of the Series C Preferred Stock shall have the following meanings:
(i) If the Series C Preferred Stock is not listed for trading
on a national securities exchange or admitted for trading on a national market
system, then the Fair Market Value of Series C Preferred Stock shall be deemed
to be the fair market value of Series C Preferred Stock as determined in good
faith from time to time by the Board of Directors of the Company (the "Board of
Directors"), and receipt and acknowledgement of this Warrant by the Holder shall
be deemed to be an acknowledgement and acceptance of any such determination of
the fair market value of Series C Preferred Stock by the Board of Directors as
the final and binding determination of such fair market value of purposes of
this Warrant.
(ii) If the Series C Preferred Stock is listed for trading on a
national securities exchange or admitted for trading on a national market
system, then the Fair Market Value of Series C Preferred Stock shall be deemed
to be the closing price quoted on the principal securities
-2-
<PAGE>
exchange on which the Series C Preferred Stock is listed for trading, or if not
so listed, the average of the closing bid and asked prices for Series C
Preferred Stock quoted on the national market system on which Series C Preferred
Stock is admitted for trading, each as published in the Western Edition of The
Wall Street Journal, in each case for the ten (10) trading days prior to the
date of determination of Fair Market Value for Series C Preferred Stock in
accordance herewith.
(d) Additional Conditions to Exercise of Warrant. Unless there is a
--------------------------------------------
registration statement declared or ordered effective by the Securities and
Exchange Commission (the "Commission") under the Securities Act which includes
the Warrant Shares to be issued upon the exercise of the rights represented by
this Warrant, such rights may not be exercised unless and until:
(i) the Company shall have received an Investment
Representation Statement in the form attached as Exhibit C hereto, certifying
---------
that, among other things, the Warrant Shares to be issued upon the exercise of
the rights represented by this Warrant are being acquired for investment and not
with a view to any sale or distribution thereof;
(ii) each certificate evidencing the Warrant Shares to be issued
upon the exercise of the rights represented by this Warrant shall be stamped or
imprinted with a legend substantially in the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT")
AND ARE "RESTRICTED SECURITIES" AS DEFINED IN RULE 144 PROMULGATED
UNDER THE SECURITIES ACT. SUCH SECURITIES MAY NOT BE SOLD, OFFERED
FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE DISTRIBUTED EXCEPT (i)
PURSUANT TO A REGISTRATION STATEMENT DECLARED OR ORDERED EFFECTIVE BY
THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT
COVERING SUCH SECURITIES, OR (ii) IN COMPLIANCE WITH RULE 144, OR
(iii) PURSUANT TO AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER OF
SUCH SECURITIES THAT SUCH REGISTRATION OR RULE 144 COMPLIANCE IS NOT
REQUIRED UNDER THE SECURITIES ACT AS TO SUCH SALE, OFFER OF SALE,
PLEDGE, HYPOTHECATION OR OTHER DISTRIBUTION. THIS CERTIFICATE MUST BE
SURRENDERED TO THE ISSUER HEREOF OR ITS TRANSFER AGENT AS A CONDITION
PRECEDENT TO THE TRANSFER OF ANY INTEREST IN THE SECURITIES
REPRESENTED HEREBY.
(e) Fractional Shares. Upon the exercise of the rights represented by
-----------------
this Warrant, the Company shall not be obligated to issue fractional shares of
Series C Preferred Stock, and in lieu thereof, the Company shall pay to the
Holder an amount in cash equal to the Fair Market
-3-
<PAGE>
Value per share of Series C Preferred Stock immediately prior to such exercise
multiplied by such fraction (rounded to the nearest cent).
(f) Record Ownership of Warrant Shares. The Warrant Shares shall be
----------------------------------
deemed to have been issued, and the person in whose name any certificate
representing Warrant Shares shall be issuable upon the exercise of the rights
represented by this Warrant (as indicated in the appropriate Notice of Exercise)
shall be deemed to have become the holder of record of (and shall be treated for
all purposes as the record holder of) the Warrant Shares represented thereby,
immediately prior to the close of business on the date or dates upon which the
rights represented by this Warrant are exercised in accordance with the terms
hereof.
(g) Stock Certificates. In the event of any exercise of the rights
------------------
represented by this Warrant, certificates for the Warrant Shares so purchased
pursuant hereto shall be delivered to the Holder within a reasonable time and,
unless this Warrant has been fully exercised or has expired, a new Warrant
representing the Warrant Shares with respect to which this Warrant shall not
have been exercised shall also be issued to the Holder within such time.
(h) Issue Taxes. The issuance of certificates for shares of Series C
-----------
Preferred Stock upon the exercise of the rights represented by this Warrant
shall be made without charge to the Holder for any issuance tax in respect
thereof, provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the issuance and
delivery of any certificate in a name other than that of the Holder of the
Warrant.
2. ADJUSTMENT RIGHTS.
-----------------
(a) Right to Adjustment. The number of Warrant Shares purchasable
-------------------
upon the exercise of the rights represented by this Warrant, and the Exercise
Price therefor, shall be subject to adjustment from time to time upon the
occurrence of certain events, as follows:
(i) Reclassifications. In the event of a reclassification of
-----------------
the Series C Preferred Stock other than by stock split, subdivision,
consolidation or combination thereof, the Company shall execute a new Warrant,
the terms of which provide that the holder of this Warrant shall have the right
to exercise the rights represented by such new Warrant, the kind and amount of
shares of stock, other securities, money and property receivable upon such
reclassification by a holder of an equivalent number of shares of Series C
Preferred Stock. Such new Warrant shall provide for adjustments which are as
equivalent as practicable to the adjustments provided for in this Section 2. The
provisions of this Section 2(a)(i) shall apply with equal force and effect to
all successive reclassifications of the Series C Preferred Stock.
(ii) Stock Splits, Dividends, Combinations and Consolidations.
--------------------------------------------------------
In the event of a stock split, stock dividend or subdivision of or in respect of
the outstanding shares of Series C Preferred Stock, the number of Warrant Shares
issuable upon the exercise of the rights represented by this Warrant immediately
prior to such stock split, stock dividend or subdivision shall be
proportionately increased and the Exercise Price then in effect shall be
proportionately decreased, effective at the close of business on the date of
such stock split, stock dividend or subdivision, as the
-4-
<PAGE>
case may be. In the event of a reverse stock split, consolidation, combination
or other similar event of or in respect of the outstanding shares of Series C
Preferred Stock, the number of Warrant Shares issuable upon the exercise of the
rights represented by this Warrant immediately prior to such reverse stock
split, consolidation, combination or other similar event shall be
proportionately decreased and the Exercise Price shall be proportionately
increased, effective at the close of business on the date of such reverse stock
split, consolidation, combination or other similar event, as the case may be.
(iii) Mergers and Consolidations; Sales of Assets or Stock. In
----------------------------------------------------
the event of a merger or consolidation of the Company with or into another
corporation, limited liability company, general or limited partnership, joint
venture, association or other legal entity (other than (A) a merger or
consolidation pursuant to which the Company is the surviving corporation and the
shareholders of the Company immediately preceding such merger or consolidation
continue to own at least fifty percent (50%) of the capital stock of the Company
entitled to vote following the closing of such merger or consolidation and which
does not result in any reclassification of the Warrant Shares issuable upon the
exercise of the rights represented by this Warrant, or (B) the sale of all or
substantially all of the assets or capital stock of the Company, the Company, or
any successor corporation or other legal entity, as the case may be, shall
execute a new Warrant, the terms of which provide that the holder of this
Warrant shall have the right to exercise the rights represented by such new
Warrant, and procure upon such exercise and payment of the same aggregate
Exercise Price then in effect, in lieu of the shares of Series C Preferred Stock
theretofore issuable upon exercise of the rights represented by this Warrant,
the kind and amount of shares of stock, other securities, money and property
receivable upon such merger, consolidation or sale of assets or capital stock by
a holder of an equivalent number of shares of Series C Preferred Stock. Such new
Warrant shall provide for adjustments which are as equivalent as practicable to
the adjustments provided for in this Section 2. The provisions of this Section
2(a)(iii) shall apply with equal force and effect to all successive mergers,
consolidations and sales of assets and capital stock of the Series C Preferred
Stock.
(b) Adjustment Notices. Upon any adjustment of the Exercise Price,
------------------
and any increase or decrease in the number of Warrant Shares subject to this
Warrant, in accordance with this Section 2, the Company, within sixty (60) days
thereafter, shall give written notice thereof to the Holder at the address of
such Holder as shown on the books of the Company, which notice shall state the
Exercise price as adjusted and, if applicable, the increased or decreased number
of Warrant Shares subject to this Warrant, setting forth in reasonable detail
the method of calculation of each such adjustment.
3. TRANSFER OF WARRANT.
-------------------
(a) This Warrant and the rights represented hereby are not
transferable, except accordance with the conditions set forth in Section 3. In
order to effect any transfer of all or a portion of this Warrant or the Warrant
Shares, the Holder hereof shall deliver to the Company a completed and duly
executed Notice of Transfer, in the form attached as Exhibit D hereto.
---------
-5-
<PAGE>
(b) Additional Conditions to Transfer of Warrant. Unless there is a
--------------------------------------------
registration statement declared or ordered effective by the commission under the
Securities Act which includes this Warrant, the Warrant may not be transferred
unless and until:
(i) the Company shall have received an Investment
Representation Statement, in the form attached as Exhibit E hereto, certifying
---------
that, among other things, this Warrant is being acquired for investment and not
with a view to any sale or distribution thereof, and
(ii) the Company shall have received a written notice from the
Holder which describes the manner and circumstances of the proposed transfer
accompanied by a written opinion of Holder's legal counsel, in form and
substance reasonably satisfactory to the Company, stating that such transfer is
exempt from the registration and prospectus delivery requirements of the
Securities Act and all applicable state securities laws.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
---------------------------------------------
represents and warrants to the Holder as follows:
(a) This Warrant has been duly authorized and validly executed and
delivered by the Company and constitutes a valid and legally binding obligation
of the Company enforceable against the Company in accordance with its terms.
(b) The Warrant Shares have been duly and validly authorized and
reserved for issuance by the Company upon the exercise of the rights represented
by this Warrant and, when issued upon the exercise of such rights in accordance
with the terms and conditions hereof, the Warrant Shares will be (A) duly
authorized and validly issued, fully paid and nonassessable shares of Series C
Preferred Stock, (B) free from all preemptive rights, rights of first refusal or
first offer, taxes, liens, charges or other encumbrances with respect to the
issuance thereof by the Company, and (C) free of any restrictions on the
transfer thereof other than restrictions on transfer under applicable federal
and state securities laws. At all times during the term hereof, the Company
shall have authorized and reserved for issuance a sufficient number of shares of
Series C Preferred Stock to provide for the exercise of the rights represented
by this Warrant.
(c) The due execution and delivery of this Warrant are not, and the
issuance of the Warrant Shares upon the exercise of the rights represented by
this Warrant in accordance with the terms hereof will not, conflict with the
Articles of Incorporation or Bylaws of the Company, each as amended to the date
of issuance hereof.
5. REPRESENTATION AND WARRANTIES OF THE HOLDER. The Holder hereby
-------------------------------------------
represents and warrants to the Company as follows:
(a) This Warrant is being acquired for such Holder's own account, for
investment and not with a view to, or for resale in connection with, any
distribution or public offering thereof within the meaning of the Securities
Act. Upon the exercise of the rights represented by this Warrant, the Holder
shall, if so requested by the Company, confirm in writing, in a form reasonably
-6-
<PAGE>
satisfactory to the Company, that the Warrant Shares issuable upon the exercise
of such rights are being acquired for investment and not with a view toward
distribution or resale thereof.
(b) The Holder understands that the Warrant and the Warrant Shares
have not been registered under the Securities Act by reason of their issuance in
a transaction exempt from the registration and prospectus delivery requirements
of the Securities Act pursuant to Section 4(2) thereof, and that such Warrant
and the Warrant Shares, as the case may be, must be held by the Holder
indefinitely, and therefore, that the Holder must bear the economic risk of such
investment, unless a subsequent disposition thereof is registered under the
Securities Act or is exempt from such registration requirements. The Holder
further understands that the Warrant Shares have not been qualified under the
California Securities Law of 1968 (the "California Law") by reason of their
issuance in a transaction exempt from the qualification requirements of the
California Law pursuant to Section 25102(f) thereof, which exemption depends
upon, among other things, the bona fide nature of such Holder's investment
intent expressed herein.
(c) The Holder has such knowledge and experience in financial and
business matters that it is capable of evaluating the merits and risks of the
purchase of this Warrant and the Warrant Shares and of protecting its interests
in connection therewith.
(d) The Holder is able to bear the economic risk of the purchase of
the Warrant Shares pursuant to the terms of this Warrant.
6. NO SHAREHOLDER RIGHTS. The Holder of this Warrant (and any transferee
---------------------
hereof) shall not be entitled to vote on matters submitted for the approval of
consent of the shareholders of the Company or to receive dividends declared on
or in respect of shares of Series C Preferred Stock, or otherwise be deemed to
be the holder of Series C Preferred Stock or any other capital stock or other
securities of the Company which may at any time be issuable upon the exercise of
the rights represented hereby for any purpose, nor shall anything contained
herein be construed to confer upon the Holder (or any transferee hereof) any of
the rights of a shareholder of the Company or any right to vote for the election
of directors or upon any matter submitted for the approval or consent of the
shareholders, or to give or withhold consent to any corporate action (whether
upon any recapitalization, issuance of stock, reclassification of stock, merger
or consolidation, conveyance, or otherwise) or to receive notice of meetings, or
to receive dividends or subscription rights or otherwise until this Warrant
shall have been exercised and the Warrant Shares issuable upon the exercise of
the rights represented hereby shall have become deliverable as provided herein.
7. INVESTOR RIGHTS. Subject to the requisite approval from the holders of
---------------
Series B Preferred Stock and the Series C Preferred Stock, the Company agrees to
grant the Holder those rights as set forth in the Amended and Restated Rights
Agreement, dated December 31, 1997.
8. EXPIRATION OF WARRANT. This Warrant shall expire, and the rights
---------------------
represented hereby may no longer be exercised on the close of business on the
tenth anniversary of the date of issuance hereof.
-7-
<PAGE>
9. LOCK-UP AGREEMENT. The Holder hereby agrees that, upon request of the
-----------------
Company or the managing underwriter of a public offering of any securities of
the Company, such Holder shall not sell, make any short sale of, loan, grant any
option for the purchase of, or otherwise dispose of all or any portion of the
Warrant Shares without the prior written consent of the Company or the managing
underwriter, as the case may be, for such period of time (not to exceed one
hundred eighty (180) days from the date upon which the registration statement
relating to such public offering is declared or ordered effective by the
Securities and Exchange Commission) as may be requested by the Company or the
underwriters, as the case may be.
10. MISCELLANEOUS.
-------------
(a) Governing Law. This Warrant is being delivered in the State of
-------------
California, and shall be construed and enforced in accordance with and governed
by the laws of such State. The parties expressly stipulate that any litigation
under this Warrant shall be brought in the State courts of the County of Santa
Clara, California, and in the United States District Court for the Northern
District of California. The parties agree to submit to the jurisdiction and
venue of such courts.
(b) Notice Procedures. Any written notice by the Company required
-----------------
hereunder shall be made by hand delivery or first class mail, postage prepaid,
address to the Holder at the address set forth on the books of the Company.
(c) Successors and Assigns. The terms of this Warrant shall be
----------------------
binding upon and shall inure to the benefit of any successors or assigns of the
Company and of the Holder or Holders of this Warrant and the Warrant Shares
issued or issuable upon the exercise of the rights represented by this Warrant.
(d) Entire Agreement. This Warrant constitutes the full and entire
----------------
understanding and agreement between the parties with respect to the subject
matter hereof and supersedes in their entirety any prior or contemporaneous
agreements by and between the Company and the Holder with respect to such
matters.
(e) Further Assurances: No Impairment. The Company shall not, by
---------------------------------
amendment of its Articles of Incorporation or through any other means, directly
or indirectly, avoid or seek to avoid the observance or performance of any of
the terms of this Warrant and shall at all times in good faith assist in the
carrying out of all such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the holder of this
Warrant against impairment. The Company shall at no time close its transfer
books against the transfer of this Warrant or of any Warrant Shares issued or
issuable upon the exercise of the rights represented by this Warrant in any
manner which interferes with a timely exercise of such rights. The Company shall
not, by any action, seek to avoid the observance or performance of any of the
terms of this Warrant, but shall at all times in good faith seek to carry out
all such terms and take all such actions as may be necessary or appropriate in
order to protect the rights of the Holder under this Warrant against impairment.
-8-
<PAGE>
(f) Lost Warrant. Upon receipt of evidence reasonably satisfactory to
------------
the Company of the loss, theft, destruction or mutilation of this Warrant and,
in the case of any such loss, theft or destruction, upon delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of any such mutilation, upon surrender and cancellation of such
Warrant, the Company at the Holder's expense shall execute and deliver to the
Holder, in lieu thereof, a new Warrant of like date and tenor.
(g) Amendments. This Warrant and any provision hereof may be amended,
----------
waived or terminated (either generally or in a particular instance,
retroactively or prospectively and for a specified period of time or
indefinitely) only by a written instrument signed by the Company and the Holder,
or, in the event of any partial transfer of the rights represented by this
Warrant, the Holders of rights to purchase more than fifty percent (50%) of the
Warrant Shares issuable upon exercise of the rights represented by this Warrant,
and with the same consent the Company may enter into a supplementary agreement
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of this Warrant or the Warrants, as the case
may be, provided, however, that no such amendment, waiver, termination or
supplemental agreement shall reduce the aforesaid percentage which is required
for consent to any amendment, waiver, termination or supplemental agreement
without the consent of all of the Holders of the rights represented by this
Warrant.
-9-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer.
Issued this 31st day of December, 1998
PC-TEL, INC.,
a Delaware corporation
By: /s/ Peter Chen
--------------------------------------
Name: Peter Chen
------------------------------------
Title: President & CEO
-----------------------------------
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
Acknowledged and Accepted:
PFF BANK AND TRUST, INC.
A California corporation
By: /s/ Kenneth O. Wentzel
-------------------------------
Name: Kenneth O. Wentzel
-----------------------------
Title: Vice President
----------------------------
Date: March 26, 1999
-----------------------------
-10-
<PAGE>
EXHIBIT A
---------
NOTICE OF CASH EXERCISE
To: PC-TEL, Inc.
70 Rio Robles
San Jose, CA 95134
1. The undersigned hereby elects to purchase _______ shares of Series C
Preferred Stock of PC-TEL, Inc., a Delaware corporation (the "Company"),
pursuant to the terms of Warrant No. ____, issued on ________________, 199__, to
and in the name of PFF Bank and Trust, Inc., a copy of which is attached hereto
(the "Warrant"), and tenders herewith full payment of the aggregate Exercise
Price for such shares in accordance with the terms of the Warrant.
2. Please issue a certificate or certificates representing said shares of
Series C Preferred Stock in such name or names as specified below:
PFF Bank and Trust, Inc.
a California corporation
The undersigned hereby represents and warrants that the aforesaid shares of
Series C Preferred Stock are being acquired for the account of the undersigned
for investment and not with a view to, or for resale in connection with, the
distribution thereof, and that the undersigned has no present intention of
distributing or reselling such shares and all representations and warranties of
the undersigned set forth in attached Warrant are true and correct as of the
date hereof. In support thereof, the undersigned has executed an Investment
Representation Statement, in the form attached as Exhibit C to the Warrant,
concurrently herewith.
PFF Bank and Trust, Inc.,
a California corporation
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
Date:
--------------------------------------
<PAGE>
EXHIBIT B
---------
NOTICE OF NET-ISSUE EXERCISE
To: PC-TEL, Inc.
70 Rio Robles
San Jose, CA 95134
1. The undersigned hereby elects to purchase ____________ shares of
Series C Preferred Stock of PC-TEL, Inc., a Delaware corporation (the
"Company"), on a net-issue basis pursuant to the terms of Warrant No.
_______________, issued on _______________, 199__, to ______________________ and
in the name of PFF Bank and Trust, Inc., a copy of which is attached hereto (the
"Warrant").
2. Net-Issue Information:
(a) Number of Shares of Series C Preferred Stock to be Delivered:
__________________
(b) Number of Shares of Series C Preferred Stock Surrendered:
____________________
(c) Number of Shares Remaining Subject to Warrant:
____________________________
3. Please issue a certificate or certificates representing said
shares of Series C Preferred Stock in such name or names as specified below:
PFF Bank and Trust, Inc.
4. The undersigned hereby represents and warrants that the aforesaid
shares of Series C Preferred Stock are being acquired for the account of the
undersigned for investment and not with a view to, or for resale in connection
with, the distribution thereof, and that the undersigned has no present
intention of distributing or reselling such shares and all representations and
warranties of the undersigned set forth in attached Warrant are true and correct
as of the date hereof. In support thereof, the undersigned has executed an
Investment Representation Statement, in the form attached as Exhibit C to the
Warrant, concurrently herewith.
PFF Bank and Trust, Inc.,
a California corporation
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
Date:
--------------------------------------
<PAGE>
EXHIBIT C
---------
INVESTMENT REPRESENTATION STATEMENT
PURCHASER: PFF Bank and Trust, Inc.
SELLER: PC-TEL, Inc.
COMPANY: PC-TEL, Inc.
SECURITY: Series C Preferred Stock Issued Upon The Exercise Of Warrant No.
_____________ Issued On _____________________, 199__.
AMOUNT: _______________ SHARES
DATE: __________________
The undersigned hereby represent and warrants to PC-TEL, Inc., a Delaware
corporation (the "Company"), as follows:
1. I am aware of the business affairs, financial condition and results of
operations of the Company and have acquired sufficient information about the
Company to reach an informed and knowledgeable investment decision to acquire
the Securities. I am purchasing the Securities for my own account for
investment purposes only and not with a view to, or for the resale in connection
with, any "distribution" thereof for purposes of the Securities Act of 1933, as
amended (the "Securities Act").
2. I understand that the Securities have not been registered under the
Securities Act in reliance upon a specific exemption therefrom, which exemption
depends upon, among other things, the bona fide nature of my investment intent
as expressed herein. I understand that, in the view of the Securities and
Exchange Commission (the "Commission"), the statutory basis for such exemption
may be unavailable if my representation was predicated solely upon a present
intention to hold the Securities for the minimum capital gains period specified
under tax statutes, for a deferred sale, for or until an increase or decrease in
the market price of the Securities, or for a period of one year or any other
fixed period in the future.
3. I further understand that the Securities must be held indefinitely
unless subsequently registered under the Securities Act or unless an exemption
from registration is otherwise available. In addition, I understand that the
certificate evidencing the Securities will be imprinted with a legend which
prohibits the transfer of the Securities unless they are registered or such
registration is not required in the opinion of counsel for the Company.
4. I am familiar with the provisions of Rule 144, promulgated under the
Securities Act, which, in substance, permits limited public resale of
"restricted securities" acquired, directly or
<PAGE>
indirectly, from the issuer thereof, in a non-public offering subject to the
satisfaction of certain conditions.
5. I further understand that in the event all of the applicable
requirements of Rule 144 are not satisfied, registration under the Securities
Act, compliance with Regulation A, or some other registration exemption will be
required; and that, notwithstanding the fact that Rule 144 is not exclusive, the
Staff of the Commission has expressed its opinion that persons proposing to sell
private placement securities other than in a registered offering and otherwise
than pursuant to Rule 144 will have a substantial burden of proof in
establishing that an exemption from registration is available for such offers or
sales, and that such persons and their respective brokers who participate in
such transactions do so at their own risk.
PFF Bank and Trust, Inc.
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
Date:
-------------------------------------
-2-
<PAGE>
EXHIBIT D
---------
NOTICE OF TRANSFER
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto _________________________ the right represented by Warrant No.
_______________, issued on _________________, 199__, to and in the name of
____________________________, to purchase ______________ shares of Series C
Preferred Stock of PC-TEL, Inc., a Delaware corporation (the "Company"), a copy
of which is attached hereto (the "Warrant"), and appoints
________________________________ as attorney-in-fact to transfer such right on
the books of the Company with full power of substitution in the premises.
Dated: _________________________ PFF Bank and Trust, Inc.,
a California corporation
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
(Signature must conform in all respects to
name of the Holder as set forth on the face
of the Warrant)
Address:
Signed in the presence of:
- -----------------------------------
<PAGE>
EXHIBIT E
---------
INVESTMENT REPRESENTATION STATEMENT
PURCHASER: PFF Bank and Trust, Inc.
TRANSFEROR:
---------------------------------
COMPANY: PC-TEL, Inc.
SECURITY: WARRANT NO. ___________, ISSUED ON ______________, 199 .
AMOUNT: _____________________SHARES
DATE:
---------------------------------
The undersigned hereby represent and warrants to PC-TEL, Inc., a Delaware
corporation (the "Company"), as follows:
1. I am aware of the business affairs, financial condition and results of
operations of the Company and have acquired sufficient information about the
Company to reach an informed and knowledgeable investment decision to acquire
the Securities. I am purchasing the Securities for my own account for investment
purposes only and not with a view to, or for the resale in connection with, any
"distribution" thereof for purposes of the Securities Act of 1933, as amended
(the "Securities Act").
2. I understand that the Securities have not been registered under the
Securities Act in reliance upon a specific exemption therefrom, which exemption
depends upon, among other things, the bona fide nature of my investment intent
as expressed herein. I understand that, in the view of the Securities and
Exchange Commission (the "Commission"), the statutory basis for such exemption
may be unavailable if my representation was predicated solely upon a present
intention to hold the Securities for the minimum capital gains period specified
under tax statutes, for a deferred sale, for or until an increase or decrease in
the market price of the Securities, or for a period of one year or any other
fixed period in the future.
3. I further understand that the Securities must be held indefinitely
unless subsequently registered under the Securities Act or unless an exemption
from registration is otherwise available. In addition, I understand that the
certificate evidencing the Securities will be imprinted with a legend which
prohibits the transfer of the Securities unless they are registered or such
registration is not required in the opinion of counsel for the Company.
4. I am familiar with the provisions of Rule 144, promulgated under the
Securities Act, which, in substance, permits limited public resale of
"restricted securities" acquired, directly or indirectly, from the issuer
thereof, in a non-public offering subject to the satisfaction of certain
conditions.
5. I further understand that in the event all of the applicable
requirements of Rule 144 are not satisfied, registration under the Securities
Act, compliance with Regulation A, or some other
<PAGE>
registration exemption will be required; and that, notwithstanding the fact that
Rule 144 is not exclusive, the Staff of the Commission has expressed its opinion
that persons proposing to sell private placement securities other than in a
registered offering and otherwise than pursuant to Rule 144 will have a
substantial burden of proof in establishing that an exemption from registration
is available for such offers or sales, and that such persons and their
respective brokers who participate in such transactions do so at their own risk.
Date: PFF Bank and Trust, Inc.,
------------------------------ a California corporation
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Date:
----------------------------------
-2-
<PAGE>
EXHIBIT 4.4
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT ONLY AND NOT
WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. THESE
SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"). THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR HYPOTHECATED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER
SAID ACT OR AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY, THAT SUCH
REGISTRATION IS NOT REQUIRED.
February 18, 1998
PC-Tel, Inc.
a California corporation
Common Stock Purchase Warrant
THIS CERTIFIES THAT, for value received, Edward Gibstein (hereinafter, the
"Holder"), is entitled, upon the terms and subject to the conditions hereinafter
set forth, to purchase from PC-TEL, INC., a California corporation (the
"Company"), that number of fully paid and nonassessable shares of the Company's
Common Stock at the purchase price per share as determined in Section 1 below.
Terms and Conditions of Warrant
1. Number of Shares; Exercise Price; Term.
--------------------------------------
(a) Subject to the terms and conditions set forth herein, the Holder
is entitled to purchase from the Company, at any time after the date hereof and
on or before the date of termination of this Warrant provided for in Section
1(b) below, up to 750 fully paid and non-assessable shares of the Company's
Common Stock (the "Shares") at an exercise price per share of $8.00 (the
"Exercise Price").
(b) This Warrant (and the right to purchase securities upon exercise
hereof) shall expire and cease to be exercisable if not exercised prior to the
earliest to occur of (i) the acquisition of the Company by means of any
transaction or series of related transactions (including, without limitation,
any reorganization, merger, consolidation or sale of all or substantially all of
the assets of the Company) in which, immediately after completion of such
transaction, the shareholders of the Company prior to such transaction or series
of related transactions own less than fifty percent (50%) of the voting power of
the surviving entity after such transaction or series of transactions, and (ii)
5:00 p.m. (Pacific Time) on February 4, 2001 (the "Expiration Date"). The
Company shall provide the Holder not less than 10 days' prior written notice of
the completion of any transaction contemplated in (i) above.
2. Exercise of Warrant.
-------------------
(a) This Warrant may be exercised by the Holder as to the whole or any
lesser number of the Shares covered hereby, as set forth in Section 1 above,
upon surrender of this Warrant to the Company at its principal executive offices
together with the Notice of Exercise and Investment Representation Statement
annexed hereto as Exhibits A and B, respectively, duly completed and executed by
---------- -
the Holder, and payment to the Company in cash of the aggregate Exercise Price
for the Shares to be purchased. Certificates for the Shares so purchased shall
be delivered to the Holder within
<PAGE>
a reasonable time after exercise of the stock purchase rights represented by
this Warrant. The exercise of this Warrant shall be deemed to have been effected
on the day on which the Holder surrenders this Warrant to the Company and
satisfies all of the requirements of this Section 2. Upon such exercise, the
Holder will be deemed a shareholder of record of those Shares for which the
warrant has been exercised with all rights of a shareholder (including, without
limitation, all voting rights with respect to such Shares and all rights to
receive any dividends with respect to such Shares). If this Warrant is to be
exercised in respect of less than all of the Shares covered hereby, the Holder
shall be entitled to receive a new warrant covering the number of Shares in
respect of which this Warrant shall not have been exercised and for which it
remains subject to exercise. Such new warrant shall be in all other respects
identical to this Warrant.
(b) Notwithstanding the payment provisions set forth in Section 2(a)
above, the Holder may elect to receive Shares equal to the value of this Warrant
(or of any portion thereof remaining unexercised) by surrender of this Warrant
at the principal office of the Company together with notice of such election, in
which event the Company shall issue to the Holder that number of Shares computed
using the following formula:
X = Y*(A-B)
-------
A
Where: X = the number of Shares to be issued to the Holder;
Y = the number of Shares purchasable under this Warrant (at
the date of such calculation);
A = the Fair Market Value of one Share; and
B = the Exercise Price (at the date of such calculation).
(c) For purposes of section 3(b) above, the Fair Market Value of one
Share shall mean (i) if the Company's Common Stock is listed on any established
stock exchange or national market system, including, without limitation, the
National Market of The Nasdaq Stock Market, the closing sales price of one share
of the Company's Common Stock (or the closing bid, if no sales were reported) as
quoted on such system or exchange (or the exchange with the greatest volume of
trading in the Company's Common Stock) on the last market trading day prior to
the day of determination, as reported in The Wall Street Journal or such other
source as the Board of Directors of the Company may deem reliable; (ii) if the
Company's Common Stock is quoted on The Nasdaq Stock Market (but not on the
National Market thereof) or regularly quoted by a recognized securities dealer
but selling prices are not reported, the mean between the high and low asked
prices for the Company's Common Stock on the last market trading day prior to
the day of determination, as reported in The Wall Street Journal or such other
source as the Board of Directors of the Company may deem reliable; (iii) if
exercised in connection with respect to a merger or consolidation of the Company
or the sale of all or substantially all of the assets of the Company, the amount
of cash or the value of securities actually received by the Company or its
shareholders in such transaction for each share of the Company's Common Stock;
or (iv) as otherwise determined by the Board of Directors of the Company, acting
in good faith.
3. Covenants of the Company. The Company covenants and agrees that all
------------------------
Common Stock which may be issued upon the exercise of the rights represented by
this Warrant, upon issuance and
-2-
<PAGE>
payment therefor in accordance herewith, will be duly authorized, validly
issued, fully paid, and nonassessable shares of Common Stock of the Company. The
Company further covenants and agrees that, during the period within which the
stock purchase rights represented by this Warrant may be exercised, the Company
will at all times have duly authorized and duly reserved for issuance upon the
exercise of the purchase rights evidenced by this Warrant a number of shares of
Common Stock sufficient for such issuance.
4. Transfer, Exchange, Assignment, or Loss of Warrant.
--------------------------------------------------
(a) This Warrant may not be assigned or transferred except as provided
in this Section 4 and in accordance with and subject to the provisions of the
Securities Act and the Rules and Regulations promulgated thereunder. Any
purported transfer or assignment made other than in accordance with this Section
4 shall be null and void and of no force or effect.
(b) Prior to any transfer of this Warrant, the Holder shall notify the
Company of its intention to effect such transfer, indicating the circumstances
of the proposed transfer and, upon request, furnish the Company with an opinion
of its counsel, in form and substance satisfactory to counsel for the Company,
to the effect that the proposed transfer may be made without registration under
the Securities Act or qualification under any applicable state securities laws.
The Company will promptly notify the Holder if the opinion of counsel furnished
to the Company is satisfactory to counsel for the Company. Unless the Company
notifies the Holder within ten (10) days after its receipt of such opinion that
such opinion is not satisfactory to counsel for the Company, the Holder may
proceed to effect the transfer.
(c) Unless a registration statement under the Securities Act is
effective with respect to the Shares or any other security issued upon exercise
of this Warrant, the certificate representing such Shares or other securities
shall bear the following legend, in addition to any legend imposed by applicable
state securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT ONLY
AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION
THEREOF. THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"). THEY MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL,
SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED.
(d) Any assignment permitted hereunder shall be made by surrender of
this Warrant to the Company at its principal office with the Assignment Form
attached hereto as Exhibit C duly executed. In such event, the Company shall,
---------
without charge for any issuance or transfer tax or other cost incurred by the
Company with respect to such transfer, execute and deliver a new Warrant in the
name of the assignee named in such instrument of assignment, and this Warrant
shall be promptly cancelled. This Warrant may be divided or combined with other
Warrants which carry the same rights upon
-3-
<PAGE>
presentation thereof at the principal office of the Company, together with a
written notice signed by the Holders thereof, specifying the name and
denominations in which such new Warrants are to be issued.
(e) Upon receipt by the Company of satisfactory evidence of loss,
theft, destruction, or mutilation of this Warrant and of indemnity satisfactory
to the Company, and upon surrender and cancellation of this Warrant, if
mutilated, the Company will execute and deliver a new Warrant of like tenor and
date and any such lost, stolen, or destroyed Warrant shall thereupon become
void. Any such new Warrant executed and delivered shall constitute an
additional contractual obligation on the part of the Company, whether or not the
Warrant so lost, stolen, destroyed, or mutilated shall be at any time
enforceable by anyone.
5. No Fractional Shares or Scrip. No fractional shares or scrip
-----------------------------
representing fractional shares shall be issued upon the exercise of this
Warrant. In lieu of any fractional share to which such holder would otherwise
be entitled, such holder shall be entitled, at its option, to receive either (i)
a cash payment equal to the excess of the Fair Market Value for such fractional
share above the Exercise Price for such fractional share (as mutually determined
by the Company and the Holder) or (ii) a whole share if the Holder tenders the
Exercise Price for one whole share.
6. No Rights as Shareholders. This Warrant does not entitle the holder
-------------------------
hereof to any voting rights, dividend rights, or other rights as a shareholder
of the Company prior to the exercise hereof.
7. Saturdays, Sundays, Holidays, etc. If the last or appointed day for
---------------------------------
the taking of any action or the expiration of any right required or granted
herein shall be a Saturday or a Sunday or shall be a legal holiday, then such
action may be taken or such right may be exercised on the next succeeding day
not a Saturday or a Sunday or a legal holiday.
8. Adjustments. The Exercise Price per Share and the number of Shares
-----------
purchasable hereunder shall be subject to adjustment from time to time as
follows:
(a) Merger. If at any time there shall be a merger or consolidation
------
of the Company with or into another corporation when the Company is not the
surviving corporation, then, as a part of such merger or consolidation, lawful
provision shall be made so that the holder of this Warrant shall thereafter be
entitled to receive upon exercise of this Warrant, during the period specified
herein and upon payment of the aggregate Exercise Price then in effect, the
number of shares of stock or other securities or property of the successor
corporation resulting from such merger or consolidation, to which a holder of
the stock deliverable upon exercise of this Warrant would have been entitled in
such merger or consolidation if this Warrant had been exercised immediately
before such merger or consolidation. In any such case, appropriate adjustment
shall be made in the application of the provisions of this Warrant with respect
to the rights and interests of the Holder after the merger or consolidation.
(b) Reclassification, etc. If the Company shall, at any time, by
---------------------
subdivision, combination, or reclassification of securities or otherwise, change
any of the securities as to which purchase rights under this Warrant exist into
the same or a different number of securities of any other class or classes, the
Exercise Price shall be adjusted such that this Warrant shall thereafter
represent the right to acquire such number and kind of securities as would have
been issuable as the result of such
-4-
<PAGE>
change with respect to the securities which were subject to the purchase rights
under this Warrant immediately prior to such subdivision, combination,
reclassification or other change.
(c) Split, Subdivision or Combination of Shares. If the Company at
-------------------------------------------
any time while this Warrant remains outstanding and unexpired shall split,
subdivide or combine the securities as to which purchase rights under this
Warrant exist, the Exercise Price shall be proportionately decreased in the case
of a split or subdivision or proportionately increased in the case of a
combination.
9. Notice of Adjustments; Notices. Whenever the Exercise Price or number
------------------------------
of Shares issuable upon exercise hereof shall be adjusted pursuant to Section 8
hereof, the Company shall issue a certificate signed by its Chief Executive
Officer or Chief Financial Officer setting forth, in reasonable detail, the
event requiring the adjustment, the amount of the adjustment, the method by
which such adjustment was calculated and the Exercise Price and number of Shares
purchasable hereunder after giving effect to such adjustment, and shall cause a
copy of such certificate to be mailed (by first class mail, postage prepaid) to
the holder of this Warrant.
10. Miscellaneous.
-------------
(a) Successors and Assigns. This Warrant shall be binding upon any
----------------------
successors or assigns of the Company.
(b) Governing Law. This Warrant shall be governed by and construed in
-------------
accordance with the laws of the State of California as applied to agreements
between California residents entered and to be performed entirely within
California.
(c) Attorneys' Fees. In any litigation, arbitration, or court
---------------
proceeding between the Company and the holder relating hereto, the prevailing
party shall be entitled to reasonable attorneys' fees and expenses incurred in
enforcing this Warrant.
(d) Amendments. This Warrant may be amended and the observance of any
----------
term of this Warrant may be waived only with the written consent of the Company
and the Holder, or in the event that this Warrant shall have been transferred in
part, with the written consent of the Company and the holders of warrants
representing a majority-in-interest of the Shares originally issuable hereunder.
(e) Notice. Any notice required or permitted hereunder shall be
------
deemed effectively given upon personal delivery to the party to be notified or
upon deposit with the United States Post Office, by certified mail, postage
prepaid and addressed to the party to be notified at the address indicated below
for such party, or at such other address as such other party may designate by
ten-day advance written notice.
[Remainder of Page Intentionally Left Blank]
-5-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Common Stock Purchase
Warrant to be executed by its officer thereunto duly authorized as of the date
first above written.
PC-TEL, INC.
By:
-----------------------------------------------
Name:
---------------------------------------------
Title:
--------------------------------------------
Acknowledged and Agreed:
WARRANT HOLDER:
- --------------------------------------------
Signature
- --------------------------------------------
Print Name
- --------------------------------------------
Street Address
- --------------------------------------------
City State Zip Code
[Warrant Signature Page]
-6-
<PAGE>
EXHIBIT A
NOTICE OF EXERCISE
<PAGE>
NOTICE OF EXERCISE
STOCK PURCHASE WARRANT
To: PC-TEL, INC.
1. The undersigned hereby elects to purchase _______ shares of
___________ ("Stock") of PC-Tel, Inc. (the "Company") pursuant to the terms of
the attached Warrant, and tenders herewith payment of the aggregate exercise
price therefor and any transfer taxes payable pursuant to the terms of the
Warrant, together with an Investment Representation Statement in form and
substance satisfactory to legal counsel to the Company.
2. The shares of Stock to be received by the undersigned upon exercise of
the Warrant are being acquired for its own account, not as a nominee or agent,
and not with a view to resale or distribution of any part thereof, and the
undersigned has no present intention of selling, granting any participation in,
or otherwise distributing the same. The undersigned further represents that it
does not have any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participation to such person or to any third
person, with respect to the Stock. The undersigned believes it has received all
the information it considers necessary or appropriate for deciding whether to
purchase the Stock.
3. The undersigned understands that the shares of Stock are characterized
as "restricted securities" under the federal securities laws inasmuch as they
are being acquired from the Company in transactions not involving a public
offering and that under such laws and applicable regulations such securities may
be resold without registration under the Securities Act of 1933, as amended (the
"Act"), only in certain limited circumstances. In this connection, the
undersigned represents that it is familiar with Rule 144 promulgated under the
Act, as presently in effect, and understands the resale limitations imposed
thereby and by the Act.
4. The undersigned covenants and agrees, in connection with any
registration of the Company's initial public offering of Common Stock, upon
request of the Company or the underwriters managing such offering, not to sell,
make any short sale of, loan, grant any option for the purchase of or otherwise
dispose of any securities of the Company for such period of time (not to exceed
180 days) from the effective date of the Company's registration statement filed
with and declared effective by the Securities and Exchange Commission as the
Company or the managing underwriters shall determine. The undersigned further
covenants and agrees to enter into a customary form of "lock-up" agreement upon
request of the Company or the underwriters managing such offering to the extent
not inconsistent with the preceding sentence.
5. The undersigned understands the instruments evidencing the Stock may
bear the following legend, in addition to any legend required by applicable
state securities laws:
<PAGE>
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT ONLY
AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION
THEREOF. THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"). THEY MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL,
SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED.
6. Please issue a certificate or certificates representing said shares of
Stock in the name of the undersigned:
Name:
----------------------------------------------
Address:
-------------------------------------------
-------------------------------------------
-------------------------------------------
7. Please issue a new Warrant for the unexercised portion of the attached
Warrant in the name of the undersigned:
Name:
----------------------------------------------
Address:
-------------------------------------------
-------------------------------------------
-------------------------------------------
IN WITNESS WHEREOF, the Warrantholder has executed this Notice of Exercise
effective this ___ day of ________, _____.
WARRANTHOLDER
----------------------------------------------
By:
-------------------------------------------
Name:
-----------------------------------------
Title:
----------------------------------------
[NOTICE OF EXERCISE OF STOCK PURCHASE WARRANT]
-2-
<PAGE>
EXHIBIT B
INVESTMENT REPRESENTATION STATEMENT
<PAGE>
INVESTMENT REPRESENTATION STATEMENT
PURCHASER :
---------------------------
COMPANY : PC-TEL, INC.
SECURITIES :
---------------------------
DATE :
---------------------------
In connection with the purchase of the above-listed Securities, the
undersigned, the Purchaser represents to the Company the following:
(a) The undersigned is sufficiently aware of the Company's business
affairs and financial condition to reach an informed and knowledgeable decision
to acquire the Securities. The undersigned is purchasing these Securities for
its own account for investment purposes only and not with a view to, or for the
resale in connection with, any "distribution" thereof for purposes of the
Securities Act of 1933, as amended (the "Securities Act").
(b) The undersigned understands that the Securities have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of its investment intent as expressed herein. In this connection, the
undersigned understands that, in the view of the Securities and Exchange
Commission (the "SEC"), the statutory basis for such exemption may be
unavailable if its representation was predicated solely upon a present intention
to hold these Securities for the minimum capital gains period specified under
tax statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Securities, or for a period of one year or any other fixed
period in the future.
(c) The undersigned further understands that the Securities must be
held indefinitely unless subsequently registered under the Securities Act or
unless an exemption from registration is otherwise available (such as Rule 144
under the Securities Act). Moreover, the undersigned understands that the
Company is under no obligation to register the Securities. In addition, the
undersigned understands that the certificate evidencing the Securities may be
imprinted with a legend which prohibits the transfer of the Securities unless
they are registered or such registration is not required in the opinion of
counsel for the Company.
(d) The undersigned is familiar with the provisions of Rule 144,
promulgated under the Securities Act, which, in substance, permits limited
public resale of "restricted securities" acquired, directly or indirectly, from
the issuer thereof (or from an affiliate of such issuer), in a non-public
offering subject to the satisfaction of certain conditions, including, among
other things: (1) The availability of certain public information about the
Company; (2) the resale's occurring not less than one year after the party has
purchased, and made full payment for, within the meaning of Rule 144, the
securities to be
<PAGE>
sold; and, in the case of an affiliate, or of a non-affiliate who has held the
securities less than two years (3) the sale being made through a broker in an
unsolicited "broker's transaction" or in transactions directly with a market
maker, as said term is defined under the Securities Exchange Act of 1934 (the
"Exchange Act") and the amount of securities being sold during any three month
period not exceeding the specified limitations stated therein, if applicable.
There can be no assurances that the requirements of Rule 144 will be met, or
that the Securities will ever be saleable.
(e) The undersigned further understands that at the time the
undersigned wishes to sell the Securities there may be no public market upon
which to make such a sale, and that, even if such a public market then exists,
the Company may not be satisfying the current public information requirements of
Rule 144, and that, in such event, the undersigned would be precluded from
selling the Securities under Rule 144 even if the applicable minimum holding
period had been satisfied.
(f) The undersigned further understands that in the event all of the
applicable requirements of Rule 144 are not satisfied registration under the
Securities Act, compliance with Regulation A, compliance with some other
registration exemption or the notification to the Company of the proposed
disposition by it and the furnishing to the Company of (i) detailed information
regarding the disposition, and (ii) and opinion of its counsel to the effect
that such disposition will not require registration (the undersigned understands
such counsel's opinion shall concur with the opinion by counsel for the Company
and the undersigned shall have been informed of such compliance) will be
required and that, notwithstanding the fact that Rule 144 is not exclusive, the
Staff of the SEC has expressed its opinion that persons proposing to sell
private placement securities other than in a registered offering and otherwise
than pursuant to Rule 144 will have a substantial burden of proof in
establishing that an exemption from registration is available for such offers or
sales, and that such persons and their respective brokers who participate in
such transactions do so at their own risk.
Signature of Purchaser:
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
-2-
<PAGE>
EXHIBIT C
ASSIGNMENT FORM
<PAGE>
ASSIGNMENT FORM
(To assign the foregoing Common Stock Purchase Warrant, execute this
form and supply required information. Do not use this form to purchase
shares.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby
are hereby assigned to
- -----------------------------------------------------
(Please Print)
whose address is
------------------------------------------
(Please Print)
.
- -----------------------------------------------------
Dated: , 19 .
----------------------- -----
Holder's Signature:
---------------------------
Holder's Address:
-----------------------------
-----------------------------
Signature Guaranteed:
----------------------------------
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatever, and must be guaranteed by a bank or trust company. Officers of
corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Warrant.
<PAGE>
EXHIBIT 4.5
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT ONLY AND NOT
WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. THESE
SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"). THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR HYPOTHECATED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER
SAID ACT OR AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY, THAT SUCH
REGISTRATION IS NOT REQUIRED.
February 18, 1998
PC-Tel, Inc.
a California corporation
Common Stock Purchase Warrant
THIS CERTIFIES THAT, for value received, Irving Minnaker (hereinafter, the
"Holder"), is entitled, upon the terms and subject to the conditions hereinafter
set forth, to purchase from PC-TEL, INC., a California corporation (the
"Company"), that number of fully paid and nonassessable shares of the Company's
Common Stock at the purchase price per share as determined in Section 1 below.
Terms and Conditions of Warrant
1. Number of Shares; Exercise Price; Term.
--------------------------------------
(a) Subject to the terms and conditions set forth herein, the Holder
is entitled to purchase from the Company, at any time after the date hereof and
on or before the date of termination of this Warrant provided for in Section
1(b) below, up to 558 fully paid and non-assessable shares of the Company's
Common Stock (the "Shares") at an exercise price per share of $8.00 (the
"Exercise Price").
(b) This Warrant (and the right to purchase securities upon exercise
hereof) shall expire and cease to be exercisable if not exercised prior to the
earliest to occur of (i) the acquisition of the Company by means of any
transaction or series of related transactions (including, without limitation,
any reorganization, merger, consolidation or sale of all or substantially all of
the assets of the Company) in which, immediately after completion of such
transaction, the shareholders of the Company prior to such transaction or series
of related transactions own less than fifty percent (50%) of the voting power of
the surviving entity after such transaction or series of transactions, and (ii)
5:00 p.m. (Pacific Time) on February 4, 2001 (the "Expiration Date"). The
Company shall provide the Holder not less than 10 days' prior written notice of
the completion of any transaction contemplated in (i) above.
2. Exercise of Warrant.
-------------------
(a) This Warrant may be exercised by the Holder as to the whole or any
lesser number of the Shares covered hereby, as set forth in Section 1 above,
upon surrender of this Warrant to the Company at its principal executive offices
together with the Notice of Exercise and Investment Representation Statement
annexed hereto as Exhibits A and B, respectively, duly completed and executed by
---------- -
the Holder, and payment to the Company in cash of the aggregate Exercise Price
for the Shares to be purchased. Certificates for the Shares so purchased shall
be delivered to the Holder within
<PAGE>
a reasonable time after exercise of the stock purchase rights represented by
this Warrant. The exercise of this Warrant shall be deemed to have been effected
on the day on which the Holder surrenders this Warrant to the Company and
satisfies all of the requirements of this Section 2. Upon such exercise, the
Holder will be deemed a shareholder of record of those Shares for which the
warrant has been exercised with all rights of a shareholder (including, without
limitation, all voting rights with respect to such Shares and all rights to
receive any dividends with respect to such Shares). If this Warrant is to be
exercised in respect of less than all of the Shares covered hereby, the Holder
shall be entitled to receive a new warrant covering the number of Shares in
respect of which this Warrant shall not have been exercised and for which it
remains subject to exercise. Such new warrant shall be in all other respects
identical to this Warrant.
(b) Notwithstanding the payment provisions set forth in Section 2(a)
above, the Holder may elect to receive Shares equal to the value of this Warrant
(or of any portion thereof remaining unexercised) by surrender of this Warrant
at the principal office of the Company together with notice of such election, in
which event the Company shall issue to the Holder that number of Shares computed
using the following formula:
X = Y*(A-B)
-------
A
Where: X = the number of Shares to be issued to the Holder;
Y = the number of Shares purchasable under this Warrant
(at the date of such calculation);
A = the Fair Market Value of one Share; and
B = the Exercise Price (at the date of such calculation).
(c) For purposes of section 3(b) above, the Fair Market Value of one
Share shall mean (i) if the Company's Common Stock is listed on any established
stock exchange or national market system, including, without limitation, the
National Market of The Nasdaq Stock Market, the closing sales price of one share
of the Company's Common Stock (or the closing bid, if no sales were reported) as
quoted on such system or exchange (or the exchange with the greatest volume of
trading in the Company's Common Stock) on the last market trading day prior to
the day of determination, as reported in The Wall Street Journal or such other
source as the Board of Directors of the Company may deem reliable; (ii) if the
Company's Common Stock is quoted on The Nasdaq Stock Market (but not on the
National Market thereof) or regularly quoted by a recognized securities dealer
but selling prices are not reported, the mean between the high and low asked
prices for the Company's Common Stock on the last market trading day prior to
the day of determination, as reported in The Wall Street Journal or such other
source as the Board of Directors of the Company may deem reliable; (iii) if
exercised in connection with respect to a merger or consolidation of the Company
or the sale of all or substantially all of the assets of the Company, the amount
of cash or the value of securities actually received by the Company or its
shareholders in such transaction for each share of the Company's Common Stock;
or (iv) as otherwise determined by the Board of Directors of the Company, acting
in good faith.
3. Covenants of the Company. The Company covenants and agrees that all
------------------------
Common Stock which may be issued upon the exercise of the rights represented by
this Warrant, upon issuance and
-2-
<PAGE>
payment therefor in accordance herewith, will be duly authorized, validly
issued, fully paid, and nonassessable shares of Common Stock of the Company. The
Company further covenants and agrees that, during the period within which the
stock purchase rights represented by this Warrant may be exercised, the Company
will at all times have duly authorized and duly reserved for issuance upon the
exercise of the purchase rights evidenced by this Warrant a number of shares of
Common Stock sufficient for such issuance.
4. Transfer, Exchange, Assignment, or Loss of Warrant.
--------------------------------------------------
(a) This Warrant may not be assigned or transferred except as provided
in this Section 4 and in accordance with and subject to the provisions of the
Securities Act and the Rules and Regulations promulgated thereunder. Any
purported transfer or assignment made other than in accordance with this Section
4 shall be null and void and of no force or effect.
(b) Prior to any transfer of this Warrant, the Holder shall notify the
Company of its intention to effect such transfer, indicating the circumstances
of the proposed transfer and, upon request, furnish the Company with an opinion
of its counsel, in form and substance satisfactory to counsel for the Company,
to the effect that the proposed transfer may be made without registration under
the Securities Act or qualification under any applicable state securities laws.
The Company will promptly notify the Holder if the opinion of counsel furnished
to the Company is satisfactory to counsel for the Company. Unless the Company
notifies the Holder within ten (10) days after its receipt of such opinion that
such opinion is not satisfactory to counsel for the Company, the Holder may
proceed to effect the transfer.
(c) Unless a registration statement under the Securities Act is
effective with respect to the Shares or any other security issued upon exercise
of this Warrant, the certificate representing such Shares or other securities
shall bear the following legend, in addition to any legend imposed by applicable
state securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT ONLY
AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION
THEREOF. THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"). THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL,
SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED.
(d) Any assignment permitted hereunder shall be made by surrender of
this Warrant to the Company at its principal office with the Assignment Form
attached hereto as Exhibit C duly executed. In such event, the Company shall,
---------
without charge for any issuance or transfer tax or other cost incurred by the
Company with respect to such transfer, execute and deliver a new Warrant in the
name of the assignee named in such instrument of assignment, and this Warrant
shall be promptly cancelled. This Warrant may be divided or combined with other
Warrants which carry the same rights upon
-3-
<PAGE>
presentation thereof at the principal office of the Company, together with a
written notice signed by the Holders thereof, specifying the name and
denominations in which such new Warrants are to be issued.
(e) Upon receipt by the Company of satisfactory evidence of loss,
theft, destruction, or mutilation of this Warrant and of indemnity satisfactory
to the Company, and upon surrender and cancellation of this Warrant, if
mutilated, the Company will execute and deliver a new Warrant of like tenor and
date and any such lost, stolen, or destroyed Warrant shall thereupon become
void. Any such new Warrant executed and delivered shall constitute an
additional contractual obligation on the part of the Company, whether or not the
Warrant so lost, stolen, destroyed, or mutilated shall be at any time
enforceable by anyone.
5. No Fractional Shares or Scrip. No fractional shares or scrip
-----------------------------
representing fractional shares shall be issued upon the exercise of this
Warrant. In lieu of any fractional share to which such holder would otherwise
be entitled, such holder shall be entitled, at its option, to receive either (i)
a cash payment equal to the excess of the Fair Market Value for such fractional
share above the Exercise Price for such fractional share (as mutually determined
by the Company and the Holder) or (ii) a whole share if the Holder tenders the
Exercise Price for one whole share.
6. No Rights as Shareholders. This Warrant does not entitle the holder
-------------------------
hereof to any voting rights, dividend rights, or other rights as a shareholder
of the Company prior to the exercise hereof.
7. Saturdays, Sundays, Holidays, etc. If the last or appointed day for
---------------------------------
the taking of any action or the expiration of any right required or granted
herein shall be a Saturday or a Sunday or shall be a legal holiday, then such
action may be taken or such right may be exercised on the next succeeding day
not a Saturday or a Sunday or a legal holiday.
8. Adjustments. The Exercise Price per Share and the number of Shares
-----------
purchasable hereunder shall be subject to adjustment from time to time as
follows:
(a) Merger. If at any time there shall be a merger or consolidation
------
of the Company with or into another corporation when the Company is not the
surviving corporation, then, as a part of such merger or consolidation, lawful
provision shall be made so that the holder of this Warrant shall thereafter be
entitled to receive upon exercise of this Warrant, during the period specified
herein and upon payment of the aggregate Exercise Price then in effect, the
number of shares of stock or other securities or property of the successor
corporation resulting from such merger or consolidation, to which a holder of
the stock deliverable upon exercise of this Warrant would have been entitled in
such merger or consolidation if this Warrant had been exercised immediately
before such merger or consolidation. In any such case, appropriate adjustment
shall be made in the application of the provisions of this Warrant with respect
to the rights and interests of the Holder after the merger or consolidation.
(b) Reclassification, etc. If the Company shall, at any time, by
---------------------
subdivision, combination, or reclassification of securities or otherwise, change
any of the securities as to which purchase rights under this Warrant exist into
the same or a different number of securities of any other class or classes, the
Exercise Price shall be adjusted such that this Warrant shall thereafter
represent the right to acquire such number and kind of securities as would have
been issuable as the result of such
-4-
<PAGE>
change with respect to the securities which were subject to the purchase rights
under this Warrant immediately prior to such subdivision, combination,
reclassification or other change.
(c) Split, Subdivision or Combination of Shares. If the Company at
-------------------------------------------
any time while this Warrant remains outstanding and unexpired shall split,
subdivide or combine the securities as to which purchase rights under this
Warrant exist, the Exercise Price shall be proportionately decreased in the case
of a split or subdivision or proportionately increased in the case of a
combination.
9. Notice of Adjustments; Notices. Whenever the Exercise Price or number
------------------------------
of Shares issuable upon exercise hereof shall be adjusted pursuant to Section 8
hereof, the Company shall issue a certificate signed by its Chief Executive
Officer or Chief Financial Officer setting forth, in reasonable detail, the
event requiring the adjustment, the amount of the adjustment, the method by
which such adjustment was calculated and the Exercise Price and number of Shares
purchasable hereunder after giving effect to such adjustment, and shall cause a
copy of such certificate to be mailed (by first class mail, postage prepaid) to
the holder of this Warrant.
10. Miscellaneous.
-------------
(a) Successors and Assigns. This Warrant shall be binding upon any
----------------------
successors or assigns of the Company.
(b) Governing Law. This Warrant shall be governed by and construed in
-------------
accordance with the laws of the State of California as applied to agreements
between California residents entered and to be performed entirely within
California.
(c) Attorneys' Fees. In any litigation, arbitration, or court
---------------
proceeding between the Company and the holder relating hereto, the prevailing
party shall be entitled to reasonable attorneys' fees and expenses incurred in
enforcing this Warrant.
(d) Amendments. This Warrant may be amended and the observance of any
----------
term of this Warrant may be waived only with the written consent of the Company
and the Holder, or in the event that this Warrant shall have been transferred in
part, with the written consent of the Company and the holders of warrants
representing a majority-in-interest of the Shares originally issuable hereunder.
(e) Notice. Any notice required or permitted hereunder shall be
------
deemed effectively given upon personal delivery to the party to be notified or
upon deposit with the United States Post Office, by certified mail, postage
prepaid and addressed to the party to be notified at the address indicated below
for such party, or at such other address as such other party may designate by
ten-day advance written notice.
[Remainder of Page Intentionally Left Blank]
-5-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Common Stock Purchase
Warrant to be executed by its officer thereunto duly authorized as of the date
first above written.
PC-TEL, INC.
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
Acknowledged and Agreed:
WARRANT HOLDER:
- ---------------------------------------------------------------
Signature
- ---------------------------------------------------------------
Print Name
- ---------------------------------------------------------------
Street Address
- ---------------------------------------------------------------
City State Zip Code
[Warrant Signature Page]
-6-
<PAGE>
EXHIBIT A
NOTICE OF EXERCISE
<PAGE>
NOTICE OF EXERCISE
STOCK PURCHASE WARRANT
To: PC-TEL, INC.
1. The undersigned hereby elects to purchase _______ shares of
___________ ("Stock") of PC-Tel, Inc. (the "Company") pursuant to the terms of
the attached Warrant, and tenders herewith payment of the aggregate exercise
price therefor and any transfer taxes payable pursuant to the terms of the
Warrant, together with an Investment Representation Statement in form and
substance satisfactory to legal counsel to the Company.
2. The shares of Stock to be received by the undersigned upon exercise of
the Warrant are being acquired for its own account, not as a nominee or agent,
and not with a view to resale or distribution of any part thereof, and the
undersigned has no present intention of selling, granting any participation in,
or otherwise distributing the same. The undersigned further represents that it
does not have any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participation to such person or to any third
person, with respect to the Stock. The undersigned believes it has received all
the information it considers necessary or appropriate for deciding whether to
purchase the Stock.
3. The undersigned understands that the shares of Stock are characterized
as "restricted securities" under the federal securities laws inasmuch as they
are being acquired from the Company in transactions not involving a public
offering and that under such laws and applicable regulations such securities may
be resold without registration under the Securities Act of 1933, as amended (the
"Act"), only in certain limited circumstances. In this connection, the
undersigned represents that it is familiar with Rule 144 promulgated under the
Act, as presently in effect, and understands the resale limitations imposed
thereby and by the Act.
4. The undersigned covenants and agrees, in connection with any
registration of the Company's initial public offering of Common Stock, upon
request of the Company or the underwriters managing such offering, not to sell,
make any short sale of, loan, grant any option for the purchase of or otherwise
dispose of any securities of the Company for such period of time (not to exceed
180 days) from the effective date of the Company's registration statement filed
with and declared effective by the Securities and Exchange Commission as the
Company or the managing underwriters shall determine. The undersigned further
covenants and agrees to enter into a customary form of "lock-up" agreement upon
request of the Company or the underwriters managing such offering to the extent
not inconsistent with the preceding sentence.
5. The undersigned understands the instruments evidencing the Stock may
bear the following legend, in addition to any legend required by applicable
state securities laws:
<PAGE>
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT ONLY
AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION
THEREOF. THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"). THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL,
SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED.
6. Please issue a certificate or certificates representing said shares of
Stock in the name of the undersigned:
Name:
-----------------------------------------------
Address:
--------------------------------------------
--------------------------------------------
--------------------------------------------
7. Please issue a new Warrant for the unexercised portion of the attached
Warrant in the name of the undersigned:
Name:
-----------------------------------------------
Address:
--------------------------------------------
--------------------------------------------
--------------------------------------------
IN WITNESS WHEREOF, the Warrantholder has executed this Notice of Exercise
effective this ___ day of ________, _____.
WARRANTHOLDER
--------------------------------
By:
-----------------------------
Name:
----------------------------
Title:
--------------------------
[NOTICE OF EXERCISE OF STOCK PURCHASE WARRANT]
-2-
<PAGE>
EXHIBIT B
INVESTMENT REPRESENTATION STATEMENT
<PAGE>
INVESTMENT REPRESENTATION STATEMENT
PURCHASER :
--------------------
COMPANY : PC-TEL, INC.
SECURITIES :
--------------------
DATE :
--------------------
In connection with the purchase of the above-listed Securities, the
undersigned, the Purchaser represents to the Company the following:
(a) The undersigned is sufficiently aware of the Company's business
affairs and financial condition to reach an informed and knowledgeable decision
to acquire the Securities. The undersigned is purchasing these Securities for
its own account for investment purposes only and not with a view to, or for the
resale in connection with, any "distribution" thereof for purposes of the
Securities Act of 1933, as amended (the "Securities Act").
(b) The undersigned understands that the Securities have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of its investment intent as expressed herein. In this connection, the
undersigned understands that, in the view of the Securities and Exchange
Commission (the "SEC"), the statutory basis for such exemption may be
unavailable if its representation was predicated solely upon a present intention
to hold these Securities for the minimum capital gains period specified under
tax statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Securities, or for a period of one year or any other fixed
period in the future.
(c) The undersigned further understands that the Securities must be
held indefinitely unless subsequently registered under the Securities Act or
unless an exemption from registration is otherwise available (such as Rule 144
under the Securities Act). Moreover, the undersigned understands that the
Company is under no obligation to register the Securities. In addition, the
undersigned understands that the certificate evidencing the Securities may be
imprinted with a legend which prohibits the transfer of the Securities unless
they are registered or such registration is not required in the opinion of
counsel for the Company.
(d) The undersigned is familiar with the provisions of Rule 144,
promulgated under the Securities Act, which, in substance, permits limited
public resale of "restricted securities" acquired, directly or indirectly, from
the issuer thereof (or from an affiliate of such issuer), in a non-public
offering subject to the satisfaction of certain conditions, including, among
other things: (1) The availability of certain public information about the
Company; (2) the resale's occurring not less than one year after the party has
purchased, and made full payment for, within the meaning of Rule 144, the
securities to be
<PAGE>
sold; and, in the case of an affiliate, or of a non-affiliate who has held the
securities less than two years (3) the sale being made through a broker in an
unsolicited "broker's transaction" or in transactions directly with a market
maker, as said term is defined under the Securities Exchange Act of 1934 (the
"Exchange Act") and the amount of securities being sold during any three month
period not exceeding the specified limitations stated therein, if applicable.
There can be no assurances that the requirements of Rule 144 will be met, or
that the Securities will ever be saleable.
(e) The undersigned further understands that at the time the
undersigned wishes to sell the Securities there may be no public market upon
which to make such a sale, and that, even if such a public market then exists,
the Company may not be satisfying the current public information requirements of
Rule 144, and that, in such event, the undersigned would be precluded from
selling the Securities under Rule 144 even if the applicable minimum holding
period had been satisfied.
(f) The undersigned further understands that in the event all of the
applicable requirements of Rule 144 are not satisfied registration under the
Securities Act, compliance with Regulation A, compliance with some other
registration exemption or the notification to the Company of the proposed
disposition by it and the furnishing to the Company of (i) detailed information
regarding the disposition, and (ii) and opinion of its counsel to the effect
that such disposition will not require registration (the undersigned understands
such counsel's opinion shall concur with the opinion by counsel for the Company
and the undersigned shall have been informed of such compliance) will be
required and that, notwithstanding the fact that Rule 144 is not exclusive, the
Staff of the SEC has expressed its opinion that persons proposing to sell
private placement securities other than in a registered offering and otherwise
than pursuant to Rule 144 will have a substantial burden of proof in
establishing that an exemption from registration is available for such offers or
sales, and that such persons and their respective brokers who participate in
such transactions do so at their own risk.
Signature of Purchaser:
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
-2-
<PAGE>
EXHIBIT C
ASSIGNMENT FORM
<PAGE>
ASSIGNMENT FORM
(To assign the foregoing Common Stock Purchase Warrant, execute this
form and supply required information. Do not use this form to purchase
shares.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby
are hereby assigned to
- --------------------------------------------------------------------
(Please Print)
whose address is
---------------------------------------------------
(Please Print)
.
- --------------------------------------------------------------------
Dated: , 19 .
---------------------- -------
Holder's Signature:
-------------------------------------
Holder's Address:
-------------------------------------
-------------------------------------
Signature Guaranteed:
------------------------------------------
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatever, and must be guaranteed by a bank or trust company. Officers of
corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Warrant.
<PAGE>
EXHIBIT 4.6
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT ONLY AND NOT
WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. THESE
SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"). THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR HYPOTHECATED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER
SAID ACT OR AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY, THAT SUCH
REGISTRATION IS NOT REQUIRED.
February 18, 1998
PC-Tel, Inc.
a California corporation
Common Stock Purchase Warrant
THIS CERTIFIES THAT, for value received, Mitchell Segal (hereinafter, the
"Holder"), is entitled, upon the terms and subject to the conditions hereinafter
set forth, to purchase from PC-TEL, INC., a California corporation (the
"Company"), that number of fully paid and nonassessable shares of the Company's
Common Stock at the purchase price per share as determined in Section 1 below.
Terms and Conditions of Warrant
1. Number of Shares; Exercise Price; Term.
--------------------------------------
(a) Subject to the terms and conditions set forth herein, the Holder
is entitled to purchase from the Company, at any time after the date hereof and
on or before the date of termination of this Warrant provided for in Section
1(b) below, up to 505 fully paid and non-assessable shares of the Company's
Common Stock (the "Shares") at an exercise price per share of $8.00 (the
"Exercise Price").
(b) This Warrant (and the right to purchase securities upon exercise
hereof) shall expire and cease to be exercisable if not exercised prior to the
earliest to occur of (i) the acquisition of the Company by means of any
transaction or series of related transactions (including, without limitation,
any reorganization, merger, consolidation or sale of all or substantially all of
the assets of the Company) in which, immediately after completion of such
transaction, the shareholders of the Company prior to such transaction or series
of related transactions own less than fifty percent (50%) of the voting power of
the surviving entity after such transaction or series of transactions, and (ii)
5:00 p.m. (Pacific Time) on February 4, 2001 (the "Expiration Date"). The
Company shall provide the Holder not less than 10 days' prior written notice of
the completion of any transaction contemplated in (i) above.
2. Exercise of Warrant.
-------------------
(a) This Warrant may be exercised by the Holder as to the whole or any
lesser number of the Shares covered hereby, as set forth in Section 1 above,
upon surrender of this Warrant to the Company at its principal executive offices
together with the Notice of Exercise and Investment Representation Statement
annexed hereto as Exhibits A and B, respectively, duly completed and executed by
---------- -
the Holder, and payment to the Company in cash of the aggregate Exercise Price
for the Shares to be purchased. Certificates for the Shares so purchased shall
be delivered to the Holder within
<PAGE>
a reasonable time after exercise of the stock purchase rights represented by
this Warrant. The exercise of this Warrant shall be deemed to have been effected
on the day on which the Holder surrenders this Warrant to the Company and
satisfies all of the requirements of this Section 2. Upon such exercise, the
Holder will be deemed a shareholder of record of those Shares for which the
warrant has been exercised with all rights of a shareholder (including, without
limitation, all voting rights with respect to such Shares and all rights to
receive any dividends with respect to such Shares). If this Warrant is to be
exercised in respect of less than all of the Shares covered hereby, the Holder
shall be entitled to receive a new warrant covering the number of Shares in
respect of which this Warrant shall not have been exercised and for which it
remains subject to exercise. Such new warrant shall be in all other respects
identical to this Warrant.
(b) Notwithstanding the payment provisions set forth in Section 2(a)
above, the Holder may elect to receive Shares equal to the value of this Warrant
(or of any portion thereof remaining unexercised) by surrender of this Warrant
at the principal office of the Company together with notice of such election, in
which event the Company shall issue to the Holder that number of Shares computed
using the following formula:
X = Y*(A-B)
-------
A
Where: X = the number of Shares to be issued to the Holder;
Y = the number of Shares purchasable under this Warrant (at
the date of such calculation);
A = the Fair Market Value of one Share; and
B = the Exercise Price (at the date of such calculation).
(c) For purposes of section 3(b) above, the Fair Market Value of one
Share shall mean (i) if the Company's Common Stock is listed on any established
stock exchange or national market system, including, without limitation, the
National Market of The Nasdaq Stock Market, the closing sales price of one share
of the Company's Common Stock (or the closing bid, if no sales were reported) as
quoted on such system or exchange (or the exchange with the greatest volume of
trading in the Company's Common Stock) on the last market trading day prior to
the day of determination, as reported in The Wall Street Journal or such other
source as the Board of Directors of the Company may deem reliable; (ii) if the
Company's Common Stock is quoted on The Nasdaq Stock Market (but not on the
National Market thereof) or regularly quoted by a recognized securities dealer
but selling prices are not reported, the mean between the high and low asked
prices for the Company's Common Stock on the last market trading day prior to
the day of determination, as reported in The Wall Street Journal or such other
source as the Board of Directors of the Company may deem reliable; (iii) if
exercised in connection with respect to a merger or consolidation of the Company
or the sale of all or substantially all of the assets of the Company, the amount
of cash or the value of securities actually received by the Company or its
shareholders in such transaction for each share of the Company's Common Stock;
or (iv) as otherwise determined by the Board of Directors of the Company, acting
in good faith.
3. Covenants of the Company. The Company covenants and agrees that all
------------------------
Common Stock which may be issued upon the exercise of the rights represented by
this Warrant, upon issuance and
-2-
<PAGE>
payment therefor in accordance herewith, will be duly authorized, validly
issued, fully paid, and nonassessable shares of Common Stock of the Company. The
Company further covenants and agrees that, during the period within which the
stock purchase rights represented by this Warrant may be exercised, the Company
will at all times have duly authorized and duly reserved for issuance upon the
exercise of the purchase rights evidenced by this Warrant a number of shares of
Common Stock sufficient for such issuance.
4. Transfer, Exchange, Assignment, or Loss of Warrant.
--------------------------------------------------
(a) This Warrant may not be assigned or transferred except as provided
in this Section 4 and in accordance with and subject to the provisions of the
Securities Act and the Rules and Regulations promulgated thereunder. Any
purported transfer or assignment made other than in accordance with this Section
4 shall be null and void and of no force or effect.
(b) Prior to any transfer of this Warrant, the Holder shall notify the
Company of its intention to effect such transfer, indicating the circumstances
of the proposed transfer and, upon request, furnish the Company with an opinion
of its counsel, in form and substance satisfactory to counsel for the Company,
to the effect that the proposed transfer may be made without registration under
the Securities Act or qualification under any applicable state securities laws.
The Company will promptly notify the Holder if the opinion of counsel furnished
to the Company is satisfactory to counsel for the Company. Unless the Company
notifies the Holder within ten (10) days after its receipt of such opinion that
such opinion is not satisfactory to counsel for the Company, the Holder may
proceed to effect the transfer.
(c) Unless a registration statement under the Securities Act is
effective with respect to the Shares or any other security issued upon exercise
of this Warrant, the certificate representing such Shares or other securities
shall bear the following legend, in addition to any legend imposed by applicable
state securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT ONLY
AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION
THEREOF. THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"). THEY MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL,
SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED.
(d) Any assignment permitted hereunder shall be made by surrender of
this Warrant to the Company at its principal office with the Assignment Form
attached hereto as Exhibit C duly executed. In such event, the Company shall,
---------
without charge for any issuance or transfer tax or other cost incurred by the
Company with respect to such transfer, execute and deliver a new Warrant in the
name of the assignee named in such instrument of assignment, and this Warrant
shall be promptly cancelled. This Warrant may be divided or combined with other
Warrants which carry the same rights upon
-3-
<PAGE>
presentation thereof at the principal office of the Company, together with a
written notice signed by the Holders thereof, specifying the name and
denominations in which such new Warrants are to be issued.
(e) Upon receipt by the Company of satisfactory evidence of loss,
theft, destruction, or mutilation of this Warrant and of indemnity satisfactory
to the Company, and upon surrender and cancellation of this Warrant, if
mutilated, the Company will execute and deliver a new Warrant of like tenor and
date and any such lost, stolen, or destroyed Warrant shall thereupon become
void. Any such new Warrant executed and delivered shall constitute an
additional contractual obligation on the part of the Company, whether or not the
Warrant so lost, stolen, destroyed, or mutilated shall be at any time
enforceable by anyone.
5. No Fractional Shares or Scrip. No fractional shares or scrip
-----------------------------
representing fractional shares shall be issued upon the exercise of this
Warrant. In lieu of any fractional share to which such holder would otherwise
be entitled, such holder shall be entitled, at its option, to receive either (i)
a cash payment equal to the excess of the Fair Market Value for such fractional
share above the Exercise Price for such fractional share (as mutually determined
by the Company and the Holder) or (ii) a whole share if the Holder tenders the
Exercise Price for one whole share.
6. No Rights as Shareholders. This Warrant does not entitle the holder
-------------------------
hereof to any voting rights, dividend rights, or other rights as a shareholder
of the Company prior to the exercise hereof.
7. Saturdays, Sundays, Holidays, etc. If the last or appointed day for
---------------------------------
the taking of any action or the expiration of any right required or granted
herein shall be a Saturday or a Sunday or shall be a legal holiday, then such
action may be taken or such right may be exercised on the next succeeding day
not a Saturday or a Sunday or a legal holiday.
8. Adjustments. The Exercise Price per Share and the number of Shares
-----------
purchasable hereunder shall be subject to adjustment from time to time as
follows:
(a) Merger. If at any time there shall be a merger or consolidation
------
of the Company with or into another corporation when the Company is not the
surviving corporation, then, as a part of such merger or consolidation, lawful
provision shall be made so that the holder of this Warrant shall thereafter be
entitled to receive upon exercise of this Warrant, during the period specified
herein and upon payment of the aggregate Exercise Price then in effect, the
number of shares of stock or other securities or property of the successor
corporation resulting from such merger or consolidation, to which a holder of
the stock deliverable upon exercise of this Warrant would have been entitled in
such merger or consolidation if this Warrant had been exercised immediately
before such merger or consolidation. In any such case, appropriate adjustment
shall be made in the application of the provisions of this Warrant with respect
to the rights and interests of the Holder after the merger or consolidation.
(b) Reclassification, etc. If the Company shall, at any time, by
---------------------
subdivision, combination, or reclassification of securities or otherwise, change
any of the securities as to which purchase rights under this Warrant exist into
the same or a different number of securities of any other class or classes, the
Exercise Price shall be adjusted such that this Warrant shall thereafter
represent the right to acquire such number and kind of securities as would have
been issuable as the result of such
-4-
<PAGE>
change with respect to the securities which were subject to the purchase rights
under this Warrant immediately prior to such subdivision, combination,
reclassification or other change.
(c) Split, Subdivision or Combination of Shares. If the Company at
-------------------------------------------
any time while this Warrant remains outstanding and unexpired shall split,
subdivide or combine the securities as to which purchase rights under this
Warrant exist, the Exercise Price shall be proportionately decreased in the case
of a split or subdivision or proportionately increased in the case of a
combination.
9. Notice of Adjustments; Notices. Whenever the Exercise Price or number
------------------------------
of Shares issuable upon exercise hereof shall be adjusted pursuant to Section 8
hereof, the Company shall issue a certificate signed by its Chief Executive
Officer or Chief Financial Officer setting forth, in reasonable detail, the
event requiring the adjustment, the amount of the adjustment, the method by
which such adjustment was calculated and the Exercise Price and number of Shares
purchasable hereunder after giving effect to such adjustment, and shall cause a
copy of such certificate to be mailed (by first class mail, postage prepaid) to
the holder of this Warrant.
10. Miscellaneous.
-------------
(a) Successors and Assigns. This Warrant shall be binding upon any
----------------------
successors or assigns of the Company.
(b) Governing Law. This Warrant shall be governed by and construed in
-------------
accordance with the laws of the State of California as applied to agreements
between California residents entered and to be performed entirely within
California.
(c) Attorneys' Fees. In any litigation, arbitration, or court
---------------
proceeding between the Company and the holder relating hereto, the prevailing
party shall be entitled to reasonable attorneys' fees and expenses incurred in
enforcing this Warrant.
(d) Amendments. This Warrant may be amended and the observance of any
----------
term of this Warrant may be waived only with the written consent of the Company
and the Holder, or in the event that this Warrant shall have been transferred in
part, with the written consent of the Company and the holders of warrants
representing a majority-in-interest of the Shares originally issuable hereunder.
(e) Notice. Any notice required or permitted hereunder shall be
------
deemed effectively given upon personal delivery to the party to be notified or
upon deposit with the United States Post Office, by certified mail, postage
prepaid and addressed to the party to be notified at the address indicated below
for such party, or at such other address as such other party may designate by
ten-day advance written notice.
[Remainder of Page Intentionally Left Blank]
-5-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Common Stock Purchase
Warrant to be executed by its officer thereunto duly authorized as of the date
first above written.
PC-TEL, INC.
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
Acknowledged and Agreed:
WARRANT HOLDER:
- ------------------------------------------------
Signature
- ------------------------------------------------
Print Name
- ------------------------------------------------
Street Address
- ------------------------------------------------
City State Zip Code
[Warrant Signature Page]
-6-
<PAGE>
EXHIBIT A
NOTICE OF EXERCISE
<PAGE>
NOTICE OF EXERCISE
STOCK PURCHASE WARRANT
To: PC-TEL, INC.
1. The undersigned hereby elects to purchase _______ shares of
___________ ("Stock") of PC-Tel, Inc. (the "Company") pursuant to the terms of
the attached Warrant, and tenders herewith payment of the aggregate exercise
price therefor and any transfer taxes payable pursuant to the terms of the
Warrant, together with an Investment Representation Statement in form and
substance satisfactory to legal counsel to the Company.
2. The shares of Stock to be received by the undersigned upon exercise of
the Warrant are being acquired for its own account, not as a nominee or agent,
and not with a view to resale or distribution of any part thereof, and the
undersigned has no present intention of selling, granting any participation in,
or otherwise distributing the same. The undersigned further represents that it
does not have any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participation to such person or to any third
person, with respect to the Stock. The undersigned believes it has received all
the information it considers necessary or appropriate for deciding whether to
purchase the Stock.
3. The undersigned understands that the shares of Stock are characterized
as "restricted securities" under the federal securities laws inasmuch as they
are being acquired from the Company in transactions not involving a public
offering and that under such laws and applicable regulations such securities may
be resold without registration under the Securities Act of 1933, as amended (the
"Act"), only in certain limited circumstances. In this connection, the
undersigned represents that it is familiar with Rule 144 promulgated under the
Act, as presently in effect, and understands the resale limitations imposed
thereby and by the Act.
4. The undersigned covenants and agrees, in connection with any
registration of the Company's initial public offering of Common Stock, upon
request of the Company or the underwriters managing such offering, not to sell,
make any short sale of, loan, grant any option for the purchase of or otherwise
dispose of any securities of the Company for such period of time (not to exceed
180 days) from the effective date of the Company's registration statement filed
with and declared effective by the Securities and Exchange Commission as the
Company or the managing underwriters shall determine. The undersigned further
covenants and agrees to enter into a customary form of "lock-up" agreement upon
request of the Company or the underwriters managing such offering to the extent
not inconsistent with the preceding sentence.
5. The undersigned understands the instruments evidencing the Stock may
bear the following legend, in addition to any legend required by applicable
state securities laws:
<PAGE>
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT ONLY
AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION
THEREOF. THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"). THEY MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL,
SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED.
6. Please issue a certificate or certificates representing said shares of
Stock in the name of the undersigned:
Name:
------------------------------------------------
Address:
---------------------------------------------
---------------------------------------------
---------------------------------------------
7. Please issue a new Warrant for the unexercised portion of the attached
Warrant in the name of the undersigned:
Name:
------------------------------------------------
Address:
---------------------------------------------
---------------------------------------------
---------------------------------------------
IN WITNESS WHEREOF, the Warrantholder has executed this Notice of Exercise
effective this ___ day of ________, _____.
WARRANTHOLDER
---------------------------------------------
By:
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
[NOTICE OF EXERCISE OF STOCK PURCHASE WARRANT]
-2-
<PAGE>
EXHIBIT B
INVESTMENT REPRESENTATION STATEMENT
<PAGE>
INVESTMENT REPRESENTATION STATEMENT
PURCHASER :
---------------------------
COMPANY : PC-TEL, INC.
SECURITIES :
---------------------------
DATE :
---------------------------
In connection with the purchase of the above-listed Securities, the
undersigned, the Purchaser represents to the Company the following:
(a) The undersigned is sufficiently aware of the Company's business
affairs and financial condition to reach an informed and knowledgeable decision
to acquire the Securities. The undersigned is purchasing these Securities for
its own account for investment purposes only and not with a view to, or for the
resale in connection with, any "distribution" thereof for purposes of the
Securities Act of 1933, as amended (the "Securities Act").
(b) The undersigned understands that the Securities have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of its investment intent as expressed herein. In this connection, the
undersigned understands that, in the view of the Securities and Exchange
Commission (the "SEC"), the statutory basis for such exemption may be
unavailable if its representation was predicated solely upon a present intention
to hold these Securities for the minimum capital gains period specified under
tax statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Securities, or for a period of one year or any other fixed
period in the future.
(c) The undersigned further understands that the Securities must be
held indefinitely unless subsequently registered under the Securities Act or
unless an exemption from registration is otherwise available (such as Rule 144
under the Securities Act). Moreover, the undersigned understands that the
Company is under no obligation to register the Securities. In addition, the
undersigned understands that the certificate evidencing the Securities may be
imprinted with a legend which prohibits the transfer of the Securities unless
they are registered or such registration is not required in the opinion of
counsel for the Company.
(d) The undersigned is familiar with the provisions of Rule 144,
promulgated under the Securities Act, which, in substance, permits limited
public resale of "restricted securities" acquired, directly or indirectly, from
the issuer thereof (or from an affiliate of such issuer), in a non-public
offering subject to the satisfaction of certain conditions, including, among
other things: (1) The availability of certain public information about the
Company; (2) the resale's occurring not less than one year after the party has
purchased, and made full payment for, within the meaning of Rule 144, the
securities to be
<PAGE>
sold; and, in the case of an affiliate, or of a non-affiliate who has held the
securities less than two years (3) the sale being made through a broker in an
unsolicited "broker's transaction" or in transactions directly with a market
maker, as said term is defined under the Securities Exchange Act of 1934 (the
"Exchange Act") and the amount of securities being sold during any three month
period not exceeding the specified limitations stated therein, if applicable.
There can be no assurances that the requirements of Rule 144 will be met, or
that the Securities will ever be saleable.
(e) The undersigned further understands that at the time the
undersigned wishes to sell the Securities there may be no public market upon
which to make such a sale, and that, even if such a public market then exists,
the Company may not be satisfying the current public information requirements of
Rule 144, and that, in such event, the undersigned would be precluded from
selling the Securities under Rule 144 even if the applicable minimum holding
period had been satisfied.
(f) The undersigned further understands that in the event all of the
applicable requirements of Rule 144 are not satisfied registration under the
Securities Act, compliance with Regulation A, compliance with some other
registration exemption or the notification to the Company of the proposed
disposition by it and the furnishing to the Company of (i) detailed information
regarding the disposition, and (ii) and opinion of its counsel to the effect
that such disposition will not require registration (the undersigned understands
such counsel's opinion shall concur with the opinion by counsel for the Company
and the undersigned shall have been informed of such compliance) will be
required and that, notwithstanding the fact that Rule 144 is not exclusive, the
Staff of the SEC has expressed its opinion that persons proposing to sell
private placement securities other than in a registered offering and otherwise
than pursuant to Rule 144 will have a substantial burden of proof in
establishing that an exemption from registration is available for such offers or
sales, and that such persons and their respective brokers who participate in
such transactions do so at their own risk.
Signature of Purchaser:
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
-2-
<PAGE>
EXHIBIT C
ASSIGNMENT FORM
<PAGE>
ASSIGNMENT FORM
(To assign the foregoing Common Stock Purchase Warrant, execute this
form and supply required information. Do not use this form to purchase
shares.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby
are hereby assigned to
- --------------------------------------------------------------
(Please Print)
whose address is
-----------------------------------------------------
(Please Print)
.
- ---------------------------------------------------------------
Dated: , 19 .
-------------------- ----
Holder's Signature:
-----------------------------------
Holder's Address:
-------------------------------------
-------------------------------------
Signature Guaranteed:
--------------------------------------
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatever, and must be guaranteed by a bank or trust company. Officers of
corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Warrant.
<PAGE>
EXHIBIT 4.7
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT ONLY AND NOT
WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. THESE
SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"). THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR HYPOTHECATED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER
SAID ACT OR AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY, THAT SUCH
REGISTRATION IS NOT REQUIRED.
February 18, 1998
PC-Tel, Inc.
a California corporation
Common Stock Purchase Warrant
THIS CERTIFIES THAT, for value received, State Street Securities, Inc.
(hereinafter, the "Holder"), is entitled, upon the terms and subject to the
conditions hereinafter set forth, to purchase from PC-TEL, INC., a California
corporation (the "Company"), that number of fully paid and nonassessable shares
of the Company's Common Stock at the purchase price per share as determined in
Section 1 below.
Terms and Conditions of Warrant
1. Number of Shares; Exercise Price; Term.
--------------------------------------
(a) Subject to the terms and conditions set forth herein, the Holder
is entitled to purchase from the Company, at any time after the date hereof and
on or before the date of termination of this Warrant provided for in Section
1(b) below, up to 604 fully paid and non-assessable shares of the Company's
Common Stock (the "Shares") at an exercise price per share of $8.00 (the
"Exercise Price").
(b) This Warrant (and the right to purchase securities upon exercise
hereof) shall expire and cease to be exercisable if not exercised prior to the
earliest to occur of (i) the acquisition of the Company by means of any
transaction or series of related transactions (including, without limitation,
any reorganization, merger, consolidation or sale of all or substantially all of
the assets of the Company) in which, immediately after completion of such
transaction, the shareholders of the Company prior to such transaction or series
of related transactions own less than fifty percent (50%) of the voting power of
the surviving entity after such transaction or series of transactions, and (ii)
5:00 p.m. (Pacific Time) on February 4, 2001 (the "Expiration Date"). The
Company shall provide the Holder not less than 10 days' prior written notice of
the completion of any transaction contemplated in (i) above.
<PAGE>
2. Exercise of Warrant.
-------------------
(a) This Warrant may be exercised by the Holder as to the whole or any
lesser number of the Shares covered hereby, as set forth in Section 1 above,
upon surrender of this Warrant to the Company at its principal executive offices
together with the Notice of Exercise and Investment Representation Statement
annexed hereto as Exhibits A and B, respectively, duly completed and executed by
---------- -
the Holder, and payment to the Company in cash of the aggregate Exercise Price
for the Shares to be purchased. Certificates for the Shares so purchased shall
be delivered to the Holder within a reasonable time after exercise of the stock
purchase rights represented by this Warrant. The exercise of this Warrant shall
be deemed to have been effected on the day on which the Holder surrenders this
Warrant to the Company and satisfies all of the requirements of this Section 2.
Upon such exercise, the Holder will be deemed a shareholder of record of those
Shares for which the warrant has been exercised with all rights of a shareholder
(including, without limitation, all voting rights with respect to such Shares
and all rights to receive any dividends with respect to such Shares). If this
Warrant is to be exercised in respect of less than all of the Shares covered
hereby, the Holder shall be entitled to receive a new warrant covering the
number of Shares in respect of which this Warrant shall not have been exercised
and for which it remains subject to exercise. Such new warrant shall be in all
other respects identical to this Warrant.
(b) Notwithstanding the payment provisions set forth in Section 2(a)
above, the Holder may elect to receive Shares equal to the value of this Warrant
(or of any portion thereof remaining unexercised) by surrender of this Warrant
at the principal office of the Company together with notice of such election, in
which event the Company shall issue to the Holder that number of Shares computed
using the following formula:
X = Y*(A-B)
-------
A
Where: X = the number of Shares to be issued to the Holder;
Y = the number of Shares purchasable under this Warrant (at
the date of such calculation);
A = the Fair Market Value of one Share; and
B = the Exercise Price (at the date of such calculation).
(c) For purposes of section 3(b) above, the Fair Market Value of one
Share shall mean (i) if the Company's Common Stock is listed on any established
stock exchange or national market system, including, without limitation, the
National Market of The Nasdaq Stock Market, the closing sales price of one share
of the Company's Common Stock (or the closing bid, if no sales were reported) as
quoted on such system or exchange (or the exchange with the greatest volume of
trading in the Company's Common Stock) on the last market trading day prior to
the day of determination, as reported in The Wall Street Journal or such other
source as the Board of Directors of the Company may deem reliable; (ii) if the
Company's Common Stock is quoted on The Nasdaq Stock Market (but not on the
National Market thereof) or regularly quoted by a recognized securities dealer
but selling prices are not reported, the mean between the high and low asked
prices for the Company's Common Stock on the last market trading day prior to
the day of determination, as reported in The Wall Street Journal or such other
-2-
<PAGE>
source as the Board of Directors of the Company may deem reliable; (iii) if
exercised in connection with respect to a merger or consolidation of the Company
or the sale of all or substantially all of the assets of the Company, the amount
of cash or the value of securities actually received by the Company or its
shareholders in such transaction for each share of the Company's Common Stock;
or (iv) as otherwise determined by the Board of Directors of the Company, acting
in good faith.
3. Covenants of the Company. The Company covenants and agrees that all
------------------------
Common Stock which may be issued upon the exercise of the rights represented by
this Warrant, upon issuance and payment therefor in accordance herewith, will be
duly authorized, validly issued, fully paid, and nonassessable shares of Common
Stock of the Company. The Company further covenants and agrees that, during the
period within which the stock purchase rights represented by this Warrant may be
exercised, the Company will at all times have duly authorized and duly reserved
for issuance upon the exercise of the purchase rights evidenced by this Warrant
a number of shares of Common Stock sufficient for such issuance.
4. Transfer, Exchange, Assignment, or Loss of Warrant.
--------------------------------------------------
(a) This Warrant may not be assigned or transferred except as provided
in this Section 4 and in accordance with and subject to the provisions of the
Securities Act and the Rules and Regulations promulgated thereunder. Any
purported transfer or assignment made other than in accordance with this Section
4 shall be null and void and of no force or effect.
(b) Prior to any transfer of this Warrant, the Holder shall notify the
Company of its intention to effect such transfer, indicating the circumstances
of the proposed transfer and, upon request, furnish the Company with an opinion
of its counsel, in form and substance satisfactory to counsel for the Company,
to the effect that the proposed transfer may be made without registration under
the Securities Act or qualification under any applicable state securities laws.
The Company will promptly notify the Holder if the opinion of counsel furnished
to the Company is satisfactory to counsel for the Company. Unless the Company
notifies the Holder within ten (10) days after its receipt of such opinion that
such opinion is not satisfactory to counsel for the Company, the Holder may
proceed to effect the transfer.
(c) Unless a registration statement under the Securities Act is
effective with respect to the Shares or any other security issued upon exercise
of this Warrant, the certificate representing such Shares or other securities
shall bear the following legend, in addition to any legend imposed by applicable
state securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT ONLY
AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION
THEREOF. THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"). THEY MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL,
SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED.
-3-
<PAGE>
(d) Any assignment permitted hereunder shall be made by surrender of
this Warrant to the Company at its principal office with the Assignment Form
attached hereto as Exhibit C duly executed. In such event, the Company shall,
---------
without charge for any issuance or transfer tax or other cost incurred by the
Company with respect to such transfer, execute and deliver a new Warrant in the
name of the assignee named in such instrument of assignment, and this Warrant
shall be promptly cancelled. This Warrant may be divided or combined with other
Warrants which carry the same rights upon presentation thereof at the principal
office of the Company, together with a written notice signed by the Holders
thereof, specifying the name and denominations in which such new Warrants are to
be issued.
(e) Upon receipt by the Company of satisfactory evidence of loss,
theft, destruction, or mutilation of this Warrant and of indemnity satisfactory
to the Company, and upon surrender and cancellation of this Warrant, if
mutilated, the Company will execute and deliver a new Warrant of like tenor and
date and any such lost, stolen, or destroyed Warrant shall thereupon become
void. Any such new Warrant executed and delivered shall constitute an
additional contractual obligation on the part of the Company, whether or not the
Warrant so lost, stolen, destroyed, or mutilated shall be at any time
enforceable by anyone.
5. No Fractional Shares or Scrip. No fractional shares or scrip
-----------------------------
representing fractional shares shall be issued upon the exercise of this
Warrant. In lieu of any fractional share to which such holder would otherwise
be entitled, such holder shall be entitled, at its option, to receive either (i)
a cash payment equal to the excess of the Fair Market Value for such fractional
share above the Exercise Price for such fractional share (as mutually determined
by the Company and the Holder) or (ii) a whole share if the Holder tenders the
Exercise Price for one whole share.
6. No Rights as Shareholders. This Warrant does not entitle the holder
-------------------------
hereof to any voting rights, dividend rights, or other rights as a shareholder
of the Company prior to the exercise hereof.
7. Saturdays, Sundays, Holidays, etc. If the last or appointed day for
---------------------------------
the taking of any action or the expiration of any right required or granted
herein shall be a Saturday or a Sunday or shall be a legal holiday, then such
action may be taken or such right may be exercised on the next succeeding day
not a Saturday or a Sunday or a legal holiday.
8. Adjustments. The Exercise Price per Share and the number of Shares
-----------
purchasable hereunder shall be subject to adjustment from time to time as
follows:
(a) Merger. If at any time there shall be a merger or consolidation
------
of the Company with or into another corporation when the Company is not the
surviving corporation, then, as a part of such merger or consolidation, lawful
provision shall be made so that the holder of this Warrant shall thereafter be
entitled to receive upon exercise of this Warrant, during the period specified
herein and upon payment of the aggregate Exercise Price then in effect, the
number of shares of stock or other securities or property of the successor
corporation resulting from such merger or consolidation, to which a holder of
the stock deliverable upon exercise of this Warrant would have been entitled in
such merger or consolidation if this Warrant had been exercised immediately
before such merger or consolidation. In any such case, appropriate adjustment
shall be made in the application of the provisions of this Warrant with respect
to the rights and interests of the Holder after the merger or consolidation.
-4-
<PAGE>
(b) Reclassification, etc. If the Company shall, at any time, by
---------------------
subdivision, combination, or reclassification of securities or otherwise, change
any of the securities as to which purchase rights under this Warrant exist into
the same or a different number of securities of any other class or classes, the
Exercise Price shall be adjusted such that this Warrant shall thereafter
represent the right to acquire such number and kind of securities as would have
been issuable as the result of such change with respect to the securities which
were subject to the purchase rights under this Warrant immediately prior to such
subdivision, combination, reclassification or other change.
(c) Split, Subdivision or Combination of Shares. If the Company at
-------------------------------------------
any time while this Warrant remains outstanding and unexpired shall split,
subdivide or combine the securities as to which purchase rights under this
Warrant exist, the Exercise Price shall be proportionately decreased in the case
of a split or subdivision or proportionately increased in the case of a
combination.
9. Notice of Adjustments; Notices. Whenever the Exercise Price or number
------------------------------
of Shares issuable upon exercise hereof shall be adjusted pursuant to Section 8
hereof, the Company shall issue a certificate signed by its Chief Executive
Officer or Chief Financial Officer setting forth, in reasonable detail, the
event requiring the adjustment, the amount of the adjustment, the method by
which such adjustment was calculated and the Exercise Price and number of Shares
purchasable hereunder after giving effect to such adjustment, and shall cause a
copy of such certificate to be mailed (by first class mail, postage prepaid) to
the holder of this Warrant.
10. Miscellaneous.
-------------
(a) Successors and Assigns. This Warrant shall be binding upon any
----------------------
successors or assigns of the Company.
(b) Governing Law. This Warrant shall be governed by and construed in
-------------
accordance with the laws of the State of California as applied to agreements
between California residents entered and to be performed entirely within
California.
(c) Attorneys' Fees. In any litigation, arbitration, or court
---------------
proceeding between the Company and the holder relating hereto, the prevailing
party shall be entitled to reasonable attorneys' fees and expenses incurred in
enforcing this Warrant.
(d) Amendments. This Warrant may be amended and the observance of any
----------
term of this Warrant may be waived only with the written consent of the Company
and the Holder, or in the event that this Warrant shall have been transferred in
part, with the written consent of the Company and the holders of warrants
representing a majority-in-interest of the Shares originally issuable hereunder.
(e) Notice. Any notice required or permitted hereunder shall be
------
deemed effectively given upon personal delivery to the party to be notified or
upon deposit with the United States Post Office, by certified mail, postage
prepaid and addressed to the party to be notified at the address indicated below
for such party, or at such other address as such other party may designate by
ten-day advance written notice.
[Remainder of Page Intentionally Left Blank]
-5-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Common Stock Purchase
Warrant to be executed by its officer thereunto duly authorized as of the date
first above written.
PC-TEL, INC.
By:
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
Acknowledged and Agreed:
WARRANT HOLDER:
- ----------------------------------------------
Signature
- ----------------------------------------------
Print Name
- ----------------------------------------------
Street Address
- ----------------------------------------------
City State Zip Code
[Warrant Signature Page]
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<PAGE>
EXHIBIT A
NOTICE OF EXERCISE
<PAGE>
NOTICE OF EXERCISE
STOCK PURCHASE WARRANT
To: PC-TEL, INC.
1. The undersigned hereby elects to purchase _______ shares of
___________ ("Stock") of PC-Tel, Inc. (the "Company") pursuant to the terms of
the attached Warrant, and tenders herewith payment of the aggregate exercise
price therefor and any transfer taxes payable pursuant to the terms of the
Warrant, together with an Investment Representation Statement in form and
substance satisfactory to legal counsel to the Company.
2. The shares of Stock to be received by the undersigned upon exercise of
the Warrant are being acquired for its own account, not as a nominee or agent,
and not with a view to resale or distribution of any part thereof, and the
undersigned has no present intention of selling, granting any participation in,
or otherwise distributing the same. The undersigned further represents that it
does not have any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participation to such person or to any third
person, with respect to the Stock. The undersigned believes it has received all
the information it considers necessary or appropriate for deciding whether to
purchase the Stock.
3. The undersigned understands that the shares of Stock are characterized
as "restricted securities" under the federal securities laws inasmuch as they
are being acquired from the Company in transactions not involving a public
offering and that under such laws and applicable regulations such securities may
be resold without registration under the Securities Act of 1933, as amended (the
"Act"), only in certain limited circumstances. In this connection, the
undersigned represents that it is familiar with Rule 144 promulgated under the
Act, as presently in effect, and understands the resale limitations imposed
thereby and by the Act.
4. The undersigned covenants and agrees, in connection with any
registration of the Company's initial public offering of Common Stock, upon
request of the Company or the underwriters managing such offering, not to sell,
make any short sale of, loan, grant any option for the purchase of or otherwise
dispose of any securities of the Company for such period of time (not to exceed
180 days) from the effective date of the Company's registration statement filed
with and declared effective by the Securities and Exchange Commission as the
Company or the managing underwriters shall determine. The undersigned further
covenants and agrees to enter into a customary form of "lock-up" agreement upon
request of the Company or the underwriters managing such offering to the extent
not inconsistent with the preceding sentence.
5. The undersigned understands the instruments evidencing the Stock may
bear the following legend, in addition to any legend required by applicable
state securities laws:
<PAGE>
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT ONLY
AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION
THEREOF. THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"). THEY MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL,
SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED.
6. Please issue a certificate or certificates representing said shares of
Stock in the name of the undersigned:
Name:
-------------------------------------------------
Address:
----------------------------------------------
----------------------------------------------
----------------------------------------------
7. Please issue a new Warrant for the unexercised portion of the attached
Warrant in the name of the undersigned:
Name:
-------------------------------------------------
Address:
----------------------------------------------
----------------------------------------------
----------------------------------------------
IN WITNESS WHEREOF, the Warrantholder has executed this Notice of Exercise
effective this ___ day of ________, _____.
WARRANTHOLDER
-------------------------------------------
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
[NOTICE OF EXERCISE OF STOCK PURCHASE WARRANT]
-2-
<PAGE>
EXHIBIT B
INVESTMENT REPRESENTATION STATEMENT
<PAGE>
INVESTMENT REPRESENTATION STATEMENT
PURCHASER :
-----------------------
COMPANY : PC-TEL, INC.
SECURITIES :
-----------------------
DATE :
-----------------------
In connection with the purchase of the above-listed Securities, the
undersigned, the Purchaser represents to the Company the following:
(a) The undersigned is sufficiently aware of the Company's business
affairs and financial condition to reach an informed and knowledgeable decision
to acquire the Securities. The undersigned is purchasing these Securities for
its own account for investment purposes only and not with a view to, or for the
resale in connection with, any "distribution" thereof for purposes of the
Securities Act of 1933, as amended (the "Securities Act").
(b) The undersigned understands that the Securities have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of its investment intent as expressed herein. In this connection, the
undersigned understands that, in the view of the Securities and Exchange
Commission (the "SEC"), the statutory basis for such exemption may be
unavailable if its representation was predicated solely upon a present intention
to hold these Securities for the minimum capital gains period specified under
tax statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Securities, or for a period of one year or any other fixed
period in the future.
(c) The undersigned further understands that the Securities must be
held indefinitely unless subsequently registered under the Securities Act or
unless an exemption from registration is otherwise available (such as Rule 144
under the Securities Act). Moreover, the undersigned understands that the
Company is under no obligation to register the Securities. In addition, the
undersigned understands that the certificate evidencing the Securities may be
imprinted with a legend which prohibits the transfer of the Securities unless
they are registered or such registration is not required in the opinion of
counsel for the Company.
(d) The undersigned is familiar with the provisions of Rule 144,
promulgated under the Securities Act, which, in substance, permits limited
public resale of "restricted securities" acquired, directly or indirectly, from
the issuer thereof (or from an affiliate of such issuer), in a non-public
offering subject to the satisfaction of certain conditions, including, among
other things: (1) The availability of certain public information about the
Company; (2) the resale's occurring not less than one year after the party has
purchased, and made full payment for, within the meaning of Rule 144, the
securities to be
<PAGE>
sold; and, in the case of an affiliate, or of a non-affiliate who has held the
securities less than two years (3) the sale being made through a broker in an
unsolicited "broker's transaction" or in transactions directly with a market
maker, as said term is defined under the Securities Exchange Act of 1934 (the
"Exchange Act") and the amount of securities being sold during any three month
period not exceeding the specified limitations stated therein, if applicable.
There can be no assurances that the requirements of Rule 144 will be met, or
that the Securities will ever be saleable.
(e) The undersigned further understands that at the time the
undersigned wishes to sell the Securities there may be no public market upon
which to make such a sale, and that, even if such a public market then exists,
the Company may not be satisfying the current public information requirements of
Rule 144, and that, in such event, the undersigned would be precluded from
selling the Securities under Rule 144 even if the applicable minimum holding
period had been satisfied.
(f) The undersigned further understands that in the event all of the
applicable requirements of Rule 144 are not satisfied registration under the
Securities Act, compliance with Regulation A, compliance with some other
registration exemption or the notification to the Company of the proposed
disposition by it and the furnishing to the Company of (i) detailed information
regarding the disposition, and (ii) and opinion of its counsel to the effect
that such disposition will not require registration (the undersigned understands
such counsel's opinion shall concur with the opinion by counsel for the Company
and the undersigned shall have been informed of such compliance) will be
required and that, notwithstanding the fact that Rule 144 is not exclusive, the
Staff of the SEC has expressed its opinion that persons proposing to sell
private placement securities other than in a registered offering and otherwise
than pursuant to Rule 144 will have a substantial burden of proof in
establishing that an exemption from registration is available for such offers or
sales, and that such persons and their respective brokers who participate in
such transactions do so at their own risk.
Signature of Purchaser:
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
-2-
<PAGE>
EXHIBIT C
ASSIGNMENT FORM
<PAGE>
ASSIGNMENT FORM
(To assign the foregoing Common Stock Purchase Warrant, execute this
form and supply required information. Do not use this form to purchase
shares.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby
are hereby assigned to
- ---------------------------------------------------------
(Please Print)
whose address is
---------------------------------------------
(Please Print)
.
- ---------------------------------------------------------
Dated: , 19 .
---------------------- ----
Holder's Signature:
-------------------------------
Holder's Address:
--------------------------------
--------------------------------
Signature Guaranteed:
-----------------------------------
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatever, and must be guaranteed by a bank or trust company. Officers of
corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Warrant.
<PAGE>
EXHIBIT 4.8
PC-TEL, INC.
AMENDED AND RESTATED RIGHTS AGREEMENT
THIS AMENDED AND RESTATED RIGHTS AGREEMENT (the "Agreement") is made as of
December 31, 1997 by and among PC-Tel, Inc., a California corporation (the
"Company"), having its principal executive offices located at 630 Alder Drive,
Suite 202, Milpitas, California 95035, and each of the persons and entities who
have purchased shares of the Company's Series B Preferred Stock ("Series B
Preferred") and Series C Preferred Stock ("Series C Preferred").
RECITALS
The Company and holders of the Company's Series B Preferred Stock (the
"Prior Rights Holders") desire to amend and restate the Rights Agreement dated
as of October 18, 1995 (the "Prior Agreement") to permit the grant of
registration and other rights as described herein to purchasers of the Series C
Preferred Stock of the Company.
NOW, THEREFORE, in consideration of the foregoing, the parties agree as
follows:
SECTION 1.
Restrictions on Transferability, Registration Rights
1.1 Certain Definitions. As used in this Agreement, the following terms
-------------------
shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission or any
----------
successor agency.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended.
"Holder" shall mean each Purchaser and any transferee of Registrable
------
Securities who pursuant to Section 1.15 below is entitled to registration rights
hereunder.
"Holder of Series B Preferred" shall mean a Holder of shares of Series
----------------------------
B Preferred or shares of the Company's Common Stock issued upon the conversion
of shares of Series B Preferred.
"Holder of Series C Preferred" shall mean a Holder of shares of Series
----------------------------
C Preferred or shares of the Company's Common Stock issued upon the conversion
of shares of Series C Preferred.
<PAGE>
"Preferred" shall mean shares of Series B Preferred and Series C
---------
Preferred Stock of the Company.
"Purchaser" shall mean each person or entity who has acquired shares
---------
of Preferred and any related securities pursuant to a stock purchase agreement
between such person or entity and the Company and who is a signatory to this
Agreement.
"Registrable Securities" shall mean (i) shares of the Company's Common
----------------------
Stock issued or issuable upon the conversion of the Preferred; (ii) any Common
Stock of the Company or other securities issued or issuable in respect of shares
of the Preferred; (iii) any Common Stock of the Company or other securities
issued or issuable upon exercise or conversion of any related securities; and
(iv) shares of the Company's Common Stock or other securities issued or issuable
upon any conversion of the Preferred or exercise or conversion of any related
securities upon any stock split, stock dividend, recapitalization, or similar
event; provided, however, that any shares described in clauses (i) through (iv)
-------- -------
above which have been resold to the public shall cease to be Registrable
Securities upon such resale.
The terms "register," "registered" and "registration" refer to a
-------- ---------- ------------
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses incurred by the
---------------------
Company in complying with Sections 1.5, 1.6, and 1.7 hereof, including, without
limitation, all registration, qualification and filing fees, printing expenses,
escrow fees, fees and disbursements of counsel for the Company, fees and
disbursements of one special counsel to the Holders, blue sky fees and expenses,
and the expense of any special audits incident to or required by any such
registration but excluding all Selling Expenses.
"Restricted Securities" shall mean the securities of the Company
---------------------
required to bear the legend set forth in Section 1.3 hereof (or any similar
legend).
"Securities Act" shall mean the Securities Act of 1933, as amended.
--------------
"Selling Expenses" shall mean all underwriting discounts, selling
----------------
commissions and stock transfer taxes applicable to the securities registered by
the Holders and any fees of counsel to any Holder.
1.2 Restrictions on Transferability. The Restricted Securities shall not
-------------------------------
be transferable except upon the conditions specified in this Agreement, which
conditions are intended to ensure compliance with the provisions of the
Securities Act. In no event shall Restricted Securities be transferred to any
entity (or any affiliate thereof) which is engaged in the development, marketing
or sale of products that are, in the Company's judgment, the same or similar to
those of the Company, and any such attempted transfer shall be void ab initio.
Each holder of Restricted Securities will cause any proposed transferee of the
Restricted Securities held by such holder to agree to take and
-2-
<PAGE>
hold such Restricted Securities subject to the provisions and upon the
conditions specified in this Agreement.
1.3 Restrictive Legend. Each certificate representing (i) the Preferred,
------------------
(ii) shares of the Company's Common Stock issued upon conversion of the
Preferred, and (iii) any other securities issued in respect of the Preferred (or
Common Stock issued upon conversion of the Preferred) upon any stock split,
stock dividend, recapitalization, merger, consolidation or similar event, shall
(unless otherwise permitted by the provisions of Section 1.4 below) be stamped
or otherwise imprinted with a legend in substantially the following form (in
addition to any legend required under applicable state securities laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"). THESE SECURITIES MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM
UNDER THE SECURITIES ACT. COPIES OF THE AGREEMENT COVERING THE PURCHASE OF
THESE SECURITIES AND RESTRICTING THEIR TRANSFER MAY BE OBTAINED AT NO COST
BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE
SECRETARY OF THE COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICES.
Each Purchaser and Holder consents to the Company making a notation on its
records and giving instructions to any transfer agent of the Preferred or the
Common Stock in order to implement the restrictions on transfer established in
this Section.
1.4 Notice of Proposed Transfers. The holder of each certificate
----------------------------
representing Restricted Securities by acceptance thereof agrees to comply in all
respects with the provisions of this Section. Prior to any proposed transfer of
any Restricted Securities, unless there is in effect a registration statement
under the Securities Act covering the proposed transfer, the holder thereof
shall give written notice to the Company of such Holder's intention to effect
such transfer. Each such notice shall describe the manner and circumstances of
the proposed transfer in sufficient detail, and shall, if the Company so
requests, be accompanied by either (i) a written opinion of legal counsel, who
shall be reasonably satisfactory to the Company, addressed to the Company and
reasonably satisfactory in form and substance to the Company's counsel, to the
effect that the Proposed transfer of the Restricted Securities may be effected
without registration under the Securities Act, or (ii) a "No Action" letter from
the Commission to the effect that the transfer of such securities without
registration will not result in a recommendation by the staff of the Commission
that action be taken with respect thereto, whereupon the holder of such
Restricted Securities shall be entitled to transfer such Restricted Securities
in accordance with the terms of the notice delivered by the holder to the
Company; provided, however, that no opinion or No Action letter need be obtained
-------- -------
with respect to a transfer to (A) a partner, active or retired, of a holder of
Restricted Securities, (B) the estate of any such partner, (C) the spouse,
children, grandchildren or spouse of such children or grandchildren of any
holder or to trusts for the benefit of any holder or such persons, or (D) a
parent or subsidiary
-3-
<PAGE>
corporation of a holder, or a corporation which has the same parent corporation
as a holder, provided that in such cases the transferee agrees in writing to be
subject to the terms hereof. Each certificate evidencing the Restricted
Securities transferred as above provided shall bear the appropriate restrictive
legends described above, except that such certificate shall not bear any such
restrictive legend if in the opinion of counsel for the Company such legend is
not required.
1.5 Requested Registration.
----------------------
(a) Requested for Registration. If at any time after the first to
--------------------------
occur of (i) November 30, 1999 or (ii) the closing of the Company's initial
registered public offering, the Company shall receive from any Holder or group
of Holders of Registrable Securities, representing not less than 30% of the
Registrable Securities then outstanding (assuming conversion of all shares of
the Preferred then outstanding), a written request that the Company effect any
registration, qualification or compliance with respect to all or a part of the
Registrable Securities, the anticipated gross offering price of which would
exceed $15,000,000, the Company will:
(x) promptly give written notice of the proposed registration,
qualification, or compliance to all other Holders; and
(y) as soon as practicable, use its best efforts to effect, following
receipt of such request, such registration, qualification or compliance
(including, without limitation, the execution of an undertaking to file post-
effective amendments, appropriate qualification under applicable blue sky or
other state securities laws and appropriate compliance with applicable
regulations issued under the Securities Act and any other governmental
requirements or regulations) as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Registrable
Securities as are specified in such request, together with all or such portion
of the Registrable Securities of any Holder or Holders joining in such request
as are specified in a written request received by the Company within 15 days
after receipt of such written notice from the Company; provided, however, that
-------- -------
the Company shall not be obligated to take any action to effect any such
registration, qualification or compliance pursuant to this Section:
(A) for so long as any shares of Series C Preferred are
outstanding, unless such request is first approved in writing by at least two-
thirds of the shares of the then outstanding Series C Preferred;
(B) in any particular jurisdiction in which the Company would be
required to execute a general consent to service of process in effecting such
registration, qualification or compliance unless the Company is already subject
to service in such jurisdiction and except as may be required by the Securities
Act;
(C) prior to 90 days immediately following the effective date of
any registration statement pertaining to securities of the Company (other than a
registration of securities in a Rule 145 transaction or with respect to an
employee benefit plan);
-4-
<PAGE>
(D) after the Company has effected two (2) such registrations
pursuant to this Section, such registrations have been declared or ordered
effective and the securities offered pursuant to such registrations have been
sold.
Subject to the foregoing clauses, the Company shall file a registration
statement covering the Registrable Securities so requested to be registered as
soon as practicable after receipt of the request or requests of any Holder or
Holders. If, however, the Company shall furnish to the Holder or Holders
requesting a registration statement pursuant to this Section a certificate
signed by the President of the Company stating that, in the good faith judgment
of the Board of Directors of the Company, it would be seriously detrimental to
the Company and its shareholders for such registration statement to be filed and
it is therefore essential to defer the filing of such registration statement,
the Company shall have the right to defer such filing for a period of not more
than 90 days after receipt of the request of the Holder or Holders requesting
such registration; provided, however, that the Company may not utilize this
-------- -------
right more than once in any 12-month period.
(b) Underwriting. If the Holders intend to distribute the Registrable
------------
Securities covered by their request by means of an underwriting, they shall so
advise the Company as a part of their request and the Company shall include such
information in its written notice to the other Holders. The right of any Holder
to registration pursuant to this Section shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein.
The Company shall (together with all Holders proposing to distribute their
securities through such underwriting) enter into an underwriting agreement in
customary form with the managing underwriter selected for such underwriting by
the Holders of a majority of the Registrable Securities proposed by such Holders
to be distributed through such underwriting. Notwithstanding any other
provision of this Section, if the managing underwriter advises the Holders in
writing that marketing factors require a limitation of the number of shares to
be underwritten, then, subject to the provisions of Section 1.5(a), the Company
shall so advise all Holders and the number of shares of Registrable Securities
that may be included in the registration and underwriting shall be allocated
first among all Holders of Series C Preferred requesting inclusion in the
registration on a pro rata basis, and then, to the extent all such shares have
not been fully allocated to the Holders of Series C Preferred, among any holders
of Series B Preferred requesting inclusion in the registration in proportion, as
nearly as practicable, to the respective amounts of Registrable Securities
originally requested by such Holders of Series B Preferred to be included in the
registration statement. No Registrable Securities excluded from the
underwriting by reason of the managing underwriter's marketing limitation shall
be included in such registration.
If the managing underwriter has not limited the number of Registrable
Securities to be underwritten, the Company may include securities for its own
account or for the account of others in such registration if the underwriter so
agrees and if the number of Registrable Securities which would otherwise have
been included in such registration and underwriting will not thereby be limited,
and provided that the Company or the other selling shareholders shall bear an
equitable share of the Registration Expenses in connection with such
registration and underwriting.
-5-
<PAGE>
If any Holder of Registrable Securities disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice to
the Company, the managing underwriter and the other Holders. The Registrable
Securities and/or other securities so withdrawn shall also be withdrawn from
registration; provided, however, that if by the withdrawal of such Registrable
-------- -------
Securities a greater number of Registrable Securities held by other Holders may
be included in such registration (up to the maximum of any limitation imposed by
the underwriters), then the Company shall offer to all Holders who have included
Registrable Securities in the registration the right to include additional
Registrable Securities in the same proportion used in determining the
underwriter limitation in this Section. If the registration does not become
effective due to the withdrawal of Registrable Securities, then either (1) the
Holders requesting registration shall reimburse the Company for expenses
incurred in complying with the request, or (2) the aborted registration shall be
treated as effected for purposes of Section 1.5(a)(D).
1.6 Company Registration.
--------------------
(a) Notice of Registration. If the Company shall determine to
----------------------
register any of its securities, either for its own account or the account of a
security holder or holders exercising their respective demand registration
rights, other than: (i) the Company's initial registered public offering of
shares for its own account; (ii) a registration relating solely to employee
benefit plans; or (iii) a registration relating solely to a transaction pursuant
to Rule 145 promulgated under the Securities Act; the company will:
(x) promptly give to each Holder written notice thereof; and
(y) include in such registration (and any related qualification
under blue sky laws or other compliance), and in any underwriting involved
therein, all the Registrable Securities specified in a written request or
requests, made within 15 days after receipt of such written notice from the
Company, by and Holder or Holders; provided, however, that the Company's
-------- -------
obligation under this Section 1.6 shall terminate after the Company has effected
two (2) such registrations pursuant to which the Holders have been provided with
the opportunity to register their Registrable Securities under this Section,
such registrations have been declared or ordered effective and the securities
offered pursuant to such registrations have been sold.
(b) Cut-back and Allocation. Notwithstanding any other provision of
-----------------------
this Section, if the managing underwriter determines that marketing factors
require a limitation of the number of shares to be underwritten, the managing
underwriter may limit the number of Registrable Securities to be included in the
registration and underwriting; provided, however, that any such limitation shall
-------- -------
not prevent the Holders of Registrable Securities requesting to be included in
such registration from including Registrable Securities representing up to 20%
of the total number of shares and provided, further, that any such limitation
-------- -------
shall be applied to all other selling shareholders prior to application to the
Holders. In such event, the Company shall so advise all Holders of Registrable
Securities which would otherwise be registered and underwritten pursuant hereto,
and the number of shares of Registrable Securities that may be included in the
registration and underwriting shall be allocated first among the Holders of
Series C Preferred on a pro rata basis, and then, to the extent all such
-6-
<PAGE>
shares have not been fully allocated to the Holders of Series C Preferred, to
the Holders of Series B Preferred on a pro rata basis. If any Holder disapproves
of the terms of any such underwriting, such Holder may elect to withdraw
therefrom by written notice to the Company and the managing underwriter. Any
Registrable Securities excluded or withdrawn from such underwriting shall be
withdrawn from such registration.
(c) The Company shall have the right to terminate or withdraw any
registration initiated by it under this Section prior to the effectiveness of
such registration whether or not any Holder has elected to include securities in
such registration.
1.7 Registration on Form S-3. The Company shall use its best efforts to
------------------------
qualify for registration on Form S-3, and to that end, the Company shall comply
with the reporting requirements of the Exchange Act. After the Company has
qualified for the use of Form S-3, each Holder shall have the right to request
an unlimited number of registrations on Form S-3 (such requests shall be in
writing and shall state the number of shares of Registrable Securities to be
disposed of and the intended method of disposition of such shares by each such
Holder), subject to the following limitations:
(i) the Company shall not be obligated to cause a registration
on Form S-3 to become effective prior to 90 days following the effective date of
a Company-initiated registration (other than a registration effected solely to
qualify an employee benefit plan or to effect a business combination pursuant to
Rule 145);
(ii) the Company shall not be obligated to cause a registration
on Form S-3 to become effective prior to expiration of 90 days following the
effective date of the most recent registration pursuant to a request under
Section 5 of this Agreement or pursuant to a request by a holder of registration
rights under any other agreement of the Company granting Form S-3 demand
registration rights;
(iii) the Company shall not be required to effect a registration
on Form S-3 unless the Holder or Holders requesting registration propose to
dispose of shares of Registrable Securities having an aggregate disposition
price (before deduction of underwriting discounts and expenses of sale) of at
least $1,000,000; and
(iv) the Company shall not be required to maintain and keep any
such registration on Form S-3 effective for a period equal to the shorter of (x)
30 days, or (y) that time reasonably necessary to permit the disposition of the
Registrable Securities subject to such registration. The Company shall give
notice to all Holders of the receipt of a request for registration pursuant to
this Section and shall provide a reasonable opportunity for all such other
Holders, to participate in the registration. Subject to the foregoing, the
Company will use its best efforts to effect promptly the registration of all
shares of Registrable Securities on Form S-3 to the extent requested by the
Holder or Holders thereof for purposes of disposition.
-7-
<PAGE>
1.8 Expenses of Registration. All Registration Expenses incurred in
------------------------
connection with any registration, qualification or compliance pursuant to
Section 1.5, Section 1.6, or Section 1.7 shall be borne by the Company. All
Selling Expenses relating to securities registered by the Holders shall be borne
by the Holders of such securities pro rata on the basis of the number of shares
so registered. Notwithstanding the foregoing, the Company shall not be required
to pay for Registration Expenses pursuant to Section 1.5 if the registration
request is subsequently withdrawn at the request of the Holders of a majority of
the Registrable Securities to be registered (which Holders shall bear such
expenses), unless the Holders of a majority of the Registrable Securities agree
to forfeit their right to one demand registration pursuant to Section 1.5;
provided, however, that if at the time of such withdrawal, the holders have
- -------- -------
learned of a material adverse change in the condition, business or prospects of
the Company from that known to the Holders at the time of their request, then
the Holders shall not be required to pay any of such Registration Expenses and
shall retain their rights pursuant to Section 1.5.
1.9 Registration Procedures. In the case of each registration,
-----------------------
qualification or compliance effected by the Company pursuant to this Agreement,
the Company will keep each Holder advised in writing as to the initiation of
each registration, qualification and compliance and as to the completion
thereof. At its expense the Company will furnish such number of prospectuses
and other documents incident thereto as a Holder from time to time may
reasonably request.
1.10 Termination of Registration Rights. The registration rights granted
----------------------------------
pursuant to this Agreement shall terminate as to any Holder of less than 100,000
shares of Registrable Securities, at such time after the Company's initial
public offering as the Registrable Securities held by such Holder may be sold
within any three month period pursuant to Rule 144(k); and as to any Holder of
100,000 or more shares of Registrable Securities, on the third anniversary of
the date on which the Company first becomes subject to the reporting
requirements under Section 12 of the Securities Exchange Act of 1934, as
amended.
1.11 Lock-up Agreement. In consideration for the Company agreeing to its
-----------------
obligations under this Agreement, each Holder of Registrable Securities and each
transferee pursuant to Section 1.15 hereof agrees (but only if each officer and
director of the Company also agrees), in connection with the first registration
of the Company's securities, upon request of the Company or the underwriters
managing any underwritten offering of the Company's securities, not to sell,
make any short sale of, loan, grant any option for the purchase of or otherwise
dispose of any securities of the Company (other than those included in the
registration) without the prior written consent of the Company or such
underwriters, as the case may be, for such period of time (not to exceed 180
days) from the effective date of such registration as the Company or the
underwriters may specify. Each Holder agrees that the Company may instruct its
transfer agent to place stop-transfer notations in its records to enforce the
provisions of this Section. This Section 1.11 shall supersede any conflicting
provision of Section 1.5 or Section 1.7 above.
-8-
<PAGE>
1.12 Indemnification.
---------------
(a) The Company will indemnify each Holder, each of its officers,
directors and partners and such Holder's legal counsel and independent
accountants, and each person controlling such Holder within the meaning of
Section 15 of the Securities Act, with respect to which registration,
qualification or compliance has been effected pursuant to this Agreement, and
each underwriter, if any, and each person who controls any underwriter within
the meaning of Section 15 of the Securities Act, against all expenses, claims,
losses, damages and liabilities (or actions in respect thereof), including any
of the foregoing incurred in settlement of any litigation, commenced or
threatened, arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any registration statement,
prospectus, offering circular or other document, or any amendment or supplement
thereto, incident to any such registration, qualification or compliance, or
based on any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading, or any
violation by the Company of the Act or the Exchange Act or securities act of any
state or any rule or regulation thereunder, and relating to action or inaction
required of the Company in connection with any such registration, qualification
or compliance, and will reimburse each such Holder, each of its officers,
directors and partners and such Holder's legal counsel and independent
accountants, and each person controlling such Holder, each such underwriter and
each person who controls any such underwriter, for any legal and any other
expenses reasonably incurred in connection with investigating, preparing or
defending any such claim, loss, damage, liability or action, provided that the
Company will not be liable in any such case to the extent that any such claim,
loss, damage, liability or expense arises out of or is based on any untrue
statement or omission or alleged untrue statement or omission, made in reliance
upon and in conformity with written information furnished to the Company by an
instrument duly executed by such Holder or underwriter and stated to be
specifically for use therein; and provided, further, that the Company will not
-------- -------
be liable to any such person or entity with respect to any such untrue statement
or omission or alleged untrue statement or omission made in any preliminary
prospectus that is corrected in the final prospectus filed with the Commission
pursuant to Rule 424(b) promulgated under the Securities Act (or any amendment
or supplement to such prospectus) if the person asserting any such loss, claim,
damage or liability purchased securities but was not sent or given a copy of the
prospectus (as amended or supplemented) at or prior to the written confirmation
of the sale of such securities to such person in any case where such delivery of
the prospectus (as amended or supplemented) was a result of the Company's
failure to provide such prospectus (as amended or supplemented).
(b) Each Holder will, severally and not jointly, if Registrable
Securities held by such Holder are included in the securities as to which such
registration, qualification or compliance is being effected, indemnify the
Company, each of its directors and officers and its legal counsel and
independent accountants, each underwriter, if any, of the Company's securities
covered by such a registration statement, each person who controls the Company
or such underwriter within the meaning of Section 15 of the Securities Act, and
each other such Holder, each of its officers, directors and partners and each
person controlling such Holder within the meaning of Section 15 of the
Securities Act, against all claims, losses, damages and liabilities (or actions
in respect thereof)
-9-
<PAGE>
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any such registration statement, prospectus,
offering circular or other document, or any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse the Company, such
Holders, such directors, officers, legal counsel, independent accountants,
underwriters or control persons for any legal or any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability or action, in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by an instrument duly executed by such Holder and
stated to be specifically for use therein; provided, however, that the
-------- -------
obligations of such Holders hereunder shall be limited to an amount equal to the
proceeds, net of underwriting discounts and commissions but not expenses, to
each such Holder of Registrable Securities sold as contemplated herein.
(c) Each party entitled to indemnification under this Section (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not be unreasonably
withheld), and the Indemnified Party may participate in such defense at such
party's expense, and provided further that the failure of any Indemnified Party
-------- -------
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations under this Agreement, except to the extent, but only to the
extent, that the Indemnifying Party's ability to defend against such claim or
litigation is impaired as a result of such failure to give notice. No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability in respect to such claim or litigation.
(d) If the indemnification provided for in this Section 1.12 is held
by a court of competent jurisdiction to be unavailable to an indemnified party
with respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission. In no event shall any contribution by a Holder
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<PAGE>
under this Section 1.12(d) exceed the proceeds, net of underwriting discounts
and commissions but not expenses, from the offering received by such Holder.
1.13 Information by Holder. The Holder or Holders of Registrable
---------------------
Securities included in any registration shall furnish to the Company such
information regarding such Holder or Holders and the distribution proposed by
such Holder or Holders as the Company may request in writing and as shall be
required in connection with any registration, qualification or compliance
referred to in this Agreement.
1.14 Rule 144 Reporting. With a view to making available the benefits of
------------------
certain rules and regulations of the Commission which may at any time permit the
sale of the Restricted Securities to the public without registration, after such
time as a public market exists for the Common Stock of the Company, the Company
agrees to use its best efforts to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144 promulgated under the Securities Act, at all
times after the effective date of the first registration under the Securities
Act filed by the Company for an offering of its securities to the general
public;
(b) file with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act
(at any time after it has become subject to such reporting requirements); and
(c) furnish to Holders upon request a written statement as to its
compliance with the reporting requirements of Rule 144 (at any time after 90
days after the effective date of the first registration statement filed by the
Company for an offering of its securities to the general public), and of the
Securities Act and the Exchange Act (at any time after it has become subject to
such reporting requirements), a copy of the most recent annual or quarterly
report of the Company, and such other reports and documents of the Company as a
Holder may reasonably request in availing itself of any rule or regulation of
the Commission allowing such Holder to sell any such securities without
registration.
1.15 Transfer of Rights. Provided that the Company is given prior written
------------------
notice of such assignment, the rights granted hereunder to cause the Company to
register securities may be assigned to (i) a transferee or assignee who acquires
at least 50,000 shares of Registrable Securities (appropriately adjusted for
stock splits, recapitalizations and like after the date hereof) and (ii) any
affiliate or constituent partner of a Purchaser.
SECTION 2.
Information Rights
------------------
2.1 Financial Statements and Reports to Shareholders. The Company will
------------------------------------------------
maintain true books and records of accounts in which full and correct entries
will be made of all its business
-11-
<PAGE>
transactions pursuant to a system of accounting established and administered in
accordance with generally accepted accounting principles consistently applied,
and will set aside on its books all such proper accruals and reserves as shall
be required under generally accepted accounting principles consistently applied.
A Holder of 125,000 shares of the Company's originally issued Series C Preferred
Stock shall be entitled to receive such interim financial statements as are
prepared for the Company's Board of Directors. As long as a Holder of Series B
Preferred (together with any affiliate thereof) or a transferee permitted under
Section 1.15 hereof holds not less than 500,000 shares of the Company's
originally issued Series B Preferred or Common Stock issued upon conversion
thereof, or as long as a Holder of Series C Preferred (together with any
affiliate thereof) or a transferee permitted under Section 1.15 hereof holds not
less than 62,500 shares of the Company's originally issued Series C Preferred or
Common Stock issued upon conversion thereof, the Company will deliver to such
Purchasers:
(a) As soon as practicable after the end of each fiscal year of the
Company, and in any event within 90 days thereafter, an audited consolidated
balance sheet of the Company and its subsidiaries, if any, as of the end of such
year and audited consolidated statements of income, shareholders' equity and
cash flows for such year, which year-end financial reports shall be in
reasonable detail prepared in accordance with generally accepted accounting
procedures and shall be accompanied by the opinion of independent public
accountants of recognized national standing selected by the Company; and
(b) As soon as practicable after the end of the first, second and
third quarterly accounting periods in each fiscal year of the Company and in any
event within 45 days thereafter, (i) a consolidated balance sheet of the Company
and its subsidiaries, if any, as of the end of each such quarterly period, (ii)
consolidated statements of income and cash flows of the Company and its
subsidiaries, if any, for such period and for the current fiscal year to date,
all prepared in accordance with generally accepted accounting principles, all in
reasonable detail, subject to changes resulting from year-end audit adjustments,
and signed by the principal financial or accounting officer of the Company.
(c) Each Holder agrees that any information obtained by the Holder
pursuant to this Section which is reasonably perceived to be proprietary to the
Company or otherwise confidential will not, unless such Holder shall otherwise
be required by law or the rules of any national securities exchange or
association, be disclosed without the prior written consent of the Company.
Each Holder further acknowledges and understands that any information will not
be utilized by the Holder in connection with purchases and sales of the
Company's securities except in compliance with applicable state and federal
antifraud statutes.
2.2 Use of Information; Termination of Covenants. No Holder shall enter
--------------------------------------------
into any transaction for the purchase or sale of any securities of the Company
with any other person unless such Holder has made any material information
actually obtained by such Holder pursuant to this Section 2 available to such
other person. The covenants of the Company and the Holders set forth in this
Section 2 shall be terminated and be of no further force or effect upon the
earlier of (a) the date when a Registration Statement filed by the Company under
the Securities Act, in connection with the
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<PAGE>
first public offering of its securities (other than either a public offering
limited solely to employees of the Company or an offering pursuant to Rule 145
under the Securities Act) becomes effective and (b) the date the Company
registers any securities under the Securities Exchange Act of 1934 (the "1934
Act"), and such covenants shall terminate as to any Holder as of the date such
Holder no longer holds any shares of the capital stock of the Company.
SECTION 3.
Right of Participation
----------------------
3.1 Purchasers' Right of Participation.
----------------------------------
(a) Right of Participation. Subject to the terms and conditions
----------------------
contained in this Section 3.1, the Company hereby grants to each holder of not
less than 500,000 shares of the Company's originally issued Series B Preferred
or Common Stock issued upon conversion thereof and each holder of Series C
Preferred or Common Stock issued upon conversion thereof (each a "Major
Purchaser") the right of participation to purchase its Pro Rata Portion of any
New Securities (as defined in subsection 3.1(b)) which the Company may, from
time to time, propose to sell and issue. A Major Purchaser's "Pro Rata Portion"
for purposes of this Section 3.1 is the ratio that (x) the sum of the number of
shares of the Company's Common Stock then held by such Major Purchaser and the
number of shares of the Company's Common Stock issuable upon conversion of the
Preferred Stock then held by such Major Holder, bears to (y) the sum of the
total number of shares of the Company's Common Stock then outstanding, the
number of shares of the Company's Common Stock issuable upon the exercise of any
issued and outstanding rights, options or warrants, and the number of shares of
the Company's Common Stock issuable upon conversion of the then outstanding
Preferred Stock.
(b) Definition of New Securities. Except as set forth below, "New
----------------------------
Securities" shall mean any shares of capital stock of the Company, including
Common Stock and Preferred Stock, whether authorized or not, and rights, options
or warrants to purchase said shares of Common Stock or Preferred Stock, and
securities of any type whatsoever that are, or may become, convertible into said
shares of Common Stock or Preferred Stock. Notwithstanding the foregoing, "New
Securities" does not include (i) the Common Shares or the Series A Preferred
Stock, Series B Preferred Stock or Series C Preferred Stock or any shares of
Common Stock issued upon conversion thereof, (ii) securities offered to the
public generally pursuant to a registration statement under the Securities Act,
(iii) securities issued pursuant to the acquisition of another corporation by
the Company by merger, purchase of substantially all of the assets or shares or
other reorganization whereby the Company or its shareholders own not less than a
majority of the voting power of the surviving or successor corporation, (iv)
shares of the Company's Common Stock or related options or warrants convertible
into or exercisable for such Common Stock issued to employees, officers and
directors of, and consultants to, the Company, pursuant to any arrangement
approved by the Board of Directors of the Company, (v) shares of the Company's
Common Stock or related options convertible into or exercisable for such Common
Stock issued to banks, commercial lenders, lessors and other
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<PAGE>
financial institutions in connection with the borrowing of money or the leasing
of equipment by the Company, (vi) stock issued pursuant to any rights or
agreements, including, without limitation, convertible securities, options and
warrants, provided that the Company shall have complied with the rights of
participation established by this Section 3.1 with respect to the initial sale
or grant by the Company of such rights or agreements, or (vii) stock issued in
connection with any stock split, stock dividend or recapitalization by the
Company.
(c) Notice of Right. In the event the Company proposes to undertake
---------------
an issuance of New Securities, it shall give each Major Purchaser written notice
of its intention, describing the type of New Securities and the price and terms
upon which the Company proposes to issue the same. Each Major Purchaser shall
have twenty (20) days from the date of receipt of any such notice to agree to
purchase shares of such New Securities (up to the amount referred to in
subsection 3.1(a)), for the price and upon the terms specified in the notice, by
giving written notice to the Company and stating therein the quantity of New
Securities to be purchased.
(d) Exercise of Right. If any Major Purchaser exercises its right of
-----------------
participation under this Agreement, the closing of the purchase of the New
Securities with respect to which such right has been exercised shall take place
within fifteen (15) calendar days after the Major Purchaser gives notice of such
exercise, which period of time shall be extended in order to comply with
applicable laws and regulations. Upon exercise of such right of participation,
the Company and the Major Purchaser shall be legally obligated to consummate the
purchase contemplated thereby and shall use their best efforts to secure any
approvals required in connection therewith.
(e) Lapse and Reinstatement of Right. In the event a Major Purchaser
--------------------------------
fails to exercise the right of participation provided in this Section 3.1 within
said twenty (20) day period, the Company shall have ninety (90) days thereafter
to sell or enter into an agreement (pursuant to which the sale of New Securities
covered thereby shall be closed, if at all, within sixty (60) days from the date
of said agreement) to sell the New Securities not elected to be purchased by
such Major Purchaser at the price and upon the terms no more favorable to the
Major Purchasers of such securities than specified in the Company's notice. In
the event the Company has not sold the New Securities or entered into an
agreement to sell the New Securities within said ninety (90) day period (or sold
and issued New Securities in accordance with the foregoing within sixty (60)
days from the date of said agreement), the Company shall not thereafter issue or
sell any New Securities without first offering such securities to the Major
Purchasers in the manner provided above.
(f) Assignment. The right of the Major Purchasers to purchase any
----------
part of the New Securities may be assigned in whole or in part to any partner,
subsidiary, affiliate or shareholder of a Major Purchaser, or other persons or
organizations who acquire the lesser of (i) 50,000 or more shares of Restricted
Securities (as adjusted for stock splits and the like) or (ii) all of the
Restricted Securities then owned by such Major Purchaser.
(g) Termination of Participation Right. The rights of participation
----------------------------------
granted under Section 3.1 of this Agreement shall terminate on and be of no
further force or effect upon the earlier of (i) the consummation of the
Company's sale of its Common Stock in an underwritten public
-14-
<PAGE>
offering pursuant to an effective registration statement filed under the
Securities Act immediately subsequent to which the Company shall be obligated to
file annual and quarterly reports with the Commission pursuant to Section 13 or
1.5(d) of the Exchange Act or (ii) the registration by the Company of a class of
its equity securities under Section 12(b) or 12(g) of the Exchange Act.
4. Governing Law. This Agreement shall be governed by and interpreted in
-------------
accordance with the laws of the State of California, without regard to choice of
law provisions. The parties hereto agree to submit to the jurisdiction of the
federal and state courts of the State of California with respect to the breach
or interpretation of this Agreement or the enforcement of any and all rights,
duties, liabilities, obligations, powers and other relations between the parties
arising under this Agreement.
5. Entire Agreement. This Agreement constitutes the full and entire
----------------
understanding among the parties regarding the subject matter herein. Except as
otherwise expressly provided herein, the provisions hereof shall inure to the
benefit of, and be binding upon, the successors, assigns, heirs, executors and
administrators of the parties hereto.
6. Notices, etc. All notices and other communications required or permitted
------------
hereunder shall be in writing and shall be deemed effectively given upon
delivery to the party to be notified in person or by courier service or five (5)
days after deposit with the United States mail, by registered or certified mail,
postage prepaid, addressed (a) if to a holder of any Registrable Securities, to
such address as such holder shall have furnished the Company in writing, or,
until any such holder so furnishes an address to the company, then to and at the
address of the last holder of such securities who has so furnished an address to
the Company, or (b) if to the Company, to its address set forth on the first
page of this Agreement and addressed to the attention of the Chief Financial
Officer, or at such other address as the Company shall have furnished to the
Holders in writing. If such notice requires or solicits a response from such
party, the notice shall include the time limit within which the response must be
received and the consequences of not responding within such time limit.
7. Amendment. Any provision of this Agreement may be amended, waived or
---------
modified upon the written consent of (i) the Company, (ii) holders of greater
than 50% of the then outstanding shares of Series B Preferred or Common Stock
issued upon conversion thereof, and (iii) holders of at least 66-2/3% of the
then outstanding shares of Series C Preferred or Common Stock issued upon
conversion thereof. Any Holder may waive any of his or her rights or the
Company's obligations hereunder without obtaining the consent of any other
person.
8. Limitations on Subsequent Registration Rights. From and after the date of
---------------------------------------------
this Agreement, the Company shall not enter into any agreement granting any
holder or prospective holder of any securities of the Company registration
rights with respect to such securities without the prior written consent of (i)
the Company, (ii) holders of greater than 50% of the then outstanding shares of
Series B Preferred or Common Stock issued upon conversion thereof, and (iii)
holders of at least 66-2/3% of the then outstanding shares of Series C Preferred
or Common Stock issued upon conversion thereof unless (1) such new registration
rights, including standoff obligations, are on a pari passu basis with those
---- -----
rights of the Holders hereunder, or (2) such new registration rights, including
standoff obligations, are subordinate to the registration rights granted the
Holders
-15-
<PAGE>
hereunder; provided, however, that the inclusion of such holder's securities
-------- -------
shall not reduce the amount of Registrable Securities which are included in any
registration for which the Holders hold registration rights pursuant to this
Agreement.
9. Supersession of Prior Agreement. This Agreement shall supersede in its
-------------------------------
entirety that certain Prior Agreement. By execution of this Agreement, each
party to the Prior Agreement waives any rights of first refusal it may otherwise
have had under Section 4 of the Prior Agreement (including any rights to prior
notice) with respect to the Company's sale of up to 1,500,000 shares of its
Series C Preferred Stock pursuant to that certain Series C Preferred Stock
Purchase Agreement dated on or around the date hereof. This Agreement shall be
effective at such time as Holders representing a majority in interest of the
Series B Preferred Stock outstanding at the date of this Agreement shall have
executed and delivered a signed counterpart of this Agreement.
10. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original and all of which together shall
constitute one instrument.
-16-
<PAGE>
[AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT]
IN WITNESS WHEREOF, the undersigned have executed this Registration Rights
Agreement as of the date set forth above.
"COMPANY" PC-TEL, INC.
A California corporation
By: /s/ Peter Chen
-------------------------------------
Peter Chen, President &
Chief Executive Officer
"PURCHASERS OF SERIES C PREFERRED" AZTECH SYSTEMS LTD
--------------------------------------
(name of entity)
By: /s/ Michael Mun
-------------------------------------
(signature)
Michael Mun
--------------------------------------
(print name)
President/CEO
______________________________________
(title)
"PRIOR RIGHTS HOLDERS"
______________________________________
(name of entity)
By:
_____________________________________
(signature)
_____________________________________
(print name)
_______________________________________
(title)
-17-
<PAGE>
[AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT]
IN WITNESS WHEREOF, the undersigned have executed this Registration Rights
Agreement as of the date set forth above.
"COMPANY" PC-TEL, INC.
A California corporation
By: /s/ Peter Chen
-------------------------------------
Peter Chen, President &
Chief Executive Officer
"PURCHASERS OF SERIES C PREFERRED" WK Technology Fund
-------------------------------------
(name of entity)
By: /s/ Wen Chung Ko
-------------------------------------
(signature)
Wen Chung Ko
-------------------------------------
(print name)
Chairman
-------------------------------------
(title)
"PRIOR RIGHTS HOLDERS" WK Technology Fund
-------------------------------------
(name of entity)
By: /s/ Wen Chung Ko
-------------------------------------
(signature)
Wen Chung Ko
-------------------------------------
(print name)
Chairman
-------------------------------------
(title)
-18-
<PAGE>
[AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT]
IN WITNESS WHEREOF, the undersigned have executed this Registration Rights
Agreement as of the date set forth above.
"COMPANY" PC-TEL, INC.
A California corporation
By: /s/ Peter Chen
--------------------------------------
Peter Chen, President &
Chief Executive Officer
"PURCHASERS OF SERIES C PREFERRED" WK Technology Fund II
--------------------------------------
(name of entity)
By: /s/ Wen Chung Ko
--------------------------------------
(signature)
Wen Chung Ko
--------------------------------------
(print name)
Chairman
--------------------------------------
(title)
"PRIOR RIGHTS HOLDERS" WK Technology Fund II
--------------------------------------
(name of entity)
By: /s/ Wen Chung Ko
--------------------------------------
(signature)
Wen Chung Ko
--------------------------------------
(print name)
Chairman
--------------------------------------
(title)
-19-
<PAGE>
[AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT]
IN WITNESS WHEREOF, the undersigned have executed this Registration Rights
Agreement as of the date set forth above.
"COMPANY" PC-TEL, INC.
A California corporation
By: /s/ Peter Chen
-------------------------------------
Peter Chen, President &
Chief Executive Officer
"PURCHASERS OF SERIES C PREFERRED" WK Technology Fund III
-------------------------------------
(name of entity)
By: /s/ Wen Chung Ko
-------------------------------------
(signature)
Wen Chung Ko
-------------------------------------
(print name)
Chairman
-------------------------------------
(title)
"PRIOR RIGHTS HOLDERS" WK Technology Fund III
-------------------------------------
(name of entity)
By: /s/ Wen Chung Ko
-------------------------------------
(signature)
Wen Chung Ko
-------------------------------------
(print name)
Chairman
-------------------------------------
(title)
-20-
<PAGE>
[AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT]
IN WITNESS WHEREOF, the undersigned have executed this Registration Rights
Agreement as of the date set forth above.
"COMPANY" PC-TEL, INC.
A California corporation
By: /s/ Peter Chen
--------------------------------------
Peter Chen, President &
Chief Executive Officer
"PURCHASERS OF SERIES C PREFERRED" POWER WORLD FUND, INC.
--------------------------------------
(name of entity)
By: /s/ Dr. Frank Huang
--------------------------------------
(signature)
Dr. Frank Huang
--------------------------------------
(print name)
Chairman
--------------------------------------
(title)
"PRIOR RIGHTS HOLDERS"
______________________________________
(name of entity)
By:
______________________________________
(signature)
______________________________________
(print name)
______________________________________
(title)
-21-
<PAGE>
[AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT]
IN WITNESS WHEREOF, the undersigned have executed this Registration Rights
Agreement as of the date set forth above.
"COMPANY" PC-TEL, INC.
A California corporation
By: /s/ Peter Chen
--------------------------------------
Peter Chen, President &
Chief Executive Officer
"PURCHASERS OF SERIES C PREFERRED" E-Tech, Inc.
--------------------------------------
(name of entity)
By: /s/ Young-Lim Su
--------------------------------------
(signature)
Young-Lim Su
--------------------------------------
(print name)
Senior Vice President
--------------------------------------
(title)
"PRIOR RIGHTS HOLDERS"
______________________________________
(name of entity)
By:
______________________________________
(signature)
______________________________________
(print name)
______________________________________
(title)
-22-
<PAGE>
[AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT]
IN WITNESS WHEREOF, the undersigned have executed this Registration Rights
Agreement as of the date set forth above.
"COMPANY" PC-TEL, INC.
A California corporation
By: /s/ Peter Chen
-------------------------------------
Peter Chen, President &
Chief Executive Officer
"PURCHASERS OF SERIES C PREFERRED" DYNALINK INTERNATIONAL CORP.
--------------------------------------
(name of entity)
By: /s/ Sing Long Du
-------------------------------------
(signature)
SING LONG DU
--------------------------------------
(print name)
Director
--------------------------------------
(title)
"PRIOR RIGHTS HOLDERS"
______________________________________
(name of entity)
By:
______________________________________
(signature)
_______________________________________
(print name)
_______________________________________
(title)
-23-
<PAGE>
[AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT]
IN WITNESS WHEREOF, the undersigned have executed this Registration Rights
Agreement as of the date set forth above.
"COMPANY" PC-TEL, INC.
A California corporation
By: /s/ Peter Chen
-------------------------------------
Peter Chen, President &
Chief Executive Officer
"PURCHASERS OF SERIES C PREFERRED"
--------------------------------------
(name of entity)
By: /s/ Sing-Long Du
-------------------------------------
(signature)
Sing-Long Du
--------------------------------------
(print name)
______________________________________
(title)
"PRIOR RIGHTS HOLDERS"
______________________________________
(name of entity)
By: /s/ Sing-Long Du
--------------------------------------
(signature)
/s/ Sing-Long Du
---------------------------------------
(print name)
_______________________________________
(title)
-24-
<PAGE>
[AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT]
IN WITNESS WHEREOF, the undersigned have executed this Registration Rights
Agreement as of the date set forth above.
"COMPANY" PC-TEL, INC.
A California corporation
By: /s/ Peter Chen
-------------------------------------
Peter Chen, President &
Chief Executive Officer
"PURCHASERS OF SERIES C PREFERRED"
_____________________________________
(name of entity)
By: /s/ Cheng Kuei Lin
-------------------------------------
(signature)
Cheng Kuei Lin
--------------------------------------
(print name)
______________________________________
(title)
"PRIOR RIGHTS HOLDERS"
______________________________________
(name of entity)
By: /s/ Cheng Kuei Lin
--------------------------------------
(signature)
Cheng Kuei Lin
---------------------------------------
(print name)
_______________________________________
(title)
-25-
<PAGE>
[AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT]
IN WITNESS WHEREOF, the undersigned have executed this Registration Rights
Agreement as of the date set forth above.
"COMPANY" PC-TEL, INC.
A California corporation
By: /s/ Peter Chen
-------------------------------------
Peter Chen, President &
Chief Executive Officer
"PURCHASERS OF SERIES C PREFERRED" /s/ Chin-Ting Chiou
--------------------------------------
(name of entity)
By: /s/ Chin-Ting Chiou
-------------------------------------
(signature)
Chin-Ting Chiou
--------------------------------------
(print name)
______________________________________
(title)
"PRIOR RIGHTS HOLDERS"
______________________________________
(name of entity)
By: /s/ Chin-Ting Chiou
--------------------------------------
(signature)
Chin-Ting Chiou
---------------------------------------
(print name)
_______________________________________
(title)
-26-
<PAGE>
[AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT]
IN WITNESS WHEREOF, the undersigned have executed this Registration Rights
Agreement as of the date set forth above.
"COMPANY" PC-TEL, INC.
A California corporation
By: /s/ Peter Chen
-------------------------------------
Peter Chen, President &
Chief Executive Officer
"PURCHASERS OF SERIES C PREFERRED" /s/ Shiuh Luen Liu
--------------------------------------
(name of entity)
By: /s/ Shiuh Luen Liu
-------------------------------------
(signature)
Shiuh Luen Liu
--------------------------------------
(print name)
______________________________________
(title)
"PRIOR RIGHTS HOLDERS"
______________________________________
(name of entity)
By: /s/ Shiuh Luen Liu
--------------------------------------
(signature)
SHIUH LUEN LIU
---------------------------------------
(print name)
_______________________________________
(title)
-27-
<PAGE>
[AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT]
IN WITNESS WHEREOF, the undersigned have executed this Registration Rights
Agreement as of the date set forth above.
"COMPANY" PC-TEL, INC.
A California corporation
By: /s/ Peter Chen
-------------------------------------
Peter Chen, President &
Chief Executive Officer
"PURCHASERS OF SERIES C PREFERRED"
______________________________________
(name of entity)
By: /s/ Lai Wang Shu Hsia
-------------------------------------
(signature)
Lai Wang Shu Hsia
--------------------------------------
(print name)
______________________________________
(title)
"PRIOR RIGHTS HOLDERS"
______________________________________
(name of entity)
By:
______________________________________
(signature)
______________________________________
(print name)
_______________________________________
(title)
-28-
<PAGE>
[AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT]
IN WITNESS WHEREOF, the undersigned have executed this Registration Rights
Agreement as of the date set forth above.
"COMPANY" PC-TEL, INC.
A California corporation
By: /s/ Peter Chen
-------------------------------------
Peter Chen, President &
Chief Executive Officer
"PURCHASERS OF SERIES C PREFERRED"
______________________________________
(name of entity)
By: /s/ Jeang Jiann-Cherng
-----------------------------------
(signature)
Jeang Jiann-Cherng
-------------------------------------
(print name)
______________________________________
(title)
"PRIOR RIGHTS HOLDERS"
______________________________________
(name of entity)
By: /s/ Jeang Jiann-Cherng
----------------------------------
(signature)
Jeang Jiann-Cherng
--------------------------------------
(print name)
______________________________________
(title)
-29-
<PAGE>
[AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT]
IN WITNESS WHEREOF, the undersigned have executed this Registration Rights
Agreement as of the date set forth above.
"COMPANY" PC-TEL, INC.
A California corporation
By: /s/ Peter Chen
-------------------------------------
Peter Chen, President &
Chief Executive Officer
"PURCHASERS OF SERIES C PREFERRED" Norman Basmajian
---------------------------------------
(name of entity)
By: /s/ Norman Basmajian
---------------------------------------
(signature)
Norman Basmajian
---------------------------------------
(print name)
---------------------------------------
(title)
"PRIOR RIGHTS HOLDERS"
---------------------------------------
(name of entity)
By:
---------------------------------------
(signature)
---------------------------------------
(print name)
---------------------------------------
(title)
-30-
<PAGE>
[AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT]
IN WITNESS WHEREOF, the undersigned have executed this Registration Rights
Agreement as of the date set forth above.
"COMPANY" PC-TEL, INC.
A California corporation
By: /s/ Peter Chen
-------------------------------------
Peter Chen, President &
Chief Executive Officer
"PURCHASERS OF SERIES C PREFERRED"
--------------------------------------
(name of entity)
By: /s/ Barbara A. Campbell
-------------------------------------
(signature)
Barbara A. Campbell
--------------------------------------
(print name)
--------------------------------------
(title)
"PRIOR RIGHTS HOLDERS"
--------------------------------------
(name of entity)
By:
--------------------------------------
(signature)
---------------------------------------
(print name)
---------------------------------------
(title)
-31-
<PAGE>
[AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT]
IN WITNESS WHEREOF, the undersigned have executed this Registration Rights
Agreement as of the date set forth above.
"COMPANY" PC-TEL, INC.
A California corporation
By: /s/ Peter Chen
-------------------------------------
Peter Chen, President &
Chief Executive Officer
"PURCHASERS OF SERIES C PREFERRED"
-------------------------------------
(name of entity)
By: /s/ Alan Carlson
-------------------------------------
(signature)
Alan Carlson
-------------------------------------
(print name)
-------------------------------------
(title)
"PRIOR RIGHTS HOLDERS"
-------------------------------------
(name of entity)
By:
--------------------------------------
(signature)
--------------------------------------
(print name)
--------------------------------------
(title)
-32-
<PAGE>
[AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT]
IN WITNESS WHEREOF, the undersigned have executed this Registration Rights
Agreement as of the date set forth above.
"COMPANY" PC-TEL, INC.
A California corporation
By: /s/ Peter Chen
-------------------------------------
Peter Chen, President &
Chief Executive Officer
"PURCHASERS OF SERIES C PREFERRED"
--------------------------------------
(name of entity)
By: /s/ Abraham Chu
--------------------------------------
(signature)
Abraham Chu
--------------------------------------
(print name)
--------------------------------------
(title)
"PRIOR RIGHTS HOLDERS"
--------------------------------------
(name of entity)
By:
--------------------------------------
(signature)
--------------------------------------
(print name)
--------------------------------------
(title)
-33-
<PAGE>
[AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT]
IN WITNESS WHEREOF, the undersigned have executed this Registration Rights
Agreement as of the date set forth above.
"COMPANY" PC-TEL, INC.
A California corporation
By: /s/ Peter Chen
-------------------------------------
Peter Chen, President &
Chief Executive Officer
"PURCHASERS OF SERIES C PREFERRED" GANATERRA CORPORATION N.V.
-------------------------------------
(name of entity)
By: /s/ Russell S. Melina
-------------------------------------
(signature)
Russell S. Melina
--------------------------------------
(print name)
Attorney - in - Fact
--------------------------------------
(title)
"PRIOR RIGHTS HOLDERS"
______________________________________
(name of entity)
By:
______________________________________
(signature)
_______________________________________
(print name)
_______________________________________
(title)
-34-
<PAGE>
[AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT]
IN WITNESS WHEREOF, the undersigned have executed this Registration Rights
Agreement as of the date set forth above.
"COMPANY" PC-TEL, INC.
A California corporation
By: /s/ Peter Chen
-------------------------------------
Peter Chen, President &
Chief Executive Officer
"PURCHASERS OF SERIES C PREFERRED"
______________________________________
(name of entity)
By: /s/ Gerald T. Kennedy
-------------------------------------
(signature)
Gerald T. Kennedy
--------------------------------------
(print name)
______________________________________
(title)
"PRIOR RIGHTS HOLDERS"
______________________________________
(name of entity)
By:
______________________________________
(signature)
_______________________________________
(print name)
_______________________________________
(title)
-35-
<PAGE>
[AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT]
IN WITNESS WHEREOF, the undersigned have executed this Registration Rights
Agreement as of the date set forth above.
"COMPANY" PC-TEL, INC.
A California corporation
By: /s/ Peter Chen
-------------------------------------
Peter Chen, President &
Chief Executive Officer
"PURCHASERS OF SERIES C PREFERRED"
______________________________________
(name of entity)
By: /s/ William C. Hardy
-------------------------------------
(signature)
William C. Hardy
--------------------------------------
(print name)
______________________________________
(title)
"PRIOR RIGHTS HOLDERS"
______________________________________
(name of entity)
By:
______________________________________
(signature)
_______________________________________
(print name)
_______________________________________
(title)
-36-
<PAGE>
[AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT]
IN WITNESS WHEREOF, the undersigned have executed this Registration Rights
Agreement as of the date set forth above.
"COMPANY" PC-TEL, INC.
A California corporation
By: /s/ Peter Chen
-------------------------------------
Peter Chen, President &
Chief Executive Officer
"PURCHASERS OF SERIES C PREFERRED" LEYCORP, INC.
--------------------------------------
(name of entity)
By: /s/ G.A. Leyendecker
-------------------------------------
(signature)
G.A. Leyendecker
--------------------------------------
(print name)
President
______________________________________
(title)
"PRIOR RIGHTS HOLDERS"
______________________________________
(name of entity)
By:
--------------------------------------
(signature)
---------------------------------------
(print name)
_______________________________________
(title)
-37-
<PAGE>
[AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT]
IN WITNESS WHEREOF, the undersigned have executed this Registration Rights
Agreement as of the date set forth above.
"COMPANY" PC-TEL, INC.
A California corporation
By: /s/ Peter Chen
-------------------------------------
Peter Chen, President &
Chief Executive Officer
"PURCHASERS OF SERIES C PREFERRED"
______________________________________
(name of entity)
By: /s/ Mark A. Martin
-------------------------------------
(signature)
Mark A. Martin
--------------------------------------
(print name)
______________________________________
(title)
"PRIOR RIGHTS HOLDERS"
______________________________________
(name of entity)
By:
______________________________________
(signature)
_______________________________________
(print name)
_______________________________________
(title)
-38-
<PAGE>
[AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT]
IN WITNESS WHEREOF, the undersigned have executed this Registration Rights
Agreement as of the date set forth above.
"COMPANY" PC-TEL, INC.
A California corporation
By: /s/ Peter Chen
----------------------------------------
Peter Chen, President &
Chief Executive Officer
"PURCHASERS OF SERIES C PREFERRED"
________________________________________
(name of entity)
By: /s/ Gaylen D. Miller/ Glenna R. Miller
----------------------------------------
(signature)
Gaylen D. Miller/ Glenna R. Miller
--------------------------------------
(print name)
______________________________________
(title)
"PRIOR RIGHTS HOLDERS"
______________________________________
(name of entity)
By:
______________________________________
(signature)
_______________________________________
(print name)
_______________________________________
(title)
-39-
<PAGE>
[AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT]
IN WITNESS WHEREOF, the undersigned have executed this Registration Rights
Agreement as of the date set forth above.
"COMPANY" PC-TEL, INC.
A California corporation
By: /s/ Peter Chen
-------------------------------------
Peter Chen, President &
Chief Executive Officer
"PURCHASERS OF SERIES C PREFERRED"
______________________________________
(name of entity)
By: /s/ Robert Moody
-------------------------------------
(signature)
Robert Moody
--------------------------------------
(print name)
______________________________________
(title)
"PRIOR RIGHTS HOLDERS"
______________________________________
(name of entity)
By:
_____________________________________
(signature)
_____________________________________
(print name)
_______________________________________
(title)
-40-
<PAGE>
[AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT]
IN WITNESS WHEREOF, the undersigned have executed this Registration Rights
Agreement as of the date set forth above.
"COMPANY" PC-TEL, INC.
A California corporation
By: /s/ Peter Chen
-------------------------------------
Peter Chen, President &
Chief Executive Officer
"PURCHASERS OF SERIES C PREFERRED"
--------------------------------------
(name of entity)
By: /s/ William C. Ossie
-------------------------------------
(signature)
William C. Ossie
--------------------------------------
(print name)
______________________________________
(title)
"PRIOR RIGHTS HOLDERS"
______________________________________
(name of entity)
By:
--------------------------------------
(signature)
---------------------------------------
(print name)
_______________________________________
(title)
-41-
<PAGE>
[AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT]
IN WITNESS WHEREOF, the undersigned have executed this Registration Rights
Agreement as of the date set forth above.
"COMPANY" PC-TEL, INC.
A California corporation
By: /s/ Peter Chen
-------------------------------------
Peter Chen, President &
Chief Executive Officer
"PURCHASERS OF SERIES C PREFERRED"
--------------------------------------
(name of entity)
By: /s/ James R. Ridings
-------------------------------------
(signature)
James R. Ridings
--------------------------------------
(print name)
______________________________________
(title)
"PRIOR RIGHTS HOLDERS"
______________________________________
(name of entity)
By:
--------------------------------------
(signature)
---------------------------------------
(print name)
_______________________________________
(title)
-42-
<PAGE>
[AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT]
IN WITNESS WHEREOF, the undersigned have executed this Registration Rights
Agreement as of the date set forth above.
"COMPANY" PC-TEL, INC.
A California corporation
By: /s/ Peter Chen
-------------------------------------
Peter Chen, President &
Chief Executive Officer
"PURCHASERS OF SERIES C PREFERRED"
--------------------------------------
(name of entity)
By: /s/ Robert L. Rosenthal
-------------------------------------
(signature)
Robert L. Rosenthal
--------------------------------------
(print name)
______________________________________
(title)
"PRIOR RIGHTS HOLDERS"
______________________________________
(name of entity)
By:
--------------------------------------
(signature)
---------------------------------------
(print name)
_______________________________________
(title)
-43-
<PAGE>
[AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT]
IN WITNESS WHEREOF, the undersigned have executed this Registration Rights
Agreement as of the date set forth above.
"COMPANY" PC-TEL, INC.
A California corporation
By: /s/ Peter Chen
-------------------------------------
Peter Chen, President &
Chief Executive Officer
"PURCHASERS OF SERIES C PREFERRED"
--------------------------------------
(name of entity)
By: /s/ Gregory D. Pikul
-------------------------------------
(signature)
Gregory D. Pikul
--------------------------------------
(print name)
______________________________________
(title)
"PRIOR RIGHTS HOLDERS"
______________________________________
(name of entity)
By:
--------------------------------------
(signature)
---------------------------------------
(print name)
_______________________________________
(title)
-44-
<PAGE>
[AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT]
IN WITNESS WHEREOF, the undersigned have executed this Registration Rights
Agreement as of the date set forth above.
"COMPANY" PC-TEL, INC.
A California corporation
By: /s/ Peter Chen
-------------------------------------
Peter Chen, President &
Chief Executive Officer
"PURCHASERS OF SERIES C PREFERRED"
--------------------------------------
(name of entity)
By: /s/ Fernando Savati
-------------------------------------
(signature)
Fernando Savati
--------------------------------------
(print name)
______________________________________
(title)
"PRIOR RIGHTS HOLDERS"
______________________________________
(name of entity)
By:
--------------------------------------
(signature)
---------------------------------------
(print name)
_______________________________________
(title)
-45-
<PAGE>
[AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT]
IN WITNESS WHEREOF, the undersigned have executed this Registration Rights
Agreement as of the date set forth above.
"COMPANY" PC-TEL, INC.
A California corporation
By: /s/ Peter Chen
-------------------------------------
Peter Chen, President &
Chief Executive Officer
"PURCHASERS OF SERIES C PREFERRED"
--------------------------------------
(name of entity)
By: /s/ James L. Schulze
-------------------------------------
(signature)
James L. Schulze
--------------------------------------
(print name)
______________________________________
(title)
"PRIOR RIGHTS HOLDERS"
______________________________________
(name of entity)
By:
--------------------------------------
(signature)
---------------------------------------
(print name)
_______________________________________
(title)
-46-
<PAGE>
[AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT]
IN WITNESS WHEREOF, the undersigned have executed this Registration Rights
Agreement as of the date set forth above.
"COMPANY" PC-TEL, INC.
A California corporation
By: /s/ Peter Chen
-------------------------------------
Peter Chen, President &
Chief Executive Officer
"PURCHASERS OF SERIES C PREFERRED"
--------------------------------------
(name of entity)
By: /s/ Benet Stenbeck
-------------------------------------
(signature)
Benet Stenbeck
--------------------------------------
(print name)
President
--------------------------------------
(title)
"PRIOR RIGHTS HOLDERS"
______________________________________
(name of entity)
By:
--------------------------------------
(signature)
---------------------------------------
(print name)
_______________________________________
(title)
-47-
<PAGE>
[AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT]
IN WITNESS WHEREOF, the undersigned have executed this Registration Rights
Agreement as of the date set forth above.
"COMPANY" PC-TEL, INC.
A California corporation
By: /s/ Peter Chen
-------------------------------------
Peter Chen, President &
Chief Executive Officer
"PURCHASERS OF SERIES C PREFERRED"
--------------------------------------
(name of entity)
By: /s/ Quentin Villa
-------------------------------------
(signature)
Quentin Villa
--------------------------------------
(print name)
______________________________________
(title)
"PRIOR RIGHTS HOLDERS"
______________________________________
(name of entity)
By:
--------------------------------------
(signature)
---------------------------------------
(print name)
_______________________________________
(title)
-48-
<PAGE>
[AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT]
IN WITNESS WHEREOF, the undersigned have executed this Registration Rights
Agreement as of the date set forth above.
"COMPANY" PC-TEL, INC.
A California corporation
By: /s/ Peter Chen
-------------------------------------
Peter Chen, President &
Chief Executive Officer
"PURCHASERS OF SERIES C PREFERRED"
--------------------------------------
(name of entity)
By: /s/ Kirk A. Woloszyn
-------------------------------------
(signature)
Kirk A. Woloszyn
--------------------------------------
(print name)
______________________________________
(title)
"PRIOR RIGHTS HOLDERS"
______________________________________
(name of entity)
By:
--------------------------------------
(signature)
---------------------------------------
(print name)
_______________________________________
(title)
-49-
<PAGE>
Exhibit 4.9
PC-TEL, INC.
ADDENDUM TO AMENDED AND RESTATED RIGHTS AGREEMENT
This Addendum (the "Addendum") to the Amended and Restated Rights Agreement
dated December 31, 1997 (the "Rights Agreement") is made as of February 1, 1999
by and between PC-Tel, Inc., a Delaware corporation (the "Company") and PFF Bank
and Trust, Inc., a California corporation ("PFF").
RECITALS
WHEREAS, in consideration for a loan to the Company, the Company has issued
PFF a warrant to purchase 10,000 shares of Series C Preferred Stock of the
Company at $8.00 per share ("Warrant")
WHEREAS, in addition to the Warrant, the Company has agreed to grant PFF
certain registration and other rights.
WHEREAS, the Company and holders of the Company's Series B Preferred Stock
and Series C Preferred Stock (the "Prior Rights Holders") previously entered
into the Rights Agreement.
NOW, THEREFORE, in consideration of the foregoing, the parties agree as
follows:
1. The Company agrees to grant PFF those rights as set forth in the
Rights Agreement as attached as Exhibit A, under all of the terms and conditions
---------
of the Rights Agreement.
2. In accordance with Section 8 of the Rights Agreement, the registration
rights granted to PFF are on a pari passu basis with the rights of the Prior
Rights Holders. Should the underwriters impose a limit to the number of
Registrable Securities (as defined in the Rights Agreement) that may be included
in a registration statement, PFF's registration rights shall be subordinate to
the registration rights granted to the Prior Rights Holders.
3. This Agreement may be executed in any number of counterparts, each of
which shall be an original and all of which together shall constitute one
instrument.
<PAGE>
[ADDENDUM TO AMENDED AND RESTATED RIGHTS AGREEMENT]
IN WITNESS WHEREOF, the undersigned have executed this Addendum as of the
date set forth above.
"COMPANY" PC-TEL, INC.
A Delaware corporation
By: /s/ Peter Chen
------------------------------------
Peter Chen, President &
Chief Executive Officer
"PFF" PFF Bank & Trust
---------------------------------------
(name of entity)
By: /s/ Kenneth O. Wentzel
------------------------------------
(signature)
/s/ Kenneth O. Wentzel
---------------------------------------
(print name)
Vice President
---------------------------------------
(title)
-2-
<PAGE>
Exhibit 4.10
PC-TEL, INC.
ADDENDUM TO AMENDED AND RESTATED RIGHTS AGREEMENT
This Addendum (the "Addendum") to the Amended and Restated Rights Agreement
dated December 31, 1997 (the "Rights Agreement") is made as of February 1, 1999
by and between PC-Tel, Inc., a Delaware corporation (the "Company") and Pentech
Financial Services, Inc., a California corporation ("Pentech").
RECITALS
WHEREAS, in consideration for financial services rendered, the Company has
issued Pentech a warrant to purchase 190,000 shares of Series C Preferred Stock
of the Company at $8.00 per share ("Warrant")
WHEREAS, in addition to the Warrant, the Company has agreed to grant
Pentech certain registration and other rights.
WHEREAS, the Company and holders of the Company's Series B Preferred Stock
and Series C Preferred Stock (the "Prior Rights Holders") previously entered
into the Rights Agreement.
NOW, THEREFORE, in consideration of the foregoing, the parties agree as
follows:
1. The Company agrees to grant Pentech those rights as set forth in the
Rights Agreement as attached as Exhibit A, under all of the terms and conditions
---------
of the Rights Agreement.
2. In accordance with Section 8 of the Rights Agreement, the registration
rights granted to Pentech are on a pari passu basis with the rights of the Prior
Rights Holders. Should the underwriters impose a limit to the number of
Registrable Securities (as defined in the Rights Agreement) that may be included
in a registration statement, Pentech's registration rights shall be subordinate
to the registration rights granted to the Prior Rights Holders.
3. This Agreement may be executed in any number of counterparts, each of
which shall be an original and all of which together shall constitute one
instrument.
<PAGE>
[ADDENDUM TO AMENDED AND RESTATED RIGHTS AGREEMENT]
IN WITNESS WHEREOF, the undersigned have executed this Addendum as of the
date set forth above.
"COMPANY" PC-TEL, INC.
A Delaware corporation
By: /s/ Peter Chen
-------------------------------------
Peter Chen, President &
Chief Executive Officer
"PENTECH" Pentech Financial Services, Inc.
----------------------------------------
(name of entity)
By: /s/ Benjamin E. Millerbis
-------------------------------------
(signature)
Benjamin E. Millerbis
----------------------------------------
(print name)
President & CEO
----------------------------------------
(title)
-2-
<PAGE>
EXHIBIT 10.1
PC-TEL, INC.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is effective as of
_______________, 1999, by and between PC-Tel, Inc., a Delaware corporation (the
"Company"), and __________ ("Indemnitee").
WHEREAS, the Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve the Company and its related
entities;
WHEREAS, in order to induce Indemnitee to continue to provide services to
the Company, the Company wishes to provide for the indemnification of, and
advancement of expenses to, Indemnitee to the maximum extent permitted by law;
WHEREAS, Indemnitee does not regard the current protection available as
adequate under the present circumstances, and the Indemnitee and other
directors, officers, employees, agents and fiduciaries of the Company may not be
willing to continue to serve in such capacities without additional protection;
WHEREAS, the Company and Indemnitee recognize the continued difficulty in
obtaining liability insurance for the Company's directors, officers, employees,
agents and fiduciaries, the significant increases in the cost of such insurance
and the general reductions in the coverage of such insurance;
WHEREAS, the Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting directors, officers,
employees, agents and fiduciaries to expensive litigation risks at the same time
as the availability and coverage of liability insurance has been severely
limited; and
WHEREAS, in view of the considerations set forth above, the Company desires
that Indemnitee shall be indemnified by the Company as set forth herein;
NOW, THEREFORE, the Company and Indemnitee hereby agree as set forth below.
1. Certain Definitions.
-------------------
(a) "Change in Control" shall mean, and shall be deemed to have
occurred if, on or after the date of this Agreement, (i) any "person" (as such
term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934,
as amended), other than a trustee or other fiduciary holding securities under an
employee benefit plan of the Company acting in such capacity or a corporation
owned directly or indirectly by the stockholders of the Company in substantially
the same proportions as their ownership of stock of the Company, becomes the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing more
<PAGE>
than 50% of the total voting power represented by the Company's then outstanding
Voting Securities, (ii) during any period of two consecutive years, individuals
who at the beginning of such period constitute the Board of Directors of the
Company and any new director whose election by the Board of Directors or
nomination for election by the Company's stockholders was approved by a vote of
at least two thirds (2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election or nomination for
election was previously so approved, cease for any reason to constitute a
majority thereof, or (iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation other than a merger or
consolidation which would result in the Voting Securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into Voting Securities of the
surviving entity) at least 80% of the total voting power represented by the
Voting Securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or the stockholders of the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of (in one transaction or a series of
related transactions) all or substantially all of the Company's assets.
(b) "Claim" shall mean any threatened, pending or completed action,
suit, proceeding or alternative dispute resolution mechanism, or any hearing,
inquiry or investigation that Indemnitee in good faith believes might lead to
the institution of any such action, suit, proceeding or alternative dispute
resolution mechanism, whether civil, criminal, administrative, investigative or
other.
(c) References to the "Company" shall include, in addition to PC-Tel,
Inc., any constituent corporation (including any constituent of a constituent)
absorbed in a consolidation or merger to which PC-Tel, Inc. (or any of its
wholly owned subsidiaries) is a party which, if its separate existence had
continued, would have had power and authority to indemnify its directors,
officers, employees, agents or fiduciaries, so that if Indemnitee is or was a
director, officer, employee, agent or fiduciary of such constituent corporation,
or is or was serving at the request of such constituent corporation as a
director, officer, employee, agent or fiduciary of another corporation,
partnership, joint venture, employee benefit plan, trust or other enterprise,
Indemnitee shall stand in the same position under the provisions of this
Agreement with respect to the resulting or surviving corporation as Indemnitee
would have with respect to such constituent corporation if its separate
existence had continued.
(d) "Expenses" shall mean any and all expenses (including attorneys'
fees and all other costs, expenses and obligations incurred in connection with
investigating, defending, being a witness in or participating in (including on
appeal), or preparing to defend, to be a witness in or to participate in, any
action, suit, proceeding, alternative dispute resolution mechanism, hearing,
inquiry or investigation), judgments, fines, penalties and amounts paid in
settlement (if such settlement is approved in advance by the Company, which
approval shall not be unreasonably withheld) of any Claim regarding any
Indemnifiable Event and any federal, state, local or foreign taxes imposed on
the Indemnitee as a result of the actual or deemed receipt of any payments under
this Agreement.
(e) "Expense Advance" shall mean an advance payment of Expenses to
Indemnitee pursuant to Section 3(a).
-2-
<PAGE>
(f) "Indemnifiable Event" shall mean any event or occurrence related
to the fact that Indemnitee is or was a director, officer, employee, agent or
fiduciary of the Company, or any subsidiary of the Company, or is or was serving
at the request of the Company as a director, officer, employee, agent or
fiduciary of another corporation, partnership, joint venture, trust or other
enterprise, or by reason of any action or inaction on the part of Indemnitee
while serving in such capacity.
(g) "Independent Legal Counsel" shall mean an attorney or firm of
attorneys, selected in accordance with the provisions of Section 2(c) hereof,
who shall not have otherwise performed services for the Company or Indemnitee
within the last three years (other than with respect to matters concerning the
rights of Indemnitee under this Agreement, or of other indemnitees under similar
indemnity agreements).
(h) References to "other enterprises" shall include employee benefit
plans; references to "fines" shall include any excise taxes assessed on
Indemnitee with respect to an employee benefit plan; and references to "serving
at the request of the Company" shall include any service as a director, officer,
employee, agent or fiduciary of the Company which imposes duties on, or involves
services by, such director, officer, employee, agent or fiduciary with respect
to an employee benefit plan, its participants or its beneficiaries; and if
Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to
be in the interest of the participants and beneficiaries of an employee benefit
plan, Indemnitee shall be deemed to have acted in a manner "not opposed to the
best interests of the Company" as referred to in this Agreement.
(i) "Reviewing Party" shall mean any appropriate person or body
consisting of a member or members of the Company's Board of Directors or any
other person or body appointed by the Board of Directors who is not a party to
the particular Claim for which Indemnitee is seeking indemnification, or
Independent Legal Counsel.
(j) "Voting Securities" shall mean any securities of the Company that
vote generally in the election of directors.
2. Indemnification.
---------------
(a) Indemnification of Expenses. The Company shall indemnify
---------------------------
Indemnitee to the fullest extent permitted by law if Indemnitee was or is or
becomes a party to or witness or other participant in, or is threatened to be
made a party to or witness or other participant in, any Claim by reason of (or
arising in part out of) any Indemnifiable Event against Expenses, including all
interest, assessments and other charges paid or payable in connection with or in
respect of such Expenses. Such payment of Expenses shall be made by the Company
as soon as practicable but in any event no later than five (5) business days
after written demand by Indemnitee therefor is presented to the Company.
(b) Reviewing Party. Notwithstanding the foregoing, (i) the
---------------
obligations of the Company under Section 2(a) shall be subject to the condition
that the Reviewing Party shall not have determined (in a written opinion, in any
case in which the Independent Legal Counsel referred to in Section 2(c) hereof
is involved) that Indemnitee would not be permitted to be indemnified under
-3-
<PAGE>
applicable law, and (ii) the obligation of the Company to make an Expense
Advance shall be subject to the condition that, if, when and to the extent that
the Reviewing Party determines that Indemnitee would not be permitted to be so
indemnified under applicable law, the Company shall be entitled to be reimbursed
by Indemnitee (who hereby agrees to reimburse the Company) for all such amounts
theretofore paid; provided, however, that if Indemnitee has commenced or
-------- -------
thereafter commences legal proceedings in a court of competent jurisdiction to
secure a determination that Indemnitee should be indemnified under applicable
law, any determination made by the Reviewing Party that Indemnitee would not be
permitted to be indemnified under applicable law shall not be binding and
Indemnitee shall not be required to reimburse the Company for any Expense
Advance until a final judicial determination is made with respect thereto (as to
which all rights of appeal therefrom have been exhausted or lapsed).
Indemnitee's obligation to reimburse the Company for any Expense Advance shall
be unsecured and no interest shall be charged thereon. If there has not been a
Change in Control, the Reviewing Party shall be selected by the Board of
Directors, and if there has been such a Change in Control (other than a Change
in Control which has been approved by a majority of the Company's Board of
Directors who were directors immediately prior to such Change in Control), the
Reviewing Party shall be the Independent Legal Counsel. If there has been no
determination by the Reviewing Party or if the Reviewing Party determines that
Indemnitee substantively would not be permitted to be indemnified in whole or in
part under applicable law, Indemnitee shall have the right to commence
litigation seeking an initial determination by the court or challenging any such
determination by the Reviewing Party or any aspect thereof, including the legal
or factual bases therefor, and the Company hereby consents to service of process
and to appear in any such proceeding. Absent such litigation, any determination
by the Reviewing Party shall be conclusive and binding on the Company and
Indemnitee.
(c) Change in Control. The Company agrees that if there is a Change
-----------------
in Control of the Company (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control), then with respect to all matters
thereafter arising concerning the rights of Indemnitee to payments of Expenses
and Expense Advances under this Agreement or any other agreement or under the
Company's Certificate of Incorporation or Bylaws as now or hereafter in effect,
Independent Legal Counsel, if desired by Indemnitee, shall be selected by
Indemnitee and approved by the Company (which approval shall not be unreasonably
withheld). Such counsel, among other things, shall render its written opinion to
the Company and Indemnitee as to whether and to what extent Indemnitee would be
permitted to be indemnified under applicable law and the Company agrees to abide
by such opinion. The Company agrees to pay the reasonable fees of the
Independent Legal Counsel referred to above and to indemnify fully such counsel
against any and all expenses (including attorneys' fees), claims, liabilities
and damages arising out of or relating to this Agreement or its engagement
pursuant hereto. Notwithstanding any other provision of this Agreement, the
Company shall not be required to pay Expenses of more than one Independent Legal
Counsel in connection with all matters concerning a single Indemnitee, and such
Independent Legal Counsel shall be the Independent Legal Counsel for any or all
other Indemnitees unless (i) the Company otherwise determines or (ii) any
Indemnitee shall provide a written statement setting forth in detail a
reasonable objection to such Independent Legal Counsel representing other
Indemnitees.
(d) Mandatory Payment of Expenses. Notwithstanding any other
-----------------------------
provision of this Agreement other than Section 10 hereof, to the extent that
Indemnitee has been successful on the
-4-
<PAGE>
merits or otherwise, including, without limitation, the dismissal of an action
without prejudice, in defense of any Claim regarding any Indemnifiable Event,
Indemnitee shall be indemnified against all Expenses incurred by Indemnitee in
connection therewith.
3. Expenses; Indemnification Procedure.
-----------------------------------
(a) Advancement of Expenses. The Company shall advance all Expenses
-----------------------
incurred by Indemnitee. The advances to be made hereunder shall be paid by the
Company to Indemnitee as soon as practicable but in any event no later than five
(5) business days after written demand by Indemnitee therefor to the Company.
Expenses incurred in defending any proceeding may be advanced by the Company
prior to the final disposition of the proceeding upon receipt of an undertaking
by or on behalf of Indemnitee to repay the Expenses incurred, if it shall be
determined ultimately that Indemnitee is not entitled to be indemnified.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a
--------------------------------
condition precedent to Indemnitee's right to be indemnified under this
Agreement, give the Company notice in writing as soon as practicable of any
Claim made against Indemnitee for which indemnification will or could be sought
under this Agreement. Notice to the Company shall be directed to the Chief
Executive Officer of the Company at the address shown on the signature page of
this Agreement (or such other address as the Company shall designate in writing
to Indemnitee). In addition, Indemnitee shall give the Company such information
and cooperation as it may reasonably require and as shall be within Indemnitee's
power.
(c) No Presumptions; Burden of Proof. For purposes of this Agreement,
--------------------------------
the termination of any Claim by judgment, order, settlement (whether with or
without court approval) or conviction, or upon a plea of nolo contendere, or its
---------------
equivalent, shall not create a presumption that Indemnitee did not meet any
particular standard of conduct or have any particular belief or that a court has
determined that indemnification is not permitted by applicable law. In addition,
neither the failure of the Reviewing Party to have made a determination as to
whether Indemnitee has met any particular standard of conduct or had any
particular belief, nor an actual determination by the Reviewing Party that
Indemnitee has not met such standard of conduct or did not have such belief,
prior to the commencement of legal proceedings by Indemnitee to secure a
judicial determination that Indemnitee should be indemnified under applicable
law, shall be a defense to Indemnitee's claim or create a presumption that
Indemnitee has not met any particular standard of conduct or did not have any
particular belief.
(d) Notice to Insurers. If, at the time of the receipt by the Company
------------------
of a notice of a Claim pursuant to Section 3(b) hereof, the Company has
liability insurance in effect which may cover such Claim, the Company shall give
prompt notice of the commencement of such Claim to the insurers in accordance
with the procedures set forth in the respective policies. The Company shall
thereafter take all necessary or desirable action to cause such insurers to pay,
on behalf of the Indemnitee, all amounts payable as a result of such Claim in
accordance with the terms of such policies.
(e) Selection of Counsel. In the event the Company shall be obligated
--------------------
hereunder to pay the Expenses of any Claim the Company, if appropriate, shall be
entitled to assume the
-5-
<PAGE>
defense of such Claim with counsel approved by Indemnitee (not to be
unreasonably withheld) upon the delivery to Indemnitee of written notice of the
Company's election so to do. After delivery of such notice, approval of such
counsel by Indemnitee and the retention of such counsel by the Company, the
Company will not be liable to Indemnitee under this Agreement for any fees of
counsel subsequently incurred by Indemnitee with respect to the same Claim;
provided that, (i) Indemnitee shall have the right to employ Indemnitee's
separate counsel in any such Claim at Indemnitee's expense and (ii) if (A) the
employment of separate counsel by Indemnitee has been previously authorized by
the Company, (B) Indemnitee shall have reasonably concluded that there may be a
conflict of interest between the Company and Indemnitee in the conduct of any
such defense, or (C) the Company shall not continue to retain such counsel to
defend such Claim, then the fees and expenses of Indemnitee's separate counsel
shall be at the expense of the Company.
4. Additional Indemnification Rights; Nonexclusivity.
-------------------------------------------------
(a) Scope. The Company hereby agrees to indemnify the Indemnitee to
-----
the fullest extent permitted by law, notwithstanding that such indemnification
is not specifically authorized by the other provisions of this Agreement, the
Company's Certificate of Incorporation, the Company's Bylaws or by statute. In
the event of any change after the date of this Agreement in any applicable law,
statute or rule which expands the right of a Delaware corporation to indemnify a
member of its board of directors or an officer, employee, agent or fiduciary, it
is the intent of the parties hereto that Indemnitee shall enjoy by this
Agreement the greater benefits afforded by such change. In the event of any
change in any applicable law, statute or rule which narrows the right of a
Delaware corporation to indemnify a member of its board of directors or an
officer, employee, agent or fiduciary, such change, to the extent not otherwise
required by such law, statute or rule to be applied to this Agreement, shall
have no effect on this Agreement or the parties' rights and obligations
hereunder except as set forth in Section 9(a) hereof.
(b) Nonexclusivity. The indemnification provided by this Agreement
--------------
shall be in addition to any rights to which Indemnitee may be entitled under the
Company's Certificate of Incorporation, its Bylaws, any other agreement, any
vote of stockholders or disinterested directors, the General Corporation Law of
the State of Delaware, or otherwise. The indemnification provided under this
Agreement shall continue as to Indemnitee for any action taken or not taken
while serving in an indemnified capacity even though Indemnitee may have ceased
to serve in such capacity.
5. No Duplication of Payments. The Company shall not be liable under this
--------------------------
Agreement to make any payment in connection with any Claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, provision of the Company's Certificate of
Incorporation, bylaw or otherwise) of the amounts otherwise indemnifiable
hereunder.
6. Partial Indemnification. If Indemnitee is entitled under any provision
-----------------------
of this Agreement to indemnification by the Company for some or a portion of
Expenses incurred in connection with any Claim, but not, however, for all of the
total amount thereof, the Company shall nevertheless indemnify Indemnitee for
the portion of such Expenses to which Indemnitee is entitled.
-6-
<PAGE>
7. Mutual Acknowledgment. Both the Company and Indemnitee acknowledge
---------------------
that in certain instances, federal law or applicable public policy may prohibit
the Company from indemnifying its directors, officers, employees, agents or
fiduciaries under this Agreement or otherwise. Indemnitee understands and
acknowledges that the Company has undertaken or may be required in the future to
undertake with the Securities and Exchange Commission to submit the question of
indemnification to a court in certain circumstances for a determination of the
Company's right under public policy to indemnify Indemnitee.
8. Liability Insurance. To the extent the Company maintains liability
-------------------
insurance applicable to directors, officers, employees, agents or fiduciaries,
Indemnitee shall be covered by such policies in such a manner as to provide
Indemnitee the same rights and benefits as are provided to the most favorably
insured of the Company's directors, if Indemnitee is a director; or of the
Company's officers, if Indemnitee is not a director of the Company but is an
officer; or of the Company's key employees, agents or fiduciaries, if Indemnitee
is not an officer or director but is a key employee, agent or fiduciary.
9. Exceptions. Notwithstanding any other provision of this Agreement, the
----------
Company shall not be obligated pursuant to the terms of this Agreement:
(a) Excluded Action or Omissions. To indemnify Indemnitee for acts,
----------------------------
omissions or transactions from which Indemnitee may not be relieved of liability
under applicable law.
(b) Claims Initiated by Indemnitee. To indemnify or advance expenses
------------------------------
to Indemnitee with respect to Claims initiated or brought voluntarily by
Indemnitee and not by way of defense, except (i) with respect to actions or
proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other agreement or insurance policy or under the Company's
Certificate of Incorporation or Bylaws now or hereafter in effect relating to
Claims for Indemnifiable Events, (ii) in specific cases if the Board of
Directors has approved the initiation or bringing of such Claim, or (iii) as
otherwise required under Section 145 of the Delaware General Corporation Law,
regardless of whether Indemnitee ultimately is determined to be entitled to such
indemnification, advance expense payment or insurance recovery, as the case may
be.
(c) Lack of Good Faith. To indemnify Indemnitee for any expenses
------------------
incurred by the Indemnitee with respect to any proceeding instituted by
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in such proceeding was not made in good faith or was frivolous.
(d) Claims Under Section 16(b). To indemnify Indemnitee for expenses
--------------------------
and the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934,
as amended, or any similar successor statute.
10. Period of Limitations. No legal action shall be brought and no cause
---------------------
of action shall be asserted by or in the right of the Company against
Indemnitee, Indemnitee's estate, spouse, heirs, executors or personal or legal
representatives after the expiration of two years from the date of accrual of
such cause of action, and any claim or cause of action of the Company shall be
extinguished and deemed released unless asserted by the timely filing of a legal
action within such
-7-
<PAGE>
two-year period; provided, however, that if any shorter period of limitations is
-------- -------
otherwise applicable to any such cause of action, such shorter period shall
govern.
11. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall constitute an original.
12. Binding Effect; Successors and Assigns. This Agreement shall be
--------------------------------------
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors, assigns (including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business or assets of the Company), spouses, heirs and
personal and legal representatives. The Company shall require and cause any
successor (whether direct or indirect, and whether by purchase, merger,
consolidation or otherwise) to all, substantially all, or a substantial part, of
the business or assets of the Company, by written agreement in form and
substance satisfactory to Indemnitee, expressly to assume and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform if no such succession had taken place. This Agreement
shall continue in effect regardless of whether Indemnitee continues to serve as
a director, officer, employee, agent or fiduciary (as applicable) of the Company
or of any other enterprise at the Company's request.
13. Attorneys' Fees. In the event that any action is instituted by
---------------
Indemnitee under this Agreement or under any liability insurance policies
maintained by the Company to enforce or interpret any of the terms hereof or
thereof, Indemnitee shall be entitled to be paid all Expenses incurred by
Indemnitee with respect to such action, regardless of whether Indemnitee is
ultimately successful in such action, and shall be entitled to the advancement
of Expenses with respect to such action, unless as a part of such action a court
of competent jurisdiction over such action determines that each of the material
assertions made by Indemnitee as a basis for such action were not made in good
faith or were frivolous. In the event of an action instituted by or in the name
of the Company under this Agreement to enforce or interpret any of the terms of
this Agreement, Indemnitee shall be entitled to be paid all Expenses incurred by
Indemnitee in defense of such action (including costs and expenses incurred with
respect to Indemnitee's counterclaims and cross-claims made in such action), and
shall be entitled to the advancement of Expenses with respect to such action,
unless as a part of such action a court having jurisdiction over such action
determines that each of Indemnitee's material defenses to such action were made
in bad faith or were frivolous.
14. Notice. All notices, requests, demands and other communications under
------
this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and signed for by the party addressed, on the date of such
delivery, or (ii) if mailed by domestic certified or registered mail with
postage prepaid, on the third business day after the date postmarked. Addresses
for notice to either party are as shown on the signature page of this Agreement,
or as subsequently modified by written notice.
15. Consent to Jurisdiction. The Company and Indemnitee each hereby
-----------------------
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be commenced, prosecuted and continued only in the Court of
-8-
<PAGE>
Chancery of the State of Delaware in and for New Castle County, which shall be
the exclusive and only proper forum for adjudicating such a claim.
16. Severability. The provisions of this Agreement shall be severable in
------------
the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
Furthermore, to the fullest extent possible, the provisions of this Agreement
(including, without limitations, each portion of this Agreement containing any
provision held to be invalid, void or otherwise unenforceable, that is not
itself invalid, void or unenforceable) shall be construed so as to give effect
to the intent manifested by the provision held invalid, illegal or
unenforceable.
17. Choice of Law. This Agreement shall be governed by and its provisions
-------------
construed and enforced in accordance with the laws of the State of Delaware as
applied to contracts between Delaware residents entered into and to be performed
entirely within the State of Delaware.
18. Subrogation. In the event of payment under this Agreement, the Company
-----------
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
19. Amendment and Termination. No amendment, modification, termination or
-------------------------
cancellation of this Agreement shall be effective unless it is in writing signed
by both the parties hereto. No waiver of any of the provisions of this
Agreement shall be deemed to be or shall constitute a waiver of any other
provisions hereof (whether or not similar), nor shall such waiver constitute a
continuing waiver.
20. Integration and Entire Agreement. This Agreement sets forth the entire
--------------------------------
understanding between the parties hereto and supersedes and merges all previous
written and oral negotiations, commitments, understandings and agreements
relating to the subject matter hereof between the parties hereto.
21. No Construction as Employment Agreement. Nothing contained in this
---------------------------------------
Agreement shall be construed as giving Indemnitee any right to be retained in
the employ of the Company or any of its subsidiaries or affiliated entities.
-9-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Indemnification
Agreement as of the date first above written.
PC-TEL, INC.
By:
-----------------------------------
Title:
--------------------------------
Address: 70 Rio Robles Drive
San Jose, CA 95134
(408) 965-2194
AGREED TO AND ACCEPTED
INDEMNITEE:
--------------------------------------------
(signature)
--------------------------------------------
(name of Indemnitee)
--------------------------------------------
--------------------------------------------
(address)
-10-
<PAGE>
Exhibit 10.2
PC-TEL, INC.
1995 STOCK PLAN
1. Purposes of the Plan. The purposes of this Stock Plan are to attract and
--------------------
retain the best available personnel for positions of substantial responsibility,
to provide additional incentive to Employees and Consultants of the Company and
its Subsidiaries and to promote the success of the Company's business. Options
granted under the Plan may be incentive stock options (as defined under Section
422 of the Code) or non-statutory stock options, as determined by the
Administrator at the time of grant of an option and subject to the applicable
provisions of Section 422 of the Code, as amended, and the regulations
promulgated thereunder.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of its Committees appointed
-------------
pursuant to Section 4 of the Plan.
(b) "Board" means the Board of Directors of the Company.
-----
(c) "Code" means the Internal Revenue Code of 1986, as amended.
----
(d) "Committee" means a Committee appointed by the Board of Directors in
---------
accordance with Section 4 of the Plan.
(e) "Common Stock" means the Common Stock of the Company.
------------
(f) "Company" means PC-Tel, Inc., a California corporation.
-------
(g) "Consultant" means any person, including an advisor, who is engaged by
----------
the Company or any Parent or Subsidiary to render services and is compensated
for such services, and any director of the Company whether compensated for such
services or not provided that if and in the event the Company registers any
class of any equity security pursuant to the Exchange Act, the term Consultant
shall thereafter not include directors who are not compensated for their
services or are paid only a director's fee by the Company.
(h) "Continuous Status as an Employee or Consultant" means that the
----------------------------------------------
employment or consulting relationship is not interrupted or terminated by the
Company, any Parent or Subsidiary. Continuous Status as an Employee or
Consultant shall not be considered interrupted in the case of: (i) any leave of
absence approved by the Company, including sick leave, military leave, or any
other personal leave; provided, however, that for purposes of Incentive Stock
Options, any such leave may not exceed ninety (90) days, unless reemployment
upon the expiration of such leave is guaranteed by contract (including certain
Company policies) or statute; provided, further, that on the ninety-first day of
any such leave (where reemployment is not guaranteed by contract or statute) the
Optionee's Incentive Stock Option shall automatically convert to a Nonstatutory
Stock Option; or (ii) transfers between locations of the Company or between the
Company, its Parent, its Subsidiaries or its successor
(i) "Employee" means any person, including officers and directors, employed
--------
by the Company or any Parent or Subsidiary of the Company. The payment of a
director's fee by the Company shall not be sufficient to constitute "employment"
by the Company.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
(k) "Fair Market Value" means, as of any date, the value of Common Stock
-----------------
determined as follows:
(i) If the Common Stock is listed on any established stock exchange or
a national market system including without limitation the National Market System
of the National Association of Securities Dealers, Inc. Automated Quotation
("NASDAQ") System, its Fair Market Value shall be the closing sales
1
<PAGE>
price for such stock (or the closing bid, if no sales were reported, as quoted
on such exchange or system for the last market trading day prior to the time of
determination) as reported in The Wall Street Journal or such other source as
the Administrator deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ System (but not on
the National Market System thereof) or regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean between the high bid and low asked prices for the Common Stock
or
(iii) In the absence of an established market for the Common Stock,
the Fair Market Value thereof shall be determined in good faith by the
Administrator
(l) "Incentive Stock Option" means an Option intended to qualify as an
----------------------
incentive stock option within the meaning of Section 422 of the Code.
(m) "Nonstatutory Stock Option" means an Option not intended to qualify as
-------------------------
an Incentive Stock Option.
(n) "Option" means a stock option granted pursuant to the Plan.
------
(o) "Optioned Stock" means the Common Stock subject to an Option.
--------------
(p) "Optionee" means an Employee or Consultant who receives an Option.
--------
(q) "Parent" means a "parent corporation", whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(r) "Plan" means this 1995 Stock Option Plan.
----
(s) "Share" means a share of the Common Stock, as adjusted in accordance
-----
with Section 11 below.
(t) "Subsidiary" means a "subsidiary corporation", whether now or hereafter
----------
existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 11 of the
-------------------------
Plan, the maximum aggregate number of shares which may be optioned and sold
under the Plan is 4,800,000 shares of Common Stock. The shares may be
authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason without
having been exercised in full, the unpurchased Shares which were subject thereto
shall, unless the Plan shall have been terminated, become available for future
grant under the Plan.
4. Administration of the Plan.
---------------------------
(a) Initial Plan Procedure. Prior to the date, if any, upon which the Company
----------------------
becomes subject to the Exchange Act, the Plan shall be administered by the Board
or a committee appointed by the Board.
(b) Plan Procedure After the Date. if any, Upon Which the Company Becomes
---------------------------------------------------------------------
Subject to the Exchange Act.
- ----------------------------
(i) Administration With Respect to Directors and Officers. With respect
-----------------------------------------------------
to grants of Options to Employees who are also officers or directors of the
Company, the Plan shall be administered by (A) the Board if the Board may
administer the Plan in compliance with Rule 16b-3 promulgated under the Exchange
Act or any successor thereto ("Rule 16b-3") with respect to a plan intended to
qualify thereunder as a discretionary plan, or (B) a committee designated by the
Board to administer the Plan, which committee shall be constituted in such a
manner as to permit the Plan to comply with Rule 16b-3 with respect to a plan
intended to qualify thereunder as a discretionary plan. Once appointed, such
Committee shall continue to
* Adjust to "3,200,000" pursuing to 3 to 2 reverse stock split effect date Oct.
4, 1995.
2
<PAGE>
serve in its designated capacity until otherwise directed by the Board. From
time to time the Board may increase the size of the Committee and appoint
additional members thereof, remove members (with or without cause) and appoint
new members in substitution therefor, fill vacancies, however caused, and remove
all members of the Committee and thereafter directly administer the Plan, all to
the extent permitted by Rule 16b-3 with respect to a plan intended to qualify
thereunder as a discretionary plan
(ii) Multiple Administrative Bodies. If permitted by Rule 16b-3, the
------------------------------
Plan may be administered by different bodies with respect to directors, non-
director officers and Employees who are neither directors nor officers.
(iii) Administration With Respect to Consultants and Other Employees.
--------------------------------------------------------------
With respect to grants of Options to Employees or Consultants who are neither
directors nor officers of the Company, the Plan shall be administered by (A) the
Board or (B) a committee designated by the Board, which committee shall be
constituted in such a manner as to satisfy the legal requirements relating to
the administration of incentive stock option plans, if any, of state corporate
and securities laws, of the Code, and of any applicable stock exchange (the
"Applicable Laws"). Once appointed, such Committee shall continue to serve in
its designated capacity until otherwise directed by the Board. From time to time
the Board may increase the size of the Committee and appoint additional members
thereof, remove members (with or without cause) and appoint new members in
substitution therefor, fill vacancies, however caused, and remove all members of
the Committee and thereafter directly administer the Plan, all to the extent
permitted by the Applicable Laws.
(c) Powers of the Administrator. Subject to the provisions of the Plan and in
---------------------------
the case of a Committee, the specific duties delegated by the Board to such
Committee, and subject to the approval of any relevant authorities, including
the approval, if required, of any stock exchange upon which the Common Stock is
listed, the Administrator shall have the authority, in its discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(k) of the Plan;
(ii) to select the Consultants and Employees to whom Options may from
time to time be granted hereunder;
(iii) to determine whether and to what extent Options are granted
hereunder;
(iv) to determine the number of shares of Common Stock to be covered by
each such award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent with the
terms of the Plan, of any award granted hereunder
(vii) to determine whether and under what circumstances an Option may be
settled in cash under subsection 9(0 instead of Common Stock
(viii) to reduce the exercise price of any Option to the then current
Fair Market Value if the Fair Market Value of the Common Stock covered by such
Option shall have declined since the date the Option was granted; and
(ix) to construe and interpret the terms of the Plan and awards granted
pursuant to the Plan.
(d) Effect of Administrator's Decision. All decisions, determinations and
----------------------------------
interpretations of the Administrator shall be final and binding on all Optionees
and any other holders of any Options.
5. Eligibility.
-----------
(a) Nonstatutory Stock Options may be granted to Employees and Consultants.
Incentive Stock Options may be granted only to Employees. An Employee or
Consultant who has been granted an Option may, if otherwise eligible, be granted
additional Options.
3
<PAGE>
(b) Each Option shall be designated in the written option agreement as either
an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designations, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Options designated as Incentive Stock
Options are exercisable for the first time by any Optionee during any calendar
year (under all plans of the Company or any Parent or Subsidiary) exceeds
$100,000, such excess Options shall be treated as Nonstatutory Stock Options.
(c) For purposes of Section 5(b), Incentive Stock Options shall be taken into
account in the order in which they were granted, and the Fair Market Value of
the Shares shall be determined as of the time the Option with respect to such
Shares is granted.
(d) The Plan shall not confer upon any Optionee any right with respect to
continuation of employment or consulting relationship with the Company, nor
shall it interfere in any way with his or her right or the Company's right to
terminate his or her employment or consulting relationship at any time, with or
without cause.
6. Term of Plan. The Plan shall become effective upon the earlier to occur of
------------
its adoption by the Board of Directors or its approval by the shareholders of
the Company as described in Section 17 of the Plan. It shall continue in effect
for a term of ten (10) years unless sooner terminated under Section 13 of the
Plan.
7. Term of Option. The term of each Option shall be the term stated in the
--------------
Option Agreement; provided, however, that the term shall be no more than ten
(10) years from the date of grant thereof. However, in the case of an Incentive
Stock Option granted to an Optionee who, at the time the Option is granted, owns
stock representing more than ten percent (10%) of the voting power of all
classes of stock of the Company or any Parent or Subsidiary, the term of the
Option shall be five (5) years from the date of grant thereof or such shorter
term as may be provided in the Option Agreement.
8. Option Exercise Price and Consideration.
---------------------------------------
(a) per share exercise price for the Shares to be issued pursuant to exercise
of an Option shall be such price as is determined by the Board, but shall be
subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the grant of such
Incentive Stock Option, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant.
(B) granted to any Employee, the per Share exercise price shall be no
less than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option
(A) ranted to a person who, at the time of the grant of such Option,
owns stock representing more than ten percent (10%) of the voting power of all
classes of stock of the Company or any Parent or Subsidiary, the per Share
exercise price shall be no less than 110% of the Fair Market Value per Share on
the date of the grant.
(B) granted to any person, the per Share exercise price shall be no
less than 85% of the Fair Market Value per Share on the date of grant.
(b) The consideration to be paid for the Shares to be issued upon exercise of
an Option, including the method of payment, shall be determined by the
Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (1) cash, (2)
check, (3) promissory note,
4
<PAGE>
(4) other Shares which (x) in the case of Shares acquired upon exercise of an
Option either have been owned by the Optionee for more than six months on the
date of surrender or were not acquired, directly or indirectly, from the
Company, and (y) have a Fair Market Value on the date of surrender equal to the
aggregate exercise price of the Shares as to which said Option shall be
exercised, (5) delivery of a properly executed exercise notice together with
such other documentation as the Administrator and the broker, if applicable,
shall require to effect an exercise of the Option and delivery to the Company of
the sale or loan proceeds required to pay the exercise price, or (6) any
combination of the foregoing methods of payment. In making its determination as
to the type of consideration to accept, the Board shall consider if acceptance
of such consideration may be reasonably expected to benefit the Company.
9. Exercise of Option.
-------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option granted
-----------------------------------------------
hereunder shall be exercisable at such times and under such conditions as
determined by the Board, including performance criteria with respect to the
Company and/or the Optionee, and as shall be permissible under the terms of the
Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 8(b) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause to
be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Employment. In the event of termination of an Optionee's
-------------------------
Continuous Status as an Employee or Consultant with the Company (but not in the
event of a change of status from Employee to Consultant (in which case an
Employee's Incentive Stock Option shall automatically convert to a Nonstatutory
Stock Option on the ninety-first (91st) day following such change of status) or
from Consultant to Employee), such Optionee may, but only within such period of
time as is determined by the Administrator, of at least thirty (30) days, with
such determination in the case of an Incentive Stock Option not exceeding three
(3) months after the date of such termination (but in no event later than the
expiration date of the term of such Option as set forth in the Option
Agreement), exercise his or her Option to the extent that Optionee was entitled
to exercise it at the date of such termination. To the extent that Optionee was
not entitled to exercise the Option at the date of such termination, or if
Optionee does not exercise such Option to the extent so entitled within the time
specified herein, the Option shall terminate.
(c) Disability of Optionee. Notwithstanding the provisions of Section 9(b)
----------------------
above, in the event of termination of an Optionee's Continuous Status as an
Employee or Consultant as a result of his total and permanent disability (as
defined in Section 22(e)(3) of the Code), Optionee may, but only within twelve
(12) months from the date of such termination (but in no event later than the
expiration date of the term of such Option as set forth in the Option
Agreement), exercise the Option to the extent otherwise entitled to exercise it
at the date of such termination. To the extent that Optionee was not entitled to
exercise the Option at the date of termination, or if Optionee does not exercise
such Option to the extent so entitled within the time specified herein, the
Option shall terminate.
(d) Death of Optionee. In the event of termination of an Optionee's Continuous
-----------------
Status as an Employee or Consultant as a result of the death of an Optionee, the
Option may be exercised, at any time within twelve
5
<PAGE>
(12) months following the date of death (but in no event later than the
expiration date of the term of such Option as set forth in the Option
Agreement), by the Optionee's estate or by a person who acquired the right to
exercise the Option by bequest or inheritance, but only to the extent the
Optionee was entitled to exercise the Option at the date of death. To the extent
that Optionee was not entitled to exercise the Option at the date of death, or
if Optionee does not exercise such Option to the extent so entitled within the
time specified herein, the Option shall terminate.
(e) Rule 16b-3. Options granted to persons subject to Section 16(b) of the
----------
Exchange Act must comply with Rule 16b-3 and shall contain such additional
conditions or restrictions as may be required thereunder to qualify for the
maximum exemption from Section 16 of the Exchange Act with respect to Plan
transactions.
(f) Buyout Provisions. The Administrator may at any time offer to buy out for
-----------------
a payment in cash or Shares, an Option previously granted, based on such terms
and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
10. Non-Transferability of Options. Options may not be sold, pledged,
------------------------------
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
11. Adjustments Upon Changes in Capitalization or Merger.
-----------------------------------------------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per share of Common Stock covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed dissolution or
--------------------------
liquidation of the Company, the Board shall notify the Optionee at least fifteen
(15) days prior to such proposed action. To the extent it has not been
previously exercised, the Option will terminate immediately prior to the
consummation of such proposed action.
(c) Merger. In the event of a merger of the Company with or into another
------
corporation, the Option shall be assumed or an equivalent option shall be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation. If, in such event, the Option is not assumed or
substituted, the Option shall terminate as of the date of the closing of the
merger. For the purposes of this paragraph, the Option shall be considered
assumed if, following the merger, the option confers the right to purchase, for
each Share of Optioned Stock subject to the Option immediately prior to the
merger, the consideration (whether stock, cash, or other securities or property)
received in the merger by holders of Common Stock for each Share held on the
effective date of the transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding Shares); provided, however, that if such consideration received
in the merger was not solely common stock of the successor corporation or its
Parent, the Administrator may, with the consent of the successor corporation,
provide for the consideration to be received upon the exercise of the Option,
for each Share of Optioned Stock subject to the Option, to be solely common
stock of the successor corporation or its Parent equal in fair market value to
the per share consideration received by holders of Common Stock in the merger.
6
<PAGE>
12. Time of Granting Options. The date of grant of an Option shall, for all
------------------------
purposes, be the date on which the Administrator makes the determination
granting such Option, or such other date as is determined by the Board. Notice
of the determination shall be given to each Employee or Consultant to whom an
Option is so granted within a reasonable time after the date of such grant.
13. Amendment and Termination of the Plan.
--------------------------------------
(a) Amendment and Termination. The Board may at any time amend, alter,
-------------------------
suspend or discontinue the Plan, but no amendment, alteration, suspension or
discontinuation shall be made which would impair the rights of any Optionee
under any grant theretofore made, without his or her consent. In addition, to
the extent necessary and desirable to comply with Rule 16b-3 under the Exchange
Act or with Section 422 of the Code (or any other applicable law or regulation,
including the requirements of the NASD or an established stock exchange), the
Company shall obtain shareholder approval of any Plan amendment in such a manner
and to such a degree as required.
(b) Effect of Amendment or Termination. Any such amendment or termination of
----------------------------------
the Plan shall not affect Options already granted and such Options shall remain
in full force and effect as if this Plan had not been amended or terminated,
unless mutually agreed otherwise between the Optionee and the Board, which
agreement must be in writing and signed by the Optionee and the Company.
14. Conditions Upon Issuance of Shares. Shares shall not be issued pursuant
----------------------------------
to the exercise of an Option unless the exercise of such Option and the issuance
and delivery of such Shares pursuant thereto shall comply with all relevant
provisions of law, including, without limitation, the Securities Act of 1933, as
amended, the Exchange Act, the rules and regulations promulgated thereunder, and
the requirements of any stock exchange upon which the Shares may then be listed,
and shall be further subject to the approval of counsel for the Company with
respect to such compliance.
As a condition to the exercise of an Option, the Company may require the
person exercising such Option to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned relevant provisions of law.
15. Reservation of Shares. The Company, during the term of this Plan, will at
---------------------
all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.
16. Agreements. Options shall be evidenced by written agreements in such form
----------
as the Board shall approve from time to time.
17. Shareholder Approval. Continuance of the Plan shall be subject to
--------------------
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the degree and manner required under applicable state and federal law and the
rules of any stock exchange upon which the Common Stock is listed.
18. Information to Optionees and Purchasers. The Company shall provide to
---------------------------------------
each Optionee and to each individual who acquired Shares pursuant to the Plan,
during the period such Optionee or purchaser has one or more Options
outstanding, and, in the case of an individual who acquired Shares pursuant to
the Plan, during the period such individual owns such Shares, copies of annual
financial statements. The Company shall not be required to provide such
statements to key employees whose duties in connection with the Company assure
their access to equivalent information.
7
<PAGE>
PC-TEL, Inc.
Stock Option Agreement
PC-TEL, INC.
1995 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
- -- ----------------------------
You have been granted an option to purchase Common Stock of PC-Tel, Inc., a
California corporation (the "Company"), subject to the terms and conditions of
the Plan and this Option Agreement, as follows:
Grant Number -------------
Date of Grant -------------
Vesting Commencement Date -------------
Exercise Price per Share $-------------
Total Number of Shares Granted -------------
Total Exercise Price $-------------
Type of Option: ----Incentive Stock Option
----Nonstatutory Stock Option
Term/Expiration Date: -------------
Vesting Schedule: This Option may be exercised, in whole or in part, in
----------------
accordance with the following schedule:
12/48ths of the Shares subject to the Option will vest twelve (12) months
after the Vesting Commencement Date, and an additional 1/48th of the Shares
subject to the option will vest at the end of each month thereafter
Termination Period: This Option may be exercised for 90 days after
------------------
termination of employment or consulting relationship, or such longer period as
may be applicable upon death or Disability of Optionee as provided in the Plan,
but in no event later than the Term/Expiration Date as provided above.
1
<PAGE>
II. AGREEMENT
---------
1. Grant of Option. PC-Tel, Inc., a California corporation (the
---------------
"Company"), hereby grants to the Optionee named in the Notice of Grant (the
"Optionee"), an option (the "Option") to purchase a total number of shares of
Common Stock (the "Shares") set forth in the Notice of Grant, at the exercise
price per share set forth in the Notice of Grant (the "Exercise Price") subject
to the terms, definitions and provisions of the 1995 Stock Plan (the "Plan")
adopted by the Company, which is incorporated herein by reference. Unless
otherwise defined herein, the terms defined in the Plan shall have the same
defined meanings in this Option.
If designated in the Notice of Grant as an Incentive Stock Option,
this Option is intended to qualify as an Incentive Stock Option as defined in
Section 422 of the Code. However, if this Option is intended to be an Incentive
Stock Option, to the extent that it exceeds the $100,000 rule of Code Section
422(d) it shall be treated as a Nonstatutory Stock option.
2. Exercise of Option. This Option shall be exercisable during its
------------------
term in accordance with the Exercise Schedule set out in the Notice of Grant and
with the provisions of Section 9 of the Plan as follows:
(i) Right to Exercise.
------------------
(a) This Option may not be exercised for a fraction of a
share.
(b) In the event of Optionee's death, disability or other
termination of employment, the exercisability of the Option is
governed by Sections 6, 7 and 8 below, subject to the limitation
contained in subsection 2(i)(c).
(c) In no event may this Option be exercised after the date of
expiration of the term of this Option as set forth in the Notice
of Grant.
(ii) Method of Exercise. This Option shall be exercisable by
------------------
written notice (in the form attached as Exhibit A) which shall state the
election to exercise the Option, the number of Shares in respect of which the
Option is being exercised, and such other representations and agreements as to
the holder's investment intent with respect to such shares of Common Stock as
may be required by the Company pursuant to the provisions of the Plan. Such
written notice shall be signed by the Optionee and shall be delivered in person
or by certified mail to the Secretary of the Company. The written notice shall
be accompanied by payment of the Exercise Price. This Option shall be deemed to
be exercised upon receipt by the Company of such written notice accompanied by
the Exercise Price.
No Shares will be issued pursuant to the exercise of an Option unless
such issuance and such exercise shall comply with all relevant provisions of law
and the requirements of any stock exchange upon which the Shares may then be
listed. Assuming such compliance, for income tax purposes the Shares shall be
considered transferred to the Optionee on the date on which the Option is
exercised with respect to such Shares.
3. Optionee's Representations. In the event the Shares purchasable
--------------------------
pursuant to the exercise of this Option have not been registered under the
Securities Act of 1933, as amended, at the time this Option is exercised,
Optionee shall, if required by the Company, concurrently with the exercise of
all or any portion of this Option, deliver to the Company his Investment
Representation Statement in the form attached hereto as Exhibit B, and shall
read the applicable rules of the Commissioner of Corporations attached to such
Investment Representation Statement, if applicable.
2
<PAGE>
4. Method of Payment. Payment of the Exercise Price shall be by any of the
-----------------
following, or a combination thereof, at the election of the Optionee:
(i) cash; or
(ii) check; or
(iii) surrender of other shares of Common Stock of the Company which
(A) in he case of Shares acquired pursuant to the exercise of a
Company option, have been owned by he Optionee for more than six (6)
months on the date of surrender, and (B) have a fair market value on
the date of surrender equal to the Exercise Price of the Shares as to
which the Option is being exercised; or
(iv) delivery of a properly executed exercise notice together with
such other documentation as the Administrator and the broker, if
applicable, shall require to effect an exercise of the Option and
delivery to the Company of the sale or loan proceeds required to pay
the exercise price.
5. Restrictions on Exercise. This Option may not be exercised until such
------------------------
time as the Plan has been approved by the shareholders of the Company, or if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G") as
promulgated by the Federal Reserve Board. As a condition to the exercise of this
Option, the Company may require Optionee to make any representation and warranty
to the Company as may be required by any applicable law or regulation.
6. Termination of Relationship. In the event of termination of Optionee's
---------------------------
Continuous Status as an Employee or Consultant, Optionee may, to the extent
otherwise so entitled at the date of such termination (the "Termination Date"),
exercise this Option during the Termination Period set out in the Notice of
Grant. To the extent that Optionee was not entitled to exercise this Option at
the date of such termination, or if Optionee does not exercise this Option
within the time specified herein, the Option shall terminate
7. Disability of Optionee. Notwithstanding the provisions of Section 6
----------------------
above, in the event of termination of Optionee's Continuous Status as an
Employee or Consultant as a result of total and permanent disability (as defined
in Section 22(e)(3) of the Code), Optionee may, but only within twelve (12)
months from the date of termination of employment (but in no event later than
the date of expiration of the term of this Option as set forth in Section 10
below), exercise the Option to the extent otherwise so entitled at the date of
such termination. To the extent that Optionee was not entitled to exercise the
Option at the date of termination, or if Optionee does not exercise such Option
(to the extent otherwise so entitled) within the time specified herein, the
Option shall terminate.
8. Death of Optionee. In the event of termination of Optionee's Continuous
-----------------
Status as an Employee or Consultant as a result of the death of Optionee, the
Option may be exercised at any time within twelve (12) months following the date
of death (but in no event later than the date of expiration of the term of this
Option as set forth in Section 10 below), by Optionee's estate or by a person
who acquired the right to exercise the Option by bequest or inheritance, but
only to the extent the Optionee could exercise the Option at the date of death.
9. Non-Transferability of Option. This Option may not be transferred in
-----------------------------
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by him. The terms of this
Option shall be binding upon the executors, administrators, heirs, successors
and assigns of the Optionee.
3
<PAGE>
10. Term of Option. This Option may be exercised only within the term set
--------------
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option. The limitations set out
in Section 7 of the Plan regarding Options designated as Incentive Stock Options
and Options granted to more than ten percent (10%) shareholders shall apply to
this Option.
11. Taxation Upon Exercise of Option. Optionee understands that, upon
--------------------------------
exercising a nonstatutory Option, he or she will recognize income for tax
purposes in an amount equal to the excess of the then fair market value of the
Shares over the exercise price. However, the timing of this income recognition
may be deferred for up to six months if Optionee is subject to Section 16 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). If the
Optionee is an employee, the Company will be required to withhold from
Optionee's compensation, or collect from Optionee and pay to the applicable
taxing authorities an amount equal to a percentage of this compensation income.
Additionally, the Optionee may at some point be required to satisfy tax
withholding obligations with respect to the disqualifying disposition of an
Incentive Stock Option. The Optionee shall satisfy his or her tax withholding
obligation arising upon the exercise of this Option out of Optionee's
compensation or by payment to the Company.
12. Tax Consequences. Set forth below is a brief summary as of the date of
----------------
this Option of some of the federal tax consequences of exercise of this Option
and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE
TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THIS SUMMARY ALSO DOES NOT
PURPORT TO DISCUSS ANY STATE TAX CONSEQUENCE AT ALL. OPTIONEE IS ADVISED TO
CONSULT HIS OWN TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE
SHARES.
(i) Exercise of ISO. If this Option qualifies as an ISO, there will be
---------------
no regular federal income tax liability or income tax liability upon the
exercise of the Option, although the excess, if any, of the fair market value of
the Shares on the date of exercise over the Exercise Price will be treated as an
adjustment to the alternative minimum tax for federal tax purposes and may
subject the Optionee to the alternative minimum tax in the year of exercise.
(ii) Exercise of Nonstatutory Stock Option. There may be a regular
-------------------------------------
federal income tax liability upon the exercise of a Nonstatutory Stock Option.
The Optionee will be treated as having received compensation income (taxable at
ordinary income tax rates) equal to the excess, if any, of the fair market value
of the Shares on the date of exercise over the Exercise Price. If Optionee is an
employee, the Company will be required to withhold from Optionee's compensation
or collect from Optionee and pay to the applicable taxing authorities an amount
equal to a percentage of this compensation income at the time of exercise.
(iii) Disposition of Shares. In the case of an NSO, if Shares are
---------------------
held for at least one year, any gain realized on disposition of the Shares will
be treated as long-term capital gain for federal income tax purposes. In the
case of an ISO, if Shares transferred pursuant to the Option are held for at
least one year after exercise and are disposed of at least two years after the
Date of Grant, any gain realized on disposition of the Shares will also be
treated as long-term capital gain for federal income tax purposes. If Shares
purchased under an ISO are disposed of within such one-year period or within two
years after the Date of Grant, any gain realized on such disposition will be
treated as compensation income (taxable at ordinary income rates) to the extent
of the difference between the Exercise Price and the lesser of (1) the fair
market value of the Shares on the date of exercise, or (2) the sale price of the
Shares.
(iv) Notice of Disqualifying Disposition of ISO Shares. If the Option
-------------------------------------------------
granted to Optionee herein is an ISO, and if Optionee sells or otherwise
disposes of any of the Shares acquired pursuant to the ISO on or before the
later of (1) the date two years after the Date of Grant, or (2) the date one
year after the date of exercise, the Optionee shall immediately notify the
Company in writing of such disposition. Optionee agrees that Optionee may be
subject to income tax withholding by the Company on the compensation income
recognized by the Optionee.
4
<PAGE>
PC-TEL, Inc.
Stock Option Agreement
- --signature page to Stock Option Agreement--
PC-Tel, Inc.
a California corporation
By:
-------------------------------
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE
OPTION HEREOF IS EARNED ONLY BY CONTINUING CONSULTANCY OR EMPLOYMENT AT THE WILL
OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR
ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT
NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S STOCK OPTION PLAN WHICH IS
INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH
RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL
IT INTERFERE IN ANY WAY WITH HIS RIGHT OR THE COMPANY'S RIGHT TO TERMINATE HIS
EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that he
is familiar with the terms and provisions thereof, and hereby accepts this
Option subject to all of the terms and provisions thereof. Optionee has reviewed
the Plan and this Option in their entirety, has had an opportunity to obtain the
advice of counsel prior to executing this Option and fully understands all
provisions of the Option. Optionee hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the Administrator upon
any questions arising under the Plan or this Option.
Date:
--------------------- ------------------------
Optionee
5
<PAGE>
PC-TEL, Inc.
Stock Option Agreement
EXHIBIT A
---------
1995 STOCK PLAN
EXERCISE NOTICE
PC-Tel, Inc.
- ---------------------
- ---------------------
Attention: Chief Financial Officer
1. Exercise of Option. Effective as of today, ,19 , the
------------------ ------------- --
undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase
--------
shares of the Common Stock (the "Shares") of PC-Tel, Inc. (the "Company") under
and pursuant to the 1995 Stock Plan, as amended (the "Plan") and the [ ]
Incentive [ ] Nonstatutory Stock Option Agreement dated
----------------------
(the "Option Agreement").
----------------
2. Representations of Optionee. Optionee acknowledges that Optionee has
---------------------------
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions.
3. Rights as Shareholder. Until the stock certificate evidencing such
---------------------
Shares is issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no right to vote
or receive dividends or any other rights as a shareholder shall exist with
respect to the optioned Stock, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such stock certificate promptly
after the Option is exercised. No adjustment will be made for a dividend or
other right for which the record date is prior to the date the stock certificate
is issued, except as provided in Section 12 of the Plan. Thereafter, Optionee
shall enjoy rights as a shareholder until such time as Optionee disposes of the
Shares.
4. Company's Right of First Refusal. Not applicable. No right of first
--------------------------------
refusal shall arise under this Agreement, and any reference to this Section 4 or
to any such rights elsewhere in this Agreement should be disregarded.
5. Tax Consultation. Optionee understands that Optionee may suffer adverse
----------------
tax consequences as a result of Optionee's purchase or disposition of the
Shares. Optionee represents that Optionee has consulted with any tax consultants
Optionee deems advisable in connection with the purchase or disposition of the
Shares and that Optionee is not relying on the Company for any tax advice.
6. Restrictive Legends and Stop-Transfer Orders
--------------------------------------------
(a) Legends. Optionee understands and agrees that the Company shall
-------
cause the legends set forth below or legends substantially equivalent thereto,
to be placed upon any certificate(s) evidencing ownership of the Shares together
with any other legends that may be required by state or federal securities laws:
-A1-
<PAGE>
PC-TEL, Inc.
Stock Option Agreement
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL IN FORM AND
SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER,
SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS SET
FORTH IN THE EXERCISE NOTICE BETWEEN THE ISSUER AND THE ORIGINAL
HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE
PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER RESTRICTIONS ARE BINDING
ON TRANSFEREES OF THESE SHARES.
If applicable: IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS
SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION
THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE
COMMISSIONER'S RULES
Optionee understands that transfer of the Shares may be restricted by
Section 260.141.11 of the Rules of the California Corporations Commissioner, a
copy of which is attached to Exhibit B, the Investment Representation Statement.
(b) Stop-Transfer Notices. Optionee agrees that, in order to ensure
---------------------
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Refusal to Transfer. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
7. Successors end Assigns. The Company may assign any of its rights under
----------------------
this Agreement to single or multiple assignees, and this Agreement shell inure
to the benefit of the successors and assigns of the Company. Subject to the
restrictions on transfer herein set forth, this Agreement shell be binding upon
Optionee and his or her heirs, executors, administrators, successors and
assigns.
8. Interpretation. Any dispute regarding the interpretation of this
--------------
Agreement shall be submitted by Optionee or by the Company forthwith to the
Company's Board of Directors or the committee thereof that administers the Plan,
which shall review such dispute at its next regular meeting. The resolution of
such a dispute by the Board or committee shall be final and binding on the
Company and on Optionee.
9. Governing Law; Severability. This Agreement shall be governed by and
---------------------------
construed in accordance with the laws of the State of California excluding that
body of law pertaining to conflicts of
-A2-
<PAGE>
PC-TEL, Inc.
Stock Option Agreement
law. Should any provision of this Agreement be determined by a court of law to
be illegal or unenforceable, the other provisions shall nevertheless remain
effective and shall remain enforceable.
10. Notices. Any notice required or permitted hereunder shall be given in
-------
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail, with postage and fees
prepaid, addressed to the other party at its address as shown below beneath its
signature, or to such other address as such party may designate in writing from
time to time to the other party.
11. Further Instruments. The parties agree to execute such further
-------------------
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
12. Delivery of Payment. Optionee herewith delivers to the Company the
-------------------
full Exercise Price for the Shares.
13. Entire Agreement. The Plan and Notice of Grant/Option Agreement are
----------------
incorporated herein by reference. This Agreement, the Plan, the Option Agreement
and the Investment Representation Statement constitute the entire agreement of
the parties and supersede in their entirety all prior undertakings and
agreements of the Company and Optionee with respect to the subject matter
hereof, and is governed by California law except for that body of law pertaining
to conflict of laws.
Submitted by: Accepted by:
OPTIONEE: PC-Tel, Inc.
a California corporation
By:
----------------------------
Its:
---------------------------
- ------------------------
(Signature)
Address: Address:
- ------- -------
- ----------------------- --------------------------
- ----------------------- --------------------------
-A3-
<PAGE>
PC-TEL, Inc.
Stock Option Agreement
EXHIBIT B
---------
INVESTMENT REPRESENTATION STATEMENT
OPTIONEE :
COMPANY : PC-TEL, INC.
SECURITY : COMMON STOCK
AMOUNT :
DATE :
In connection with the purchase of the above-listed Securities, the undersigned
Optionee represents to the Company the following:
(a) Optionee is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the securities. Optionee is
acquiring these securities for investment for Optionee's own account only and
not with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").
(b) Optionee acknowledges and understands that the securities constitute
"restricted securities" under the Securities Act and have not been registered
under the Securities Act in reliance upon a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of Optionee's
investment intent as expressed herein. In this connection, Optionee understands
that, in the view of the Securities and Exchange Commission, the statutory basis
for such exemption may be unavailable if Optionee's representation was
predicated solely upon a present intention to hold these Securities for the
minimum capital gains period specified under tax statutes, for a deferred sale,
for or until an increase or decrease in the market price of the Securities, or
for a period of one year or any other fixed period in the future. Optionee
further understands that the Securities must be held indefinitely unless they
are subsequently registered under the Securities Act or an exemption from such
registration is available. Optionee further acknowledges and understands that
the Company is under no obligation to register the securities. Optionee
understands that the certificate evidencing the securities will be imprinted
with a legend which prohibits the transfer of the Securities unless they are
registered or such registration is not required in the opinion of counsel
satisfactory to the Company, a legend prohibiting their transfer without the
consent of the Commissioner of Corporations of the State of California (if so
required) and any other legend required under applicable state securities laws.
(c) Optionee is familiar with the provisions of Rule 701 and Rule 144, each
promulgated under the Securities Act, which, in substance, permit limited public
resale of "restricted securities" acquired, directly or indirectly from the
issuer thereof, in a non-public offering subject to the satisfaction of certain
conditions. Rule 701 provides that if the issuer qualifies under Rule 701 at the
time of the grant of the Option to the Optionee, the exercise will be exempt
from registration under the Securities Act. in the event the Company becomes
subject to the reporting requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, ninety (90) days thereafter (or such longer period as any
market stand-off agreement may require) the securities exempt under Rule 701 may
be resold, subject to the satisfaction of certain of the conditions specified by
Rule 144, including: (1) the resale being made through a broker in an
unsolicited "broker's transaction" or in transactions directly with a market
maker (as said term is defined under the Securities Exchange Act of 1934); and,
in the case of an affiliate, (2) the availability of certain public information
about the Company, (3) the amount of securities being sold during any three
month period not exceeding the limitations specified in Rule 144(e), and (4) the
timely filing of a Form 144, if applicable.
-B1-
<PAGE>
PC-TEL, Inc.
Stock Option Agreement
In the event that the Company does not qualify under Rule 701 at the time
of grant of the Option, then the securities may be resold in certain limited
circumstances subject to the provisions of Rule 144, which requires the resale
to occur not less than two years after the party has purchased, and made full
payment for, within the meaning of Rule 144, the securities to be sold; and, in
the case of an affiliate, or of a non-affiliate who has held the securities less
than three years, the satisfaction of the conditions set forth in sections (1),
(2), (3) and (4) of the paragraph immediately above.
(d) Optionee hereby agrees that if so requested by the Company or any
representative of the underwriters in connection with any registration of the
offering of any securities of the Company under the 1933 Act, Optionee shall not
sell or otherwise transfer any Shares or other securities of the Company during
the 180-day period following the effective date of a registration statement of
the Company filed under the 1933 Act; provided, however, that such restriction
shall only apply to the first registration statement of the Company to become
effective under the 1933 Act which include securities to be sold on behalf of
the Company to the public in an underwritten public offering under the 1933 Act.
The Company may impose stop-transfer instructions with respect to securities
subject to the foregoing restrictions until the end of such 180-day period.
(e) Optionee further understands that in the event all of the applicable
requirements of Rule 701 or 144 are not satisfied, registration under the
Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk. Optionee understands that no assurances can be given that any
such other registration exemption will be available in such event.
(f) Optionee understands that the certificate evidencing the Securities may
(if so required) be imprinted with a legend which prohibits the transfer of the
Securities without the consent of the Commissioner of Corporations of
California. Optionee has read the applicable Commissioner's Rules with respect
to such restriction, a copy of which is attached.
Signature of Optionee:
-------------------------------
Date: ,19
-------------------- --
-B2-
<PAGE>
PC-TEL, Inc.
Stock Option Agreement
ATTACHMENT 1
STATE OF CALIFORNIA- CALIFORNIA ADMINISTRATIVE CODE
Title 10. Investment- Chapter 3. Commissioner of Corporations
260.141.11: Restriction on Transfer.
(a) The issuer of any security upon which a restriction on transfer has been
imposed pursuant to Sections 260.102.6, 260.141.10 or 260.534 shall cause a copy
of this section to be delivered to each issuee or transferee of such security at
the time the certificate evidencing the security is delivered to the issuee or
transferee.
(b) It is unlawful for the holder of any such security to consummate a sale or
transfer of such security, or any interest therein, without the prior written
consent of the Commissioner (until this condition is removed pursuant to Section
260.141.12 of these rules), except:
(1) to the issuer;
(2) pursuant to the order or process of any court;
(3) to any person described in Subdivision (i) of Section 25102 of the
Code or Section 260.105.14 of these rules;
(4) to the transferor's ancestors, descendants or spouse, or any custodian
or trustee for the account of the transferrer or the transferror's ancestors,
descendants, or spouse; or to a transferee by a trustee or custodian for the
account of the transferee or the transferee's ancestors, descendants or
spouse;
(5) to holders of securities of the same class of the same issuer;
(6) by way of gift or donation inter vivos or on death;
(7) by or through a broker-dealer licensed under the Code (either acting
as such or as a finder) to a resident of a foreign state, territory or country
who is neither domiciled in this state to the knowledge of the broker-dealer,
nor actually present in this state if the sale of such securities is not in
violation of any securities law of the foreign state, territory or country
concerned;
(8) to a broker-dealer licensed under the Code in a principal transaction,
or as an underwriter or member of an underwriting syndicate or selling group;
(9) if the interest sold or transferred is a pledge or other lien given by
the purchaser to the seller upon a sale of the security for which the
Commissioner's written consent is obtained or under this rule not required;
(10) by way of a sale qualified under Sections 25111, 25112, 25113 or 25121
of the Code, of the securities to be transferred, provided that no order under
Section 25140 or subdivision (a) of Section 25143 is in effect with respect to
such qualification;
(11) by a corporation to a wholly owned subsidiary of such corporation, or
by a wholly owned subsidiary of a corporation to such corporation;
(12) by way of an exchange qualified under Section 25111, 25112 or 25113 of
the Code, provided that no order under Section 25140 or subdivision (a) of
Section 25143 is in effect with respect to such qualification;
(13) between residents of foreign states, territories or countries who are
neither domiciled nor actually present in this state;
(14) to the State Controller pursuant to the Unclaimed Property Law or to
the administrator of the unclaimed property law of another state; or
(15) by the State Controller pursuant to the Unclaimed Property Law or by
the administrator of the unclaimed property law of another state if, in either
such case, such person (i) discloses to potential purchasers at the sale that
transfer of the securities is restricted under this rule, (ii) delivers to
each purchaser a copy of this rule, and (iii) advises the Commissioner of the
name of each purchaser;
(16) by a trustee to a successor trustee when such transfer does not
involve a change in the beneficial ownership of the securities;
(17) by way of an offer and sale of outstanding securities in an issuer
transaction that is subject to the qualification requirement of Section 25110
of the Code but exempt from that qualification requirement by subdivision (f)
of Section 25102;
provided that any such transfer is on the condition that any certificate
evidencing the security issued to such transferee shall contain the legend
required by this section.
(c) The certificates representing all such securities subject to such a
restriction on transfer, whether upon initial issuance or upon any transfer
thereof, shall bear on their face a legend, prominently stamped or printed
thereon in capital letters of not less than 10-point size, reading as follows:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE
PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF
CALIFORNIA. EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
<PAGE>
EXHIBIT 10.3
PC-TEL, INC.
1997 STOCK PLAN
(as amended and restated, August 3, 1999)
1. Purposes of the Plan. The purposes of this Stock Plan are:
--------------------
. to attract and retain the best available personnel for positions
of substantial responsibility,
. to provide additional incentive to Employees, Directors and
Consultants, and
. to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of its Committees as shall
-------------
be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the requirements relating to the
---------------
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Purchase Rights are,
or will be, granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
-----
(d) "Code" means the Internal Revenue Code of 1986, as amended.
----
(e) "Committee" means a committee of Directors appointed by the Board
---------
in accordance with Section 4 of the Plan.
(f) "Common Stock" means the common stock of the Company.
------------
(g) "Company" means PC-Tel, Inc., a Delaware corporation.
-------
(h) "Consultant" means any person, including an advisor, engaged by
----------
the Company or a Parent or Subsidiary to render services to such entity.
(i) "Director" means a member of the Board.
--------
<PAGE>
(j) "Disability" means total and permanent disability as defined in
----------
Section 22(e)(3) of the Code.
(k) "Employee" means any person, including Officers and Directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st day of such leave any Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(m) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Gnostic SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(n) "Incentive Stock Option" means an Option intended to qualify as
----------------------
an incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(o) "Nonstatutory Stock Option" means an Option not intended to
-------------------------
qualify as an Incentive Stock Option.
(p) "Notice of Grant" means a written or electronic notice evidencing
---------------
certain terms and conditions of an individual Option or Stock Purchase Right
grant. The Notice of Grant is part of the Option Agreement.
-2-
<PAGE>
(q) "Officer" means a person who is an officer of the Company within
-------
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(r) "Option" means a stock option granted pursuant to the Plan.
------
(s) Option Agreement" means an agreement between the Company and an
----------------
Optionee evidencing the terms and conditions of an individual Option grant. The
Option Agreement is subject to the terms and conditions of the Plan.
(t) "Option Exchange Program" means a program whereby outstanding
-----------------------
Options are surrendered in exchange for Options with a lower exercise price.
(u) "Optioned Stock" means the Common Stock subject to an Option or
--------------
Stock Purchase Right.
(v) "Optionee" means the holder of an outstanding Option or Stock
--------
Purchase Right granted under the Plan.
(w) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(x) "Plan" means this 1997 Stock Plan, as amended and restated.
----
(y) "Restricted Stock" means shares of Common Stock acquired pursuant
----------------
to a grant of Stock Purchase Rights under Section 11 of the Plan.
(z) "Restricted Stock Purchase Agreement" means a written agreement
-----------------------------------
between the Company and the Optionee evidencing the terms and restrictions
applying to stock purchased under a Stock Purchase Right. The Restricted Stock
Purchase Agreement is subject to the terms and conditions of the Plan and the
Notice of Grant.
(aa) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
----------
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(bb) "Section 16(b)" means Section 16(b) of the Exchange Act.
-------------
(cc) "Service Provider" means an Employee, Director or Consultant.
----------------
(dd) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 13 of the Plan.
(ee) "Stock Purchase Right" means the right to purchase Common Stock
--------------------
pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.
(ff) "Subsidiary" means a "subsidiary corporation", whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
-3-
<PAGE>
3. Stock Subject to the Plan. Subject to the provisions of Section 13 of
-------------------------
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 5,500,000 Shares, plus an annual increase to be added on the
first day of the Company's fiscal year equal to the lesser of (i) 700,000
Shares, (ii) 4% of the outstanding shares on such date or (iii) a lesser amount
determined by the Board. The Shares may be authorized, but unissued, or
reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated); provided, however, that Shares that have actually been issued under
--------
the Plan, whether upon exercise of an Option or Right, shall not be returned to
the Plan and shall not become available for future distribution under the Plan,
except that if Shares of Restricted Stock are repurchased by the Company at
their original purchase price, such Shares shall become available for future
grant under the Plan.
4. Administration of the Plan.
--------------------------
(a) Procedure.
---------
(i) Multiple Administrative Bodies. The Plan may be
------------------------------
administered by different Committees with respect to different groups of Service
Providers.
(ii) Section 162(m). To the extent that the Administrator
--------------
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) Rule 16b-3. To the extent desirable to qualify
----------
transactions hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder shall be structured to satisfy the requirements for exemption under
Rule 16b-3.
(iv) Other Administration. Other than as provided above, the
--------------------
Plan shall be administered by (A) the Board or (B) a Committee, which committee
shall be constituted to satisfy Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options and Stock
Purchase Rights may be granted hereunder;
(iii) to determine the number of shares of Common Stock to be
covered by each Option and Stock Purchase Right granted hereunder;
-4-
<PAGE>
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any Option or Stock Purchase Right granted
hereunder. Such terms and conditions include, but are not limited to, the
exercise price, the time or times when Options or Stock Purchase Rights may be
exercised (which may be based on performance criteria), any vesting acceleration
or waiver of forfeiture restrictions, and any restriction or limitation
regarding any Option or Stock Purchase Right or the shares of Common Stock
relating thereto, based in each case on such factors as the Administrator, in
its sole discretion, shall determine;
(vi) to reduce the exercise price of any Option or Stock
Purchase Right to the then current Fair Market Value if the Fair Market Value of
the Common Stock covered by such Option or Stock Purchase Right shall have
declined since the date the Option or Stock Purchase Right was granted;
(vii) to institute an Option Exchange Program;
(viii) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(x) to modify or amend each Option or Stock Purchase Right
(subject to Section 15(c) of the Plan), including the discretionary authority to
extend the post-termination exercisability period of Options longer than is
otherwise provided for in the Plan;
(xi) to allow Optionees to satisfy withholding tax obligations
by electing to have the Company withhold from the Shares to be issued upon
exercise of an Option or Stock Purchase Right that number of Shares having a
Fair Market Value equal to the amount required to be withheld. The Fair Market
Value of the Shares to be withheld shall be determined on the date that the
amount of tax to be withheld is to be determined. All elections by an Optionee
to have Shares withheld for this purpose shall be made in such form and under
such conditions as the Administrator may deem necessary or advisable;
(xii) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option or Stock
Purchase Right previously granted by the Administrator;
(xiii) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's
----------------------------------
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options or Stock Purchase Rights.
-5-
<PAGE>
5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights may
-----------
be granted to Service Providers. Incentive Stock Options may be granted only to
Employees.
6. Limitations.
-----------
(a) Each Option shall be designated in the Option Agreement as either
an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(b) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon an Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall they interfere in
any way with the Optionee's right or the Company's right to terminate such
relationship at any time, with or without cause.
(c) The following limitations shall apply to grants of Options:
(i) No Service Provider shall be granted, in any fiscal year
of the Company, Options to purchase more than 300,000 Shares.
(ii) In connection with his or her initial service, a Service
Provider may be granted Options to purchase up to an additional 300,000Shares
which shall not count against the limit set forth in subsection (i) above.
(iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 13.
(iv) If an Option is canceled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 13), the canceled Option will be counted against the limits
set forth in subsections (i) and (ii) above. For this purpose, if the exercise
price of an Option is reduced, the transaction will be treated as a cancellation
of the Option and the grant of a new Option.
7. Term of Plan. Subject to Section 19 of the Plan, the Plan shall become
------------
effective upon its adoption by the Board. It shall continue in effect until 2007
years unless terminated earlier under Section 15 of the Plan.
8. Term of Option. The term of each Option shall be stated in the Option
--------------
Agreement. In the case of an Incentive Stock Option, the term shall be ten (10)
years from the date of grant or such shorter term as may be provided in the
Option Agreement. Moreover, in the case of an Incentive Stock Option granted to
an Optionee who, at the time the Incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or any Parent or Subsidiary, the term of the
Incentive Stock
-6-
<PAGE>
Option shall be five (5) years from the date of grant or such shorter term as
may be provided in the Option Agreement.
9. Option Exercise Price and Consideration.
---------------------------------------
(a) Exercise Price. The per share exercise price for the Shares to be
--------------
issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee
described in paragraph (A) immediately above, the per Share exercise price shall
be no less than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted with
a per Share exercise price of less than 100% of the Fair Market Value per Share
on the date of grant pursuant to a merger or other corporate transaction.
(b) Waiting Period and Exercise Dates. At the time an Option is
---------------------------------
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions which must be satisfied before the
Option may be exercised.
(c) Form of Consideration. The Administrator shall determine the
---------------------
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than six months
on the date of surrender, and
-7-
<PAGE>
(B) have a Fair Market Value on the date of surrender equal to the aggregate
exercise price of the Shares as to which said Option shall be exercised;
(v) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan;
(vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's participation
in any Company-sponsored deferred compensation program or arrangement;
(vii) any combination of the foregoing methods of payment; or
(viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
10. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. Unless the Administrator provides otherwise,
vesting of Options granted hereunder shall be tolled during any unpaid leave of
absence. An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company receives:
(i) written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 13 of the Plan.
Exercising an Option in any manner shall decrease the number of
Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
(b) Termination of Relationship as a Service Provider. If an Optionee
-------------------------------------------------
ceases to be a Service Provider, other than upon the Optionee's death or
Disability, the Optionee may exercise his or her Option within such period of
time as is specified in the Option Agreement to the extent that the Option is
vested on the date of termination (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement). In the absence of
a specified time in the Option Agreement, the Option shall remain exercisable
for three (3) months following the
-8-
<PAGE>
Optionee's termination. If, on the date of termination, the Optionee is not
vested as to his or her entire Option, the Shares covered by the unvested
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified by the
Administrator, the Option shall terminate, and the Shares covered by such Option
shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a Service
----------------------
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option Agreement
to the extent the Option is vested on the date of termination (but in no event
later than the expiration of the term of such Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the Optionee's
termination. If, on the date of termination, the Optionee is not vested as to
his or her entire Option, the Shares covered by the unvested portion of the
Option shall revert to the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service Provider,
-----------------
the Option may be exercised within such period of time as is specified in the
Option Agreement (but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant), by the Optionee's estate or by a
person who acquires the right to exercise the Option by bequest or inheritance,
but only to the extent that the Option is vested on the date of death. In the
absence of a specified time in the Option Agreement, the Option shall remain
exercisable for twelve (12) months following the Optionee's termination. If, at
the time of death, the Optionee is not vested as to his or her entire Option,
the Shares covered by the unvested portion of the Option shall immediately
revert to the Plan. The Option may be exercised by the executor or administrator
of the Optionee's estate or, if none, by the person(s) entitled to exercise the
Option under the Optionee's will or the laws of descent or distribution. If the
Option is not so exercised within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time offer to buy
-----------------
out for a payment in cash or Shares an Option previously granted based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
11. Stock Purchase Rights.
---------------------
(a) Rights to Purchase. Stock Purchase Rights may be issued either
------------------
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing or electronically, by means of a Notice of Grant, of the
terms, conditions and restrictions related to the offer, including the number of
Shares that the offeree shall be entitled to purchase, the price to be paid, and
the time within which the offeree must accept such offer. The offer shall be
accepted by execution of a Restricted Stock Purchase Agreement in the form
determined by the Administrator.
-9-
<PAGE>
(b) Repurchase Option. Unless the Administrator determines otherwise,
-----------------
the Restricted Stock Purchase Agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's service with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at a rate determined by the
Administrator.
(c) Other Provisions. The Restricted Stock Purchase Agreement shall
----------------
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion.
(d) Rights as a Shareholder. Once the Stock Purchase Right is
-----------------------
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 13
of the Plan.
12. Non-Transferability of Options and Stock Purchase Rights. Unless
--------------------------------------------------------
determined otherwise by the Administrator, an Option or Stock Purchase Right may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee. If the
Administrator makes an Option or Stock Purchase Right transferable, such Option
or Stock Purchase Right shall contain such additional terms and conditions as
the Administrator deems appropriate.
13. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
------------------------------------------------------------------
Asset Sale.
- ----------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option or Stock
Purchase Right.
-10-
<PAGE>
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse
as to all such Shares, provided the proposed dissolution or liquidation takes
place at the time and in the manner contemplated. To the extent it has not been
previously exercised, an Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company
--------------------
with or into another corporation, or the sale of substantially all of the assets
of the Company, each outstanding Option and Stock Purchase Right shall be
assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. In the event
that the successor corporation refuses to assume or substitute for the Option or
Stock Purchase Right, the Optionee shall fully vest in and have the right to
exercise the Option or Stock Purchase Right as to all of the Optioned Stock,
including Shares as to which it would not otherwise be vested or exercisable. If
an Option or Stock Purchase Right becomes fully vested and exercisable in lieu
of assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee in writing or electronically that the
Option or Stock Purchase Right shall be fully vested and exercisable for a
period of fifteen (15) days from the date of such notice, and the Option or
Stock Purchase Right shall terminate upon the expiration of such period. For the
purposes of this paragraph, the Option or Stock Purchase Right shall be
considered assumed if, following the merger or sale of assets, the option or
right confers the right to purchase or receive, for each Share of Optioned Stock
subject to the Option or Stock Purchase Right immediately prior to the merger or
sale of assets, the consideration (whether stock, cash, or other securities or
property) received in the merger or sale of assets by holders of Common Stock
for each Share held on the effective date of the transaction (and if holders
were offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding Shares); provided, however, that if
such consideration received in the merger or sale of assets is not solely common
stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation, provide for the consideration to be
received upon the exercise of the Option or Stock Purchase Right, for each Share
of Optioned Stock subject to the Option or Stock Purchase Right, to be solely
common stock of the successor corporation or its Parent equal in fair market
value to the per share consideration received by holders of Common Stock in the
merger or sale of assets.
14. Date of Grant. The date of grant of an Option or Stock Purchase Right
-------------
shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the determination shall
be provided to each Optionee within a reasonable time after the date of such
grant.
-11-
<PAGE>
15. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend,
-------------------------
alter, suspend or terminate the Plan.
(b) Shareholder Approval. The Company shall obtain shareholder
--------------------
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
(c) Effect of Amendment or Termination. No amendment, alteration,
----------------------------------
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Options granted under the
Plan prior to the date of such termination.
16. Conditions Upon Issuance of Shares.
----------------------------------
(a) Legal Compliance. Shares shall not be issued pursuant to the
----------------
exercise of an Option or Stock Purchase Right unless the exercise of such Option
or Stock Purchase Right and the issuance and delivery of such Shares shall
comply with Applicable Laws and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
(b) Investment Representations. As a condition to the exercise of an
--------------------------
Option or Stock Purchase Right, the Company may require the person exercising
such Option or Stock Purchase Right to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required.
(c) Inability to Obtain Authority. The inability of the Company to
-----------------------------
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
17. Reservation of Shares. The Company, during the term of this Plan, will
---------------------
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
18. Shareholder Approval. The Plan shall be subject to approval by the
--------------------
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.
-12-
<PAGE>
1997 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
----------------------------
[Optionee's Name and Address]
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Option Agreement, as
follows:
Grant Number _________________________
Date of Grant _________________________
Vesting Commencement Date _________________________
Exercise Price per Share $________________________
Total Number of Shares Granted _________________________
Total Exercise Price $________________________
Type of Option: ___ Incentive Stock Option
___ Nonstatutory Stock Option
Term/Expiration Date: _________________________
Vesting Schedule:
----------------
This Option may be exercised, in whole or in part, in accordance with the
following schedule:
25% of the Shares subject to the Option shall vest twelve months after the
Vesting Commencement Date, and 1/48 of the Shares subject to the Option shall
vest each month thereafter, subject to the Optionee continuing to be a Service
Provider on such dates.
Termination Period:
------------------
This Option may be exercised for three (3) months after Optionee ceases to
be a Service Provider. Upon the death or Disability of the Optionee, this
Option may be exercised for one year after Optionee ceases to be a Service
Provider. In no event shall this Option be exercised later than the
Term/Expiration Date as provided above.
<PAGE>
II. AGREEMENT
---------
1. Grant of Option. The Plan Administrator of the Company hereby grants
---------------
Optionee named in the Notice of Grant attached as Part I of this Agreement (the
to the "Optionee") an option (the "Option") to purchase the number of Shares, as
set forth in the Notice of Grant, at the exercise price per share set forth in
the Notice of Grant (the "Exercise Price"), subject to the terms and conditions
of the Plan, which is incorporated herein by reference. Subject to Section 15(c)
of the Plan, in the event of a conflict between the terms and conditions of the
Plan and the terms and conditions of this Option Agreement, the terms and
conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an Incentive Stock Option under
Section 422 of the Code. However, if this Option is intended to be an Incentive
Stock Option, to the extent that it exceeds the $100,000 rule of Code Section
422(d) it shall be treated as a Nonstatutory Stock Option ("NSO").
2. Exercise of Option.
------------------
(a) Right to Exercise. This Option is exercisable during its term in
-----------------
accordance with the Vesting Schedule set out in the Notice of Grant and the
applicable provisions of the Plan and this Option Agreement.
(b) Method of Exercise. This Option is exercisable by delivery of an
------------------
exercise notice, in the form attached as Exhibit A (the "Exercise Notice"),
which shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised (the "Exercised Shares"), and
such other representations and agreements as may be required by the Company
pursuant to the provisions of the Plan. The Exercise Notice shall be completed
by the Optionee and delivered to [Title] of the Company. The Exercise Notice
shall be accompanied by payment of the aggregate Exercise Price as to all
Exercised Shares. This Option shall be deemed to be exercised upon receipt by
the Company of such fully executed Exercise Notice accompanied by such aggregate
Exercise Price.
No Shares shall be issued pursuant to the exercise of this Option
unless such issuance and exercise complies with Applicable Laws. Assuming such
compliance, for income tax purposes the Exercised Shares shall be considered
transferred to the Optionee on the date the Option is exercised with respect to
such Exercised Shares.
3. Method of Payment. Payment of the aggregate Exercise Price shall be by
-----------------
any of the following, or a combination thereof, at the election of the Optionee:
(a) cash; or
(b) check; or
(c) consideration received by the Company under a cashless exercise
program implemented by the Company in connection with the Plan; or
-2-
<PAGE>
(d) surrender of other Shares which (i) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six (6) months on the date of surrender, and (ii) have a Fair Market Value
on the date of surrender equal to the aggregate Exercise Price of the Exercised
Shares; or
(e) with the Administrator's consent, delivery of Optionee's
promissory note (the "Note") in the form attached hereto as Exhibit C, in the
amount of the aggregate Exercise Price of the Exercised Shares together with the
execution and delivery by the Optionee of the Security Agreement attached hereto
as Exhibit B. The Note shall bear interest at the "applicable federal rate"
prescribed under the Code and its regulations at time of purchase, and shall be
secured by a pledge of the Shares purchased by the Note pursuant to the Security
Agreement.
4. Non-Transferability of Option. This Option may not be transferred in
-----------------------------
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by the Optionee. The terms
of the Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
5. Term of Option. This Option may be exercised only within the term set
--------------
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option Agreement.
6. Tax Consequences. Some of the federal tax consequences relating to
----------------
this Option, as of the date of this Option, are set forth below. THIS SUMMARY IS
NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE.
THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR
DISPOSING OF THE SHARES.
(a) Exercising the Option.
---------------------
(i) Nonstatutory Stock Option. The Optionee may incur regular
-------------------------
federal income tax liability upon exercise of a NSO. The Optionee will be
treated as having received compensation income (taxable at ordinary income tax
rates) equal to the excess, if any, of the Fair Market Value of the Exercised
Shares on the date of exercise over their aggregate Exercise Price. If the
Optionee is an Employee or a former Employee, the Company will be required to
withhold from his or her compensation or collect from Optionee and pay to the
applicable taxing authorities an amount in cash equal to a percentage of this
compensation income at the time of exercise, and may refuse to honor the
exercise and refuse to deliver Shares if such withholding amounts are not
delivered at the time of exercise.
(ii) Incentive Stock Option. If this Option qualifies as an
----------------------
ISO, the Optionee will have no regular federal income tax liability upon its
exercise, although the excess, if any, of the Fair Market Value of the Exercised
Shares on the date of exercise over their aggregate Exercise Price will be
treated as an adjustment to alternative minimum taxable income for federal tax
purposes and may subject the Optionee to alternative minimum tax in the year of
exercise. In the event that the Optionee ceases to be an Employee but remains a
Service Provider, any Incentive Stock Option of the Optionee that remains
unexercised shall cease to qualify as an Incentive Stock
-3-
<PAGE>
Option and will be treated for tax purposes as a Nonstatutory Stock Option on
the date three (3) months and one (1) day following such change of status.
(b) Disposition of Shares.
---------------------
(i) NSO. If the Optionee holds NSO Shares for at least one
---
year, any gain realized on disposition of the Shares will be treated as long-
term capital gain for federal income tax purposes.
(ii) ISO. If the Optionee holds ISO Shares for at least one
---
year after exercise and two years after the grant date, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes. If the Optionee disposes of ISO Shares within one year
after exercise or two years after the grant date, any gain realized on such
disposition will be treated as compensation income (taxable at ordinary income
rates) to the extent of the excess, if any, of the lesser of (A) the difference
between the Fair Market Value of the Shares acquired on the date of exercise and
the aggregate Exercise Price, or (B) the difference between the sale price of
such Shares and the aggregate Exercise Price. Any additional gain will be taxed
as capital gain, short-term or long-term depending on the period that the ISO
Shares were held.
(c) Notice of Disqualifying Disposition of ISO Shares. If the
-------------------------------------------------
Optionee sells or otherwise disposes of any of the Shares acquired pursuant to
an ISO on or before the later of (i) two years after the grant date, or (ii) one
year after the exercise date, the Optionee shall immediately notify the Company
in writing of such disposition. The Optionee agrees that he or she may be
subject to income tax withholding by the Company on the compensation income
recognized from such early disposition of ISO Shares by payment in cash or out
of the current earnings paid to the Optionee.
7. Entire Agreement; Governing Law. The Plan is incorporated herein by
-------------------------------
reference. The Plan and this Option Agreement constitute the entire agreement
of the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee. This agreement is governed by the internal substantive laws, but not
the choice of law rules, of Delaware.
8. NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE ACKNOWLEDGES AND AGREES
---------------------------------
THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED
ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT
THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES
HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE
TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO
NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A
SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL
NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE
OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT
CAUSE.
-4-
<PAGE>
By your signature and the signature of the Company's representative below,
you and the Company agree that this Option is granted under and governed by the
terms and conditions of the Plan and this Option Agreement. Optionee has
reviewed the Plan and this Option Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
Agreement and fully understands all provisions of the Plan and Option Agreement.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Administrator upon any questions relating to the Plan
and Option Agreement. Optionee further agrees to notify the Company upon any
change in the residence address indicated below.
OPTIONEE: PC-TEL, INC.
- ------------------------------- ----------------------------------------
Signature By
- ------------------------------- ----------------------------------------
Print NameTitle
- -------------------------------
Residence Address
- -------------------------------
-5-
<PAGE>
CONSENT OF SPOUSE
-----------------
The undersigned spouse of Optionee has read and hereby approves the terms
and conditions of the Plan and this Option Agreement. In consideration of the
Company's granting his or her spouse the right to purchase Shares as set forth
in the Plan and this Option Agreement, the undersigned hereby agrees to be
irrevocably bound by the terms and conditions of the Plan and this Option
Agreement and further agrees that any community property interest shall be
similarly bound. The undersigned hereby appoints the undersigned's spouse as
attorney-in-fact for the undersigned with respect to any amendment or exercise
of rights under the Plan or this Option Agreement.
------------------------------------------
Spouse of Optionee
<PAGE>
EXHIBIT A
---------
1997 STOCK PLAN
EXERCISE NOTICE
PC-Tel, Inc.
630 Alder Drive, Suite 202
Milpitas, CA 95035
Attention: [Title]
1. Exercise of Option. Effective as of today, ________________, 199__,
------------------
the undersigned ("Purchaser") hereby elects to purchase ______________ shares
(the "Shares") of, as amended and restated the Common Stock of PC-Tel, Inc. (the
"Company") under and pursuant to the 1997 Stock Plan (the "Plan") and the Stock
Option Agreement dated, 19___ (the "Option Agreement"). The purchase price for
the Shares shall be $, as required by the Option Agreement.
2. Delivery of Payment. Purchaser herewith delivers to the Company the
-------------------
full purchase price for the Shares.
3. Representations of Purchaser. Purchaser acknowledges that Purchaser
----------------------------
has received, read and understood the Plan and the Option Agreement and agrees
to abide by and be bound by their terms and conditions.
4. Rights as Shareholder. Until the issuance (as evidenced by the
---------------------
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the Shares, no right to vote or receive dividends or
any other rights as a shareholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. The Shares so acquired shall
be issued to the Optionee as soon as practicable after exercise of the Option.
No adjustment will be made for a dividend or other right for which the record
date is prior to the date of issuance, except as provided in [Section 13] of the
Plan.
5. Tax Consultation. Purchaser understands that Purchaser may suffer
----------------
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.
6. Entire Agreement; Governing Law. The Plan and Option Agreement are
-------------------------------
incorporated herein by reference. This Agreement, the Plan and the Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and Purchaser with respect to the subject matter
hereof, and may not be modified adversely to the Purchaser's interest except by
means of a writing
<PAGE>
signed by the Company and Purchaser. This agreement is governed by the internal
substantive laws, but not the choice of law rules, of Delaware.
Submitted by: Accepted by:
PURCHASER: PC-TEL, INC.
- --------------------------------- ----------------------------------------
Signature By
- --------------------------------- ----------------------------------------
Print Name Its
Address: Address:
- ------- -------
- --------------------------------- 630 Alder Drive, Suite 202
Milpitas, CA 95035
- ---------------------------------
----------------------------------------
Date Received
-2-
<PAGE>
EXHIBIT B
---------
SECURITY AGREEMENT
This Security Agreement is made as of __________, 19___ between PC-Tel,
Inc., a Delaware corporation ("Pledgee"), and _________________________
("Pledgor").
Recitals
--------
Pursuant to Pledgor's election to purchase Shares under the Option
Agreement dated ________ (the "Option"), between Pledgor and Pledgee under
Pledgee's 1997 Stock Plan, as amended and restated, and Pledgor's election under
the terms of the Option to pay for such shares with his promissory note (the
"Note"), Pledgor has purchased _________ shares of Pledgee's Common Stock (the
"Shares") at a price of $________ per share, for a total purchase price of
$__________. The Note and the obligations thereunder are as set forth in
Exhibit C to the Option.
NOW, THEREFORE, it is agreed as follows:
1. Creation and Description of Security Interest. In consideration of the
transfer of the Shares to Pledgor under the Option Agreement, Pledgor, pursuant
to the [state] Commercial Code, hereby pledges all of such Shares (herein
sometimes referred to as the "Collateral") represented by certificate number
______, duly endorsed in blank or with executed stock powers, and herewith
delivers said certificate to the Secretary of Pledgee ("Pledgeholder"), who
shall hold said certificate subject to the terms and conditions of this Security
Agreement.
The pledged stock (together with an executed blank stock assignment for use
in transferring all or a portion of the Shares to Pledgee if, as and when
required pursuant to this Security Agreement) shall be held by the Pledgeholder
as security for the repayment of the Note, and any extensions or renewals
thereof, to be executed by Pledgor pursuant to the terms of the Option, and the
Pledgeholder shall not encumber or dispose of such Shares except in accordance
with the provisions of this Security Agreement.
2. Pledgor's Representations and Covenants. To induce Pledgee to enter
---------------------------------------
into this Security Agreement, Pledgor represents and covenants to Pledgee, its
successors and assigns, as follows:
a. Payment of Indebtedness. Pledgor will pay the principal sum of
-----------------------
the Note secured hereby, together with interest thereon, at the time and in the
manner provided in the Note.
b. Encumbrances. The Shares are free of all other encumbrances,
------------
defenses and liens, and Pledgor will not further encumber the Shares without the
prior written consent of Pledgee.
c. Margin Regulations. In the event that Pledgee's Common Stock is
------------------
now or later becomes margin-listed by the Federal Reserve Board and Pledgee is
classified as a "lender" within the meaning of the regulations under Part 207 of
Title 12 of the Code of Federal Regulations
<PAGE>
("Regulation G"), Pledgor agrees to cooperate with Pledgee in making any
amendments to the Note or providing any additional collateral as may be
necessary to comply with such regulations.
3. Voting Rights. During the term of this pledge and so long as all
-------------
payments of principal and interest are made as they become due under the terms
of the Note, Pledgor shall have the right to vote all of the Shares pledged
hereunder.
4. Stock Adjustments. In the event that during the term of the pledge any
-----------------
stock dividend, reclassification, readjustment or other changes are declared or
made in the capital structure of Pledgee, all new, substituted and additional
shares or other securities issued by reason of any such change shall be
delivered to and held by the Pledgee under the terms of this Security Agreement
in the same manner as the Shares originally pledged hereunder. In the event of
substitution of such securities, Pledgor, Pledgee and Pledgeholder shall
cooperate and execute such documents as are reasonable so as to provide for the
substitution of such Collateral and, upon such substitution, references to
"Shares" in this Security Agreement shall include the substituted shares of
capital stock of Pledgor as a result thereof.
5. Options and Rights. In the event that, during the term of this pledge,
------------------
subscription Options or other rights or options shall be issued in connection
with the pledged Shares, such rights, Options and options shall be the property
of Pledgor and, if exercised by Pledgor, all new stock or other securities so
acquired by Pledgor as it relates to the pledged Shares then held by
Pledgeholder shall be immediately delivered to Pledgeholder, to be held under
the terms of this Security Agreement in the same manner as the Shares pledged.
6. Default. Pledgor shall be deemed to be in default of the Note and of
-------
this Security Agreement in the event:
a. Payment of principal or interest on the Note shall be delinquent
for a period of 10 days or more; or
b. Pledgor fails to perform any of the covenants set forth in the
Option or contained in this Security Agreement for a period of 10 days after
written notice thereof from Pledgee.
In the case of an event of Default, as set forth above, Pledgee shall have
the right to accelerate payment of the Note upon notice to Pledgor, and Pledgee
shall thereafter be entitled to pursue its remedies under the Delaware
Commercial Code.
7. Release of Collateral. Subject to any applicable contrary rules under
---------------------
Regulation G, there shall be released from this pledge a portion of the pledged
Shares held by Pledgeholder hereunder upon payments of the principal of the
Note. The number of the pledged Shares which shall be released shall be that
number of full Shares which bears the same proportion to the initial number of
Shares pledged hereunder as the payment of principal bears to the initial full
principal amount of the Note.
-2-
<PAGE>
8. Withdrawal or Substitution of Collateral. Pledgor shall not sell,
----------------------------------------
withdraw, pledge, substitute or otherwise dispose of all or any part of the
Collateral without the prior written consent of Pledgee.
9. Term. The within pledge of Shares shall continue until the payment of
----
all indebtedness secured hereby, at which time the remaining pledged stock shall
be promptly delivered to Pledgor, subject to the provisions for prior release of
a portion of the Collateral as provided in paragraph 7 above.
10. Insolvency. Pledgor agrees that if a bankruptcy or insolvency
----------
proceeding is instituted by or against it, or if a receiver is appointed for the
property of Pledgor, or if Pledgor makes an assignment for the benefit of
creditors, the entire amount unpaid on the Note shall become immediately due and
payable, and Pledgee may proceed as provided in the case of default.
11. Pledgeholder Liability. In the absence of willful or gross negligence,
----------------------
Pledgeholder shall not be liable to any party for any of his acts, or omissions
to act, as Pledgeholder.
12. Invalidity of Particular Provisions. Pledgor and Pledgee agree that
-----------------------------------
the enforceability or invalidity of any provision or provisions of this Security
Agreement shall not render any other provision or provisions herein contained
unenforceable or invalid.
13. Successors or Assigns. Pledgor and Pledgee agree that all of the terms
---------------------
of this Security Agreement shall be binding on their respective successors and
assigns, and that the term "Pledgor" and the term "Pledgee" as used herein shall
be deemed to include, for all purposes, the respective designees, successors,
assigns, heirs, executors and administrators.
14. Governing Law. This Security Agreement shall be interpreted and
-------------
governed under the internal substantive laws, but not the choice of law rules,
of Delaware.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
PLEDGOR -------------------------------------------
Signature
-------------------------------------------
Print Name
Address:
-------------------------------------------
-------------------------------------------
PLEDGEE PC-Tel, Inc.
a Delaware corporation
-------------------------------------------
Signature
-------------------------------------------
Print Name
-------------------------------------------
Title
PLEDGEHOLDER
-------------------------------------------
Secretary of PC-Tel, Inc.
-4-
<PAGE>
EXHIBIT C
---------
NOTE
$_______________ Milpitas, California
______________, 19___
FOR VALUE RECEIVED, _______________ promises to pay to PC-Tel, Inc., a
Delaware corporation (the "Company"), or order, the principal sum of
_______________________ ($_____________), together with interest on the unpaid
principal hereof from the date hereof at the rate of _______________ percent
(____%) per annum, compounded semiannually.
Principal and interest shall be due and payable on __________, 19___.
Payment of principal and interest shall be made in lawful money of the United
States of America.
The undersigned may at any time prepay all or any portion of the principal
or interest owing hereunder.
This Note is subject to the terms of the Option, dated as of
________________. This Note is secured in part by a pledge of the Company's
Common Stock under the terms of a Security Agreement of even date herewith and
is subject to all the provisions thereof.
The holder of this Note shall have full recourse against the undersigned,
and shall not be required to proceed against the collateral securing this Note
in the event of default.
In the event the undersigned shall cease to be an employee, director or
consultant of the Company for any reason, this Note shall, at the option of the
Company, be accelerated, and the whole unpaid balance on this Note of principal
and accrued interest shall be immediately due and payable.
Should any action be instituted for the collection of this Note, the
reasonable costs and attorneys' fees therein of the holder shall be paid by the
undersigned.
-------------------------------------
-------------------------------------
<PAGE>
1997 STOCK PLAN
NOTICE OF GRANT OF STOCK PURCHASE RIGHT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Notice of Grant.
[Grantee's Name and Address]
You have been granted the right to purchase Common Stock of the Company,
subject to the Company's Repurchase Option and your ongoing status as a Service
Provider (as described in the Plan and the attached Restricted Stock Purchase
Agreement), as follows:
Grant Number _________________________
Date of Grant _________________________
Price Per Share $________________________
Total Number of Shares Subject _________________________
to This Stock Purchase Right
Expiration Date: _________________________
YOU MUST EXERCISE THIS STOCK PURCHASE RIGHT BEFORE THE EXPIRATION DATE OR
IT WILL TERMINATE AND YOU WILL HAVE NO FURTHER RIGHT TO PURCHASE THE SHARES. By
your signature and the signature of the Company's representative below, you and
the Company agree that this Stock Purchase Right is granted under and governed
by the terms and conditions of the 1997 Stock Plan and the Restricted Stock
Purchase Agreement, attached hereto as Exhibit A-1, both of which are made a
part of this document. You further agree to execute the attached Restricted
Stock Purchase Agreement as a condition to purchasing any shares under this
Stock Purchase Right.
GRANTEE: PC-TEL, INC.
- -------------------------------- ----------------------------------------
Signature By
- -------------------------------- ----------------------------------------
Print Name Title
<PAGE>
EXHIBIT A-1
-----------
1997 STOCK PLAN
RESTRICTED STOCK PURCHASE AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Restricted Stock Purchase Agreement.
WHEREAS the Purchaser named in the Notice of Grant, (the "Purchaser") is an
Service Provider, and the Purchaser's continued participation is considered by
the Company to be important for the Company's continued growth; and
WHEREAS in order to give the Purchaser an opportunity to acquire an equity
interest in the Company as an incentive for the Purchaser to participate in the
affairs of the Company, the Administrator has granted to the Purchaser a Stock
Purchase Right subject to the terms and conditions of the Plan and the Notice of
Grant, which are incorporated herein by reference, and pursuant to this
Restricted Stock Purchase Agreement (the "Agreement").
NOW THEREFORE, the parties agree as follows:
1. Sale of Stock. The Company hereby agrees to sell to the Purchaser and
-------------
the Purchaser hereby agrees to purchase shares of the Company's Common Stock
(the "Shares"), at the per Share purchase price and as otherwise described in
the Notice of Grant.
2. Payment of Purchase Price. The purchase price for the Shares may be
-------------------------
paid by delivery to the Company at the time of execution of this Agreement of
cash, a check, or some combination thereof.
3. Repurchase Option.
-----------------
(a) In the event the Purchaser ceases to be a Service Provider for
any or no reason (including death or disability) before all of the Shares are
released from the Company's Repurchase Option (see Section 4), the Company
shall, upon the date of such termination (as reasonably fixed and determined by
the Company) have an irrevocable, exclusive option (the "Repurchase Option") for
a period of sixty (60) days from such date to repurchase up to that number of
shares which constitute the Unreleased Shares (as defined in Section 4) at the
original purchase price per share (the "Repurchase Price"). The Repurchase
Option shall be exercised by the Company by delivering written notice to the
Purchaser or the Purchaser's executor (with a copy to the Escrow Holder) AND, at
the Company's option, (i) by delivering to the Purchaser or the Purchaser's
executor a check in the amount of the aggregate Repurchase Price, or (ii) by
cancelling an amount of the Purchaser's indebtedness to the Company equal to the
aggregate Repurchase Price, or (iii) by a combination of (i) and (ii) so that
the combined payment and cancellation of indebtedness equals the aggregate
Repurchase Price. Upon delivery of such notice and the payment of the aggregate
Repurchase Price, the Company shall become the legal and beneficial owner of the
Shares being repurchased and all
<PAGE>
rights and interests therein or relating thereto, and the Company shall have the
right to retain and transfer to its own name the number of Shares being
repurchased by the Company.
(b) Whenever the Company shall have the right to repurchase Shares
hereunder, the Company may designate and assign one or more employees, officers,
directors or shareholders of the Company or other persons or organizations to
exercise all or a part of the Company's purchase rights under this Agreement and
purchase all or a part of such Shares. If the Fair Market Value of the Shares to
be repurchased on the date of such designation or assignment (the "Repurchase
FMV") exceeds the aggregate Repurchase Price of such Shares, then each such
designee or assignee shall pay the Company cash equal to the difference between
the Repurchase FMV and the aggregate Repurchase Price of such Shares.
4. Release of Shares From Repurchase Option.
----------------------------------------
(a) _______________________ percent (______%) of the Shares shall be
released from the Company's Repurchase Option [one year] after the Date of Grant
--------
and __________________ percent (______%) of the Shares [at the end of each month
------------------------
thereafter], provided that the Purchaser does not cease to be a Service Provider
- ----------
prior to the date of any such release.
(b) Any of the Shares that have not yet been released from the
Repurchase Option are referred to herein as "Unreleased Shares."
(c) The Shares that have been released from the Repurchase Option
shall be delivered to the Purchaser at the Purchaser's request (see Section 6).
5. Restriction on Transfer. Except for the escrow described in Section 6
-----------------------
or the transfer of the Shares to the Company or its assignees contemplated by
this Agreement, none of the Shares or any beneficial interest therein shall be
transferred, encumbered or otherwise disposed of in any way until such Shares
are released from the Company's Repurchase Option in accordance with the
provisions of this Agreement, other than by will or the laws of descent and
distribution.
6. Escrow of Shares.
----------------
(a) To ensure the availability for delivery of the Purchaser's
Unreleased Shares upon repurchase by the Company pursuant to the Repurchase
Option, the Purchaser shall, upon execution of this Agreement, deliver and
deposit with an escrow holder designated by the Company (the "Escrow Holder")
the share certificates representing the Unreleased Shares, together with the
stock assignment duly endorsed in blank, attached hereto as Exhibit A-2. The
Unreleased Shares and stock assignment shall be held by the Escrow Holder,
pursuant to the Joint Escrow Instructions of the Company and Purchaser attached
hereto as Exhibit A-3, until such time as the Company's Repurchase Option
expires. As a further condition to the Company's obligations under this
Agreement, the Company may require the spouse of Purchaser, if any, to execute
and deliver to the Company the Consent of Spouse attached hereto as Exhibit A-4.
-2-
<PAGE>
(b) The Escrow Holder shall not be liable for any act it may do or
omit to do with respect to holding the Unreleased Shares in escrow while acting
in good faith and in the exercise of its judgment.
(c) If the Company or any assignee exercises the Repurchase Option
hereunder, the Escrow Holder, upon receipt of written notice of such exercise
from the proposed transferee, shall take all steps necessary to accomplish such
transfer.
(d) When the Repurchase Option has been exercised or expires
unexercised or a portion of the Shares has been released from the Repurchase
Option, upon request the Escrow Holder shall promptly cause a new certificate to
be issued for the released Shares and shall deliver the certificate to the
Company or the Purchaser, as the case may be.
(e) Subject to the terms hereof, the Purchaser shall have all the
rights of a shareholder with respect to the Shares while they are held in
escrow, including without limitation, the right to vote the Shares and to
receive any cash dividends declared thereon. If, from time to time during the
term of the Repurchase Option, there is (i) any stock dividend, stock split or
other change in the Shares, or (ii) any merger or sale of all or substantially
all of the assets or other acquisition of the Company, any and all new,
substituted or additional securities to which the Purchaser is entitled by
reason of the Purchaser's ownership of the Shares shall be immediately subject
to this escrow, deposited with the Escrow Holder and included thereafter as
"Shares" for purposes of this Agreement and the Repurchase Option.
7. Legends. The share certificate evidencing the Shares, if any, issued
-------
hereunder shall be endorsed with the following legend (in addition to any legend
required under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS UPON TRANSFER AND RIGHTS OF REPURCHASE AS SET FORTH IN AN AGREEMENT
BETWEEN THE COMPANY AND THE SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE COMPANY.
8. Adjustment for Stock Split. All references to the number of Shares and
--------------------------
the purchase price of the Shares in this Agreement shall be appropriately
adjusted to reflect any stock split, stock dividend or other change in the
Shares which may be made by the Company after the date of this Agreement.
9. Tax Consequences. The Purchaser has reviewed with the Purchaser's own
----------------
tax advisors the federal, state, local and foreign tax consequences of this
investment and the transactions contemplated by this Agreement. The Purchaser is
relying solely on such advisors and not on any statements or representations of
the Company or any of its agents. The Purchaser understands that the Purchaser
(and not the Company) shall be responsible for the Purchaser's own tax liability
that may arise as a result of the transactions contemplated by this Agreement.
The Purchaser understands that Section 83 of the Internal Revenue Code of 1986,
as amended (the "Code"), taxes as ordinary income the difference between the
purchase price for the Shares and the Fair Market Value of the Shares as of the
date any restrictions on the Shares lapse. In this context, "restriction"
includes the
-3-
<PAGE>
right of the Company to buy back the Shares pursuant to the Repurchase Option.
The Purchaser understands that the Purchaser may elect to be taxed at the time
the Shares are purchased rather than when and as the Repurchase Option expires
by filing an election under Section 83(b) of the Code with the IRS within 30
days from the date of purchase. The form for making this election is attached as
Exhibit A-5 hereto.
THE PURCHASER ACKNOWLEDGES THAT IT IS THE PURCHASER'S SOLE RESPONSIBILITY
AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF
THE PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE THIS FILING ON
THE PURCHASER'S BEHALF.
10. General Provisions.
------------------
(a) This Agreement shall be governed by the internal substantive
laws, but not the choice of law rules of Delaware. This Agreement, subject to
the terms and conditions of the Plan and the Notice of Grant, represents the
entire agreement between the parties with respect to the purchase of the Shares
by the Purchaser. Subject to Section 15(c) of the Plan, in the event of a
conflict between the terms and conditions of the Plan and the terms and
conditions of this Agreement, the terms and conditions of the Plan shall
prevail. Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Agreement.
(b) Any notice, demand or request required or permitted to be given
by either the Company or the Purchaser pursuant to the terms of this Agreement
shall be in writing and shall be deemed given when delivered personally or
deposited in the U.S. mail, First Class with postage prepaid, and addressed to
the parties at the addresses of the parties set forth at the end of this
Agreement or such other address as a party may request by notifying the other in
writing.
Any notice to the Escrow Holder shall be sent to the Company's address
with a copy to the other party hereto.
(c) The rights of the Company under this Agreement shall be
transferable to any one or more persons or entities, and all covenants and
agreements hereunder shall inure to the benefit of, and be enforceable by the
Company's successors and assigns. The rights and obligations of the Purchaser
under this Agreement may only be assigned with the prior written consent of the
Company.
(d) Either party's failure to enforce any provision of this Agreement
shall not in any way be construed as a waiver of any such provision, nor prevent
that party from thereafter enforcing any other provision of this Agreement. The
rights granted both parties hereunder are cumulative and shall not constitute a
waiver of either party's right to assert any other legal remedy available to it.
(e) The Purchaser agrees upon request to execute any further
documents or instruments necessary or desirable to carry out the purposes or
intent of this Agreement.
(f) PURCHASER ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES
PURSUANT TO SECTION 4 HEREOF IS EARNED ONLY BY CONTINUING
-4-
<PAGE>
SERVICE AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE
ACT OF BEING HIRED OR PURCHASING SHARES HEREUNDER). PURCHASER FURTHER
ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED
HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS
OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING
PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH PURCHASER'S
RIGHT OR THE COMPANY'S RIGHT TO TERMINATE PURCHASER'S RELATIONSHIP AS A SERVICE
PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE.
By Purchaser's signature below, Purchaser represents that he or she is
familiar with the terms and provisions of the Plan, and hereby accepts this
Agreement subject to all of the terms and provisions thereof. Purchaser has
reviewed the Plan and this Agreement in their entirety, has had an opportunity
to obtain the advice of counsel prior to executing this Agreement and fully
understands all provisions of this Agreement. Purchaser agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Agreement.
Purchaser further agrees to notify the Company upon any change in the residence
indicated in the Notice of Grant.
DATED:
-----------------------
PURCHASER: PC-TEL, INC.
- ----------------------------- ----------------------------------------
Signature By
- ----------------------------- ----------------------------------------
Print Name Title
-5-
<PAGE>
EXHIBIT A-2
-----------
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I, __________________________, hereby sell, assign and
transfer unto ________________________________________________________________
________________ (__________) shares of the Common Stock of PC-Tel, Inc.
standing in my name of the books of said corporation represented by Certificate
No. _____ herewith and do hereby irrevocably constitute and appoint
_____________ to transfer the said stock on the books of the within named
corporation with full power of substitution in the premises.
This Stock Assignment may be used only in accordance with the Restricted
Stock Purchase Agreement (the "Agreement") between________________________ and
the undersigned dated ______________, 19__.
Dated: _______________, 19__
Signature:
-----------------------------------
INSTRUCTIONS: Please do not fill in any blanks other than the signature
line. The purpose of this assignment is to enable the Company to exercise the
Repurchase Option, as set forth in the Agreement, without requiring additional
signatures on the part of the Purchaser.
<PAGE>
EXHIBIT A-3
-----------
JOINT ESCROW INSTRUCTIONS
-------------------------
__________, 19__
Corporate Secretary
PC-Tel, Inc.
630 Alder Drive, Suite 202
Milpitas, CA 95035
Dear __________________:
As Escrow Agent for both PC-Tel, Inc., a Delaware corporation (the
"Company"), and the undersigned purchaser of stock of the Company (the
"Purchaser"), you are hereby authorized and directed to hold the documents
delivered to you pursuant to the terms of that certain Restricted Stock Purchase
Agreement ("Agreement") between the Company and the undersigned, in accordance
with the following instructions:
1. In the event the Company and/or any assignee of the Company (referred
to collectively as the "Company") exercises the Company's Repurchase Option set
forth in the Agreement, the Company shall give to Purchaser and you a written
notice specifying the number of shares of stock to be purchased, the purchase
price, and the time for a closing hereunder at the principal office of the
Company. Purchaser and the Company hereby irrevocably authorize and direct you
to close the transaction contemplated by such notice in accordance with the
terms of said notice.
2. At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company or its
assignee, against the simultaneous delivery to you of the purchase price (by
cash, a check, or some combination thereof) for the number of shares of stock
being purchased pursuant to the exercise of the Company's Repurchase Option.
3. Purchaser irrevocably authorizes the Company to deposit with you any
certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as defined in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as Purchaser's
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all documents necessary or appropriate to make such
securities negotiable and to complete any transaction herein contemplated,
including but not limited to the filing with any applicable state blue sky
authority of any required applications for consent to, or notice of transfer of,
the securities. Subject to the provisions of this paragraph 3, Purchaser shall
exercise all rights and privileges of a shareholder of the Company while the
stock is held by you.
<PAGE>
4. Upon written request of the Purchaser, but no more than once per
calendar year, unless the Company's Repurchase Option has been exercised, you
shall deliver to Purchaser a certificate or certificates representing so many
shares of stock as are not then subject to the Company's Repurchase Option.
Within 90 days after Purchaser ceases to be a Service Provider, you shall
deliver to Purchaser a certificate or certificates representing the aggregate
number of shares held or issued pursuant to the Agreement and not purchased by
the Company or its assignees pursuant to exercise of the Company's Repurchase
Option.
5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Purchaser,
you shall deliver all of the same to Purchaser and shall be discharged of all
further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked
only by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties. You
shall not be personally liable for any act you may do or omit to do hereunder as
Escrow Agent or as attorney-in-fact for Purchaser while acting in good faith,
and any act done or omitted by you pursuant to the advice of your own attorneys
shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or corporation,
excepting only orders or process of courts of law, and are hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court. In
case you obey or comply with any such order, judgment or decree, you shall not
be liable to any of the parties hereto or to any other person, firm or
corporation by reason of such compliance, notwithstanding any such order,
judgment or decree being subsequently reversed, modified, annulled, set aside,
vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under the
statute of limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel and other experts
as you may deem necessary properly to advise you in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor.
12. Your responsibilities as Escrow Agent hereunder shall terminate if you
shall cease to be an officer or agent of the Company or if you shall resign by
written notice to each party. In the event of any such termination, the Company
shall appoint a successor Escrow Agent.
-2-
<PAGE>
13. If you reasonably require other or further instruments in connection
with these Joint Escrow Instructions or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with respect
to the delivery and/or ownership or right of possession of the securities held
by you hereunder, you are authorized and directed to retain in your possession
without liability to anyone all or any part of said securities until such
disputes shall have been settled either by mutual written agreement of the
parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
15. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit in
the United States Post Office, by registered or certified mail with postage and
fees prepaid, addressed to each of the other parties thereunto entitled at the
following addresses or at such other addresses as a party may designate by ten
days' advance written notice to each of the other parties hereto.
COMPANY: PC-Tel, Inc.
630 Alder Drive, Suite 202
Milpitas, CA 95035
PURCHASER:
---------------------------------------
---------------------------------------
---------------------------------------
ESCROW AGENT: Corporate Secretary
PC-Tel, Inc.
630 Alder Drive, Suite 202
Milpitas, CA 95035
16. By signing these Joint Escrow Instructions, you become a party hereto
only for the purpose of said Joint Escrow Instructions; you do not become a
party to the Agreement.
17. This instrument shall be binding upon and inure to the benefit of the
parties hereto, and their respective successors and permitted assigns.
-3-
<PAGE>
18. These Joint Escrow Instructions shall be governed by, and construed
and enforced in accordance with, the internal substantive laws, but not the
choice of law rules, of Delaware.
Very truly yours,
PC-TEL, INC.
-----------------------------------------
By
-----------------------------------------
Title
PURCHASER:
-----------------------------------------
Signature
-----------------------------------------
Print Name
ESCROW AGENT:
- -----------------------------------
Corporate Secretary
-4-
<PAGE>
EXHIBIT A-4
-----------
CONSENT OF SPOUSE
-----------------
I, ____________________, spouse of ___________________, have read and
approve the foregoing Restricted Stock Purchase Agreement (the "Agreement"). In
consideration of the Company's grant to my spouse of the right to purchase
shares of PC-Tel, Inc., as set forth in the Agreement, I hereby appoint my
spouse as my attorney-in-fact in respect to the exercise of any rights under the
Agreement and agree to be bound by the provisions of the Agreement insofar as I
may have any rights in said Agreement or any shares issued pursuant thereto
under the community property laws or similar laws relating to marital property
in effect in the state of our residence as of the date of the signing of the
foregoing Agreement.
Dated: , 19
---------------- --
--------------------------------------------
Signature of Spouse
<PAGE>
EXHIBIT A-5
-----------
ELECTION UNDER SECTION 83(b)
----------------------------
OF THE INTERNAL REVENUE CODE OF 1986
------------------------------------
The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code of 1986, as amended, to include in taxpayer's gross income
for the current taxable year the amount of any compensation taxable to taxpayer
in connection with his or her receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of the
undersigned are as follows:
NAME: TAXPAYER: SPOUSE:
ADDRESS:
IDENTIFICATION NO.: TAXPAYER: SPOUSE:
TAXABLE YEAR:
2. The property with respect to which the election is made is described as
follows:__________ shares (the "Shares") of the Common Stock of PC-Tel,
Inc. (the "Company").
3. The date on which the property was transferred is:______________, 19__.
4. The property is subject to the following restrictions:
The Shares may be repurchased by the Company, or its assignee, upon certain
events. This right lapses with regard to a portion of the Shares based on
the continued performance of services by the taxpayer over time.
5. The fair market value at the time of transfer, determined without regard to
any restriction other than a restriction which by its terms will never
lapse, of such property is: $_______________.
6. The amount (if any) paid for such property is: $_______________.
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
- --------------------------------------------------------------------------
except with the consent of the Commissioner.
- -------------------------------------------
Dated: , 19 ---------------------------------------
-------------------- -- Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated: , 19 ---------------------------------------
-------------------- -- Spouse of Taxpayer
<PAGE>
EXHIBIT 10.4
PC-TEL, INC.
1998 DIRECTOR OPTION PLAN
1. Purposes of the Plan. The purposes of this 1998 Director Option Plan
--------------------
are to attract and retain the best available personnel for service as Outside
Directors (as defined herein) of the Company, to provide additional incentive to
the Outside Directors of the Company to serve as Directors, and to encourage
their continued service on the Board.
All options granted hereunder shall be nonstatutory stock options.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Board" means the Board of Directors of the Company.
-----
(b) "Code" means the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" means the common stock of the Company.
------------
(d) "Company" means PC-Tel, Inc., a Delaware corporation.
-------
(e) "Director" means a member of the Board.
--------
(f) "Employee" means any person, including officers and Directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. The
payment of a Director's fee by the Company shall not be sufficient in and
of itself to constitute "employment" by the Company.
(g) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(h) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the
Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock
Market, its Fair Market Value shall be the closing sales price for such
stock (or the closing bid, if no sales were reported) as quoted on such
exchange or system for the last market trading day prior to the time of
determination as reported in The Wall Street Journal or such other source
as the Administrator deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market
Value of a Share of Common Stock shall be the mean between the high bid and
low asked prices for the Common Stock for the last market trading day prior
to the time of determination, as reported in The Wall Street Journal or
such other source as the Board deems reliable; or
<PAGE>
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board.
(i) "Inside Director" means a Director who is an Employee.
---------------
(j) "Option" means a stock option granted pursuant to the Plan.
------
(k) "Optioned Stock" means the Common Stock subject to an Option.
--------------
(l) "Optionee" means a Director who holds an Option.
--------
(m) "Outside Director" means a Director who is not an Employee.
----------------
(n) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(o) "Plan" means this 1998 Director Option Plan.
----
(p) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 10 of the Plan.
(q) "Subsidiary" means a "subsidiary corporation," whether now or
----------
hereafter existing, as defined in Section 424(f) of the Internal Revenue
Code of 1986.
3. Stock Subject to the Plan. Subject to the provisions of Section 10 of
-------------------------
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 200,000 Shares of Common Stock (the "Pool"). The Shares may be
authorized, but unissued, or reacquired Common Stock.
If an Option expires or becomes unexercisable without having been
exercised in full, the unpurchased Shares which were subject thereto shall
become available for future grant or sale under the Plan (unless the Plan has
terminated). Shares that have actually been issued under the Plan shall not be
returned to the Plan and shall not become available for future distribution
under the Plan.
4. Administration and Grants of Options under the Plan.
---------------------------------------------------
(a) Procedure for Grants. All grants of Options to Outside Directors
--------------------
under this Plan shall be automatic and nondiscretionary and shall be made
strictly in accordance with the following provisions:
(i) No person shall have any discretion to select which Outside
Directors shall be granted Options or to determine the number of Shares to
be covered by Options granted to Outside Directors.
(ii) Each Outside Director shall be automatically granted an
Option to purchase 15,000 Shares (the "First Option") on the date on which
the later of the following events occurs: (A) the effective date of this
Plan, as determined in accordance with Section 6 hereof, or
-2-
<PAGE>
(B) the date on which such person first becomes an Outside Director, whether
through election by the shareholders of the Company or appointment by the Board
to fill a vacancy; provided, however, that an Inside Director who ceases to be
an Inside Director but who remains a Director shall not receive a First Option.
(iii) Each Outside Director shall be automatically granted an
Option to purchase 7,500 Shares (a "Subsequent Option") on January 1st of each
year provided he or she is then an Outside Director and if as of such date, he
or she shall have served on the Board for at least the preceding six (6) months.
(iv) Notwithstanding the provisions of subsections (ii) and
(iii) hereof, any exercise of an Option granted before the Company has obtained
shareholder approval of the Plan in accordance with Section 16 hereof shall be
conditioned upon obtaining such shareholder approval of the Plan in accordance
with Section 16 hereof.
(v) The terms of a First Option granted hereunder shall be as
follows:
(A) the term of the First Option shall be ten (10) years.
(B) the First Option shall be exercisable only while the
Outside Director remains a Director of the Company, except as set forth in
Sections 8 and 10 hereof.
(C) the exercise price per Share shall be 100% of the
Fair Market Value per Share on the date of grant of the First Option.
(D) subject to Section 10 hereof, the First Option shall
become exercisable as to 331/3 percent of the Shares subject to the First Option
on each anniversary of its date of grant, provided that the Optionee continues
to serve as a Director on such dates.
(vi) The terms of a Subsequent Option granted hereunder shall
be as follows:
(A) the term of the Subsequent Option shall be ten (10)
years.
(B) the Subsequent Option shall be exercisable only while
the Outside Director remains a Director of the Company, except as set forth in
Sections 8 and 10 hereof.
(C) the exercise price per Share shall be 100% of the
Fair Market Value per Share on the date of grant of the Subsequent Option.
(D) subject to Section 10 hereof, the Subsequent Option
shall become exercisable as to 100 percent of the Shares subject to the
Subsequent Option on each anniversary of its date of grant, provided that the
Optionee continues to serve as a Director on such dates.
-3-
<PAGE>
(vii) In the event that any Option granted under the Plan would
cause the number of Shares subject to outstanding Options plus the number of
Shares previously purchased under Options to exceed the Pool, then the remaining
Shares available for Option grant shall be granted under Options to the Outside
Directors on a pro rata basis. No further grants shall be made until such time,
if any, as additional Shares become available for grant under the Plan through
action of the Board or the shareholders to increase the number of Shares which
may be issued under the Plan or through cancellation or expiration of Options
previously granted hereunder.
5. Eligibility. Options may be granted only to Outside Directors. All
-----------
Options shall be automatically granted in accordance with the terms set forth in
Section 4 hereof.
The Plan shall not confer upon any Optionee any right with respect to
continuation of service as a Director or nomination to serve as a Director, nor
shall it interfere in any way with any rights which the Director or the Company
may have to terminate the Director's relationship with the Company at any time.
6. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board or its approval by the shareholders of the
Company as described in Section 16 of the Plan. It shall continue in effect for
a term of ten (10) years unless sooner terminated under Section 11 of the Plan.
7. Form of Consideration. The consideration to be paid for the Shares to
---------------------
be issued upon exercise of an Option, including the method of payment, shall
consist of (i) cash, (ii) check, (iii) other shares which (x) in the case of
Shares acquired upon exercise of an Option, have been owned by the Optionee for
more than six (6) months on the date of surrender, and (y) have a Fair Market
Value on the date of surrender equal to the aggregate exercise price of the
Shares as to which said Option shall be exercised, (iv) consideration received
by the Company under a cashless exercise program implemented by the Company in
connection with the Plan, or (v) any combination of the foregoing methods of
payment.
8. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times as are set forth in Section
4 hereof; provided, however, that no Options shall be exercisable until
shareholder approval of the Plan in accordance with Section 16 hereof has been
obtained.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may consist of any consideration and method of payment
allowable under Section 7 of the Plan. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote or receive dividends or any other rights as a
-4-
<PAGE>
shareholder shall exist with respect to the Optioned Stock, notwithstanding the
exercise of the Option. A share certificate for the number of Shares so acquired
shall be issued to the Optionee as soon as practicable after exercise of the
Option. No adjustment shall be made for a dividend or other right for which the
record date is prior to the date the stock certificate is issued, except as
provided in Section 10 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Continuous Status as a Director. Subject to
----------------------------------------------
Section 10 hereof, in the event an Optionee's status as a Director terminates
(other than upon the Optionee's death or total and permanent disability (as
defined in Section 22(e)(3) of the Code)), the Optionee may exercise his or her
Option, but only within three (3) months following the date of such termination,
and only to the extent that the Optionee was entitled to exercise it on the date
of such termination (but in no event later than the expiration of its ten (10)
year term). To the extent that the Optionee was not entitled to exercise an
Option on the date of such termination, and to the extent that the Optionee does
not exercise such Option (to the extent otherwise so entitled) within the time
specified herein, the Option shall terminate.
(c) Disability of Optionee. In the event Optionee's status as a
----------------------
Director terminates as a result of total and permanent disability (as defined in
Section 22(e)(3) of the Code), the Optionee may exercise his or her Option, but
only within twelve (12) months following the date of such termination, and only
to the extent that the Optionee was entitled to exercise it on the date of such
termination (but in no event later than the expiration of its ten (10) year
term). To the extent that the Optionee was not entitled to exercise an Option on
the date of termination, or if he or she does not exercise such Option (to the
extent otherwise so entitled) within the time specified herein, the Option shall
terminate.
(d) Death of Optionee. In the event of an Optionee's death, the
-----------------
Optionee's estate or a person who acquired the right to exercise the Option by
bequest or inheritance may exercise the Option, but only within twelve (12)
months following the date of death, and only to the extent that the Optionee was
entitled to exercise it on the date of death (but in no event later than the
expiration of its ten (10) year term). To the extent that the Optionee was not
entitled to exercise an Option on the date of death, and to the extent that the
Optionee's estate or a person who acquired the right to exercise such Option
does not exercise such Option (to the extent otherwise so entitled) within the
time specified herein, the Option shall terminate.
9. Non-Transferability of Options. The Option may not be sold, pledged,
------------------------------
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
10. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
------------------------------------------------------------------
Asset Sale.
- ----------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the number of Shares covered by each
outstanding Option, the number of Shares
-5-
<PAGE>
which have been authorized for issuance under the Plan but as to which no
Options have yet been granted or which have been returned to the Plan upon
cancellation or expiration of an Option, as well as the price per Share covered
by each such outstanding Option, and the number of Shares issuable pursuant to
the automatic grant provisions of Section 4 hereof shall be proportionately
adjusted for any increase or decrease in the number of issued Shares resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued Shares effected without receipt of consideration by the
Company; provided, however, that conversion of any convertible securities of the
Company shall not be deemed to have been "effected without receipt of
consideration." Except as expressly provided herein, no issuance by the Company
of shares of stock of any class, or securities convertible into shares of stock
of any class, shall affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of Shares subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, to the extent that an Option has not
been previously exercised, it shall terminate immediately prior to the
consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company
--------------------
with or into another corporation or the sale of substantially all of the assets
of the Company, outstanding Options may be assumed or equivalent options may be
substituted by the successor corporation or a Parent or Subsidiary thereof (the
"Successor Corporation"). If an Option is assumed or substituted for, the Option
or equivalent option shall continue to be exercisable as provided in Section 4
hereof for so long as the Optionee serves as a Director or a director of the
Successor Corporation. Following such assumption or substitution, if the
Optionee's status as a Director or director of the Successor Corporation, as
applicable, is terminated other than upon a voluntary resignation by the
Optionee, the Option or option shall become fully exercisable, including as to
Shares for which it would not otherwise be exercisable. Thereafter, the Option
or option shall remain exercisable in accordance with Sections 8(b) through (d)
above.
If the Successor Corporation does not assume an outstanding Option or
substitute for it an equivalent option, the Option shall become fully vested and
exercisable, including as to Shares for which it would not otherwise be
exercisable. In such event the Board shall notify the Optionee that the Option
shall be fully exercisable for a period of thirty (30) days from the date of
such notice, and upon the expiration of such period the Option shall terminate.
For the purposes of this Section 10(c), an Option shall be considered
assumed if, following the merger or sale of assets, the Option confers the right
to purchase or receive, for each Share of Optioned Stock subject to the Option
immediately prior to the merger or sale of assets, the consideration (whether
stock, cash, or other securities or property) received in the merger or sale of
assets by holders of Common Stock for each Share held on the effective date of
the transaction (and if holders were offered a choice of consideration, the type
of consideration chosen by the holders of a majority of the outstanding Shares).
If such consideration received in the merger or sale of assets is not solely
common stock of the successor corporation or its Parent, the Administrator may,
with the consent of the successor corporation, provide for the consideration to
be received upon the exercise of the Option, for each Share of Optioned Stock
subject to the Option, to be solely common
-6-
<PAGE>
stock of the successor corporation or its Parent equal in fair market value to
the per share consideration received by holders of Common Stock in the merger or
sale of assets.
11. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend,
-------------------------
alter, suspend, or discontinue the Plan, but no amendment, alteration,
suspension, or discontinuation shall be made which would impair the rights of
any Optionee under any grant theretofore made, without his or her consent. In
addition, to the extent necessary and desirable to comply with any applicable
law, regulation or stock exchange rule, the Company shall obtain shareholder
approval of any Plan amendment in such a manner and to such a degree as
required.
(b) Effect of Amendment or Termination. Any such amendment or
----------------------------------
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated.
12. Time of Granting Options. The date of grant of an Option shall, for
------------------------
all purposes, be the date determined in accordance with Section 4 hereof.
13. Conditions Upon Issuance of Shares. Shares shall not be issued
----------------------------------
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, state securities laws, and the requirements of any stock exchange
upon which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares, if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
Inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.
14. Reservation of Shares. The Company, during the term of this Plan, will
---------------------
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
15. Option Agreement. Options shall be evidenced by written option
----------------
agreements in such form as the Board shall approve.
-7-
<PAGE>
16. Shareholder Approval. The Plan shall be subject to approval by the
--------------------
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the degree and manner
required under applicable state and federal law and any stock exchange rules.
-8-
<PAGE>
PC-TEL, INC.
DIRECTOR OPTION AGREEMENT
PC-Tel, Inc., a Delaware corporation (the "Company"), has granted to
______________ (the "Optionee"), an option to purchase a total of
[______________ (_________)] shares of the Company's Common Stock (the "Optioned
Stock"), at the price determined as provided herein, and in all respects subject
to the terms, definitions and provisions of the Company's 1998 Director Option
Plan (the "Plan") adopted by the Company which is incorporated herein by
reference. The terms defined in the Plan shall have the same defined meanings
herein.
1. Nature of the Option. This Option is a nonstatutory option and is not
--------------------
intended to qualify for any special tax benefits to the Optionee.
2. Exercise Price. The exercise price is $_______ for each share of
--------------
Common Stock.
3. Exercise of Option. This Option shall be exercisable during its term
------------------
in accordance with the provisions of Section 8 of the Plan as follows:
(i) Right to Exercise.
-----------------
(a) This Option shall become exercisable in installments
cumulatively with respect to __________ percent (___%) of the Optioned Stock one
year after the date of grant, and as to an additional ______________ percent
(__%) of the Optioned Stock on each anniversary of the date of grant, so that
one hundred percent (100%) of the Optioned Stock shall be exercisable [_______]
years after the date of grant; provided, however, that in no event shall any
Option be exercisable prior to the date the stockholders of the Company approve
the Plan.
(b) This Option may not be exercised for a fraction of a share.
(c) In the event of Optionee's death, disability or other
termination of service as a Director, the exercisability of the Option is
governed by Section 8 of the Plan.
(ii) Method of Exercise. This Option shall be exercisable by written
------------------
notice which shall state the election to exercise the Option and the number of
Shares in respect of which the Option is being exercised. Such written notice,
in the form attached hereto as Exhibit A, shall be signed by the Optionee and
shall be delivered in person or by certified mail to the Secretary of the
Company. The written notice shall be accompanied by payment of the exercise
price.
4. Method of Payment. Payment of the exercise price shall be by any of
-----------------
the following, or a combination thereof, at the election of the Optionee:
(i) cash;
(ii) check; or
<PAGE>
(iii) surrender of other shares which (x) in the case of Shares
acquired upon exercise of an Option, have been owned by the Optionee for more
than six (6) months on the date of surrender, and (y) have a Fair Market Value
on the date of surrender equal to the aggregate exercise price of the Shares as
to which said Option shall be exercised; or
(iv) delivery of a properly executed exercise notice together with
such other documentation as the Company and the broker, if applicable, shall
require to effect an exercise of the Option and delivery to the Company of the
sale or loan proceeds required to pay the exercise price.
5. Restrictions on Exercise. This Option may not be exercised if the
------------------------
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulations, or if such issuance
would not comply with the requirements of any stock exchange upon which the
Shares may then be listed. As a condition to the exercise of this Option, the
Company may require Optionee to make any representation and warranty to the
Company as may be required by any applicable law or regulation.
6. Non-Transferability of Option. This Option may not be transferred in
-----------------------------
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by the Optionee. The terms
of this Option shall be binding upon the executors, administrators, heirs,
successors and assigns of the Optionee.
7. Term of Option. This Option may not be exercised more than ten (10)
--------------
years from the date of grant of this Option, and may be exercised during such
period only in accordance with the Plan and the terms of this Option.
8. Taxation Upon Exercise of Option. Optionee understands that, upon
--------------------------------
exercise of this Option, he or she will recognize income for tax purposes in an
amount equal to the excess of the then Fair Market Value of the Shares purchased
over the exercise price paid for such Shares. Since the Optionee is subject to
Section 16(b) of the Securities Exchange Act of 1934, as amended, under certain
limited circumstances the measurement and timing of such income (and the
commencement of any capital gain holding period) may be deferred, and the
Optionee is advised to contact a tax advisor concerning the application of
Section 83 in general and the availability a Section 83(b) election in
particular in connection with the exercise of the Option. Upon a resale of such
Shares by the Optionee, any difference between the sale price and the Fair
Market Value of the Shares on the date of exercise of the Option, to the extent
not included in income as described above, will be treated as capital gain or
loss.
DATE OF GRANT:
---------------
PC-TEL, INC.
a Delaware corporation
By:
------------------------------------
-2-
<PAGE>
Optionee acknowledges receipt of a copy of the Plan, a copy of which is
attached hereto, and represents that he or she is familiar with the terms and
provisions thereof, and hereby accepts this Option subject to all of the terms
and provisions thereof. Optionee hereby agrees to accept as binding, conclusive
and final all decisions or interpretations of the Board upon any questions
arising under the Plan.
Dated:
------------------
---------------------------------------
Optionee
-3-
<PAGE>
EXHIBIT A
DIRECTOR OPTION EXERCISE NOTICE
PC-Tel, Inc.
630 Alder Drive, Suite 202
Milpitas, CA 95035
Attention: Corporate Secretary
1. Exercise of Option. The undersigned ("Optionee") hereby elects to
------------------
exercise Optionee's option to purchase ______ shares of the Common Stock (the
"Shares") of PC-Tel, Inc. (the "Company") under and pursuant to the Company's
1998 Director Option Plan and the Director Option Agreement dated
_______________ (the "Agreement").
2. Representations of Optionee. Optionee acknowledges that Optionee has
---------------------------
received, read and understood the Agreement.
3. Federal Restrictions on Transfer. Optionee understands that the Shares
--------------------------------
must be held indefinitely unless they are registered under the Securities Act of
1933, as amended (the "1933 Act"), or unless an exemption from such registration
is available, and that the certificate(s) representing the Shares may bear a
legend to that effect. Optionee understands that the Company is under no
obligation to register the Shares and that an exemption may not be available or
may not permit Optionee to transfer Shares in the amounts or at the times
proposed by Optionee.
4. Tax Consequences. Optionee understands that Optionee may suffer
----------------
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultant(s) Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
5. Delivery of Payment. Optionee herewith delivers to the Company the
-------------------
aggregate purchase price for the Shares that Optionee has elected to purchase
and has made provision for the payment of any federal or state withholding taxes
required to be paid or withheld by the Company.
<PAGE>
6. Entire Agreement. The Agreement is incorporated herein by reference.
----------------
This Exercise Notice and the Agreement constitute the entire agreement of the
parties and supersede in their entirety all prior undertakings and agreements of
the Company and Optionee with respect to the subject matter hereof. This
Exercise Notice and the Agreement are governed by Delaware law except for that
body of law pertaining to conflict of laws.
Submitted by: Accepted by:
OPTIONEE: PC-TEL, INC.
By:
- ------------------------------- -------------------------------------
Its:
------------------------------------
Address: 630 Alder Drive, Suite 202
Milpitas, CA 95035
Dated: Dated:
------------------------- ----------------------------------
-2-
<PAGE>
PC-TEL, INC.
DIRECTOR OPTION AGREEMENT
PC-Tel, Inc., a Delaware corporation (the "Company"), has granted to
______________ (the "Optionee"), an option to purchase a total of
[______________ (_________)] shares of the Company's Common Stock (the "Optioned
Stock"), at the price determined as provided herein, and in all respects subject
to the terms, definitions and provisions of the Company's 1998 Director Option
Plan (the "Plan") adopted by the Company which is incorporated herein by
reference. The terms defined in the Plan shall have the same defined meanings
herein.
1. Nature of the Option. This Option is a nonstatutory option and is not
--------------------
intended to qualify for any special tax benefits to the Optionee.
2. Exercise Price. The exercise price is $_______ for each share of
--------------
Common Stock.
3. Exercise of Option. This Option shall be exercisable during its term
------------------
in accordance with the provisions of Section 8 of the Plan as follows:
(i) Right to Exercise.
-----------------
(a) This Option shall become exercisable in installments
cumulatively with respect to __________ percent (___%) of the Optioned Stock one
year after the date of grant, and as to an additional ______________ percent
(__%) of the Optioned Stock on each anniversary of the date of grant, so that
one hundred percent (100%) of the Optioned Stock shall be exercisable [_______]
years after the date of grant; provided, however, that in no event shall any
Option be exercisable prior to the date the stockholders of the Company approve
the Plan.
(b) This Option may not be exercised for a fraction of a share.
(c) In the event of Optionee's death, disability or other
termination of service as a Director, the exercisability of the Option is
governed by Section 8 of the Plan.
(ii) Method of Exercise. This Option shall be exercisable by written
------------------
notice which shall state the election to exercise the Option and the number of
Shares in respect of which the Option is being exercised. Such written notice,
in the form attached hereto as Exhibit A, shall be signed by the Optionee and
shall be delivered in person or by certified mail to the Secretary of the
Company. The written notice shall be accompanied by payment of the exercise
price.
4. Method of Payment. Payment of the exercise price shall be by any of
-----------------
the following, or a combination thereof, at the election of the Optionee:
(i) cash;
(ii) check; or
<PAGE>
(iii) surrender of other shares which (x) in the case of Shares
acquired upon exercise of an Option, have been owned by the Optionee for more
than six (6) months on the date of surrender, and (y) have a Fair Market Value
on the date of surrender equal to the aggregate exercise price of the Shares as
to which said Option shall be exercised; or
(iv) delivery of a properly executed exercise notice together with
such other documentation as the Company and the broker, if applicable, shall
require to effect an exercise of the Option and delivery to the Company of the
sale or loan proceeds required to pay the exercise price.
5. Restrictions on Exercise. This Option may not be exercised if the
------------------------
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulations, or if such issuance
would not comply with the requirements of any stock exchange upon which the
Shares may then be listed. As a condition to the exercise of this Option, the
Company may require Optionee to make any representation and warranty to the
Company as may be required by any applicable law or regulation.
6. Non-Transferability of Option. This Option may not be transferred in
-----------------------------
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by the Optionee. The terms
of this Option shall be binding upon the executors, administrators, heirs,
successors and assigns of the Optionee.
7. Term of Option. This Option may not be exercised more than ten (10)
--------------
years from the date of grant of this Option, and may be exercised during such
period only in accordance with the Plan and the terms of this Option.
8. Taxation Upon Exercise of Option. Optionee understands that, upon
--------------------------------
exercise of this Option, he or she will recognize income for tax purposes in an
amount equal to the excess of the then Fair Market Value of the Shares purchased
over the exercise price paid for such Shares. Since the Optionee is subject to
Section 16(b) of the Securities Exchange Act of 1934, as amended, under certain
limited circumstances the measurement and timing of such income (and the
commencement of any capital gain holding period) may be deferred, and the
Optionee is advised to contact a tax advisor concerning the application of
Section 83 in general and the availability a Section 83(b) election in
particular in connection with the exercise of the Option. Upon a resale of such
Shares by the Optionee, any difference between the sale price and the Fair
Market Value of the Shares on the date of exercise of the Option, to the extent
not included in income as described above, will be treated as capital gain or
loss.
DATE OF GRANT:
---------------
PC-TEL, INC.
a Delaware corporation
By:
------------------------------------
-2-
<PAGE>
Optionee acknowledges receipt of a copy of the Plan, a copy of which is
attached hereto, and represents that he or she is familiar with the terms and
provisions thereof, and hereby accepts this Option subject to all of the terms
and provisions thereof. Optionee hereby agrees to accept as binding, conclusive
and final all decisions or interpretations of the Board upon any questions
arising under the Plan.
Dated:
------------------
---------------------------------------
Optionee
-3-
<PAGE>
EXHIBIT A
DIRECTOR OPTION EXERCISE NOTICE
PC-Tel, Inc.
630 Alder Drive, Suite 202
Milpitas, CA 95035
Attention: Corporate Secretary
1. Exercise of Option. The undersigned ("Optionee") hereby elects to
------------------
exercise Optionee's option to purchase ______ shares of the Common Stock (the
"Shares") of PC-Tel, Inc. (the "Company") under and pursuant to the Company's
1998 Director Option Plan and the Director Option Agreement dated
_______________ (the "Agreement").
2. Representations of Optionee. Optionee acknowledges that Optionee has
---------------------------
received, read and understood the Agreement.
3. Federal Restrictions on Transfer. Optionee understands that the Shares
--------------------------------
must be held indefinitely unless they are registered under the Securities Act of
1933, as amended (the "1933 Act"), or unless an exemption from such registration
is available, and that the certificate(s) representing the Shares may bear a
legend to that effect. Optionee understands that the Company is under no
obligation to register the Shares and that an exemption may not be available or
may not permit Optionee to transfer Shares in the amounts or at the times
proposed by Optionee.
4. Tax Consequences. Optionee understands that Optionee may suffer
----------------
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultant(s) Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
5. Delivery of Payment. Optionee herewith delivers to the Company the
-------------------
aggregate purchase price for the Shares that Optionee has elected to purchase
and has made provision for the payment of any federal or state withholding taxes
required to be paid or withheld by the Company.
<PAGE>
6. Entire Agreement. The Agreement is incorporated herein by reference.
----------------
This Exercise Notice and the Agreement constitute the entire agreement of the
parties and supersede in their entirety all prior undertakings and agreements of
the Company and Optionee with respect to the subject matter hereof. This
Exercise Notice and the Agreement are governed by Delaware law except for that
body of law pertaining to conflict of laws.
Submitted by: Accepted by:
OPTIONEE: PC-TEL, INC.
By:
- ------------------------------- -------------------------------------
Its:
------------------------------------
Address: 630 Alder Drive, Suite 202
Milpitas, CA 95035
Dated: Dated:
------------------------- ----------------------------------
-2-
<PAGE>
EXHIBIT 10.5
PC-TEL, INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
1. Purpose. The purpose of the Plan is to provide employees of the
-------
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the Company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
-----------
(a) "Board" shall mean the Board of Directors of the Company.
-----
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" shall mean the Common Stock of the Company.
------------
(d) "Company" shall mean PC-Tel, Inc., a Delaware corporation, and
-------
any Designated Subsidiary of the Company.
(e) "Compensation" shall mean all base straight time gross earnings
------------
and commissions, exclusive of payments for overtime, shift premium, incentive
compensation, incentive payments, bonuses and other compensation.
(f) "Designated Subsidiary" shall mean any Subsidiary which has been
---------------------
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of the
--------
Company for tax purposes whose customary employment with the Company is at least
twenty (20) hours per week and more than five (5) months in any calendar year.
For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship shall be deemed to have terminated on the
91st day of such leave.
(h) "Enrollment Date" shall mean the first day of each Offering
---------------
Period.
(i) "Exercise Date" shall mean the last day of each Offering Period.
-------------
(j) "Fair Market Value" shall mean, as of any date, the value of
-----------------
Common Stock determined as follows:
(1) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq
<PAGE>
SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the
closing sales price for such stock (or the closing bid, if no sales were
reported) as quoted on such exchange or system for the last market trading day
on the date of such determination, as reported in The Wall Street Journal or
such other source as the Board deems reliable, or;
(2) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock on
the date of such determination, as reported in The Wall Street Journal or such
other source as the Board deems reliable, or;
(3) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board.
(k) "Offering Period" shall mean a period of approximately six (6)
---------------
months during which an option granted pursuant to the Plan may be exercised,
commencing on the first Trading Day on or after February 15 and terminating on
the last Trading Day in the period ending the following August 14, or commencing
on the first Trading Day on or after August 15 and terminating on the last
Trading Day in the period ending the following February 14; provided, however,
that the first Offering Period under the Plan shall commence with the first
Trading Day on or after the date on which the Securities and Exchange Commission
declares the Company's Registration Statement effective and ending on the last
Trading Day on or before February 14, 2000. The duration of Offering Periods may
be changed pursuant to Section 4 of this Plan.
(l) "Plan" shall mean this Employee Stock Purchase Plan.
----
(m) "Purchase Price" shall mean an amount equal to 85% of the Fair
--------------
Market Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower.
(n) "Reserves" shall mean the number of shares of Common Stock
--------
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
(o) "Subsidiary" shall mean a corporation, domestic or foreign, of
----------
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(p) "Trading Day" shall mean a day on which national stock exchanges
-----------
and the Nasdaq System are open for trading.
3. Eligibility.
-----------
(a) Any Employee who shall be employed by the Company on a given
Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d)
-2-
<PAGE>
of the Code) would own capital stock of the Company and/or hold outstanding
options to purchase such stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of the capital stock of the
Company or of any Subsidiary, or (ii) to the extent that his or her rights to
purchase stock under all employee stock purchase plans of the Company and its
subsidiaries accrues at a rate which exceeds Twenty-Five Thousand Dollars
($25,000) worth of stock (determined at the fair market value of the shares at
the time such option is granted) for each calendar year in which such option is
outstanding at any time.
4. Offering Periods. The Plan shall be implemented by consecutive
----------------
Offering Periods with a new Offering Period commencing on the first Trading Day
on or after February 15 and August 15 each year, or on such other date as the
Board shall determine, and continuing thereafter until terminated in accordance
with Section 20 hereof; provided, however, that the first Offering Period under
the Plan shall commence with the first Trading Day on or after the date on which
the Securities and Exchange Commission declares the Company's Registration
Statement effective and ending on the last Trading Day on or before February 14,
2000. The Board shall have the power to change the duration of Offering Periods
(including the commencement dates thereof) with respect to future offerings
without stockholder approval if such change is announced at least five (5) days
prior to the scheduled beginning of the first Offering Period to be affected
thereafter.
5. Participation.
-------------
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's payroll office prior
to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the first
payroll following the Enrollment Date and shall end on the last payroll in the
Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
6. Payroll Deductions.
------------------
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not exceeding fifteen percent (15%) of
the Compensation which he or she receives on each pay day during the Offering
Period.
(b) All payroll deductions made for a participant shall be credited
to his or her account under the Plan and shall be withheld in whole percentages
only. A participant may not make any additional payments into such account.
(c) A participant may discontinue his or her participation in the
Plan as provided in Section 10 hereof, or may increase or decrease the rate of
his or her payroll deductions during the Offering Period by completing or filing
with the Company a new subscription agreement authorizing a change in payroll
deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the
-3-
<PAGE>
first full payroll period following five (5) business days after the Company's
receipt of the new subscription agreement unless the Company elects to process a
given change in participation more quickly. A participant's subscription
agreement shall remain in effect for successive Offering Periods unless
terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's
payroll deductions may be decreased to zero percent (0%) at any time during an
Offering Period. Payroll deductions shall recommence at the rate provided in
such participant's subscription agreement at the beginning of the first Offering
Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or at
the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period, each
---------------
eligible Employee participating in such Offering Period shall be granted an
option to purchase on the Exercise Date of such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Offering Period more than 2,000
shares (subject to any adjustment pursuant to Section 19), and provided further
that such purchase shall be subject to the limitations set forth in Sections
3(b) and 12 hereof. Exercise of the option shall occur as provided in Section 8
hereof, unless the participant has withdrawn pursuant to Section 10 hereof. The
Option shall expire on the last day of the Offering Period.
8. Exercise of Option. Unless a participant withdraws from the Plan as
------------------
provided in Section 10 hereof, his or her option for the purchase of shares
shall be exercised automatically on the Exercise Date, and the maximum number of
full shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Offering Period, subject to earlier withdrawal by the participant as provided in
Section 10 hereof. Any other monies left over in a participant's account after
the Exercise Date shall be returned to the participant. During a participant's
lifetime, a participant's option to purchase shares hereunder is exercisable
only by him or her.
-4-
<PAGE>
9. Delivery. As promptly as practicable after each Exercise Date on which
--------
a purchase of shares occurs, the Company shall arrange the delivery to each
participant, as appropriate, of a certificate representing the shares purchased
upon exercise of his or her option.
10. Withdrawal.
----------
(a) A participant may withdraw all but not less than all the payroll
deductions credited to his or her account and not yet used to exercise his or
her option under the Plan at any time by giving written notice to the Company in
the form of Exhibit B to this Plan. All of the participant's payroll deductions
credited to his or her account shall be paid to such participant promptly after
receipt of notice of withdrawal and such participant's option for the Offering
Period shall be automatically terminated, and no further payroll deductions for
the purchase of shares shall be made for such Offering Period. If a participant
withdraws from an Offering Period, payroll deductions shall not resume at the
beginning of the succeeding Offering Period unless the participant delivers to
the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period shall not have
any effect upon his or her eligibility to participate in any similar plan which
may hereafter be adopted by the Company or in succeeding Offering Periods which
commence after the termination of the Offering Period from which the participant
withdraws.
11. Termination of Employment. Upon a participant's ceasing to be an
-------------------------
Employee for any reason, he or she shall be deemed to have elected to withdraw
from the Plan and the payroll deductions credited to such participant's account
during the Offering Period but not yet used to exercise the option shall be
returned to such participant or, in the case of his or her death, to the person
or persons entitled thereto under Section 15 hereof, and such participant's
option shall be automatically terminated. The preceding sentence
notwithstanding, a participant who receives payment in lieu of notice of
termination of employment shall be treated as continuing to be an Employee for
the participant's customary number of hours per week of employment during the
period in which the participant is subject to such payment in lieu of notice.
12. Interest. No interest shall accrue on the payroll deductions of a
--------
participant in the Plan.
13. Stock.
-----
(a) Subject to adjustment upon changes in capitalization of the
Company as provided in Section 19 hereof, the maximum number of shares of the
Company's Common Stock which shall be made available for sale under the Plan
shall be Eight Hundred Thousand (800,000) shares, plus an annual increase to be
added on the first day of the Company's fiscal year equal to the lesser of (i)
350,000 Shares, (ii) 2% of the outstanding shares on such date or (iii) a lesser
amount determined by the Board. If, on a given Exercise Date, the number of
shares with respect to which options are to be exercised exceeds the number of
shares then available under the Plan, the Company shall make a pro rata
allocation of the shares remaining available for purchase in as uniform a manner
as shall be practicable and as it shall determine to be equitable.
-5-
<PAGE>
(b) The participant shall have no interest or voting right in shares
covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall be
registered in the name of the participant or in the name of the participant and
his or her spouse.
14. Administration. The Plan shall be administered by the Board or a
--------------
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision and
determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
15. Designation of Beneficiary.
--------------------------
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to an Exercise Date
on which the option is exercised but prior to delivery to such participant of
such shares and cash. In addition, a participant may file a written designation
of a beneficiary who is to receive any cash from the participant's account under
the Plan in the event of such participant's death prior to exercise of the
option. If a participant is married and the designated beneficiary is not the
spouse, spousal consent shall be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and in
the absence of a beneficiary validly designated under the Plan who is living at
the time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its discretion, may deliver such shares and/or
cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
16. Transferability. Neither payroll deductions credited to a
---------------
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
17. Use of Funds. All payroll deductions received or held by the Company
------------
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
18. Reports. Individual accounts shall be maintained for each participant
-------
in the Plan. Statements of account shall be given to participating Employees at
least annually, which statements
-6-
<PAGE>
shall set forth the amounts of payroll deductions, the Purchase Price, the
number of shares purchased and the remaining cash balance, if any.
19. Adjustments Upon Changes in Capitalization, Dissolution, Liquidation,
----------------------------------------------------------------------
Merger or Asset Sale.
--------------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
stockholders of the Company, the Reserves, the maximum number of shares each
participant may purchase per Offering Period (pursuant to Section 7), as well as
the price per share and the number of shares of Common Stock covered by each
option under the Plan which has not yet been exercised shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration". Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The New
Exercise Date shall be before the date of the Company's proposed dissolution or
liquidation. The Board shall notify each participant in writing, at least ten
(10) business days prior to the New Exercise Date, that the Exercise Date for
the participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
(c) Merger or Asset Sale. In the event of a proposed sale of all
--------------------
or substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding option shall be assumed or an
equivalent option substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the option, the Offering Period
then in progress shall be shortened by setting a new Exercise Date (the "New
Exercise Date"). The New Exercise Date shall be before the date of the Company's
proposed sale or merger. The Board shall notify each participant in writing, at
least ten (10) business days prior to the New Exercise Date, that the Exercise
Date for the participant's option has been changed to the New Exercise Date and
that the participant's option shall be exercised automatically on the New
Exercise Date, unless prior to such date the participant has withdrawn from the
Offering Period as provided in Section 10 hereof.
-7-
<PAGE>
20. Amendment or Termination.
------------------------
(a) The Board of Directors of the Company may at any time and for any
reason terminate or amend the Plan. Except as provided in Section 19 hereof, no
such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of Directors on any Exercise Date
if the Board determines that the termination of the Plan is in the best
interests of the Company and its stockholders. Except as provided in Section 19
hereof, no amendment may make any change in any option theretofore granted which
adversely affects the rights of any participant. To the extent necessary to
comply with Section 423 of the Code (or any other applicable law, regulation or
stock exchange rule), the Company shall obtain shareholder approval in such a
manner and to such a degree as required.
(b) Without stockholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
21. Notices. All notices or other communications by a participant to the
-------
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued with
----------------------------------
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require
the person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
23. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board of Directors or its approval by the
stockholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 20 hereof.
-8-
<PAGE>
EXHIBIT A
PC-TEL, INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date: __________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. _____________________________________ hereby elects to participate in the
PC-Tel, Inc. 1998 Employee Stock Purchase Plan (the "Employee Stock Purchase
Plan") and subscribes to purchase shares of the Company's Common Stock in
accordance with this Subscription Agreement and the Employee Stock Purchase
Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount of
____% of my Compensation on each payday (from 1 to _____%) during the
Offering Period in accordance with the Employee Stock Purchase Plan. (Please
note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I understand
that if I do not withdraw from an Offering Period, any accumulated payroll
deductions will be used to automatically exercise my option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is in
all respects subject to the terms of the Plan. I understand that my ability
to exercise the option under this Subscription Agreement is subject to
stockholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse only):.
6. I understand that if I dispose of any shares received by me pursuant to the
Plan within 2 years after the Enrollment Date (the first day of the Offering
Period during which I purchased such shares), I will be treated for federal
income tax purposes as having received ordinary income at the time of such
disposition in an amount equal to the excess of the fair market value of the
shares at the time such shares were purchased by me over the price which I
paid for the shares. I hereby agree to notify the Company in writing within
------------------------------------------------------
30 days after the date of any disposition of shares and I will make adequate
----------------------------------------------------------------------------
provision for Federal, state or other tax withholding obligations, if any,
--------------------------------------------------------------------------
which arise upon the disposition of the Common Stock. The Company may, but
----------------------------------------------------
will not be obligated to, withhold from my compensation the amount necessary
to meet any applicable withholding obligation including any withholding
necessary
<PAGE>
to make available to the Company any tax deductions or benefits attributable
to sale or early disposition of Common Stock by me. If I dispose of such
shares at any time after the expiration of the 2-year holding period, I
understand that I will be treated for federal income tax purposes as having
received income only at the time of such disposition, and that such income
will be taxed as ordinary income only to the extent of an amount equal to
the lesser of (1) the excess of the fair market value of the shares at the
time of such disposition over the purchase price which I paid for the
shares, or (2) 15% of the fair market value of the shares on the first day
of the Offering Period. The remainder of the gain, if any, recognized on
such disposition will be taxed as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase Plan.
The effectiveness of this Subscription Agreement is dependent upon my
eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print)
----------------------------------------------------
(First) (Middle) (Last)
- -----------------------
Relationship
----------------------------------------------------
----------------------------------------------------
(Address)
Employee's Social
Security Number:
----------------------------------------------------
Employee's Address:
----------------------------------------------------
----------------------------------------------------
----------------------------------------------------
-2-
<PAGE>
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT
THROUGHOUT SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:
--------------------------- ---------------------------------------
Signature of Employee
---------------------------------------
Spouse's Signature (If beneficiary other
than spouse)
-3-
<PAGE>
EXHIBIT B
---------
PC-TEL, INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the PC-Tel, Inc. 1998
Employee Stock Purchase Plan which began on ___________ 19____ (the "Enrollment
Date") hereby notifies the Company that he or she hereby withdraws from the
Offering Period. He or she hereby directs the Company to pay to the undersigned
as promptly as practicable all the payroll deductions credited to his or her
account with respect to such Offering Period. The undersigned understands and
agrees that his or her option for such Offering Period will be automatically
terminated. The undersigned understands further that no further payroll
deductions will be made for the purchase of shares in the current Offering
Period and the undersigned shall be eligible to participate in succeeding
Offering Periods only by delivering to the Company a new Subscription Agreement.
Name and Address of Participant:
-------------------------------------------
-------------------------------------------
-------------------------------------------
Signature:
-------------------------------------------
Date:
--------------------------------------
<PAGE>
Exhibit 10.6
[LOGO OF PCTEL APPEARS HERE]
March 31, 1998
Derek S. Obata
2892 Senderling Drive
Fremont, CA 94555
Dear Derek,
I am pleased to offer you the position of Vice President, Sales, effective April
20, 1998. In that capacity, you will report to me, President & CEO of PC-TEL,
Inc.. Based on your academic background, work experience, references and
interviews, we. are very impressed with your potential and look forward to your
contribution as a member of the PC-TEL team. We hope you share our excitement.
Your primary responsibilities will be:
1) Develop and implement effective corporate sales strategies and programs
2) Coordinate new product identification and sales insertion
3) Manage the Company's overall sales efforts including board integrators and
OEM account relationships, but excluding non recurring engineering
4) Evangelize the Company's HSP technology, position the Company and its
products in the most effective markets and accounts
5) Assist marketing with strategic planning and business expansion with
execution through a team approach with all senior executive management
critical to success
6) Other projects, as requested
Your annual salary will be $150,000 paid twice a month and the potential for an
additional $100,000 based on the Sales Commission Plan as discussed during your
interview and participation in the Corporate executive bonus program. This
salary level will be reviewed annually based on Company goals, your personal
performance and contribution. You will be entitled to receive three (3) weeks
of annual paid PTO (personal time off). You also receive 130,000 Incentive Stock
Options which vest on (4) years basis. You will earn 25% vestment on your first
year fall-time employment anniversary date and 1/48 for the every full-time
employment month. An additional 65,000 Non-Qualify Stock Options to be earned
25% each year, based on meeting the Company annual financial revenue target, and
which will be 100% of the publically released financial goal. The grant price
per share will be subject to Board of Directors' approval. PC-TEL also provides
401(k) profit sharing plan, Section 125 cafeteria plan and a company-paid
medical insurance for you and your family.
You will also be entitled to one year severance pay and acceleration of option
grants in the event there is a change in ownership, in accordance with Corporate
executive ownership transition program.
As you make the transition from your current employer to the Company, please
note our policy is to avoid situations in which information or materials
considered proprietary by others might come into our hands. Indeed, a condition
to your employment will be to sign the Proprietary Information and Inventions
Agreement to expose neither yourself nor the Company to legal liability by
divulging trade
<PAGE>
Page 2
secrets or confidential information of any former employer or any other party.
We are interested in employing you because of your skills and abilities, not
because of any trade secrets learned elsewhere. Thus it is important you take
care not to bring, even inadvertently, any books, notes or other materials
except your own personal effects as you leave your present employer.
While we hope we are entering into a mutually advantageous relationship, there
are not guarantees of success. Employment with PC-TEL is not for a specific term
and can be terminated by yourself or by the Company at any time for any reason,
with or without cause. Any contrary representations which may have been made or
which may be made to you are superseded by this offer. We request that all of
our employees, to the extent possible, give us advance notice if they intend to
resign.
We are pleased you have decided to become part of the PC-TEL team and ask that
you sign and return a copy of this letter confirming that you understand and
agree to the terms of employment stated above. Upon your acceptance, the terms
described in this letter shall be the terms of your employment. Any additions or
modifications of these terms must be in writing and signed by yourself and me.
This offer is valid for 5 days from the date of this offer letter.
If you have any questions, please do not hesitate to call me at (408) 965-2100.
Sincerely, Acknowledged and Agreed to,
/s/ Peter Chen /s/ Derek S. Obata
- ----------------------- -------------------------
Peter Chen Derek S. Obata
President & CEO
4-7-98 4-7-98
- ----------------------- -------------------------
Date Date
<PAGE>
[LETTERHEAD OF PCTEL APPEARS HERE]
Exhibit 10.7
July 19, 1999
Mr. William F. Roach
24020 Oak Knoll Circle
Los Altos, CA 94022
Dear Bill:
I am pleased to offer you the position of President and Chief Operating Officer
of PC-Tel, effective August 1, 1999. In this capacity, you will report to Peter
Chen, Chief Executive Officer of PC-TEL, Inc. Based on your academic background,
work experience, references and interviews, we are very impressed with your
potential and look forward to your contribution as a member of the PC-TEL team.
We hope you share our excitement.
Your primary responsibilities will be:
1. Efficient and effective daily operations of the Company
2. Achievement of the stated Corporate financial goals
3. Effective management of the senior staff reporting to your position
Your annual salary will be $250,000, paid twice a month. This salary level will
be reviewed annually, based on Company goals and your personal performance and
contribution. You will be entitled to a bonus plan with an annual payout of
$150,000, paid quarterly, assuming the Company achieves its stated quarterly net
income targets. For every 1% of net income over the Company's quarterly profit
plan you will receive an additional 4% of your quarterly bonus, up to a maximum
of 200% of that quarter's base bonus. For every 1% below the quarterly profit
plan, 4% of your base bonus will be deducted from the bonus calculation to a
minimum of 75% of planned net income, at which point no bonus will be due.
Additionally, you will receive a $50,000 signing bonus at the star of your
employment. Should you leave within the first year of employment, this signing
bonus will be due the Company 30 days from your last day of employment
(excluding any serverance period). If your employment is terminated for any
reason other than for cause, you will be entitled to one year of serverance. If
the termination comes within the first year of employment, you will also be
entitled to exercise your entire first year's stock options in accordance with
the Stock Plan's timeframe. As a qualifying employee of PC-TEL, you will be
eligible to participate in the Company Benefits Plan, including but not limited
to three (3) weeks of annual paid time off in your first year, complete medical,
dental and vision plans, 401 k and 125 cafeteria plans and short and long term
disability plans.
We will recommend to the Board of Directors of the Company that, at the next
Board meeting, you be granted an incentive stock option entitling you to
purchase up to 400,000 shares of Common Stock of the Company at the then current
fair market value as determined by the Board at that meeting. Such options shall
be subject to the terms and conditions of the Company's Stock Option Plan and
Stock Option Agreement. This option grant will vest on the following schedule:
30% at the end of your first year of employment, 25% in years 2 and 3 and 20% in
year 4. Vesting after the twelfth month of employment is on a monthly basis.
Should the Company's IPO take place during your first year of employment, 50% of
your first year's options (60,000) will vest at the time of the IPO, and the
remaining 50% of your first year's options (60,000) will vest upon reaching the
completion of your twelfth month of employment.
<PAGE>
Page 2
- --------------------------------------------------------------------------------
As you make the transition from your current employer to the Company, please
note our policy is to avoid situations in which information or materials
considered proprietary by others might come into our hands. Indeed, a condition
to your employment will be to sign the Proprietary Information and Inventions
Agreement to expose neither yourself nor the Company to legal liability by
divulging trade secrets or confidential information of any former employer or
any other party. We are interested in employing you because of your skills and
abilities, not because of any trade secrets learned elsewhere. Thus it is
important you take care not to bring, even inadvertently, any books, notes or
other materials except your own personal effects as you leave your present
employer.
You should be aware that your employment with the Company is for no specified
period and constitutes at-will employment as a result, you are free to resign at
any time, for any reason or for no reason. Similarly, the Company is free to
conclude its employment relationship with you at any time, with or without
cause, and with or without notice.
For purposes of federal immigration law, you will be required to provide to the
Company documentary evidence of your identity and eligibility for employment in
the United States. Such documentation must be provided to us within three (3)
business days of your date of hire, or our employment relationship with you may
be terminated.
In the event of any dispute or claim relating to or arising out of our
employment relationship, you and the Company agree that all such disputes,
including but not limited to, claims of harassment, discrimination and wrongful
termination, shall be settled by arbitrtion held in Santa Clara County,
California, under the Arbitration Rules set forth in California Code of Civil
Procedure Section 1280, et seq., including section 1283.05, (the "Rules") and
pursuant to California law. A copy of the Rules is available for your review
prior to signing this Agreement.
We are pleased you have decided to become part of the PC-TEL team and ask that
you sign and return a copy of this letter confirming that you understand and
agree to the terms of employment stated above. Upon your acceptance, the terms
described in this letter shall be the terms of your employment. Any additions or
modifications of these terms must be in writing and signed by yourself and me.
This offer is valid for 7 days from the date of this offer letter.
If you have any questions, please do not hesitate to call me at (408) 965-2100.
Sincerely, Acknowledged and Agreed to,
/s/ Peter Chen /s/ William F. Roach
----------------------------
Peter Chen William F. Roach
Chief Executive Officer
7/20/99
----------------------------
Date
Amended by Attachment "A"
Enclosures
Duplicate Original Letter
Employment, Confidential Information, Invention Assignment and Arbitration
Agreement
<PAGE>
7/20/99
Attachment "A"
--------------
. Signing Bonus will be net $50,000
. Price per share for stock options will not exceed $10.25 per share
/s/ Peter Chen /s/ William Roach
- --------------- ---------------------
Peter Chen William Roach
7/20/99
<PAGE>
Exhibit 10.8
SUBLEASE AGREEMENT
------------------
DATED: September 24, 1998
ARTICLE 1: FUNDAMENTAL SUBLEASE PROVISIONS.
1.1 PARTIES: Sublessor: KLA-TENCOR CORPORATION, a Delaware corporation
(formerly known as KLA Instruments Corporation)
Sublessee: PCTEL, INC., a Delaware corporation
1.2 MASTER LEASE: (Article 3): Sublessor, as tenant, is leasing from Master
Lessor (named below), as landlord, approximately 132,150 square feet of leasable
area consisting of the following locations: 130-134 Rio Robles (47,114 sf), 90
Rio Robles (53,013 sf) and 64-70 Rio Robles (32,023 sf) in the City of San Jose,
State of California (collectively, the "Premises") on the terms and subject to
the conditions of that certain lease agreement executed dated as of July 29,
1994 as amended by the First Amendment to Lease dated September 15, 1994, the
Second Amendment to Lease dated July 26, 1995, the Third Amendment to Lease
dated September 8, 1995, the Fourth Amendment to Lease dated May 21, 1997, and
the Fifth Amendment to Lease dated November 21, 1997 (collectively, the "Master
Lease"). A copy of the Master Lease is attached hereto as Exhibit A. The
Premises are located within a complex which consists of multiple buildings
(including the Premises), together with related driveways, parking areas and
related fixtures and improvements (collectively, the "Complex").
Master Lessor: CARRAMERICA REALTY CORPORATION,
a Maryland corporation, as successor in interest
to Knickerbocker Properties, Inc., I
1.3 SUBLEASE PREMISES: (Article 2): The Sublease Premises constitutes a part
of the Premises and contains approximately 32,023 square feet of leasable area,
which constitutes all of the building located at 64-70 Rio Robles (the "Sublease
Premises"). The Sublease Premises is further described on the drawings attached
to the Master Lease.
1.4 SUBLEASE TERM: (Article 4): Approximately 47 calendar months, beginning
on the Commencement Date and ending on the Termination Date described below,
unless commenced later or terminated earlier pursuant to the terms of this
Sublease.
1.5 SCHEDULED COMMENCEMENT DATE: (Article 4.1): September 24, 1998
(estimated)
1.6 TERMINATION DATE: (Article 4.1): August 31, 2002
1.7 SCHEDULED RENTAL COMMENCEMENT DATE: (Article 5.2): October 1, 1998
(estimated)
1.8 MINIMUM MONTHLY RENT: (Article 5.2):
Rental Commencement Date-September 30, 1999 $48,034.50/mo($1.50/sf/mo.)
October 1, 1999-September 30, 2000 $50,436.23/mo($1.575/sf/mo.)
October 1, 2000-September 30, 2001 $52,966.04/mo($1.654/sf/mo.)
October 1, 2001-August 31, 2002 $55,591.92/mo($1.736/sf/mo.)
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1.9 PREPAID RENT: (Article 5.4): $57,000.94
1.10 SECURITY DEPOSIT: (Article 6): $55,591.92
1.11 PERMITTED USE: (Article 7): office, marketing, assembly, storage, and
distribution of semiconductor equipment
1.12 GUARANTOR: N/A
1.13 ADDRESSES FOR NOTICES: (Article 11):
Master Lessor: Carramerica Realty Corporation
1810 Gateway Drive, Suite 150
San Mateo, CA 94404
Attn: Vice-President, Market Officer
Fax: (650) 655-6803
Copy to: Carramerica Realty Corporation
1850 K Street, N.W.
Washington, DC 20006
Attn: Lease Administrator
Fax: (202) 729-1040
Sublessor: KLA-Tencor Corporation
160 Rio Robles, MS X-2225
San Jose, California 95134
Attn: Russ Southland
Fax: (408)434-4263
Copy to: KLA-Tencor Corporation
160 Rio Robles
San Jose, California 95134
Attn: Lisa C. Berry, General Counsel
Fax: (408) 875-2002
Sublessee: PCTel, Inc.
64 Rio Robles
San Jose, California 95134
Attn: Monica Wang
Fax: (408) 383-0455
1.14 ADDRESS FOR PAYMENT OF RENT: (Article 5.1): Checks for Rent and other
payments under this Sublease should be made payable to "KLA-Tencor Corporation"
and sent to the following address:
STAUBACH ALLIANCE SERVICES
6750 LBJ Freeway, Suite 1100
Dallas, TX 75240
Attn: Leslie Dunaway
1.15 SUBLESSOR'S BROKER: (Article 24.4): The Staubach Company, Tony Lautmann
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1.16 SUBLESSEE'S BROKER: (Article 24.4): Cornish & Carey Commercial Real
Estate, Fred Pilster and Greg Cary
1.17 EXHIBITS AND ADDENDA: The following exhibits and any addenda are annexed
to this Sublease:
Exhibit A - Master Lease
Exhibit B - Notice of Commencement Date
Exhibit C - Consent to Sublease
Each reference in this Sublease Agreement ("Sublease") to any provision in
Article 1 shall be construed to incorporate all of the terms of each such
provision. In the event of any conflict between this Article 1 and the balance
of the Sublease, the balance of the Sublease shall control.
ARTICLE 2: SUBLEASE PREMISES.
2.1 Sublease. Sublessor hereby subleases to Sublessee and Sublessee hereby
subleases from Sublessor for the Sublease Term (hereinafter defined), at the
Rent (hereinafter defined) and upon the terms and conditions hereinafter set
forth, the Sublease Premises, and all common areas related thereto. Sublessee
acknowledges that the leasable area of the Sublease Premises as specified in
Article 1 is an estimate and that Sublessor does not warrant the exact leasable
area of the Sublease Premises. By taking possession of the Sublease Premises,
Sublessee accepts the leasable area of the Sublease Premises as that specified
in Article 1.
2.2 Condition of the Sublease Premises. Sublessor shall deliver the Sublease
Premises to Sublessee broom clean with all ceiling tiles in good condition,
lights fully functional with operating ballasts and with all building systems in
good operating condition, and Sublessee thereupon shall accept possession of the
Sublease Premises in its "As Is" condition. Sublessee acknowledges that except
as expressly stated in this Sublease, (i) Sublessor makes no warranties or
representations regarding the physical condition of the Sublease Premises; (ii)
Sublessee has had an opportunity to inspect the Sublease Premises, including the
roof and structural components of the building; the electrical, plumbing, HVAC,
and other building systems serving the Sublease Premises; and the environmental
condition of the Sublease Premises and related common areas; and to hire experts
to conduct such inspections on its behalf; and (iii) Sublessee is leasing the
Sublease Premises based on its own inspection of the Sublease Premises and those
of its agents, and is not relying on any statements, representations or
warranties of Sublessor regarding the physical condition of the Sublease
Premises. Sublessee's taking of possession of the Sublease Premises shall
constitute conclusive evidence that the Sublease Premises are in good, clean and
tenantable condition and that the ceiling tiles are in good condition, the
lights are fully functional with operating ballasts and all building systems are
in good operating condition. If, within thirty (30) days after the Commencement
Date, the building systems are found not to be in good operating condition,
then, to the extent repairs of such building systems are the responsibility of
Sublessor under the terms of the Master Lease and are not otherwise necessitated
---
by the acts or omissions of Sublessee, or its agents, employees, invitees,
visitors or contractors, Sublessor shall cause the same to be corrected at its
own expense promptly after receiving written notice from Sublessee to do so.
2.3 Compliance with Laws. Sublessee shall, at Sublessee's sole cost and
expense, be responsible for bringing the Sublease Premises into compliance with
any statutes, rules, regulations, ordinances, requirements (whether presently
existing or hereinafter enacted), insurance regulations or otherwise, including
but not limited to compliance with Americans with Disabilities Act and Title 24
requirements ("Applicable Laws") to the extent that compliance with such
Applicable Laws is "triggered" by: (i) Sublessee's use of the Sublease Premises;
(ii) Sublessee's improvements or alterations to the Sublease Premises, or (iii)
Sublessee's application for a building permit or any other governmental
approval.
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2.4 Personal Property. Except as provided in Article 19, Sublessee
acknowledges that the Sublease Premises shall not include any of the fixtures,
equipment, cabling, furniture, or other personal property belonging to
Sublessor, unless the parties have specifically agreed to the same in writing.
2.5 Alterations to Premises. Subject to the terms and conditions of the
Master Lease, Sublessor's prior written consent (which shall not be unreasonably
withheld) and Sublessee's agreement to restore the Sublease Premises at the end
of the Sublease Term as required by Section 8.1 of this Sublease, Sublessee
shall have the right to make alterations, additions, or improvements to the
Sublease Premises, based upon a mutually agreeable floor plan. Such approved
alterations, additions or improvements, shall be completed at Sublessee's sole
cost and expense, in compliance with all Applicable Laws.
ARTICLE 3: TERMS OF THE MASTER LEASE.
3.1 Sublease Subordinate. This Sublease is subordinate and subject to all of
the terms and conditions of the Master Lease. If the Master Lease terminates for
any reason whatsoever, this Sublease shall terminate concurrently, and the
parties hereto shall be relieved of any liability thereafter accruing under this
Sublease, except for the liabilities of the parties which by the terms of this
Sublease survive the expiration or earlier termination of this Sublease.
3.2 Sublessee's Obligations. To the extent applicable to the Sublease
Premises and Sublessee's use of the Common Area (as defined in Section 1.9 of
the Master Lease), Sublessee hereby expressly assumes and agrees to perform and
discharge, as and when required by the Master Lease, all debts, duties and
obligations to be paid, performed or discharged by Sublessor under the terms,
covenants and conditions of the Master Lease from and after the Commencement
Date, except as specifically set forth in this Sublease. Sublessee shall not
commit or suffer at any time any act or omission that would violate any
provision of the Master Lease.
3.3 Sublessor's Obligations. So long as Sublessee complies with all of its
obligations under this Sublease, Sublessor shall not commit any act or omission
during the Sublease Term, which would lead to the termination of the Master
Lease by Master Lessor. Notwithstanding the foregoing, if Sublessee fails to
comply with any of its obligations under this Sublease (including without
limitation the obligations assumed by Sublessee under the Master Lease), and
does not cure such failure within the applicable cure period (or if no cure
period is specified in either this Sublease or the Master Lease, then within
five (5) days after receiving written notice of such failure), then Sublessor
shall have no obligation to Sublessee to maintain the Master Lease for
Sublessee's benefit.
3.4 Master Lessor's Obligations. Sublessor shall not be responsible to
Sublessee for furnishing any service, maintenance or repairs to the Sublease
Premises that are the obligation of the Master Lessor under the Master Lease, it
being understood that Sublessee shall look solely to Master Lessor for
performance of any such service maintenance or repairs. However, if Master
Lessor shall fail to perform its obligations under the Master Lease, Sublessor,
upon receipt of written notice from Sublessee, shall use commercially reasonable
efforts to attempt to enforce the obligations of Master Lessor under the Master
Lease; provided, however, that Sublessor shall not be required to incur any
costs or expenses in connection therewith unless Sublessee agrees to reimburse
Sublessor for any such costs and expenses as Additional Rent hereunder.
3.5 Sublessor's Rights and Remedies. In addition to all the rights and
remedies provided to Sublessor at law, in equity, or under the terms of this
Sublease, (a) in the event of any breach by Sublessee of any of its obligations
under this Sublease, Sublessor shall have all of the rights and remedies with
respect to such breach which are available to Master Lessor in the event of any
breach under the Master Lease; and (b) as a further remedy, if Sublessee fails
to perform any act on its part to be performed pursuant to the requirements of
the Master Lease or as otherwise required by this Sublease, within any
applicable grace periods provided herein, then Sublessor may, but shall not be
obligated to, fulfill such obligations of Sublessee, including entering the
Sublease Premises to perform any such act, and all costs and expenses incurred
by Sublessor in doing so shall be deemed Additional Rent payable by Sublessee to
Sublessor upon demand.
4
<PAGE>
ARTICLE 4: SUBLEASE TERM.
4.1 Commencement and Termination Dates. The term of this Sublease ("Sublease
Term") shall be for the period of time commencing on the date that Sublessor
delivers the Sublease Premises to Sublessee (the "Commencement Date") and ending
on the termination date described in Article 1 or on such earlier date of
termination as provided herein (the "Termination Date"). Promptly following the
Commencement Date, the parties shall execute a Notice of Commencement Date, in
the form attached hereto as Exhibit B, which shall thereafter be made a part of
this Sublease.
4.2 Delay in Commencement. If for any reason possession of the Sublease
Premises has not been delivered to Sublessee by the Scheduled Commencement Date
or any other date, Sublessor shall not be liable to Sublessee or any other
person or entity for any loss or damage resulting therefrom. In the event of
such delay, the Commencement Date and the Rental Commencement Date shall be
delayed until possession of the Sublease Premises is delivered to Sublessee, but
the Termination Date shall not be extended. If Sublessor is unable to deliver
possession of the Sublease Premises to Sublessee within sixty (60) days after
the Scheduled Commencement Date (as described in Article 1), then Sublessee may
terminate this Sublease by giving written notice to Sublessor at any time after
that date, and the parties shall have no further liability thereafter accruing
under this Sublease; provided, however, that if Sublessor tenders possession to
Sublessee within five (5) days after receipt of Sublessee's notice of
termination, such notice shall be void.
4.3 Early Occupancy. If Sublessor permits Sublessee to occupy the Sublease
Premises prior to the Scheduled Commencement Date, such occupancy shall be
subject to all of the provisions of this Sublease, except for the payment of
Rent. Early occupancy of the Sublease Premises shall not advance the Termination
Date. Sublessee shall, prior to entering the Sublease Premises, deliver to
Sublessor certificates of insurance evidencing the policies required of
Sublessee under this Sublease.
ARTICLE 5: RENT AND ADDITIONAL EXPENSES.
5.1 Payment of Rent. All monies payable by Sublessee under this Sublease
shall constitute "Rent." All Rent shall be paid in lawful money of the United
States, without any deduction or offset, to Sublessor at the address specified
in Article 1 or such other place as Sublessor may designate in writing. No
payment by Sublessee of a lesser amount than the Rent herein stipulated shall be
deemed to be other than on account of the earliest stipulated Rent, nor shall
any endorsement or statement on any check or any letter accompanying any check
or payment of Rent be deemed an accord and satisfaction, and Sublessor may
accept such check or payment without prejudice to its right to recover the
balance of such Rent or to pursue any other remedy. Rent for any partial
calendar months at the beginning or end of the Sublease Term shall be prorated
based on a thirty (30) day month. In the event that Sublessee is notified by
Master Lessor that Sublessor is in default under the Master Lease, then, if
directed to do so by Master Lessor, Sublessee shall make its future payments of
Minimum Monthly Rent and Additional Rent directly to Master Lessor.
5.2 Minimum Monthly Rent. Sublessee shall pay to Sublessor the sums set forth
in Article 1 hereof as Minimum Monthly Rent, in advance, on the first day of
each calendar month throughout the Sublease Term, commencing on the date (the
"Rental Commencement Date") that is the later of the Scheduled Rental
Commencement Date specified in Article 1 or one (1) week after Sublessor
delivers possession of the Sublease Premises to Sublessee.
5.3 Additional Rent. In addition to Minimum Monthly Rent, commencing on the
Rental Commencement Date Sublessee shall pay to Sublessor, in advance, on the
first day of each calendar month, estimated payments for the amount of real
property taxes, maintenance, repair, management, insurance, common area
utilities and other charges attributable to and/or accruing against the Sublease
Premises and the related common areas for the Sublease Term, and payable by
Sublessor under the Master Lease. The 1998 estimated payments are broken down as
follows:
5
<PAGE>
Maintenance/Management $1.53/sf/yr $0.1275/sf/mo $4,082.93/mo
Real Property Taxes $1.53/sf/yr $0.1275/sf/mo $4,082.93/mo
Insurance $0.30/sf/yr $0.025/sf/mo $ 800.58/mo
At the end of the calendar year, Sublessor shall reconcile the actual expenses
for the Sublease Premises as compared to the estimated payments made throughout
the preceding calendar year and there shall be an adjustment between Sublessor
and Sublessee, with payment to Sublessor or credit to Sublessee against the
next installment of Additional Rent, as the case may require, within ten (10)
days after Sublessor's delivery of such reconciliation to Sublessee. It is the
parties' intent that Sublessee shall pay to Sublessor, as Additional Rent
hereunder, any and all charges, fees, impositions and payments of any kind
whatsoever due or owing by Sublessor under the Master Lease; provided, however,
that Sublessee shall not be responsible for paying any charges, fees, or
payments resulting solely from the negligence of Sublessor or breach of this
Sublease by Sublessor.
5.4 Janitorial and Utilities. Sublessee shall be responsible for the cost of
its own janitorial services and utilities, which payment shall be made directly
to the provider of such services.
5.5 Prepaid Rent. Concurrently with Sublessee's execution of this Sublease,
Sublessee shall pay to Sublessor the sum specified in Article 1 as Prepaid Rent,
which shall be applied to the installments of Minimum Monthly Rent and
Additional Rent first coming due under this Sublease.
5.6 Late Charge. If Sublessee fails to pay any Rent when due hereunder, then
Sublessee shall pay Sublessor a late charge equal to six percent (6%) of such
delinquent amount as liquidated damages for Sublessee's failure to make timely
payment. Any notice given by Sublessor pursuant to any statute governing
unlawful detainer actions shall be deemed to be concurrent with, and not in
addition to, the notice required herein. This provision for a late charge shall
not be deemed to grant Sublessee a grace period or extension of time for
performance. If any Rent remains delinquent for a period in excess of thirty
(30) days then, in addition to such late charge, Sublessee shall pay to
Sublessor interest on the delinquent amount from the end of such thirty (30) day
period until paid, at the rate of ten percent (10%) per annum or the maximum
rate permitted by law.
ARTICLE 6: SECURITY DEPOSIT. Upon execution of this Sublease, Sublessee shall
deposit with Sublessor in cash the sum specified in Article 1 hereof as a
"Security Deposit." The Security Deposit shall be held by Sublessor as security
for Sublessee's faithful performance under this Sublease. If Sublessee fails to
pay any Rent as and when due under this Sublease or otherwise fails to perform
its obligations hereunder, then Sublessor may, at its option and without
prejudice to any other remedy which Sublessor may have, apply, use or retain all
or any portion of the Security Deposit toward the payment of delinquent Rent or
for any loss or damage sustained by Sublessor due to such failure by Sublessee.
Sublessee shall upon demand restore the Security Deposit to the original sum
deposited. The Security Deposit shall not bear interest nor shall Sublessor be
required to keep such sum separate from its general funds. To the extent not
otherwise applied by Sublessor as provided herein, the Security Deposit shall be
returned to Sublessee within thirty (30) days after the Termination Date. In the
event of bankruptcy or other debtor-creditor proceedings filed by or against
Sublessee, such Security Deposit shall be deemed to be applied first to the
payment of Rent due Sublessor for the period immediately prior to the filing of
such proceedings.
ARTICLE 7: USE.
7.1 Use of the Sublease Premises. Sublessee shall use the Sublease Premises
solely for the purposes specified in Article 1 in strict conformance with the
applicable requirements of the Master Lease, and for no other purpose
whatsoever.
7.2 Suitability. Sublessee acknowledges that, except as may be explicitly
stated in this Sublease, neither Sublessor nor any agent of Sublessor has made
any representation or warranty with respect to the Sublease Premises, the
permitted uses that can be made of the Sublease Premises under existing laws, or
the suitability of the Sublease
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<PAGE>
Premises for the conduct of Sublessee's business, nor has Sublessor agreed to
undertake any modification, alteration or improvement to the Sublease Premises.
7.3 Hazardous Materials.
7.3.1 Definitions. As used herein, the term "Hazardous Material" shall
mean any hazardous or toxic substance, material or waste which is or becomes
regulated by any state, federal, or local government authority, including
without limitation all of those materials and substances designated as hazardous
or toxic by the Environmental Protection Agency, the Department of Labor, the
Department of Transportation, the Department of Agriculture, the Department of
Health Services or the Food and Drug Agency. Without limiting the generality of
the foregoing, the term "Hazardous Material" shall include (i) any substance,
product, waste or other material of any nature whatsoever which may give rise to
liability under any statutory or common law theory based on negligence,
trespass, intentional tort, nuisance or strict liability or under any reported
decisions of a state or federal court; (ii) gasoline, diesel fuel, or other
petroleum hydrocarbons; (iii) polychlorinated biphenyls; (iv) asbestos
containing materials; (v) urea formaldehyde foam insulation; and (vi) radon gas.
As used herein, the term "Hazardous Material Law" shall mean any applicable
statute, law, ordinance, or regulation of any governmental body or agency which
regulates the use, storage, generation, discharge, treatment, transportation,
release, or disposal of any Hazardous Material.
7.3.2 Use Restriction. Sublessee shall not cause or permit any Hazardous
Material to be used, stored, generated, discharged, treated, transported to or
from, released or disposed of in, on, over, through, or about the Sublease
Premises, or any other land or improvements in the vicinity of the Sublease
Premises, without the prior written consent of Master Lessor and Sublessor,
which consent may be withheld in the sole and absolute discretion of Master
Lessor and/or Sublessor. Without limiting the generality of the foregoing, (a)
any use, storage, generation, discharge, treatment, transportation, release, or
disposal of Hazardous Material by Sublessee shall strictly comply with all
applicable Hazardous Material Laws, and (b) if the presence of Hazardous
Material on the Sublease Premises caused or permitted by Sublessee or its
agents, employees, invitees, visitors or contractors results in contamination of
the Sublease Premises or any soil, air, ground or surface waters under, through,
over, on, in or about the Sublease Premises, Sublessee, at its expense, shall
promptly take all actions necessary to return the Sublease Premises to the
condition existing prior to the existence of such Hazardous Material.
7.3.3 Sublessor Representation. Sublessor represents to Sublessee that
with respect to the Sublease Premises, Sublessor has not received any notice of
non-compliance under any Hazardous Material Law.
ARTICLE 8: SURRENDER.
8.1 Condition of the Sublease Premises. Subject to the provisions of
this Sublease and the Master Lease regarding damage or destruction due to
casualty or condemnation, upon the expiration or earlier termination of this
Sublease, Sublessee shall surrender the Sublease Premises broom clean and in the
same condition and repair as the Sublease Premises were delivered to Sublessee
on the Commencement Date, excepting only ordinary wear and tear in accordance
with the standards and requirements set forth in Section 15.2 of the Master
Lease. Sublessee agrees to repair any damage to the Sublease Premises caused by
or related to the removal of any articles of personal property, business or
trade fixtures, machinery, equipment, cabinetwork, signs, furniture, movable
partitions or permanent improvements or additions which Sublessor allows or
requires Sublessee to remove, including, without limitation, repairing the floor
and patching and/or painting the walls where required by Sublessor to the
reasonable satisfaction of Sublessor and/or Master Lessor, all at Sublessee's
sole cost and expense. Sublessee shall indemnify Sublessor against any loss or
liability resulting from delay by Sublessee in so surrendering the Sublease
Premises, including, without limitation, any claims made by the Master Lessor
and/or any succeeding tenant founded on such delay. Such indemnity obligation
shall survive the expiration or earlier termination of this Sublease.
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8.2 Sublessor's Right to Access. In the thirty (30) days prior to the
expiration of this Sublease, or such longer time as is reasonably necessary,
Sublessor shall have the right, upon at least twenty-four (24) hours prior
notice, to enter the Sublease Premises to remove personal property belonging to
Sublessor, if any (including without limitation any business or trade fixtures,
machinery, equipment, cabinetwork, signs, furniture, and movable partitions
owned by Sublessor and located within the Sublease Premises) and to remove any
improvements or additions, if any, that Sublessor is required to remove prior to
surrender of the Premises pursuant to the Master Lease (not including those
items to be removed by Sublessee pursuant to Article 8.1 of this Sublease). Any
work performed by Sublessor pursuant to the terms of the preceding sentence
shall be done in a reasonable manner to minimize the mount of inconvenience and
interference to Sublessee's use and occupancy of the Sublease Premises;
provided, however, Sublessor shall not be liable to Sublessee for any such
inconvenience or interference caused by Sublessor's exercise of its rights
pursuant to this provision.
ARTICLE 9: CONSENT. Whenever the consent or approval of Master Lessor is
required pursuant to the terms of the Master Lease, for the purposes of this
Sublease, Sublessee, in each such instance, shall be required to obtain the
written consent or approval of both Master Lessor and Sublessor. If Master
Lessor refuses to grant its consent or approval, Sublessor may withhold its
consent or approval and Sublessee agrees that such action by Sublessor shall be
deemed reasonable.
ARTICLE 10: INSURANCE. All insurance policies required to be carried by
Sublessor under the Master Lease shall be maintained by Sublessee pursuant to
the terms of the Master Lease, and shall name Sublessor and Master Lessor (and
such other lenders, persons, firms, or corporations as are designated by
Sublessor or Master Lessor) as additional insureds by endorsement. All policies
shall be written as primary policies with respect to the interests of Master
Lessor and Sublessor and such other additional insureds and shall provide that
any insurance carried by Master Lessor or Sublessor or such other additional
insureds is excess and not contributing insurance with respect to the insurance
required hereunder. All policies shall also contain "cross liability" or
"severability of interest" provisions and shall insure the performance of the
indemnity set forth in Article 14 of this Sublease. Sublessee shall provide
Master Lessor and Sublessor with copies or certificates of all policies,
including in each instance an endorsement providing that such insurance shall
not be cancelled or amended except after thirty (30) days prior written notice
to Master Lessor and Sublessor. All deductibles, if any, under any such
insurance policies shall be subject to the prior reasonable approval of
Sublessor, and all certificates delivered to Master Lessor and Sublessor shall
specify the limits of the policy and all deductibles thereunder.
ARTICLE 11: NOTICES.
11.1 Notice Requirements. All notices, demands, consents, and approvals which
may or are required to be given by either party to the other under this Sublease
shall be in writing and may be given by (i) personal delivery, (ii) overnight
courier such as Federal Express, (iii) facsimile transmission, or (iv) United
States registered or certified mail addressed as shown in Article 1. Any notice
or demand so given shall be deemed to be delivered or made on (i) the date
personal service is effected, (ii) the next business day if sent by overnight
courier, (iii) the same day as given if sent by facsimile transmission which is
received by 5:00 p.m. Pacific time with a copy deposited in the United States
mail, postage prepaid, or (iv) the second business day after the same is
deposited in the United States Mail as registered or certified and addressed as
above provided with postage thereon fully prepaid. Either party hereto may
change its address at any time by giving written notice of such change to the
other party in the manner provided herein at least ten (10) calendar days prior
to the date such change is desired to be effective.
11.2 Notices from Master Lessor. Each party shall provide to the other party a
copy of any notice or demand received from or delivered to Master Lessor within
twenty four (24) hours of receiving or delivering such notice or demand.
ARTICLE 12: DAMAGE, DESTRUCTION, CONDEMNATION. To the extent that the Master
Lease gives Sublessor any rights following the occurrence of any damage,
destruction or condemnation to terminate the Master
8
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Lease, to repair or restore the Sublease Premises, to contribute toward such
repair or restoration costs to avoid termination, to obtain and utilize
insurance or condemnation proceeds to repair or restore the Sublease Premises,
or any similar rights, such rights shall be reserved to and exercisable solely
by Sublessor, in its sole and absolute discretion, and not by Sublessee. The
exercise of any such right by Sublessor shall under no circumstances constitute
a default or breach under this Sublease or subject Sublessor to any liability
therefor.
ARTICLE 13: INSPECTION OF THE SUBLEASE PREMISES. Sublessee shall permit
Sublessor and its agents to enter the Sublease Premises at any reasonable time
for the purpose of inspecting the same or posting a notice of non-responsibility
for alterations, additions or repairs, provided that Sublessor provides at least
twenty-four (24) hours prior notice (except in the case of emergency).
ARTICLE 14: INDEMNITY; EXEMPTION OF SUBLESSOR FROM LIABILITY.
14.1 Sublessee Indemnity. Sublessee shall indemnify, defend (with counsel
reasonably satisfactory to Sublessor), protect and hold harmless Sublessor and
its agents, employees, contractors, stockholders, officers, directors,
successors and assigns from and against any and all claims, demands, actions,
suits, proceedings, liabilities, obligations, losses, damages, judgments, costs,
penalties, fines, and expenses (including, but not limited to, attorneys',
consultants' and expert witness fees) arising out of, resulting from, or related
to (i) any injury or death to any person or injury or damage to property caused
by, arising out of, or involving (A)Sublessee's use of the Sublease Premises,
the conduct of Sublessee's business therein, or any activity, work or thing
done, permitted or suffered by Sublessee in or about the Sublease Premises or
the common areas, (B)a breach by Sublessee in the performance in a timely manner
of any obligation of Sublessee to be performed under this Sublease, or (C)the
negligence or intentional acts of Sublessee or Sublessee's agents, contractors,
employees, subtenants, licensees, or invitees, and/or (ii) the storage, use,
generation, discharge, treatment, transportation, release or disposal of
Hazardous Material by Sublessee or its agents, employees, invitees, visitors or
contractors in, on, over, through, from, about, or beneath the Sublease Premises
or any nearby premises. This indemnity shall survive the expiration or earlier
termination of this Sublease.
14.2 Sublessor Indemnity. Sublessor shall indemnify, defend (with counsel
reasonably satisfactory to Sublessee), protect and hold Sublessee harmless from
and against any and all claims, demands, actions, suits, proceedings,
liabilities, obligations, losses, damages, judgments, costs, expenses
(including, but not limited to, attorneys', consultants' and expert witness
fees) arising out of, resulting from, or related to any injury or death to any
person or injury or damage to property caused by, arising out of, or involving
(i) a breach by Sublessor in the performance in a timely manner of any
obligation of Sublessor to be performed under this Sublease, or (ii) from the
gross negligence or intentional acts of Sublessor or Sublessor's agents,
contractors, employees, or invitees. Nothing herein shall be deemed a
representation or warranty by Sublessor regarding the physical condition of the
Premises, nor create any obligation on the part of Sublessor to perform or pay
for the cost of any repair or replacement to the Sublease Premises except to the
extent required by Section 2.2 of this Sublease. This indemnity shall survive
the expiration or earlier termination of this Sublease.
14.3 Sublessee Waiver. Sublessee, as a material part of the consideration to
Sublessor, hereby assumes all risk of damage to property or injury to persons
in, upon or about the Sublease Premises arising from any cause and Sublessee
hereby waives all claims in respect thereof against Sublessor, except in
connection with damage or injury caused solely by the gross negligence or
willful misconduct of Sublessor or its authorized agents; provided, however,
that in no event shall Sublessor be liable for any loss of profits or any
special, indirect, incidental, consequential or punitive damages, however caused
and on any theory of liability. This waiver shall survive the expiration or
earlier termination of this Sublease.
14.4 Mutual Waiver of Subrogation. Each party (the "First Party") hereby
releases the other party (the "Second Party"), and its partners, officers,
agents, employees, and servants, from any and all claims, demands, loss,
expense, or injury to the Sublease Premises or to the furnishings, fixtures,
equipment, inventory, or other property in, about, or upon the Sublease
Premises, which is caused by or results from perils, events, or happenings which
are the
9
<PAGE>
subject of fire or other casualty insurance carried by the First Party at the
time of such loss or which would have been in force had the First Party carried
the insurance required hereunder or by the Master Lease (collectively, the
"Effective Coverage") irrespective of any negligence on the part of the Second
Party that may have contributed to or caused such loss; subject to the following
limitations: (i) the Second Party shall not be released from any liability to
the extent that such damages are not covered by the insurance recovery under the
Effective Coverage or are the result of willful acts by the Second Party, and
(ii) the Second Party shall be responsible for reimbursing the First Party for
any deductible owed as a result of such damages. Each party shall use
commercially reasonable efforts to obtain, if needed, appropriate endorsements
to its policies of insurance with respect to the foregoing releases; provided,
however, that failure to obtain such endorsements shall not affect the releases
hereinabove given.
ARTICLE 15: ASSIGNMENT AND SUBLETTING.
15.1 Right to Assign and Sublet. Sublessee shall not voluntarily or by
operation of law assign this Sublease or enter into license or concession
agreement, sublet all or any part of the Sublease Premises, or otherwise
transfer, mortgage, pledge, hypothecate or encumber all or any part of
Sublessee's interest in this Sublease or in the Sublease Premises or any part
thereof, without the prior written consent of Master Lessor (pursuant to the
terms of the Master Lease) and Sublessor (which consent will not be unreasonably
withheld). Any attempt to do so without such consent being first had and
obtained shall be wholly void and shall constitute a default by Sublessee under
this Sublease. Notwithstanding any assignment or subletting, Sublessee shall not
be relieved of its obligations hereunder, and a consent to one assignment or
subletting shall not constitute a consent to any other assignment or subletting
or a waiver of the provisions of this section.
15.2 Conditions Regarding Consent to Assignment or Sublet. Sublessee hereby
irrevocably assigns to Sublessor all Rent and other sums or consideration in any
form, from any subletting or assignment, and agrees that Sublessor, as assignee
and as attorney-in-fact for Sublessee, or a receiver for Sublessee appointed
upon Sublessor's application, may collect such Rent and other sums and apply the
same against amounts owing to Sublessor in the event of Sublessee's default;
provided, however, that until the occurrence of any act of default by Sublessee
or Sublessee's subtenant, Sublessee shall have the right to collect such sums,
provided that all sums in excess of the Minimum Monthly Rent set forth herein
which any subtenant covenants to pay shall belong solely and exclusively to
Sublessor.
15.3 Sublessor's Right to Recapture. Within ten (10) business days after
Sublessee gives Sublessor written notice of intent of a proposed assignment or
sublease (pursuant to the requirements set forth in the Master Lease), Sublessor
shall have the right to notify Sublessee of its intent to terminate this
Sublease, or in the case of a sublet of less than all of the Sublease Premises,
to terminate this Sublease as to that part of the Sublease Premises and to
recapture the proposed space.
ARTICLE 16: DELIVERY OF DOCUMENTS. Sublessee shall execute and deliver any
document or other instrument required by Master Lessor or Sublessor pursuant to
the Master Lease within five (5) days following receipt of a written request
from Master Lessor or Sublessor. Failure to comply with this provision shall
constitute a default by Sublessee under this Sublease.
ARTICLE 17: HOLDING OVER.
17.1 Without Consent. Any holding over by Sublessee after the Termination
Date, without the prior written consent of Master Lessor and Sublessor, shall
not constitute a renewal or extension of this Sublease or give Sublessee any
rights in or to the Sublease Premises. In the event of any such non-permissive
holding over, Sublessee shall pay Sublessor upon demand, (i) and amount equal to
Two Hundred Percent (200%) of the most recent applicable Minimum Monthly Rent,
computed on a daily basis for each day of the holdover period, plus (ii) all
other amounts due and payable under the Sublease, plus (iii) all other amounts
that Sublessor may become liable for under the Master Lease, plus (iv) any and
all other damages, costs, expenses, and fees incurred or suffered by Sublessor
as a result of such holdover by Sublessee.
10
<PAGE>
17.2 With Consent. Any holding over by Sublessee after the Termination Date,
with the prior written consent of Master Lessor and Sublessor, shall be
construed as a month-to-month tenancy on the same terms and conditions as
specified in this Sublease, except that the Minimum Monthly Rent during such
tenancy shall be increased to an amount equal to One Hundred Fifty Percent
(150%) of the most recent applicable Minimum Monthly Rent amount.
ARTICLE 18: OPTIONS.
18.1 Sublessor's rights. Any right of Sublessor to extend or renew the term
of the Master Lease or to expand the Premises (if any), shall be reserved to and
exercisable solely by Sublessor, in its sole discretion, and not by Sublessee.
Sublessor agrees to exercise such rights to extend or renew the Master Lease
only to the extent necessary to fulfill its obligations under this Sublease.
18.2 Sublessee's rights. In the event that Sublessee exercises its right to
extend the term for the Sublease Premises under Section 6 of the Consent to
Sublease, Lessee shall have no further obligation or liability whatsoever under
the Master Lease or the Sublease with respect to the Sublease Premises following
the expiration of the original term of the Master Lease as it pertains to the
Sublease Premises and in no event shall Lessee have any obligation or liability
under any direct lease between Master Lessor and Sublessee.
ARTICLE 19: EQUIPMENT AND FURNITURE. Prior to the Commencement Date, Sublessor
shall remove its previously installed phone and security system. However,
Sublessor agrees to leave in place at the Sublease Premises, and as of the
Commencement Date to transfer to Sublessee, all phone and data cabling, HVAC
units and electrical transformers currently located within the Sublease Premises
(the "Equipment"), subject to the following: (i)Sublessee shall bear the cost of
any and all sales taxes due with respect to the transfer of Equipment; (ii)
Sublessor makes no representations or warranties regarding the condition of the
Equipment, (iii) Sublessee agrees to accept possession of the Equipment "where
is" and "as is" and acknowledges that it has relied solely on its own
examination and inspection of the Equipment, and (iv) from and after the
Commencement Date, the Equipment shall be the sole responsibility of Sublessee,
and Sublessor shall not be under any liability or obligation in any manner to
provide service, maintenance, or repairs for the Equipment. Upon the expiration
or earlier termination of this Sublease, Sublessee shall remove the Equipment
from the Sublease Premises in compliance with the terms of Section 8.1 of this
Sublease.
ARTICLE 20: OPTION TO TERMINATE LEASE. Beginning eighteen (18) months after the
Commencement Date, either Sublessor or Sublessee may terminate this Sublease by
giving at least six (6) months written notice to the other party hereto. Under
no circumstances shall the right conveyed by this Article be used to extend the
term of this Sublease beyond the Termination Date.
ARTICLE 21: RIGHT OF FIRST OFFER TO EXPAND.
21.1 One-Time Offer to Lease Expansion Space. If at any time during the
Sublease Term, Sublessor desires to lease 90 Rio Robles, San Jose, California
located within Premises (the "Expansion Space") to other than an affiliated
third party, then Sublessor shall give Sublessee written notice ("Lease
Notice") of all material terms pursuant to which Sublessor would be willing to
lease such Expansion Space. Sublessee shall have the first right, by giving
written notice to Sublessor within five (5) business days after receipt of
Sublessor's Lease Notice, to lease the Expansion Space pursuant to the terms
contained in the Lease Notice. For purposes of this paragraph, an "affiliated
third party" shall mean any corporation or entity with which Sublessee may merge
or consolidate or become affiliated as a parent, subsidiary, holding company or
otherwise, or any corporation or entity with which Sublessee has a strategic
business relationship.
21.2 Acceptance of Expansion Space by Sublessee. If Sublessee exercises its
right by giving notice within the five (5) business day period described above,
Sublessor and Sublessee shall, within ten (10) business days thereafter, enter
into an amendment to this Sublease incorporating the Expansion Space as part of
the Sublease Premises,
11
<PAGE>
amended to set forth all of the terms provided in the Lease Notice. The lease of
the Expansion Space shall be subject to the approval of the Master Lessor as
provided in the Master Lease.
21.3 Sublessee's Rejection of Expansion Space. If Sublessee rejects the
Expansion Space, or fails to give notice of its intention to exercise its right
of first offer within the requisite five (5) business day period, then Landlord
may lease the Expansion Space to any prospective tenant, provided, however, that
the net present value of the Rent and other economic terms, is not,
collectively, greater than ten percent (10%) more favorable to the prospective
tenant than the terms in Sublessor's Expansion Notice. If such terms are greater
than ten percent (10%) more favorable to the prospective tenant than those terms
contained in Sublessor's Expansion Notice, then Sublessor shall send Sublessee
another Expansion Notice containing such terms, conditions, and covenants, and
this Article 21 shall again apply.
21.4 Termination of Right of First Offer. The right of first offer set forth
in this Article 21 to lease Expansion Space is a one-time offer. Upon the
execution of a lease of the Expansion Space between Sublessor and Sublessee or
another tenant, or if Sublessee rejects the Expansion Space, or fails to give
notice of its intention to exercise its right of first offer within the
requisite time period, then Sublessee shall no longer have the right of first
offer, and this Article 21 shall be of no further force or effect.
ARTICLE 22: PARKING. Subject to reasonable rules and regulations that may be
promulgated by Master Lessor and/or Sublessor from time to time, Sublessee shall
have the non-exclusive right in common with other tenants and occupants of the
Complex to use, free of a monthly fee during the term of the Sublease, one
hundred twenty five (125) parking spaces located in the Complex (i.e., 3.9/1,000
square feet).
ARTICLE 23: SIGNAGE. Subject to the prior approval of all Sublessor (which
approval shall not be unreasonably withheld), Master Lessor and all applicable
governmental agencies, Sublessee shall have the right to use the monument sign
in front of the Sublease Premises.
ARTICLE 24: GENERAL PROVISIONS.
24.1 Severability. If any term or provision of this Sublease shall, to any
extent, be determined by a court of competent jurisdiction to be invalid or
unenforceable, the remainder of this Sublease shall not be affected thereby, and
each term and provision of this Sublease shall be valid and enforceable to the
fullest extent permitted by law.
24.2 Attorneys' Fees; Costs of Suit. If Sublessee or Sublessor shall bring any
action or proceeding for any relief against the other, declaratory or otherwise,
arising out of this Sublease, including any suit by Sublessor for the recovery
of Rent or possession of the Sublease Premises, the prevailing party shall be
entitled to recover its reasonable attorneys' fees and costs.
24.3 Waiver. No covenant, term or condition or the breach thereof shall be
deemed waived, except by written consent of the party against whom the waiver is
claimed, and any waiver of the breach of any covenant, term or condition shall
not be deemed to be a waiver of any other covenant, term or condition or any
subsequent failure to perform the same or any other such term, covenant or
condition. Acceptance by Sublessor of any performance by Sublessee after the
time the same shall have become due shall not constitute a waiver by Sublessor
of the breach or default of any covenant, term or condition unless otherwise
expressly agreed to by Sublessor in writing.
24.4 Brokerage Commissions. The parties represent and warrant to each other
that they have dealt with no brokers, finders, agents or other person in
connection with the transaction contemplated hereby to whom a brokerage or other
commission or fee may be payable, except for the brokers named in Article 1,
whose fees shall be paid as follows: (a) for the initial two year sublease
commitment, a real estate commission in accordance with a separate agreement
will be paid by Sublessor to Sublessor's broker, which shall be split 50/50 with
Sublessee's broker. Should Sublessee occupy the Sublease Premises beyond such
two year period, the brokers shall be entitled to a commission on the remaining
term pursuant to the separate agreement, which commission would be invoiced to
and payable by
12
<PAGE>
Sublessor in six (6) month increments. Each party shall indemnify, defend and
hold the other harmless from any claims arising from any breach by the
indemnifying party of the representation and warranty in this Section 24.4.
24.5 Binding Effect. Preparation of this Sublease by Sublessor or Sublessor's
agent and submission of the same to Sublessee shall not be deemed an offer to
lease. This Sublease shall become binding upon Sublessor and Sublessee only when
fully executed by Sublessor and Sublessee. Sublessor and Sublessee acknowledge
and agree that this Sublease is expressly conditioned upon obtaining the consent
of Master Lessor hereto following such full execution by Sublessor and
Sublessee, which consent may be in the form attached as Exhibit C hereto or such
other form as Master Lessor may require. In the event such consent is not so
obtained within thirty (30) days following the date of this Sublease, then this
Sublease shall automatically terminate and be without further force or effect,
and Sublessor shall promptly return to Sublessee the prepaid rent and security
deposit paid by Sublessee to Sublessor pursuant to this Sublease.
24.6 Entire Agreement. This instrument, along with any exhibits and addenda
hereto, constitutes the entire agreement between Sublessor and Sublessee
relative to the Sublease Premises. This Sublease may be altered, amended or
revoked only by an instrument in writing signed by both Sublessor and Sublessee.
There are no oral agreements or representations between the parties affecting
this Sublease, and this Sublease supersedes and cancels any and all previous
negotiations, arrangements, brochures, agreements, representations and
understandings, if any, between the parties hereto.
24.7 Covenant of Quiet Enjoyment. Sublessor covenants with Sublessee that,
upon the payment of Rent and performance of all other obligations of Sublessee
hereunder, Sublessee shall be entitled to possession of the Sublease Premises
for the Sublease Term, in accordance with and subject to the terms of this
Sublease.
24.8 Execution. This Sublease may be executed in one or more counterparts,
each of which shall be considered an original counterpart, and all of which
together shall constitute one and the same instrument. Each person executing
this Sublease represents that the execution of this Sublease has been duly
authorized by the party on whose behalf the person is executing this Sublease.
Sublessor: Sublessee:
KLA-TENCOR CORPORATION, PCTEL, INC.,
a Delaware corporation a Delaware corporation
By: /s/ Lisa C. Berry By: /s/ Peter Chen
----------------------------- -----------------------------
Name: Lisa C. Berry Name: PETER CHEN
--------------------------- ---------------------------
Title: VP General Counsel Title: President & CEO
-------------------------- --------------------------
By: /s/ Andrew D. Wahl
-----------------------------
Name: Andrew D. Wahl
---------------------------
Title: CFO
--------------------------
13
<PAGE>
EXHIBIT B
NOTICE OF COMMENCEMENT DATE
Date: Oct. 1, 1998
Re: Sublease dated Sept. 24, 1998 between KLA-Tencor Corporation, a Delaware
corporation, as Sublessor, and PCTel, Inc., a Delaware corporation, as
Sublessee
In accordance with Section 4.1 of the Sublease, the parties hereby
confirm the following:
1. Sublessee has possession of the Sublease Premises. Under the
provisions of the Sublease, the parties agree that the term of said Sublease
commenced as of Oct. 1, 1998 (the "Commencement Date") for a term of
approximately 47 months, terminating on August 3, 2002.
2. The Rental Commencement Date under the Sublease, as defined in
Section 5.2 of the Sublease, is Oct. 1, 1998.
3. If the Commencement Date of the Sublease is other than the first day
of the month, the first month's Minimum Monthly Rent and Additional Rent shall
be prorated based on a thirty (30) day month and shall be payable on the first
day of the following calendar month.
AGREED TO AND ACCEPTED:
Sublessor: Sublessee:
KLA-TENCOR CORPORATION, PCTEL, INC.,
a Delaware corporation a Delaware corporation
By: /s/ Lisa C. Berry By: /s/ Peter Chen
----------------------------- -----------------------------
Name: Lisa C. Berry Name: Peter Chen
--------------------------- ---------------------------
Title: VP General Counsel Title: President & CEO
-------------------------- --------------------------
By: /s/ Andrew D. Wahl
-----------------------------
Name: Andrew D. Wahl
---------------------------
Title: CFO
--------------------------
FORM ONLY - DO NOT SIGN UNTIL COMMENCEMENT DATE IS ESTABLISHED
1
<PAGE>
EXHIBIT B
NOTICE OF COMMENCEMENT DATE
Date: Oct. 1, 1998
------------------
Re: Sublease dated Sept. 24, 1998 between KLA-Tencor Corporation, a Delaware
corporation, as Sublessor, and PCTel, Inc., a Delaware corporation, as
Sublessee
In accordance with Section 4.1 of the Sublease, the parties hereby
confirm the following:
1. Sublessee has possession of the Sublease Premises. Under the
provisions of the Sublease, the parties agree that the term of said Sublease
commenced as of Oct. 1, 1998 (the "Commencement Date") for a term of
approximately 47 months, terminating on August 3, 2002.
2. The Rental Commencement Date under the Sublease, as defined in
Section 5.2 of the Sublease, is Oct 1, 1998.
3. If the Commencement Date of the Sublease is other than the first day
of the month, the first month's Minimum Monthly Rent and Additional Rent shall
be prorated based on a thirty (30) day month and shall be payable on the first
day of the following calendar month.
AGREED TO AND ACCEPTED:
Sublessor: Sublessee:
KLA-TENCOR CORPORATION, PCTEL, INC.,
a Delaware corporation a Delaware corporation
By: By: /s/ Peter Chen
----------------------------- -----------------------------
Name: Name: Peter Chen
--------------------------- ---------------------------
Title: Title: President & CEO
-------------------------- --------------------------
By: /s/ Andrew D. Wahl
-----------------------------
Name: Andrew D. Wahl
---------------------------
Title: CFO
--------------------------
FORM ONLY - DO NOT SIGN UNTIL COMMENCEMENT DATE IS ESTABLISHED
1
<PAGE>
EXHIBIT B
NOTICE OF COMMENCEMENT DATE
Date: Oct. 1, 1998
Re: Sublease dated Sept. 24, 1998 between KLA-Tencor Corporation, a Delaware
corporation, as Sublessor, and PCTel, Inc., a Delaware corporation, as
Sublessee
In accordance with Section 4.1 of the Sublease, the parties hereby
confirm the following:
1. Sublessee has possession of the Sublease Premises. Under the
provisions of the Sublease, the parties agree that the term of said Sublease
commenced as of Oct. 1, 1998 (the "Commencement Date") for a term of
approximately 47 months, terminating on August 3, 2002.
2. The Rental Commencement Date under the Sublease, as defined in
Section 5.2 of the Sublease, is Oct. 1, 1998.
3. If the Commencement Date of the Sublease is other than the first day
of the month, the first month's Minimum Monthly Rent and Additional Rent shall
be prorated based on a thirty (30) day month and shall be payable on the first
day of the following calendar month.
AGREED TO AND ACCEPTED:
Sublessor: Sublessee:
KLA-TENCOR CORPORATION, PCTEL, INC.,
a Delaware corporation a Delaware corporation
By: By: /s/ Peter Chen
------------------------- -------------------------
Name: Name: PETER CHEN
----------------------- -----------------------
Title: Title: PRESIDENT & CEO
---------------------- ----------------------
By: /s/ Andrew D. Wahl
-------------------------
Name: ANDREW D. WAHL
-----------------------
Title: CFO
----------------------
FORM ONLY - DO NOT SIGN UNTIL COMMENCEMENT DATE IS ESTABLISHED
1
<PAGE>
EXHIBIT C
CONSENT OF LANDLORD TO SUBLEASE
Subject to the conditions set forth herein, the undersigned (sometimes
referred to herein as the "Landlord") hereby consents to the attached Sublease
--------
Agreement (defined below) dated _________, 1998, between KLA-TENCOR CORPORATION,
a Delaware corporation ("Sublessor") (formerly known as KLA Instruments
---------
Corporation ("KLA Corp.") and PCTEL, INC., a Delaware corporation ("Sublessee"),
---------
and all its terms (the "Sublease Agreement"). This Consent does not release or
------------------
discharge Sublessor from any liability as lessee under that certain Lease dated
July 29, 1994 between Knickerbocker Properties, Inc. I ("KPI"), a predecessor in
interest to Landlord, and KLA Corp., as amended by that certain First Amendment
to Lease dated September 15, 1994 between KPI and KLA Corp., that certain Second
Amendment to Lease dated July 26, 1995 between KPI and KLA Corp., that certain
Third Amendment to Lease dated September 8, 1995 between KPI and KLA Corp., that
certain Fourth Amendment to Lease dated May 21, 1997 between Landlord and KLA
Corp., and that certain Fifth Amendment to Lease dated November 21, 1997 between
Landlord and Sublessor (collectively, the "Lease") including, without limitation
-----
the obligation to pay rent. This consent is granted by Landlord subject to the
following terms and conditions:
1. Sublessee shall not assign the Sublease Agreement nor sublet the
premises described in the Sublease Agreement (the "Subleased Premises") in whole
------------------
or part without Landlord's prior written consent, which consent shall not be
unreasonably withheld provided that Sublessee fully complies with all of the
requirements of Article 14 of the Lease; and shall not permit Sublessee's
interest in the Sublease Agreement to be vested in any third party by operation
of law or otherwise.
2. This Consent shall not be deemed to be a consent to any subsequent
assignment or subletting. Sublessor shall not make any subsequent amendment to
the Sublease Agreement without Landlord's prior written consent, which consent
shall not be unreasonably withheld. Landlord shall not be deemed to have waived
any rights under the Lease by virtue of this Consent.
3. The Sublease Agreement is in all respects subordinate to the terms of
the Lease. Insofar as the specific terms of the Sublease Agreement purport to
amend or modify or are in conflict with the specific terms of the Lease, the
terms of the Lease shall control. Landlord assumes no liability whatsoever on
account of anything contained in the Sublease Agreement.
4. Any rights under the Sublease Agreement may be enforced only against
Sublessor, and Sublessee shall have no right to enforce any of Sublessor's
rights under the Lease against Landlord by virtue of the Sublease Agreement,
this Consent, or otherwise.
5. Sublessor shall pay in addition to all other amounts due Landlord under
the Lease
<PAGE>
(including the excess rent required to be paid to Landlord pursuant to Section
14 of the Lease), the sum of $500.00 (which sum represents the reasonable costs
incurred by Landlord in connection with the review of the Sublease Agreement and
the processing of this Consent thereto.
IN WITNESS WHEREOF, the undersigned has executed this Consent on behalf of
Landlord as of this _______ day of September, 1998.
CARRAMERICA REALTY CORPORATION
By:
------------------------
Philip L. Hawkins
Managing Director
<PAGE>
CONSENT OF LANDLORD TO SUBLEASE
Subject to the conditions set forth herein, the undersigned (sometimes
referred to herein as the "Landlord") hereby consents to the attached Sublease
--------
Agreement (defined below) dated September 24,1998, between KLA-TENCOR
CORPORATION, a Delaware corporation ("Sublessor") (formerly known as KLA
---------
Instruments Corporation ("KLA Corp.") and PCTEL, INC., a Delaware corporation
("Sublessee"), and all its terms (the "Sublease Agreement"). This Consent does
--------- ------------------
not release or discharge Sublessor from any liability as lessee under that
certain Lease dated July 29, 1994 between Knickerbocker Properties, Inc. I
("KPI"), a predecessor in interest to Landlord, and KLA Corp., as amended by
that certain First Amendment to Lease dated September 15, 1994 between KPI and
KLA Corp., that certain Second Amendment to Lease dated July 26, 1995 between
KPI and KLA Corp., that certain Third Amendment to Lease dated September 8, 1995
between KPI and KLA Corp., that certain Fourth Amendment to Lease dated May 21,
1997 between Landlord and KLA Corp., and that certain Fifth Amendment to Lease
dated November 21, 1997 between Landlord and Sublessor (collectively, the
"Lease") including, without limitation the obligation to pay rent. This consent
-----
is granted by Landlord subject to the following terms and conditions:
1. Sublessee shall not assign the Sublease Agreement nor sublet the
premises described in the Sublease Agreement (the "Subleased Premises") in whole
------------------
or part without Landlord's prior written consent, which consent shall not be
unreasonably withheld provided that Sublessee fully complies with all of the
requirements of Article 14 of the Lease; and shall not permit Sublessee's
interest in the Sublease Agreement to be vested in any third party by operation
of law or otherwise.
2. This Consent shall not be deemed to be a consent to any subsequent
assignment or subletting. Sublessor shall not make any subsequent amendment to
the Sublease Agreement without Landlord's prior written consent, which consent
shall not be unreasonably withheld. Landlord shall not be deemed to have waived
any rights under the Lease by virtue of this Consent.
3. The Sublease Agreement is in all respects subordinate to the terms of
the Lease. Insofar as the-specific terms of the Sublease Agreement purport to
amend or modify or are in conflict with the specific terms of the Lease, the
terms of the Lease shall control. Landlord assumes no liability whatsoever on
account of anything contained in the Sublease Agreement.
4. Any rights under the Sublease Agreement may be enforced only against
Sublessor, and Sublessee shall have no right to enforce any of Sublessor's
rights under the Lease against Landlord by virtue of the Sublease Agreement,
this Consent, or otherwise.
5. Sublessor shall pay in addition to all other amounts due Landlord under
the Lease (including the excess rent required to be paid to Landlord pursuant to
Section 14 of the Lease), the sum of $500.00 (which sum represents the
reasonable costs incurred by Landlord in connection
<PAGE>
with the review of the Sublease Agreement and the processing of this Consent
thereto.
IN WITNESS WHEREOF, the undersigned has executed this Consent on behalf of
Landlord as of this 5th day of October, 1998.
CARRAMERICA REALTY CORPORATION
By: /s/ Philip L. Hawkins
---------------------------------
Philip L. Hawkins
Managing Director
<PAGE>
EXHIBIT 10.9
PROMISSORY NOTE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
8,156,300.00 12-28-1998 01-05-2004 279002729 0002 3 CMT 1/Note 1 1789
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
References in the shaded area are for Lender's use only and do not limit
the applicability of this document to any particular loan or item.
- --------------------------------------------------------------------------------
Borrower: PC-Tel, Inc. (TIN: 77-0364943) Lender: PFF Bank and Trust
70 Rio Robles Commercial Business
San Jose, CA 95134 Center
9467 Milliken Avenue
P O Box 2729
Rancho Cucamonga, CA
91729-2729
================================================================================
<TABLE>
<S> <C> <C>
Principal Amount: $8,156,300.00 Initial Rate: 8.250% Date of Note: December 28, 1998
</TABLE>
PROMISE TO PAY. PC-Tel, Inc. ("Borrower") promises to pay to PFF Bank and Trust
("Lender"), or order, in lawful money of the United States of America, the
principal amount of Eight Million One Hundred Fifty Six Thousand Three Hundred &
00/100 Dollars ($8,156,300.00), together with interest on the unpaid principal
balance from December 28, 1998, until paid in full.
PAYMENT. Subject to any payment changes resulting from changes in the index,
Borrower will pay this loan on demand, or if no demand is made, in 59 regular
payments of $128,853.07 each and one irregular last payment estimated at
$2,967,315.32. Borrower's first payment is due February 5,1999, and all
subsequent payments are due on the same day of each month after that. Borrower's
final payment due January 5, 2004, will be for all principal and all accrued
interest not yet paid. Payments include principal and interest. The annual
interest rate for this Note is computed on a 365/360 basis; that is, by applying
the ratio of the annual interest rate over a year of 360 days, multiplied by the
outstanding principal balance, multiplied by the actual number of days the
principal balance is outstanding. Borrower will pay Lender at Lender's address
shown above or any such other place as Lender may designate in writing. Unless
otherwise agreed or required by applicable law, payments will be applied first
to accrued unpaid interest, then to principal, and any remaining amount to any
unpaid collection costs and late charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from
time to time based on changes in an independent index which is The Wall Street
Journal Prime Rate (the "Index"). The index is not necessarily the lowest rate
charged by Lender on its loans. If the Index becomes unavailable during the term
of this loan, Lender may designate a substitute index after notice to Borrower.
Lender will tell Borrower the current index rate upon Borrower's request.
Borrower understands that Lender may make loads based on other rates as well.
The interest rate change will not occur more often than each day. The index
currently is 7.750%. The interest rate to be applied to the unpaid principal
balance of this Note will be at a rate of 0.500 percentage points over the
index, resulting in an initial rate of 8.250%. NOTICE: Under no circumstances
will the interest rate in this Note be more than the maximum rate allowed by
applicable law. Whenever increases occur in the interest rate, Lender, at its
option may do one or more of the following: (a) increase Borrower's payments to
ensure Borrower's loan will pay off by its original final maturity date, (b)
increase Borrower's payments to cover accruing interest, (c) increase the number
of Borrower's payments, and (d) continue Borrower's payments at the same amount
and increase Borrower's final payment.
PREPAYMENT PENALTY; MINIMUM INTEREST CHARGE. In any event, even upon full
prepayment of this Note, Borrower understands that Lender is entitled to a
minimum interest charge of $50.00. Upon prepayment of this Note, Lender is
entitled to the following prepayment penalty: Any principal reduction in excess
of 20% of the outstanding balance within the first three (3) years will be
subject to the following prepayment penalty: Year 1 - 3% of the prepayment
amount. Year 2 - 2% of the prepayment amount. Year 3 - 1% of the prepayment
amount. Other than Borrower's obligation to pay any minimum interest rate charge
and prepayment penalty, Borrower may pay all or a portion of the amount owed
earlier than it is due. Early payments will not, unless agreed to by Lender in
writing, relieve Borrower of Borrower's obligation to continue to make payments
under the payment schedule. Rather, they will reduce the principal balance due
and may result in Borrower making fewer payments.
LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged
5.000% of the regularly scheduled payment.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note or
any agreement related to this Note, or in any other agreement or loan Borrower
has with Lender. (c) Borrower defaults under any loan, extension of credit,
security agreement, purchase or sales agreement, or any other agreement, in
favor of any other creditor or person that may materially affect any of
Borrower's property or Borrower's ability to repay this Note or perform
Borrower's obligations under this Note or any of the Related Documents. (d) Any
representation or statement made or furnished to Lender by Borrower or on
Borrower's behalf is false or misleading in any material respect either now or
at the time made or furnished. (e) Borrower becomes insolvent, a receiver is
appointed for any part of Borrower's property, Borrower makes an assignment for
the benefit of creditors, or any proceeding is commenced either by Borrower or
against Borrower under any bankruptcy or insolvency laws. (f) Any creditor tries
to take any of Borrower's property on or in which Lender has a lien or security
interest. This includes a garnishment of any of Borrower's accounts with Lender.
(g) Any guarantor dies or any of the other events described in this default
section occurs with respect to any guarantor of this Note. (h) A material
adverse change occurs in Borrower's financial condition, or Lender believes the
prospect of payment or performance of the Indebtedness is impaired. (i) Lender
in good faith deems itself insecure.
If any default, other than a default in payment, is curable and if Borrower has
not been given a notice of a breach of the same provision of this Note within
the preceding twelve (12) months, it may be cured (and no event of default will
have occurred) if Borrower, after receiving written notice from Lender demanding
cure of such default: (a) cures the default within fifteen (15) days; or (b) if
the cure requires more than fifteen (15) days, immediately initiates steps which
Lender deems in Lender's sole discretion to be sufficient to cure the default
and thereafter continues and completes all reasonable and necessary steps
sufficient to produce compliance as soon as reasonably practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon Borrower's failure to pay
all amounts declared due pursuant to this section, including failure to pay upon
final maturity, Lender, at its option, may also, if permitted under applicable
law, do one or both of the following: (a) increase the variable interest rate on
this Note to 6.500 percentage points over the index, and (b) add any unpaid
accrued interest to principal and such sum will bear interest therefrom until
paid at the rate provided in this Note (including any increased rate). Lender
may hire or pay someone else to help collect this Note if Borrower does not pay.
Borrower also will pay Lender that amount. This includes, subject to any limits
under applicable law, Lender's attorneys' fees and Lender's legal expenses
whether or not there is a lawsuit, including attorneys' fees and legal expenses
for bankruptcy proceedings (including efforts to modify or vacate any automatic
stay or injunction), appeals, and any anticipated post-judgment collection
services. Borrower also will pay any court costs, in addition to all other sums
provided by law. This Note has been delivered to Lender and accepted by Lender
in the State of California. If there is a lawsuit, Borrower agrees upon Lender's
request to submit to the Jurisdiction of the courts of San Bernardino County,
the State of California. Lender and Borrower hereby waive the right to any jury
trial in any action, proceeding, or counterclaim brought by either Lender or
Borrower against the other. This Note shall be governed by and construed in
accordance with the laws of the State of California.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender Of $18.00 if Borrower
makes a payment on Borrower's loan and the check or preauthorized charge with
which Borrower pays is later dishonored.
RIGHT OF SETOFF. Borrower grants to Lender a contractual security interest in,
and hereby assigns, conveys, delivers, pledges, and transfers to Lender all
Borrower's right, title and interest in and to, Borrower's accounts with Lender
(whether checking, savings, or some other account), including without limitation
all accounts held jointly with someone else and all accounts Borrower may open
in the future, excluding however all IRA and Keogh accounts, and all trust
accounts for which the grant of a security interest would be prohibited by law.
Borrower authorizes Lender, to the extent permitted by applicable law, to charge
or setoff all sums owing on this Note against any and all such accounts.
GENERAL PROVISIONS. This Note is payable on demand. The inclusion of specific
default provisions or rights of Lender shall not preclude Lender's right to
declare payment of this Note on its demand. Lender may delay or forgo enforcing
any of its rights or remedies under this Note without losing them. Borrower and
any other person who signs, guarantees or endorses this Note, to the extent
allowed by law, waive any applicable statue of limitations, presentment, demand
for payment, protest and notice of dishonor. Upon any change in the terms of
this Note, and unless otherwise expressly stated in writing, no party who signs
this Note, whether as maker, guarantor, accommodation maker or endorser, shall
be released from liability. All such parties agree that Lender may renew or
extend (repeatedly and for any length of time) this loan, or release any party
or guarantor or collateral; or impair, fail to realize upon or perfect Lender's
security interest in the collateral; and take any other action deemed necessary
by Lender without the consent of or notice to anyone. All such parties also
agree that Lender may modify this loan without the consent of or notice to
anyone other than the party with whom the modification is made.
<PAGE>
12-28-1998 PROMISSORY NOTE Page 2
Loan No 279002729 (Continued)
================================================================================
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
PC-Tel, Inc.
By: /s/ Peter Chen By: /s/ Andrew D Wahl
-------------------------------- -------------------------
Peter Chen, President & CEO Andrew D. Wahl, Vice President
and CFO
LENDER:
PFF Bank and Trust
By: /s/ Kenneth O. Wentzel
--------------------------------
Authorized Officer
================================================================================
Variable Rate. Balloon LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver.
3.26a (c) 1998 CFI ProServices, Inc. All
rights reserved. [CA-020 F3.26 PCTEL.LN]
<PAGE>
BUSINESS LOAN AGREEMENT
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Principle Loan Date Maturity Loan No Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 8,156,300.00 12-28-1998 01-05-2004 279002729 0002 3 CMT 1/Note 1 1789
- ----------------------------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular
loan or item.
- ----------------------------------------------------------------------------------------------------------------------------------
Borrower: PC-Tel, Inc. (TIN: 77-0364943) Lender: PFF Bank and Trust
70 Rio Robles Commercial Business Center
San Jose, CA 95134 9467 Milliken Avenue
P O Box 2729
Rancho Cucamonga, CA 91729-2729
=================================================================================================================================
</TABLE>
THIS BUSINESS LOAN AGREEMENT between PC-Tel, Inc. ("Borrower") and PFF Bank and
Trust ("Lender") is made and executed on the following terms and conditions.
Borrower has received prior commercial loans from Lender or has applied to
Lender for a commercial loan or loans and other financial accommodations,
including those which may be described on any exhibit or schedule attached to
this Agreement. All such loans and financial accommodations, together with all
future loans and financial accommodations from Lender to Borrower, are referred
to in this Agreement individually as the "Loan" and collectively as the "Loans."
Borrower understands and agrees that: (a) in granting, renewing, or extending
any Loan, Lender is relying upon Borrower's representations, warranties, and
agreements, as set forth in this Agreement; (b) the granting, renewing, or
extending of any Loan by Lender at all times shall be subject to Lender's sole
judgment and discretion; and (c) all such Loans shall be and shall remain
subject to the following terms and conditions of this Agreement.
TERM. This Agreement shall be effective as of December 28, 1998, and shall
continue thereafter until all Indebtedness of Borrower to Lender has been
performed in full and the parties terminate this Agreement in writing.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All references
to dollar amounts shall mean amounts in lawful money of the United States of
America.
Agreement. The word "Agreement" means this Business Loan Agreement, as this
Business Loan Agreement may be amended or modified from time to time,
together with all exhibits and schedules attached to this Business Loan
Agreement from time to time.
Borrower. The word "Borrower" means PC-Tel, Inc.. The word "Borrower" also
includes, as applicable, all subsidiaries and affiliates of Borrower as
provided below in the paragraph titled "Subsidiaries and Affiliates."
CERCLA. The word "CERCLA" means the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended.
Cash Flow. The words "Cash Flow" mean net income after taxes, and exclusive
of extraordinary gains and income, plus depreciation and amortization.
Collateral. The word "Collateral" means and includes without limitation all
property and assets granted as collateral security for a Loan, whether real
or personal property, whether granted directly or indirectly, whether
granted now or in the future, and whether granted in the form of a security
interest, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien, charge, lien or title retention contract, lease or
consignment intended as a security device, or any other security or lien
interest whatsoever, whether created by law, contract, or otherwise.
Debt. The word "Debt" means all of Borrower's liabilities excluding
Subordinated Debt.
ERISA. The word "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
Event of Default. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "EVENTS OF DEFAULT."
Grantor. The word "Grantor" means and includes without limitation each and
all of the persons or entities granting a Security Interest in any
Collateral for the Indebtedness, including without limitation all Borrowers
granting such a Security Interest.
Guarantor. The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties in
connection with any Indebtedness.
Indebtedness. The word "Indebtedness" means and includes without limitation
all Loans, together with all other obligations, debts and liabilities of
Borrower to Lender, or any one or more of them, as well as all claims by
Lender against Borrower, or any one or more of them; whether now or
hereafter existing, voluntary or involuntary, due or not due, absolute or
contingent, liquidated or unliquidated; whether Borrower may be liable
individually or jointly with others; whether Borrower may be obligated as a
guarantor, surety, or otherwise; whether recovery upon such Indebtedness
may be or hereafter may become barred by any statute of limitations; and
whether such Indebtedness may be or hereafter may become otherwise
unenforceable.
Lender. The word "Lender" means PFF Bank and Trust, its successors and
assigns.
Liquid Assets. The words "Liquid Assets" mean Borrower's cash on hand plus
Borrower's readily marketable securities.
Loan. The word "Loan" or "Loans" means and includes without limitation any
and all commercial loans and financial accommodations from Lender to
Borrower, whether now or hereafter existing, and however evidenced,
including without limitation those loans and financial accommodations
described herein or described on any exhibit or schedule attached to this
Agreement from time to time.
Note. The word "Note" means and includes without limitation Borrower's
promissory note or notes, if any, evidencing Borrower's Loan obligations in
favor of Lender, as well as any substitute, replacement or refinancing note
or notes therefor.
Permitted Liens. The words "Permitted Liens" mean: (a) liens and security
interests securing Indebtedness owed by Borrower to Lender; (b) liens for
taxes, assessments, or similar charges either not yet due or being
contested in good faith; (c) liens of materialmen, mechanics, warehousemen,
or carriers, or other like liens arising in the ordinary course of business
and securing obligations which are not yet delinquent; (d) purchase money
liens or purchase money security interests upon or in any property acquired
or held by Borrower in the ordinary course of business to secure
indebtedness outstanding on the date of this Agreement or permitted to be
incurred under the paragraph of this Agreement titled "Indebtedness and
Liens"; (e) liens and security interests which, as of the date of this
Agreement, have been disclosed to and approved by the Lender in writing;
and (f) those liens and security interests which in the aggregate
constitute an immaterial and insignificant monetary amount with respect to
the net value of Borrower's assets.
Related Documents. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Indebtedness.
Security Agreement. The words "Security Agreement" mean and include without
limitation any agreements, promises, covenants, arrangements,
understandings or other agreements, whether created by law, contract, or
otherwise, evidencing, governing, representing, or creating a Security
Interest.
Security Interest. The words "Security Interest" mean and include without
limitation any type of collateral security, whether in the form of a lien,
charge, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien or title retention contract, lease or consignment intended as
a security device, or any other security or lien interest whatsoever,
whether created by law, contract, or otherwise.
SARA. The word "SARA" means the Superfund Amendments and Reauthorization
Act of 1986 as now or hereafter amended.
Subordinated Debt. The words "Subordinated Debt" mean Indebtedness and
liabilities of Borrower which have been subordinated by written agreement
to indebtedness owed by Borrower to Lender in form and substance acceptable
to Lender.
Tangible Net Worth. The words "Tangible Net Worth" mean Borrower's total
assets excluding all intangible assets (i.e., goodwill, trademarks,
patents, copyrights, organizational expenses, and similar intangible items,
but including leaseholds and leasehold improvements)less total Debt.
Working Capital. The words "Working Capital" mean Borrower's current
assets, excluding prepaid expenses, less Borrower's current liabilities.
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the initial
Loan Advance and each subsequent Loan Advance under this Agreement shall be
subject to the fulfillment to Lender's satisfaction of all of the conditions set
forth in this Agreement and in the Related Documents.
<PAGE>
12-28-1998 BUSINESS LOAN AGREEMENT Page 2
Loan No 279002729 (Continued)
================================================================================
documents and instruments as Lender or its counsel, in their sole
discretion, may require.
Payment of Fees and Expenses. Borrower shall have paid to Lender all fees,
charges, and other expenses which are then due and payable as specified in
this Agreement or any Related Document.
Representations and Warranties. The representations and warranties set
forth in this Agreement, in the Related Documents, and in any document or
certificate delivered to Lender under this Agreement are true and correct.
No Event of Default. There shall not exist at the time of any advance a
condition which would constitute an Event of Default under this Agreement.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of Loan
proceeds, as of the date of any renewal, extension or modification of any Loan,
and at all times any Indebtedness exists:
Organization. Borrower is a corporation which is duly organized, validly
existing, and in good standing under the laws of the State of Delaware and
is validly existing and in good standing in all states in which Borrower is
doing business. Borrower has the full power and authority to own its
properties and to transact the businesses in which it is presently engaged
or presently proposes to engage. Borrower also is duly qualified as a
foreign corporation and is in good standing in all states in which the
failure to so qualify would have a material adverse effect on its
businesses or financial condition.
Authorization. The execution, delivery, and performance of this Agreement
and all Related Documents by Borrower, to the extent to be executed,
delivered or performed by Borrower, have been duly authorized by all
necessary action by Borrower; do not require the consent or approval of any
other person, regulatory authority or governmental body; and do not
conflict with, result in a violation of, or constitute a default under (a)
any provision of its articles of incorporation or organization, or bylaws,
or any agreement or other instrument binding upon Borrower or (b) any law,
governmental regulation, court decree, or order applicable to Borrower.
Financial Information. Each financial statement of Borrower supplied to
Lender truly and completely disclosed Borrower's financial condition as of
the date of the statement, and there has been no material adverse change in
Borrower's financial condition subsequent to the date of the most recent
financial statement supplied to Lender. Borrower has no material contingent
obligations except as disclosed in such financial statements.
Legal Effect. This Agreement constitutes, and any instrument or agreement
required hereunder to be given by Borrower when delivered will constitute,
legal, valid and binding obligations of Borrower enforceable against
Borrower in accordance with their respective terms.
Properties. Except as contemplated by this Agreement or as previously
disclosed in Borrower's financial statements or in writing to Lender and as
accepted by Lender, and except for property tax liens for taxes not
presently due and payable, Borrower owns and has good title to all of
Borrower's properties free and clear of all Security Interests, and has not
executed any security documents or financing statements relating to such
properties. All of Borrower's properties are titled in Borrower's legal
name, and Borrower has not used, or filed a financing statement under, any
other name for at least the last five (5) years.
Hazardous Substances. The terms "hazardous waste," "hazardous substance,"
"disposal," "release," and "threatened release," as used in this Agreement,
shall have the same meanings as set forth in the "CERCLA," "SARA," the
Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq.,
the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et
seq., Chapters 6.5 through 7.7 of Division 20 of the California Health and
Safety Code, Section 25100, et seq., or other applicable state or Federal
laws, rules, or regulations adopted pursuant to any of the foregoing.
Except as disclosed to and acknowledged by Lender in writing, Borrower
represents and warrants that: (a) During the period of Borrower's ownership
of the properties, there has been no use, generation, manufacture, storage,
treatment, disposal, release or threatened release of any hazardous waste
or substance by any person on, under, about or from any of the properties.
(b) Borrower has no knowledge of, or reason to believe that there has been
(i) any use, generation, manufacture, storage, treatment, disposal,
release, or threatened release of any hazardous waste or substance on,
under, about or from the properties by any prior owners or occupants of any
of the properties, or (ii) any actual or threatened litigation or claims of
any kind by any person relating to such matters. (c) Neither Borrower nor
any tenant, contractor, agent or other authorized user of any of the
properties shall use, generate, manufacture, store, treat, dispose of, or
release any hazardous waste or substance on, under, about or from any of
the properties; and any such activity shall be conducted in compliance with
all applicable federal, state, and local laws, regulations, and ordinances,
including without limitation those laws, regulations and ordinances
described above. Borrower authorizes Lender and its agents to enter upon
the properties to make such inspections and tests as Lender may deem
appropriate to determine compliance of the properties with this section of
the Agreement. Any inspections or tests made by Lender shall be at
Borrower's expense and for Lender's purposes only and shall not be
construed to create any responsibility or liability on the part of Lender
to Borrower or to any other person. The representations and warranties
contained herein are based on Borrower's due diligence in investigating the
properties for hazardous waste and hazardous substances. Borrower hereby
(a) releases and waives any future claims against Lender for indemnity or
contribution in the event Borrower becomes liable for cleanup or other
costs under any such laws, and (b) agrees to indemnify and hold harmless
Lender against any and all claims, losses, liabilities, damages, penalties,
and expenses which Lender may directly or indirectly sustain or suffer
resulting from a breach of this section of the Agreement or as a
consequence of any use, generation, manufacture, storage, disposal, release
or threatened release of a hazardous waste or substance on the properties.
The provisions of this section of the Agreement, including the obligation
to indemnify, shall survive the payment of the Indebtedness and the
termination or expiration of this Agreement and shall not be affected by
Lender's acquisition of any interest in any of the properties, whether by
foreclosure or otherwise.
Litigation and Claims. No litigation, claim, investigation, administrative
proceeding or similar action (including those for unpaid taxes) against
Borrower is pending or threatened, and no other event has occurred which
may materially adversely affect Borrower's financial condition or
properties, other than litigation, claims, or other events, if any, that
have been disclosed to and acknowledged by Lender in writing.
Taxes. To the best of Borrower's knowledge, all tax returns and reports of
Borrower that are or were required to be filed, have been filed, and all
taxes, assessments and other governmental charges have been paid in full,
except those presently being or to be contested by Borrower in good faith
in the ordinary course of business and for which adequate reserves have
been provided.
Lien Priority. Unless otherwise previously disclosed to Lender in writing,
Borrower has not entered into or granted any Security Agreements, or
permitted the filing or attachment of any Security Interests on or
affecting any of the Collateral directly or indirectly securing repayment
of Borrower's Loan and Note, that would be prior or that may in any way be
superior to Lender's Security Interests and rights in and to such
Collateral.
Binding Effect. This Agreement, the Note, all Security Agreements directly
or indirectly securing repayment of Borrower's Loan and Note and all of the
Related Documents are binding upon Borrower as well as upon Borrower's
successors, representatives and assigns, and are legally enforceable in
accordance with their respective terms.
Commercial Purposes. Borrower intends to use the Loan proceeds solely for
business or commercial related purposes.
Employee Benefit Plans. Each employee benefit plan as to which Borrower may
have any liability complies in all material respects with all applicable
requirements of law and regulations, and (i) no Reportable Event nor
Prohibited Transaction (as defined in ERISA) has occurred with respect to
any such plan, (ii) Borrower has not withdrawn from any such plan or
initialed steps to do so, (iii) no steps have been taken To terminate any
such plan, and (iv) there are no unfunded liabilities other than those
previously disclosed to Lender in writing.
Location of Borrower's Offices and Records. Borrower's place of business,
or Borrower's Chief executive office, if Borrower has more than one place
of business, is located at 70 Rio Robles, San Jose, CA 95134. Unless
Borrower has designated otherwise in writing this location is also the
office or offices where Borrower keeps its records concerning the
Collateral.
Year 2000. Borrower warrants and represents that all software utilized in
the conduct of Borrower's business will have appropriate capabilities and
compatibility for operation to handle calendar dates falling on or after
January 1, 2000, and all information pertaining to such calendar dates, in
the same manner and with the same functionality as the software does
respecting calendar dates falling on or before December 31, 1999. Further,
Borrower warrants and represents that the data-related user interface
functions, data-fields, and data-related program instructions and functions
of the software include the indication of the century.
Information. All information heretofore or contemporaneously herewith
furnished by Borrower to Lender for the purposes of or in connection with
this Agreement or any transaction contemplated hereby is, and all
information hereafter furnished by or on behalf of Borrower to Lender will
be, true and accurate in every material respect on the date as of which
such information is dated or certified; and none of such information is or
will be incomplete by omitting to state any material fact necessary to make
such information not misleading.
Survival of Representations and Warranties. Borrower understands and agrees
that Lender, without independent investigation, is relying upon the above
representations and warranties in making the above referenced Loan to
Borrower. Borrower further agrees that the foregoing representations and
warranties shall be continuing in nature and shall remain in full force and
effect until such time as Borrower's Indebtedness shall be paid in full, or
until this Agreement shall be terminated in the manner provided above,
whichever is the last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:
<PAGE>
12-28-1998 BUSINESS LOAN AGREEMENT Page 3
Loan No 279002729 (Continued)
================================================================================
Financial Records. Maintain its books and records in accordance with generally
accepted accounting principles, applied on a consistent basis, and permit
Lender to examine and audit Borrower's books and records at all reasonable
times.
Financial Statements. Furnish Lender with, as soon as available, but in no
event later than one hundred twenty (120) days after the end of each fiscal
year, Borrower's balance sheet and income statement for the year ended,
audited by a certified public accountant satisfactory to Lender, and, as soon
as available, but in no event later than sixty (60) days after the end of each
fiscal quarter, Borrower's balance sheet and profit and loss statement for the
period ended, prepared and certified as correct to the best knowledge and
belief by Borrower's chief financial officer or other officer or person
acceptable to Lender. All financial reports required to be provided under this
Agreement shall be prepared in accordance with generally accepted accounting
principles, applied on a consistent basis, and certified by Borrower as being
true and correct.
Additional Information. Furnish such additional information and statements,
lists of assets and liabilities, agings of receivables and payables, inventory
schedules, budgets, forecasts, tax returns, and other reports with respect to
Borrower's financial condition and business operations as Lender may request
from time to time.
Financial Covenants and Ratios. Comply with the following covenants and
ratios:
Tangible Net Worth. Maintain a minimum Tangible Net Worth of not less than
$12,000,000.00.
Net Worth Ratio. Maintain a ratio of Total Liabilities to Tangible Net
Worth of less than 1.50 to 1.00.
Other Ratio. Maintain a ratio of Debt Service Coverage: Minimum Debt
Service Coverage is calculated as Net Cash After Operations (before
Interest Expense) divided by Current Portion of Long Term Debt and Capital
Leases plus Interest Expense. Minimum ratio required of 1.25 to 1.00.
The following provisions shall apply for purposes of determining compliance
with the foregoing financial covenants and ratios: Quarterly. Except as
provided above, all computations made to determine compliance with the
requirements contained in this paragraph shall be made in accordance with
generally accepted accounting principles, applied on a consistent basis, and
certified by Borrower as being true and correct.
Insurance. Maintain fire and other risk insurance, public liability insurance,
and such other insurance as Lender may require with respect to Borrower's
properties and operations, in form, amounts, coverages and with insurance
companies reasonably acceptable to Lender. Borrower, upon request of Lender,
will deliver to Lender from time to time the policies or certificates of
insurance in form satisfactory to Lender, including stipulations that
coverages will not be cancelled or diminished without at least ten (10) days'
prior written notice to Lender. Each insurance policy also shall include an
endorsement providing that coverage in favor of Lender will not be impaired in
any way by any act, omission or default of Borrower or any other person. In
connection with all policies covering assets in which Lender holds or is
offered a security interest for the Loans, Borrower will provide Lender with
such loss payable or other endorsements as Lender may require.
Insurance Reports. Furnish to Lender, upon request of Lender, reports on each
existing insurance policy showing such information as Lender may reasonably
request, including without limitation the following: (a) the name of the
insurer; (b) the risks insured; (c) the amount of the policy; (d) the
properties insured; (e) the then current property values on the basis of which
insurance has been obtained, and the manner of determining those values; and
(f) the expiration date of the policy. In addition, upon request of Lender
(however not more often than annually), Borrower will have an independent
appraiser satisfactory to Lender determine, as applicable, the actual cash
value or replacement cost of any Collateral. The cost of such appraisal shall
be paid by Borrower.
Other Agreements. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between Borrower and any other
party and notify Lender immediately in writing of any default in connection
with any other such agreements.
Loan Proceeds. Use all Loan proceeds solely for the following specific
purposes: To be limited to the purchase of assets from General DataComm
Industries, Inc., as more fully described In Asset Purchase Agreement between
the parties.
Taxes, Charges and Liens. Pay and discharge when due all of its Indebtedness
and obligations, including without limitation all assessments, taxes,
governmental charges, levies and liens, of every kind and nature, imposed upon
Borrower or its properties, income, or profits, prior to the date on which
penalties would attach, and all lawful claims that, if unpaid, might become a
lien or charge upon any of Borrower's properties, income, or profits. Provided
however, Borrower will not be required to pay and discharge any such
assessment, tax, charge, levy, lien or claim so long as (a) the legality of
the same shall be contested in good faith by appropriate proceedings, and (b)
Borrower shall have established on its books adequate reserves with respect to
such contested assessment, tax, charge, levy, lien, or claim in accordance
with generally accepted accounting practices. Borrower, upon demand of Lender,
will furnish to Lender evidence of payment of the assessments, taxes, charges,
levies, liens and claims and will authorize the appropriate governmental
official to deliver to Lender at any time a written statement of any
assessments, taxes, charges, levies, liens and claims against Borrower's
properties, income, or profits.
Performance. Perform and comply with all terms, conditions, and provisions set
forth in this Agreement and in the Related Documents in a timely manner, and
promptly notify Lender if Borrower learns of the occurrence of any event which
constitutes an Event of Default under this Agreement or under any of the
Related Documents.
Operations. Maintain executive and management personnel with substantially the
same qualifications and experience as the present executive and management
personnel; provide written notice to Lender of any change in executive and
management personnel; conduct its business affairs in a reasonable and prudent
manner and in compliance with all applicable federal, state and municipal
laws, ordinances, rules and regulations respecting its properties, charters,
businesses and operations, including without limitation, compliance with the
Americans With Disabilities Act and with all minimum funding standards and
other requirements of ERISA and other laws applicable to Borrower's employee
benefit plans.
Inspection. Permit employees or agents of Lender at any reasonable time to
inspect any and all Collateral for the Loan or Loans and Borrower's other
properties and to examine or audit Borrower's books, accounts, and records and
to make copies and memoranda of Borrower's books, accounts, and records. If
Borrower now or at any time hereafter maintains any records (including without
limitation computer generated records and computer software programs for the
generation of such records)in the possession of a third party, Borrower, upon
request of Lender, shall notify such party to permit Lender free access to
such records at all reasonable times and to provide Lender with copies of any
records it may request, all at Borrower's expense.
Compliance Certificate. Unless waived in writing by Lender, provide Lender at
least annually and at the time of each disbursement of Loan proceeds with a
certificate executed by Borrower's chief financial officer, or other officer
or person acceptable to Lender, certifying that the representations and
warranties set forth in this Agreement are true and correct as of the date of
the certificate and further certifying that, as of the date of the
certificate, no Event of Default exists under this Agreement.
Environmental Compliance and Reports. Borrower shall comply in all respects
with all environmental protection federal, state and local laws, statutes,
regulations and ordinances; not cause or permit to exist, as a result of an
intentional or unintentional action or omission on its part or on the part of
any third party, on property owned and/or occupied by Borrower, any
environmental activity where damage may result to the environment, unless such
environmental activity is pursuant to and in compliance with the conditions of
a permit issued by the appropriate federal, state or local governmental
authorities; shall furnish to Lender promptly and in any event within thirty
(30) days after receipt thereof a copy of any notice, summons, lien, citation,
directive, letter or other communication from any governmental agency or
instrumentality concerning any intentional or unintentional action or omission
on Borrower's part in connection with any environmental activity whether or
not there is damage to the environment and/or other natural resources.
Additional Assurances. Make, execute and deliver to Lender such promissory
notes, mortgages, deeds of trust, security agreements, financing statements,
instruments, documents and other agreements as Lender or its attorneys may
reasonably request to evidence and secure the Loans and to perfect all
Security Interests.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender:
Indebtedness and Liens. (a) Except for trade debt incurred in the normal
course of business and indebtedness to Lender contemplated by this Agreement,
create, incur or assume indebtedness for borrowed money, including capital
leases, (b) except as allowed as a Permitted Lien, sell, transfer, mortgage,
assign, pledge, lease, grant a security interest in, or encumber any of
Borrower's assets, or (c) sell with recourse any of Borrower's accounts,
except to Lender.
Continuity of Operations. (a) Engage in any business activities substantially
different than those in which Borrower is presently engaged, (b) cease
operations, liquidate, merge, transfer, acquire or consolidate with any other
entity, change ownership, change its name, dissolve or transfer or sell
Collateral out of the ordinary course of business, (c) pay any dividends on
Borrower's stock (other than dividends payable in its stock), provided,
however that notwithstanding the foregoing, but only so long as no Event of
Default has occurred and is continuing or would result from the payment of
dividends, if Borrower is a "Subchapter S Corporation" (as defined in the
Internal Revenue Code of 1986, as amended), Borrower may pay cash dividends on
its stock to its shareholders from time to time in amounts necessary to enable
the shareholders to pay income taxes
<PAGE>
12-28-1998 BUSINESS LOAN AGREEMENT Page 4
Loan No 279002729 (Continued)
================================================================================
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds if:
(a) Borrower or any Guarantor is in default under the terms of this Agreement or
any of the Related Documents or any other agreement that Borrower or any
Guarantor has with Lender; (b) Borrower or any Guarantor becomes insolvent,
files a petition in bankruptcy or similar proceedings, or is adjudged a
bankrupt; (c) there occurs a material adverse change in Borrower's financial
condition, in the financial condition of any Guarantor, or in the value of any
Collateral securing any Loan; (d) any Guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any
other loan with Lender; or (e) Lender in good faith deems itself insecure, even
though no Event of Default shall have occurred.
RIGHT OF SETOFF. Borrower grants to Lender a contractual security interest in,
and hereby assigns, conveys, delivers, pledges, and transfers to Lender all
Borrower's right, title and interest in and to, Borrower's accounts with Lender
(whether checking, savings, or some other account), including without limitation
all accounts held jointly with someone else and all accounts Borrower may open
in the future, excluding however all IRA and Keogh accounts, and all trust
accounts for which the grant of a security interest would be prohibited by law.
Borrower authorizes Lender, to the extent permitted by applicable law, to charge
or setoff all sums owing on the Indebtedness against any and all such accounts.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
Default on Indebtedness. Failure of Borrower to make any payment when due on
the Loans.
Other Defaults. Failure of Borrower or any Grantor to comply with or to
perform when due any other term, obligation, covenant or condition contained
in this Agreement or in any of the Related Documents, or failure of Borrower
to comply with or to perform any other term, obligation, covenant or condition
contained in any other agreement between Lender and Borrower.
Default in Favor of Third Parties. Should Borrower or any Grantor default
under any loan, extension of credit, security agreement, purchase or sales
agreement, or any other agreement, in favor of any other creditor or person
that may materially affect any of Borrower's property or Borrower's or any
Grantor's ability to repay the Loans or perform their respective obligations
under this Agreement or any of the Related Documents.
False Statements. Any warranty, representation or statement made or furnished
to Lender by or on behalf of Borrower or any Grantor under this Agreement or
the Related Documents is false or misleading in any material respect at the
time made or furnished, or becomes false or misleading at any time thereafter.
Defective Collateralization. This Agreement or any of the Related Documents
ceases to be in full force and effect (including failure of any Security
Agreement to create a valid and perfected Security Interest) at any time and
for any reason.
Insolvency. The dissolution or termination of Borrower's existence as a going
business, the insolvency of Borrower, the appointment of a receiver for any
part of Borrower's property, any assignment for the benefit of creditors, any
type of creditor workout, or the commencement of any proceeding under any
bankruptcy or insolvency laws by or against Borrower.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture
proceedings, whether by judicial proceeding, self-help, repossession or any
other method, by any creditor of Borrower, any creditor of any Grantor against
any collateral securing the Indebtedness, or by any governmental agency. This
includes a garnishment, attachment, or levy on or of any of Borrower's deposit
accounts with Lender. However, this Event of Default shall not apply if there
is a good faith dispute by Borrower or Grantor, as the case may be, as to the
validity or reasonableness of the claim which is the basis of the creditor or
forfeiture proceeding, and if Borrower or Grantor gives Lender written notice
of the creditor or forfeiture proceeding and furnishes reserves or a surety
bond for the creditor or forfeiture proceeding satisfactory to Lender.
Events Affecting Guarantor. Any of the preceding events occurs with respect to
any Guarantor of any of the Indebtedness or any Guarantor dies or becomes
incompetent, or revokes or disputes the validity of, or liability under, any
Guaranty of the Indebtedness. Lender, at its option, may, but shall not be
required to, permit the Guarantor's estate to assume unconditionally the
obligations arising under the guaranty in a manner satisfactory to Lender,
and, in doing so, cure the Event of Default.
Change In Ownership. Any change in ownership of twenty-five percent (25%) or
more of the common stock of Borrower.
Adverse Change. A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.
Insecurity. Lender, in good faith, deems itself insecure.
Right to Cure. If any default, other than a Default on Indebtedness, is
curable and if Borrower or Grantor, as the case may be, has not been given a
notice of a similar default within the preceding twelve (12) months, it may be
cured (and no Event of Default will have occurred) if Borrower or Grantor, as
the case may be, after receiving written notice from Lender demanding cure of
such default: (a) cures the default within fifteen (15) days; or (b) if the
cure requires more than fifteen (15) days, immediately initiates steps which
Lender deems in Lender's sole discretion to be sufficient to cure the default
and thereafter continues and completes all reasonable and necessary steps
sufficient to produce compliance as soon as reasonably practical.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where
otherwise provided in this Agreement or the Related Documents, all commitments
and obligations of Lender under this Agreement or the Related Documents or any
other agreement immediately will terminate and, at Lender's option, all
Indebtedness immediately will become due and payable, all without notice of any
kind to Borrower, except that in the case of an Event of Default of the type
described in the "Insolvency" subsection above, such acceleration shall be
automatic and not optional. In addition, Lender shall have all the rights and
remedies provided in the Related Documents or available at law, in equity, or
otherwise. Except as may be prohibited by applicable law, all of Lender's rights
and remedies shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not exclude pursuit
of any other remedy, and an election to make expenditures or to take action to
perform an obligation of Borrower or of any Grantor shall not affect Lender's
right to declare a default and to exercise its rights and remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
Amendments. This Agreement, together with any Related Documents, constitutes
the entire understanding and agreement of the parties as to the matters set
forth in this Agreement. No alteration of or amendment to this Agreement shall
be effective unless given in writing and signed by the party or parties sought
to be charged or bound by the alteration or amendment.
Applicable Law. This Agreement has been delivered to Lender and accepted by
Lender in the State of California. If there is a lawsuit, Borrower agrees upon
Lender's request to submit to the jurisdiction of the courts of San Bernardino
County, the State of California. Lender and Borrower hereby waive the right to
any jury trial in any action, proceeding, or counterclaim brought by either
Lender or Borrower against the other. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
Caption Headings. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions of
this Agreement.
Multiple Parties; Corporate Authority. All obligations of Borrower under this
Agreement shall be joint and several, and all references to Borrower shall
mean each and every Borrower. This means that each of the persons signing
below is responsible for all obligations in this Agreement.
Consent to Loan Participation. Borrower agrees and consents to Lender's sale
or transfer, whether now or later, of one or more participation interests in
the Loans to one or more purchasers, whether related or unrelated to Lender.
Lender may provide, without any limitation whatsoever, to any one or more
purchasers, or potential purchasers, any information or knowledge Lender may
have about Borrower or about any other matter relating to the Loan, and
Borrower hereby waives any rights to privacy it may have with respect to such
matters. Borrower additionally waives any and all notices of sale of
participation interests, as well as all notices of any repurchase of such
participation interests. Borrower also agrees that the purchasers of any such
participation interests will be considered as the absolute owners of such
interests in the Loans and will have all the rights granted under the
participation agreement or agreements governing the sale of such participation
interests. Borrower further waives all rights of offset or counterclaim that
it may have now or later against Lender or against any purchaser of such a
participation interest and unconditionally agrees that either Lender or such
purchaser may enforce Borrower's obligation under the Loans irrespective of
the failure or insolvency of any holder of any interest in the Loans. Borrower
further agrees that the purchaser of any such participation interests may
enforce its interests irrespective of any personal claims or defenses that
Borrower may have against Lender.
Costs and Expenses. Borrower agrees to pay upon demand all of Lender's
expenses, including without limitation attorneys' fees, incurred in connection
with the preparation, execution, enforcement, modification and collection of
this Agreement or in connection with the Loans made pursuant to this
Agreement. Lender may pay someone else to help collect the Loans and to
enforce this Agreement, and Borrower will pay that amount. This includes,
subject to any limits under applicable law, Lender's attorneys' fees and
Lender's legal expenses, whether or not there is a lawsuit, including
attorneys' fees for bankruptcy proceedings (including efforts to modify or
vacate any automatic stay or injunction), appeals, and any anticipated post-
judgment collection services. Borrower also will pay any court costs, in
addition to all other sums provided by law.
Notices. All notices required to be given under this Agreement shall be given
in writing, may be sent by telefacsimile (unless otherwise required by law),
and shall be effective when actually delivered or when deposited with a
nationally recognized overnight courier or deposited in the United States
mail, first class, postage prepaid, addressed to the party to whom the notice
is to be given at the address shown above. Any party may
<PAGE>
12-28-1998 BUSINESS LOAN AGREEMENT Page 3
Loan No 279002729 (Continued)
================================================================================
notice to all Borrowers. For notice purposes, Borrower will keep Lender
informed at all times of Borrower's current address(es).
Severability. If a court of competent jurisdiction finds any provision of this
Agreement to be invalid or unenforceable as to any person or circumstance,
such finding shall not render that provision invalid or unenforceable as to
any other persons or circumstances. If feasible, any such offending provision
shall be deemed to be modified to be within the limits of enforceability or
validity; however, if
the offending provision cannot be so modified, it shall
be stricken and all other provisions of this Agreement in all other respects
shall remain valid and enforceable.
Subsidiaries and Affiliates of Borrower. To the extent the context of any
provisions of this Agreement makes it appropriate, including without
limitation any representation, warranty or covenant, the word "Borrower" as
used herein shall include all subsidiaries and affiliates of Borrower.
Notwithstanding the foregoing however, under no circumstances shall this
Agreement be construed to require Lender to make any Loan or other financial
accommodation to any subsidiary or affiliate of Borrower.
Successors and Assigns. All covenants and agreements contained by or on behalf
of Borrower shall bind its successors and assigns and shall inure to the
benefit of Lender, its successors and assigns. Borrower shall not, however,
have the right to assign its rights under this Agreement or any interest
therein, without the
prior written consent of Lender.
Survival. All warranties, representations, and covenants made by Borrower in
this Agreement or in any certificate or other instrument delivered by Borrower
to Lender under this Agreement shall be considered to have been relied upon by
Lender and will survive the making of the Loan and delivery to Lender of the
Related Documents, regardless of any investigation made by Lender or on
Lender's behalf.
Time is of the Essence. Time is of the essence in the performance of this
Agreement.
Waiver. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall operate
as a waiver of such right or any other right. A waiver by Lender of a
provision of this Agreement shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of
this Agreement. No prior waiver by Lender, nor any
course of dealing between Lender and Borrower, or between Lender and any
Grantor, shall constitute a waiver of any of Lender's rights or of any
obligations of Borrower or of any Grantor as to any future transactions.
Whenever the consent of Lender is required under this Agreement, the granting
of such consent by Lender in any instance shall not constitute continuing
consent in subsequent instances where such consent is required, and in all
cases such consent may be granted or withheld in the sole discretion of
Lender.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN
AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF
DECEMBER 28, 1998.
BORROWER:
PC-Tel, Inc.
By: /s/ Peter Chen By: /s/ Andrew D. Wahl
-------------------------------- ----------------------------------------
Peter Chen, President & CEO Andrew D. Wahl, Vice President & CFO
LENDER:
PFF Bank and Trust
By: /s/ Kenneth O. Wentzel
--------------------------------
Authorized Officer
================================================================================
<PAGE>
COMMERCIAL PLEDGE AND SECURITY AGREEMENT
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Principle Loan Date Maturity Loan No Call Collateral Account Officer Initials
$8,156,300.00 12-28-1998 01-05-2004 279002729 0002 3 CMT 1/Note 1 1789
- ----------------------------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan
or item.
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Borrower: PC-Tel, Inc. (TIN: 77-0364943) Lender: PFF Bank and Trust
70 Rio Robles Commercial Business Center
San Jose, CA 95134 9467 Milliken Avenue
P O Box 2729
Rancho Cucamonga,
CA 91729-2729
===============================================================================
THIS COMMERCIAL PLEDGE AND SECURITY AGREEMENT is entered into between PC-Tel,
Inc. (referred to below as "Grantor"); and PFF Bank and Trust (referred to below
as "Lender").
GRANT OF SECURITY INTEREST. For valuable consideration, Grantor grants to Lender
a security interest in the Collateral to secure the indebtedness and agrees that
Lender shall have the rights stated in this Agreement with respect to the
Collateral, in addition to all other rights which Lender may have by law.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement:
Agreement. The word "Agreement" means this Commercial Pledge and Security
Agreement, as this Commercial Pledge and Security Agreement may be amended
or modified from time to time, together with all exhibits and schedules
attached to this Commercial Pledge and Security Agreement from time to
time.
Collateral. The word "Collateral" means the following specifically
described property, which Grantor has delivered or agrees to deliver (or
cause to be delivered or appropriate book-entries made) immediately to
Lender, together with all Income and Proceeds as described below:
25000.000 shares of PC-Tel Global Technologies, Ltd., certificate No. 1
In addition, the word "Collateral" includes all property of Grantor
(however owned), in the possession of Lender (or in the possession of a
third party subject to the control of Lender), whether now or hereafter
existing and whether tangible or intangible in character, including without
limitation each of the following:
(a) All property to which Lender acquires title or documents of title.
(b) All property assigned to Lender.
(c) All promissory notes, bills of exchange, stock certificates, bonds,
savings passbooks, time certificates of deposit, insurance policies,
and all other instruments and evidences of an obligation.
(d) All records relating to any of the property described in this
Collateral section, whether in the form of a writing, microfilm,
microfiche, or electronic media.
Event of Default. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "Events of Default."
Grantor. The word "Grantor" means PC-Tel, Inc., its successors and assigns
Guarantor. The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties in
connection with the indebtedness.
Income and Proceeds. The words "Income and Proceeds" mean all present and
future income, proceeds, earnings, increases, and substitutions from or for
the Collateral of every kind and nature, including without limitation all
payments, interest, profits, distributions, benefits, rights, options,
warrants, dividends, stock dividends, stock splits, stock rights,
regulatory dividends, distributions, subscriptions, monies, claims for
money due and to become due, proceeds of any insurance on the Collateral,
shares of stock of different par value or no par value issued in
substitution or exchange for shares included in the Collateral, and all
other property Grantor is entitled to receive on account of such
Collateral, including accounts, documents, instruments, chattel paper, and
general intangibles.
Indebtedness. The word "Indebtedness" means the indebtedness evidenced by
the Note, including all principal and interest, together with all other
indebtedness and costs and expenses for which Grantor is responsible under
this Agreement or under any of the Related Documents. In addition, the word
"Indebtedness" includes all other obligations, debts and liabilities, plus
interest thereon, of Grantor, or any one or more of them, to Lender, as
well as all claims by Lender against Grantor, or any one or more of them,
whether existing now or later; whether they are voluntary or involuntary,
due or not due, direct or indirect, absolute or contingent, liquidated or
unliquidated; whether Grantor may be liable individually or jointly with
others; whether Grantor may be obligated as guarantor, surety,
accommodation party or otherwise; whether recovery upon such indebtedness
may be or hereafter may become barred by any statute of limitations; and
whether such indebtedness may be or hereafter may become otherwise
unenforceable.
Lender. The word "Lender" means PFF Bank and Trust, its successors and
assigns.
Note. The word "Note" means the note or credit agreement dated December 28,
1998, in the principal amount of $8,156,300.00 from PC-Tel, Inc. to Lender,
together with all renewals of, extensions of, modifications of,
refinancings of, consolidations of and substitutions for the note or credit
agreement.
Obligor. The word "Obligor" means and includes without limitation any and
all persons or entities obligated to pay money or to perform some other act
under the Collateral.
Related Documents. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the indebtedness.
RIGHT OF SETOFF. Grantor hereby grants Lender a contractual security interest in
and hereby assigns, conveys, delivers, pledges, and transfers all of Grantor's
right, title and interest in and to Grantor's accounts with Lender (whether
checking, savings, or some other account), including all accounts held jointly
with someone else and all accounts Grantor may open in the future, excluding,
however, all IRA and Keogh accounts, and all trust accounts for which the grant
of a security interest would be prohibited by law. Grantor authorizes Lender, to
the extent permitted by applicable law, to charge or setoff all Indebtedness
against any and all such accounts, and, at Lender's option, to administratively
freeze all such accounts to allow Lender to protect Lender's charge and setoff
rights provided in this paragraph.
GRANTOR'S REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE COLLATERAL. Grantor
represents and warrants to Lender that:
Ownership. Grantor is the lawful owner of the Collateral free and clear of
all security interests, liens, encumbrances and claims of others except as
disclosed to and accepted by Lender in writing prior to execution of this
Agreement.
Right to Pledge. Grantor has the full right, power and authority to enter
into this Agreement and to pledge the Collateral.
Binding Effect. This Agreement is binding upon Grantor, as well as
Grantor's heirs, successors, representatives and assigns, and is legally
enforceable in accordance with its terms.
No Further Assignment. Grantor has not, and will not, sell, assign,
transfer, encumber or otherwise dispose of any of Grantor's rights in the
Collateral except as provided in this Agreement.
No Defaults. There are no defaults existing under the Collateral, and there
are no offsets or counterclaims to the same. Grantor will strictly and
promptly perform each of the terms, conditions, covenants and agreements
contained in the Collateral which are to be performed by Grantor, if any.
No Violation. The execution and delivery of this Agreement will not violate
any law or agreement governing Grantor or to which Grantor is a party, and
its certificate or articles of incorporation and bylaws do not prohibit any
term or condition of this Agreement.
LENDER'S RIGHTS AND OBLIGATIONS WITH RESPECT TO COLLATERAL. Lender may hold the
Collateral until all the indebtedness has been paid and satisfied and thereafter
may deliver the Collateral to any Grantor. Lender shall have the following
rights in addition to all other rights it may have by law
<PAGE>
12-28-1998 COMMERCIAL PLEDGE AND SECURITY AGREEMENT Page 2
Loan No 279002729 (Continued)
to Lender immediately upon receipt, in the exact form received and without
commingling with other property, all Income and Proceeds from the
Collateral which may be received by, paid, or delivered to Grantor or for
Grantor's account, whether as an addition to, in discharge of, in
substitution of, or in exchange for any of the Collateral.
Application of Cash. At Lender's option, Lender may apply any cash, whether
included in the Collateral or received as Income and Proceeds or through
liquidation, sale, or retirement, of the Collateral, to the satisfaction of
the Indebtedness or such portion thereof as Lender shall choose, whether or
not matured.
Transactions with Others. Lender may (a) extend time for payment or other
performance, (b) grant a renewal or change in terms or conditions, or (c)
compromise, compound or release any obligation, with any one or more
Obligors, endorsers, or Guarantors of the Indebtedness as Lender deems
advisable, without obtaining the prior written consent of Grantor, and no
such act or failure to act shall affect Lender's rights against Grantor or
the Collateral.
All Collateral Secures Indebtedness. All Collateral shall be security for
the Indebtedness, whether the Collateral is located at one or more offices
or branches of Lender and whether or not the office or branch where the
Indebtedness is created is aware of or relies upon the Collateral.
Collection of Collateral. Lender, at Lender's option may, but need not,
collect directly from the Obligors on any of the Collateral all Income and
Proceeds or other sums of money and other property due and to become due
under the Collateral, and Grantor authorizes and directs the Obligors, if
Lender exercises such option, to pay and deliver to Lender all Income and
Proceeds and other sums of money and other property payable by the terms of
the Collateral and to accept Lender's receipt for the payments.
Power of Attorney. Grantor irrevocably appoints Lender as Grantor's
attorney-in-fact, With full power of substitution, (a) to demand, collect,
receive, receipt for, sue and recover all Income and Proceeds and other
sums of money and other property which may now or hereafter become due,
owing or payable from the Obligors in accordance with the terms of the
Collateral; (b) to execute, sign and endorse any and all instruments,
receipts, checks, drafts and warrants issued in payment for the Collateral;
(c) to settle or compromise any and all claims arising under the
Collateral, and in the place and stead of Grantor, execute and deliver
Grantor's release and acquittance for Grantor; (d) to file any claim or
claims or to take any action or institute or take part in any proceedings,
either in Lender's own name or in the name of Grantor, or otherwise, which
in the discretion of Lender may seem to be necessary or advisable; and (e)
to execute in Grantor's name and to deliver to the Obligors on Grantor's
behalf, at the time and in the manner specified by the Collateral, any
necessary instruments or documents.
Perfection of Security Interest. Upon request of Lender, Grantor will
deliver to Lender any and all of the documents evidencing or constituting
the Collateral. When applicable law provides more than one method of
perfection of Lender's security interest, Lender may choose the method(s)
to be used. Upon request of Lender, Grantor will sign and deliver any
writings necessary to perfect Lender's security interest. If the Collateral
consists of securities for which no certificate has been issued, Grantor
agrees, at Lender's option, either to request issuance of an appropriate
certificate or to execute appropriate instructions on Lender's forms
instructing the issuer, transfer agent, mutual fund company, or broker, as
the case may be, to record on its books or records, by book-entry or
otherwise, Lender's security interest in the Collateral. Grantor hereby
appoints Lender as Grantor's irrevocable attorney-in-fact for the purpose
of executing any documents necessary to perfect or to continue the security
interest granted in this Agreement. This is a continuing Security Agreement
and will continue in effect even though all or any part of the Indebtedness
Is paid in full and even though for a period of time Grantor may not be
indebted to Lender.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, including without limitation
all taxes, liens, security interests, encumbrances, and other claims, at any
time levied or placed on the Collateral. Lender also may (but shall not be
obligated to) pay all costs for insuring, maintaining and preserving the
Collateral. All such expenditures incurred or paid by Lender for such purposes
will then bear interest at the rate charged under the Note from the date
incurred or paid by Lender to the date of repayment by Grantor. All such
expenses shall become a part of the Indebtedness and, at Lender's option, will
(a) be payable on demand, (b) be added to the balance of the Note and be
apportioned among and be payable with any installment payments to become due
during either (i) the term of any applicable insurance policy or (ii) the
remaining term of the Note, or (c) be treated as a balloon payment which will be
due and payable at the Note's maturity. This Agreement also will secure payment
of these amounts. Such right shall be in addition to all other rights and
remedies to which Lender may be entitled upon the occurrence of an Event of
Default.
LIMITATIONS ON OBLIGATIONS OF LENDER. Lender shall use ordinary reasonable care
in the physical preservation and custody of the Collateral in Lender's
possession, but shall have no other obligation to protect the Collateral or its
value. In particular, but without limitation, Lender shall have no
responsibility for (a) any depreciation in value of the Collateral or for the
collection or protection of any Income and Proceeds from the Collateral, (b)
preservation of rights against parties to the Collateral or against third
persons, (c) ascertaining any maturities, calls, conversions, exchanges, offers,
lenders, or similar matters relating to any of the Collateral, or (d) informing
Grantor about any of the above, whether or not Lender has or is deemed to have
knowledge of such matters. Except as provided above, Lender shall have no
liability for depreciation or deterioration of the Collateral.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
Default on Indebtedness. Failure of Grantor to make any payment when due on
the Indebtedness.
Other Defaults. Failure of Grantor to comply with or to perform any other
term, obligation, covenant or condition contained in this Agreement or in
any of the Related Documents or in any other agreement between Lender and
Grantor.
Default in Favor of Third Parties. Should Borrower or any Grantor default
under any loan, extension of credit, security agreement, purchase or sales
agreement, or any other agreement, in favor of any other creditor or person
that may materially affect any of Borrower's property or Borrower's or any
Grantor's ability to repay the Loans or perform their respective
obligations under this Agreement or any of the Related Documents.
False Statements. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Grantor under this Agreement, the
Note or the Related Documents is false or misleading in any material
respect, either now or at the time made or furnished.
Defective Collateralization. This Agreement or any of the Related Documents
ceases to be in full force and effect (including failure of any collateral
documents to create a valid and perfected security interest or lien) at any
time and for any reason.
Insolvency. The dissolution or termination of Grantor's existence as a
going business, the insolvency of Grantor, the appointment of a receiver
for any part of Grantor's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Grantor.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Grantor or by any
governmental agency against the Collateral or any other collateral securing
the Indebtedness. This includes a garnishment of any of Grantor's deposit
accounts with Lender. However, this Event of Default shall not apply if
there is a good faith dispute by Grantor as to the validity or
reasonableness of the claim which is the basis of the creditor or
forfeiture proceeding and if Grantor gives Lender written notice of the
creditor or forfeiture proceeding and deposits with Lender monies or a
surety bond for the creditor or forfeiture proceeding, in an amount
determined by Lender, in its sole discretion, as being an adequate reserve
or bond for the dispute.
Events Affecting Guarantor. Any of the preceding events occurs with respect
to any Guarantor of any of the Indebtedness or such Guarantor dies or
becomes incompetent. Lender, at its option, may, but shall not be required
to, permit the Guarantor's estate to assume unconditionally the obligations
arising under the guaranty in a manner satisfactory to Lender, and, in
doing so, cure the Event of Default.
Adverse Change. A material adverse change occurs in Grantor's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.
Insecurity. Lender, in good faith, deems itself insecure.
Right to Cure. If any default, other than a Default on Indebtedness, is
curable and if Grantor has not been given a prior notice of a breach of the
same provision of this Agreement, it may be cured (and no Event of Default
will have occurred) if Grantor, after Lender sends written notice demanding
cure of such default, (a) cures the default within fifteen (15) days; or
(b), if the cure requires more than fifteen (15) days, immediately
initiates steps which Lender deems in Lender's sole discretion to be
sufficient to cure the default and thereafter continues and completes all
reasonable and necessary steps sufficient to produce compliance as soon as
reasonably practical.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender may exercise any one or more of the
following rights and remedies:
Accelerate Indebtedness. Declare all Indebtedness, including any prepayment
penalty which Grantor would be required to pay, immediately due and
payable, without notice of any kind to Grantor.
Collect the Collateral. Collect any of the Collateral and, at Lender's
option and to the extent permitted by applicable law, retain possession of
the Collateral while suing on the Indebtedness.
Sell the Collateral. Sell the Collateral, at Lender's discretion, as a unit
or in parcels, at one or more public or private sales. Unless the
Collateral is perishable or threatens to decline speedily in value or is of
a type customarily sold on a recognized market, Lender shall give or mail
to Grantor,
<PAGE>
12-28-1998 COMMERCIAL PLEDGE AND SECURITY AGREEMENT Page 3
Loan No 279002729 (Continued)
==============================================================================
notice to the public by a single publication in any newspaper of general
circulation in the county where the Collateral is located, setting forth the
time and place of sale and a brief description of the property to be sold.
Lender may be a purchaser at any public sale.
Register Securities. Register any securities included in the Collateral in
Lender's name and exercise any rights normally incident to the ownership of
securities.
Sell Securities. Sell any securities included in the Collateral in a manner
consistent with applicable federal and state securities laws, notwithstanding
any other provision of this or any other agreement. If, because of
restrictions under such laws, Lender is or believes it is unable to sell the
securities in an open market transaction, Grantor agrees that Lender shall
have no obligation to delay sale until the securities can be registered, and
may make a private sale to one or more persons or to a restricted group of
persons, even though such sale may result in a price that is less favorable
than might be obtained in an open market transaction, and such a sale shall be
considered commercially reasonable. If any securities held as Collateral are
"restricted securities" as defined in the Rules of the Securities and Exchange
Commission (such as Regulation D or Rule 144) or state securities departments
under state "Blue Sky" laws, or if Grantor is an affiliate of the issuer of
the securities, Grantor agrees that neither Grantor nor any member of
Grantor's family will sell or dispose of any securities of such issuer without
obtaining Lender's prior written consent.
Foreclosure. Maintain a judicial suit for foreclosure and sale of the
Collateral.
Transfer Title. Effect transfer of title upon sale of all or part of the
Collateral. For this purpose, Grantor irrevocably appoints Lender as its
attorney-in-fact to execute endorsements, assignments and instruments in the
name of Grantor and each of them (if more than one) as shall be necessary or
reasonable.
Other Rights and Remedies. Have and exercise any or all of the rights and
remedies of a secured creditor under the provisions of the Uniform Commercial
Code, at law, in equity, or otherwise.
Application of Proceeds. Apply any cash which is part of the Collateral, or
which is received from the collection or sale of the Collateral, to
reimbursement of any expenses, including any costs for registration of
securities, commissions incurred in connection with a sale, attorney fees as
provided below, and court costs, whether or not there is a lawsuit and
including any fees on appeal, incurred by Lender in connection with the
collection and sale of such Collateral and to the payment of the Indebtedness
of Grantor to Lender, with any excess funds to be paid to Grantor as the
interests of Grantor may appear. Grantor agrees, to the extent permitted by
law, to pay any deficiency after application of the proceeds of the Collateral
to the Indebtedness.
Cumulative Remedies. All of Lender's rights and remedies, whether evidenced by
this Agreement or by any other writing, shall be cumulative and may be
exercised singularly or concurrently. Election by Lender to pursue any remedy
shall not exclude pursuit of any other remedy, and an election to make
expenditures or to take action to perform an obligation of Grantor under this
Agreement, after Grantor's failure to perform, shall not affect Lender's right
to declare a default and to exercise its remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
Amendments. This Agreement together with any Related Documents, constitutes
the entire understanding and agreement of the parties as to the matters set
forth in this Agreement. No alteration of or amendment to this Agreement shall
be effective unless given in writing and signed by the party or parties sought
to be charged or bound by the alteration or amendment.
Applicable Law. This Agreement has been delivered to Lender and accepted by
Lender In the State of California. If there is a lawsuit, Grantor agrees upon
Lender's request to submit to the jurisdiction of the courts of San Bernardino
County, the State of California. Lender and Grantor hereby waive the right to
any jury trial in any action, proceeding, or counterclaim brought by either
Lender or Grantor against the other. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
Attorneys' Fees; Expenses. Grantor agrees to pay upon demand all of Lender's
costs and expenses, including attorneys' fees and Lender's legal expenses,
incurred in connection with the enforcement of this Agreement. Lender may pay
someone else to help enforce this Agreement, and Grantor shall pay the costs
and expenses of such enforcement. Costs and expenses include Lender's
attorneys' fees and legal expenses whether or not there is a lawsuit,
including attorneys' fees and legal expenses for bankruptcy proceedings (and
including efforts to modify or vacate any automatic stay or injunction),
appeals, and any anticipated post-judgment collection services. Grantor also
shall pay all court costs and such additional fees as may be directed by the
court.
Caption Headings. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions of
this Agreement.
Multiple Parties; Corporate Authority. All obligations of Grantor under this
Agreement shall be joint and several, and all references to Grantor shall mean
each and every Grantor. This means that each of the persons signing below is
responsible for all obligations in this Agreement.
Notices. All notices required to be given under this Agreement shall be given
in writing, may be sent by telefacsimile (unless otherwise required by law),
and shall be effective when actually delivered or when deposited with a
nationally recognized overnight courier or deposited in the United States
mail, first class, postage prepaid, addressed to the party to whom the notice
is to be given at the address shown above. Any party may change its address
for notices under this Agreement by giving formal written notice to the other
parties, specifying that the purpose of the notice is to change the party's
address. To the extent permitted by applicable law, if there is more than one
Grantor, notice to any Grantor will constitute notice to all Grantors. For
notice purposes, Grantor will keep Lender informed at all times of Grantor's
current address(es).
Severability. If a court of competent jurisdiction finds any provision of this
Agreement to be invalid or unenforceable as to any person or circumstance,
such finding shall not render that provision invalid or unenforceable as to
any other persons or circumstances. If feasible, any such offending provision
shall be deemed to be modified to be within the limits of enforceability or
validity; however, if the offending provision cannot be so modified, it shall
be stricken and all other provisions of this Agreement in all other respects
shall remain valid and enforceable.
Successor Interests. Subject to the limitations set forth above on transfer of
the Collateral, this Agreement shall be binding upon and inure to the benefit
of the parties, their successors and assigns.
Waiver. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall operate
as a waiver of such right or any other right. A waiver by Lender of a
provision of this Agreement shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Agreement. No prior waiver by Lender, nor any
course of dealing between Lender and Grantor, shall constitute a waiver of any
of Lender's rights or of any of Grantor's obligations as to any future
transactions. Whenever the consent of Lender is required under this Agreement,
the granting of such consent by Lender in any instance shall not constitute
continuing consent to subsequent instances where such consent is required and
in all cases such consent may be granted or withheld in the sole discretion of
Lender.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS PLEDGE AND SECURITY
AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED DECEMBER 28,
1998.
GRANTOR:
PC-Tel, Inc.
By: /s/ Peter Chen By: /s/ Andrew D. Wahl
--------------------------------- -------------------------------
Peter Chen, President & CEO Andrew D. Wahl, Vice President & CFO
===============================================================================
LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver. 3.26a (c) 1998 CFI ProServices, Inc.
All rights reserved. [CA-E60 PCTEL.LN]
<PAGE>
EXHIBIT 10.10
ASSET PURCHASE AGREEMENT
BETWEEN
PC-TEL, INC.,
PC-TEL GLOBAL TECHNOLOGIES, LTD.
AND
GENERAL DATACOMM, INC.
Dated as of December 22, 1998
<PAGE>
TABLE OF CONTENTS
Page
----
1. Definitions............................................................. 1
2. Acquisition of Assets by the Buyer...................................... 5
2.1 Purchase and Sale of Assets....................................... 5
2.2 Excluded Assets................................................... 6
2.3 Assumption of Liabilities......................................... 7
2.4 Liabilities Not Assumed........................................... 8
2.5 Inability to Obtain Consents and Approvals........................ 9
2.6 Use of Name....................................................... 9
2.7 Global Patent License Agreement................................... 10
2.8 Purchase Price.................................................... 10
2.9 The Closing....................................................... 10
2.10 Deliveries at the Closing......................................... 11
2.11 Allocation of Purchase Price...................................... 11
2.12 License and Support Agreement..................................... 11
3. Representations and Warranties of the Seller............................ 11
3.1 Organization of the Seller........................................ 11
3.2 Authorization of Transaction...................................... 11
3.3 Noncontravention.................................................. 12
3.4 Brokers' Fees..................................................... 12
3.5 Title to Assets................................................... 12
3.6 Financial Statements.............................................. 12
3.7 Indebtedness; Guarantees.......................................... 13
3.8 Legal and Other Compliance........................................ 13
3.9 Taxes............................................................. 13
3.10 Real Property..................................................... 13
3.11 Environmental Matters............................................. 13
3.12 Property, Plant and Equipment..................................... 14
3.13 Intellectual Property............................................. 14
3.14 Tangible Assets................................................... 16
3.15 Contracts......................................................... 16
3.16 Litigation........................................................ 16
3.17 Consents.......................................................... 16
4. Representations and Warranties of the Buyer and the Licensee............ 16
4.1 Organization of the Buyer......................................... 16
4.2 Authority for Agreement........................................... 16
4.3 Noncontravention.................................................. 17
4.4 Brokers' Fees..................................................... 17
-i-
<PAGE>
TABLE OF CONTENTS
(continued)
Page
----
5. Covenants of the Parties................................................ 17
5.1 Employee Matters.................................................. 17
5.2 Consolidated Financial Statements................................. 18
5.3 Regulatory Filings; Reasonable Efforts............................ 18
5.4 Access to Records after Closing................................... 18
5.5 Transfer Taxes.................................................... 18
5.6 Covenant Not to Compete and Solicitation of Employees............. 18
5.7 Bulk Sales Laws................................................... 19
5.8 Post-Closing Operating Adjustments................................ 19
5.9 Collection of Accounts Receivable................................. 19
5.10 Litigation Support................................................ 20
5.11 License and Support Agreement..................................... 20
5.12 401(k) Plan....................................................... 20
6. Survival of Representations and Warranties; Indemnification............. 20
6.1 Survival of Representations and Warranties........................ 20
6.2 Indemnification by the Seller..................................... 20
6.3 Indemnification by the Buyer...................................... 24
7. Miscellaneous........................................................... 25
7.1 Press Releases and Public Announcements........................... 25
7.2 No Third Party Beneficiaries...................................... 25
7.3 Arbitration....................................................... 25
7.4 Entire Agreement.................................................. 26
7.5 Succession and Assignment......................................... 26
7.6 Counterparts...................................................... 26
7.7 Headings.......................................................... 26
7.8 Notices........................................................... 26
7.9 Governing Law..................................................... 27
7.10 Amendments and Waivers............................................ 27
7.11 Severability...................................................... 27
7.12 Expenses.......................................................... 28
7.13 Incorporation of Exhibits and Schedules........................... 28
7.14 Specific Performance.............................................. 28
-ii-
<PAGE>
Exhibits
A - Patent License Agreement
B - Escrow Agreement (Indemnification)
C - Bonus Pool Disbursement Agreement (Continuing Employees)
D - Acquisition Bonus Agreement
E - Form of Employment Agreement
F - Schedule of Closing Documents
G - License and Support Agreement
H - Asset Statement and Income Statement
I - Form of Non-Compete Agreement
Seller Disclosure Letter - Exceptions to Representations and Warranties
Schedules
---------
Schedule 2-1(a) Intellectual Property
Schedule 2-1(b) Equipment
Schedule 2-1(c) Permits
Schedule 2-1(d) Contracts
Schedule 2-1(e) Leases
Schedule 2-1(h) Prepaid Expenses
Schedule 2-2(d) Excluded Intellectual Property
Schedule 2-2(i) Excluded Claim
Schedule 2-3(c) Assumed Liabilities
Schedule 2-5 Consents and approvals not obtained
Schedule 5-1 Continuing Employees and Key Employees
-iii-
<PAGE>
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (the "Agreement") is entered into as of
---------
December 22, 1998 by and between PC-Tel, Inc., a Delaware corporation ("PC-Tel"
------
or the "Buyer"), PC-Tel Global Technologies, Ltd., a Cayman Island corporation
-----
(the "Licensee"), and General DataComm, Inc., a Delaware corporation ("GDC" or
-------- ---
the "Seller"). The Buyer, the Licensee and the Seller are referred to
------
collectively as the "Parties."
RECITALS
A. This Agreement contemplates a transaction in which the Buyer will
purchase substantially all of the assets (and assume certain of the liabilities)
of the Technology Alliance Group, a division of the Seller ("TAG" or the
---
"Division") in consideration of the Purchase Price (as hereinafter defined).
--------
B. It is the parties' intention that the Seller shall convey to the
Buyer, among other assets, technology and other intellectual property owned or
used by the Seller related to V.34 and V.90 transmission standards, analog modem
general operation and xDSL and G.Lite communication technologies. Intellectual
property assets not included within this area of communications technology are
not intended for conveyance to the Buyer.
C. In addition to the payment of the consideration to be paid by the
Buyer to the Seller in connection with the Buyer's purchase of the assets as
provided by this Agreement, the parties intend that the license fees previously
paid by the Buyer to the Seller in accordance with the License Agreement dated
as June 21, 1998 between the parties (the "June License Agreement") shall be
----------------------
retained by the Seller without recourse by the Buyer, and shall not be
considered part of the purchase consideration hereunder, notwithstanding
anything to the contrary set forth in the June License Agreement.
D. Concurrently with the execution of this Agreement, the Buyer and the
Seller have entered into a License and Support Agreement of even date (the
"License and Support Agreement") to ensure the Seller continued access to
-----------------------------
certain of the intellectual property to be acquired by the Buyer under this
Agreement.
Now, therefore, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties and
covenants herein contained, the Parties agree as follows.
1. Definitions.
-----------
"Acquired Assets" shall have the meaning set forth in Section 2.1.
---------------
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
---------
promulgated under the Securities Exchange Act of 1934, as amended.
<PAGE>
"Assumed Liabilities" shall have the meaning in Section 2.3.
-------------------
"Chemical Substance" means any chemical or other substance which is
------------------
identified or regulated under any Environmental Law or Safety Law, as now and
hereinafter in effect, or other comparable laws.
"Code" means the Internal Revenue Code of 1986, as amended.
----
"Contracts" has the meaning set forth in Section 2.1(d).
---------
"Disclosure Letter" has the meaning set forth in Section 3 below.
-----------------
"Employee Benefit Plan" means any (a) nonqualified deferred compensation or
---------------------
retirement plan or arrangement which is an Employee Pension Benefit Plan, (b)
qualified defined contribution retirement plan or arrangement which is an
Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or
arrangement which is an Employee Pension Benefit Plan (including any
Multiemployer Plan), or (d) Employee Welfare Benefit Plan or material fringe
benefit plan or program.
"Environment" means real property and any improvements thereon, and also
-----------
includes, but is not limited to, ambient air, surface water, drinking water,
groundwater, land surface, subsurface strata and water body sediments.
"Environmental Laws" mean any federal, state, local and foreign law,
------------------
regulation or legal requirement relating to pollution, or protection or cleanup
of the Environment, including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, the Resource
Conservation and Recovery Act, as amended, the Clean Air Act, as amended, the
Clean Water Act, as amended, and any other law or legal requirement, as now or
hereinafter in effect, relating to: (a) the Release, containment, removal,
remediation, response, cleanup or abatement of any sort of any Chemical
Substance; (b) the manufacture, generation, formulation, processing, labeling,
distribution, introduction into commerce, use, treatment, handling, storage,
recycling, disposal or transportation of any Chemical Substance; (c) exposure of
persons, including employees, to any Chemical Substance; or, (d) the physical
structure, use or condition of a building, facility, fixture or other structure,
including, without limitation, those relating to the management, use, storage,
disposal, cleanup or removal of asbestos, asbestos-containing materials,
polychlorinated biphenyls or any other Chemical Substance.
"Environmental Liabilities and Costs" means all Losses incurred: (i) that
-----------------------------------
are required by a governmental agency or third party in order to comply with any
Environmental Law or Environmental Permit; (ii) that are required by a
governmental agency or third party as a result of a Release of any Chemical
Substance; or, (iii) that are required by a governmental agency or third party
as a result of any environmental conditions present at, created by or arising
out of the past or present operations of the Seller through the Closing Date, at
the Leased Facility.
-2-
<PAGE>
"Environmental Permit" means any Permit or authorization from any
--------------------
governmental authority required under, issued pursuant to, or authorized by any
Environmental Law.
"Equipment" has the meaning set forth in Section 2.1(b) below.
---------
"Excluded Assets" has the meaning set forth in Section 2.2 below.
---------------
"Extremely Hazardous Substance" has the meaning set forth in Section 302 of
-----------------------------
the Emergency Planning and Community Right-to-Know Act of 1986, as amended.
"Financial Statements" has the meaning set forth in Section 3.6 below.
--------------------
"Intellectual Property" means the entire right, title and interest in and
---------------------
to all proprietary rights of every kind and nature, and associated therewith
anywhere in the world, including Patents, copyrights, Trademarks, mask works,
trade secrets and proprietary information, Technology, and all applications for
any of the foregoing, and any license or agreements granting rights related to
the foregoing, included within the Acquired Assets as set forth in Section
2.1(a) below.
"Key Employees" has the meaning set forth in Section 5.1.
-------------
"Knowledge" means actual knowledge of any of the officers of GDC.
---------
"Leased Facility" means the facility located at 61 Mattatuck Heights Road,
---------------
Waterbury, CT 06705.
"Liability" means any liability or obligation (whether known or unknown,
---------
whether asserted or unasserted, whether absolute or contingent, whether accrued
or unaccrued, whether liquidated or unliquidated, whether incurred or
consequential and whether due or to become due), including any liability for
Taxes.
"Lien" means any mortgage, pledge, lien, Security Interest, encumbrance,
----
restriction on transfer, conditional sale or other title retention device or
arrangement (including, without limitation, a capital lease), transfer for the
purpose of subjection to the payment of any Indebtedness, or restriction on the
creation of any of the foregoing, whether relating to any property or right or
the income or profits therefrom; provided, however, that the term "Lien" shall
not include (i) statutory liens for Taxes to the extent that the payment thereof
is not in arrears or otherwise due, (ii) statutory or common law liens to secure
landlords, lessors or renters under leases or rental agreements confined to the
premises rented to the extent that no payment or performance under any such
lease or rental agreement is in arrears or is otherwise due, (iii) deposits or
pledges made in connection with, or to secure payment of, worker's compensation,
unemployment insurance, old age pension programs mandated under applicable laws
or other social security regulations and (iv) statutory or common law liens in
favor of carriers, warehousemen, mechanics and materialmen, statutory or common
law liens to secure claims for labor, materials or supplies and other like
liens, which secure obligations to the extent that payment thereof is not in
arrears or otherwise due.
-3-
<PAGE>
"Losses" has the meaning set forth in Section 6.2, net of Tax effects.
------
"Patents" means all: (i) all patents and patent applications; (ii) any and
-------
all counterpart U.S., international and foreign patents, applications and
certificates of invention based upon or covering any portion of the foregoing
patents and applications; (iii) all divisions, continuations, continuations-in-
part, and substitutions of any of the preceding patents and patent applications
(iv) all foreign or international applications corresponding to any of the
preceding applications or patents; (v) all divisions, continuations,
continuations-in-part, and substitutions of any of such foreign or international
applications described in (iv); and (vi) all U.S., international and foreign
patents issuing on any of the preceding applications, including extensions,
reissues and re-examinations, all to the extent as set forth in Section 2.1(a).
"Permits" has the meaning set forth in Section 2.1(c) below.
-------
"Person" means an individual, a partnership, a corporation, an association,
------
a joint stock company, a trust, a joint venture, an unincorporated organization
or a governmental entity (or any department, agency or political subdivision
thereof).
"Purchase Price" has the meaning set forth in Section 2.8 below.
--------------
"Release" means any actual or alleged spilling, leaking, pumping, pouring,
-------
emitting, dispersing, emptying, discharging, injecting, escaping, leaching,
dumping, or disposing of any Chemical Substance or Extremely Hazardous Substance
into the Environment that would cause an Environmental Liability and Cost
(including the abandonment or discarding of barrels, containers, tanks or other
receptacles containing or previously containing any Chemical Substance).
"Safety Laws" means any federal, state, local and foreign law, regulation
-----------
or legal requirement relating to health or safety, including the Occupational
Safety and Health Act, as amended, as now or hereinafter in effect relating to
(a) exposure of employees to any Chemical Substance or (b) the physical
structure, use or condition of a building, facility, fixture or other structure,
including, without limitation, those relating to equipment or manufacturing
processes, or the management, use, storage, disposal, cleanup or removal of any
Chemical Substance.
"Safety Liabilities and Costs" means all Losses incurred to comply with any
----------------------------
Safety Law, or as a result of any health or safety conditions present at,
created by or arising out of the past or present operations of the Seller,
through the Closing Date.
"Security Interest" means any mortgage, pledge, lien, or other security
-----------------
interest, other than (a) mechanic's, materialmen's and similar liens, (b) liens
----------
for Taxes not yet due and payable, and (c) purchase money liens and liens
securing rental payments under capital lease arrangements; provided however that
the term "Security Interest" shall not include (i) statutory liens for Taxes to
the extent that the payment thereof is not in arrears or otherwise due, (ii)
statutory or common law liens to secure landlords, lessors or renters under
leases or rental agreements confined to the premises rented to the extent that
no payment or performance under any such lease or rental agreement is in arrears
or is otherwise due, (iii) deposits or pledges made in connection with, or to
secure payment
-4-
<PAGE>
of, worker's compensation, unemployment insurance, old age pension programs
mandated under applicable laws or other social security regulations and (iv)
statutory or common law liens in favor of carriers, warehousemen, mechanics and
materialmen, statutory or common law liens to secure claims for labor, materials
or supplies and other like liens, which secure obligations to the extent that
payment thereof is not in arrears or otherwise due..
"Sublease" means the Commercial Sublease Agreement dated June 1, 1998
--------
between Fairbank Mortgage Corporation and GDC covering the Leased Facility.
"Tax" or "Taxes" means any federal, state, local or foreign income, gross
--- -----
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code Section
59A), customs duties, capital stock, franchise, profits, withholding, social
security (or similar, including FICA), unemployment, disability, real property,
personal property, sales, use, transfer, registration, value added, alternative
or add-on minimum, estimated, or other tax of any kind whatsoever, including any
interest, penalty, or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund, or
----------
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Technology" means all inventions, copyrightable works, integrated circuit
----------
masks, discoveries, innovations, know-how, information (including ideas,
research and development, know-how, formulas, compositions, technical data,
designs, drawings, specifications, pricing and cost information, business and
marketing plans and proposals, documentation, and manuals), documentation,
computer software, computer hardware, integrated circuits, electronic,
electrical and mechanical equipment and all other forms of technology, including
improvements, modifications, derivatives or changes, whether tangible or
intangible, embodied in any form, whether or not protectible or protected by
patent, copyright, mask work right, trade secret law or otherwise, which relate
to analog and xDSL communication technologies, all to the extent set forth under
Section 2.1(a).
"Trademarks" means any trademarks, service marks, trade dress, and logos,
----------
together with all translations, adaptations, derivations, and combinations
thereof and including all goodwill associated therewith.
2. Acquisition of Assets by the Buyer.
----------------------------------
2.1 Purchase and Sale of Assets. The Seller agrees to sell and transfer
---------------------------
to the Buyer, and the Buyer agrees to purchase from the Seller at the Closing,
subject to and upon the terms and conditions contained herein, free and clear of
any Lien or Security Interest, the assets of the Division (except as set forth
in Section 2.2), as follows, (collectively, the "Acquired Assets"):
---------------
(a) All Intellectual Property, goodwill associated therewith,
licenses and sublicenses granted to and from third parties in respect thereto
and rights thereunder, remedies
-5-
<PAGE>
against infringements thereof and rights to protection of interest therein, as
described in Schedule 2.1(a) hereto;
---------------
(b) All equipment and other tangible assets, wherever located, and
the associated spare parts, component parts, supplies, maintenance tools,
assemblies and accessories, as described in Schedule 2.1(b) (collectively, the
---------------
"Equipment");
(c) All licenses (other than Intellectual Property), permits, orders,
registrations, certificates, variances, approvals and franchises or any pending
applications relating to any of the foregoing, including without limitation all
governmental permits, licenses, authorizations, approvals and consents, as
described in Schedule 2.1(c) (the "Permits");
--------------- -------
(d) All contracts, instruments, licenses, sublicenses or other
agreements listed on Schedule 2.1(d) (the "Contracts");
--------------- ---------
(e) All of the Seller's rights under all real property lease
agreements, equipment leases, and automobile leases, if any as identified in
Schedule 2.1(e) (the "Leases");
- ---------------
(f) All books and records as described in Schedule 2.1(f), including,
---------------
without limitation, all customer lists of the Division, provided that to the
extent that any such books and records do not relate solely to the Division, the
Seller shall provide the Buyer with copies of the relevant portions thereof in
its possession upon the Buyer's request. The Seller will retain all books and
records of the Division relating to the Acquired Assets and the Assumed
Liabilities not located at the Leased Facility for a reasonable period of time
following the Closing in accordance with its normal document retention policies
and make such books and records available to the Buyer at the Buyer's request;
(g) All prepaid expenses of the Seller in connection with the
Division calculated as of the Closing Date as identified in Schedule 2.1(g) (the
---------------
"Prepaid Expenses");
----------------
(h) Goodwill of the Division related to the Acquired Assets; and
(i) The Global License Agreement (as defined in Section 2.7 below).
2.2 Excluded Assets. The following are excluded from the definition of
---------------
Acquired Assets in Section 2.1 (notwithstanding the rights and assets conveyed
by the Seller to the Buyer as part of the Acquired Assets):
(a) All cash of the Seller on hand, in bank accounts and other
investment accounts as of the Closing Date;
(b) All prepaid Taxes and rights to refunds of Taxes paid by the
Seller or its Affiliates;
-6-
<PAGE>
(c) All rights throughout the world, all service marks, trademarks
tradenames and similar registrations (and applications therefor), all product
names, assumed or fictitious names and the logos associated therewith, and such
other property and intangible rights, relating to, derived from or incorporating
the name or words "General DataComm, Inc.," "General DataComm Industries, Inc."
or "GDC," together with the goodwill of the Division in connection with which
such service marks, trademarks, tradenames and product names are used;
(d) All assets identified in Schedule 2.2(d);
---------------
(e) Any assets of the Seller and its Affiliates utilized in providing
employee benefits, payroll, administrative, book and record keeping, billing,
tax, financial, insurance and other like services to the Division, other than
such assets that are tangible and located at the Leased Facility and included as
part of the Acquired Assets;
(f) All designs, technical information, drawings, formulae and
processes, procedures, proprietary information and trade secrets owned, used or
held for use by the Seller or its Affiliates not expressly included as part of
the Acquired Assets;
(g) All rights under the Contracts or Leases or with respect to any
of the Acquired Assets arising or accruing prior to the Closing Date;
(h) All inventory and accounts receivable of the Seller arising or
accruing prior to the Closing Date;
(i) The Claim set forth in Schedule 2.2(i);
---------------
(j) Seller's "GDC Retained Technology" as defined in the License and
Support Agreement; and
(k) All assets not specifically contemplated by Section 2.1.
2.3 Assumption of Liabilities. On the terms and subject to the conditions
-------------------------
set forth herein and subject to Section 2.4 hereof, from and after the Closing,
the Buyer will assume and satisfy or perform when due only the following
Liabilities and obligations of the Seller (the "Assumed Liabilities"):
-------------------
(a) All obligations and Liabilities of the Seller under the
Contracts, the Leases and the Permits which arise or accrue from and after the
Closing including either (i) to furnish goods, services, and other non-Cash
benefits to another party after the Closing or (ii) to pay for goods, services,
and other non-Cash benefits that another party will furnish to it after the
Closing;
(b) All obligations and Liabilities of the Seller with respect to the
Acquired Assets and the Continuing Employees which arise or accrue from and
after the Closing;
-7-
<PAGE>
(c) Any other Liabilities and obligations of the Seller to the extent
expressly identified in Schedule 2.3(c);
---------------
(d) Any Liability of the Buyer for its costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby; and
(e) Any Liability or obligation of the Buyer under this Agreement or
incurred in connection with the making or performance of this Agreement
2.4 Liabilities Not Assumed. Except as expressly set forth in this
-----------------------
Agreement, the Buyer will not assume or perform any Liabilities or obligations
of the Seller arising or accruing prior to the Closing not specifically
contemplated by Section 2.3 hereof nor any of the following Liabilities and
obligations:
(a) Any Liability or obligation of the Seller for Taxes of any Person
for any taxable period and any Liability or obligation for Taxes (with respect
to the Division or otherwise) attributable to the Acquired Assets for all
periods ending on or prior to the Closing Date;
(b) Any Liability of the Seller (with respect to the Division or
otherwise) for the unpaid Taxes of any Person for any period prior to the
Closing Date, including Taxes imposed on the Seller as a transferee or
successor, by contract or otherwise for periods prior to the Closing;
(c) Any Liability or obligation of the Seller (with respect to the
Division or otherwise) to indemnify any Person by reason of the fact that such
Person was a director, officer, employee or agent of the Seller or was serving
at the request of the Seller as a partner, trustee, director, officer, employee
or agent of another entity;
(d) Any Liability or obligation of the Seller (with respect to the
Division relating to the Acquired Assets or otherwise) as a result of any legal
or equitable action or judicial or administrative proceeding initiated at any
time caused by any action that occurred or condition that existed prior to the
Closing Date and in respect of anything done, suffered to be done or omitted to
be done by the Seller or any of its directors, officers, employees or agents
prior to the Closing Date;
(e) Any Liability of the Seller for its costs and expenses incurred
in connection with this Agreement and the transactions contemplated hereby;
(f) Any Liability or obligation of the Seller under this Agreement or
incurred in connection with the making or performance of this Agreement;
(g) Any Liability or obligation of the Seller arising out of any
Employee Benefit Plan established or maintained by the Seller for the benefit of
past or present employees of any of the Seller, or to which the Seller
contributes, or any Liability on the termination of any such plan;
(h) Except for payment of the Acquisition Bonus, any Liability or
obligation of the Seller for making payments or providing benefits of any kind
to their employees or former
-8-
<PAGE>
employees for all periods prior to the Closing, including, without limitation,
(A) as a result of the sale of the Acquired Assets or as a result of the
termination by the Seller of any employees or decision by the Buyer not to hire
any such employee, (B) any obligation to provide former employees (including
individuals who become former employees by reason of the consummation of the
transactions contemplated by this Agreement) COBRA continuation coverage, (C)
any Liability or obligation in respect of medical and other benefits for
existing and future retirees and for claims made after Closing in respect of
costs and expenses incurred prior to Closing, (D) any Liability or obligation in
respect of work-related employee injuries or worker's compensation claims, (E)
any Liability or obligation in respect of employee bonuses; and
(i) All Safety Liabilities and Costs for all periods prior to the
Closing.
2.5 Inability to Obtain Consents and Approvals. Except as set forth in
------------------------------------------
Schedule 2.5, to the extent that any Contract, Lease, Permit, or other Acquired
- ------------
Asset to be transferred to the Buyer is not capable of being validly and fully
assigned, transferred, conveyed or reissued to the Buyer without consent or
approval, and such consents and approvals have not been obtained prior to
Closing or do not remain in full force and effect at or immediately after the
Closing, no such assignment, transfer, conveyance or reissuance shall be deemed
to have occurred until such consent or approval has been obtained, and the
Seller shall, after the Closing, use its reasonable commercial efforts to: (i)
obtain such consents or approvals, (ii) cooperate in any lawful arrangement
designed to provide to the Buyer the benefits of any Contract, Lease, Permit or
other Acquired Asset as to which such consent or approval has not been so
obtained or does not remain in full force and effect, and (iii) enforce, at the
request of the Buyer and at the Buyer's expense, for the benefit of the Buyer,
any rights of the Seller under or with respect to any such Contract, Lease,
Permit or other Acquired Asset against all other Persons (including termination
of the foregoing in accordance with the terms thereof upon the election of the
Buyer), provided that the Seller shall not be required to take any action
pursuant to this section that could reasonably be expected to result in the
Seller incurring liability to a third party. To the extent that the Buyer is
provided the benefits pursuant to this Section 2.5 of any such Contract, Lease,
Permit or other Acquired Asset, the Buyer shall perform the obligations of the
Seller thereunder or in connection therewith with respect to periods following
the Closing as if they were Assumed Liabilities.
2.6 Use of Name. After the Closing, the Buyer agrees that if any of the
-----------
Acquired Assets of the Seller, including, without limitation, any promotional
materials or printed forms, bear the General DataComm, Inc., General DataComm
Industries, Inc. or GDC name or letters, the Buyer shall, prior to the use of
such assets, delete or cover the General DataComm, Inc., General DataComm
Industries, Inc. or GDC name or letters and clearly indicate that the Division
is no longer affiliated with GDC or any Affiliate thereof, except that it may,
for a period of ninety (90) days after the Closing Date, use the remaining
catalogs, forms, stationery, brochures and similar materials (the items
described above in this Section 2.6 are referred to collectively as "Supplies")
--------
which contain the General DataComm, Inc., General DataComm Industries, Inc. or
GDC name or letters, provided such Supplies are (a) used only in connection with
the Acquired Assets and (b) conspicuously marked with the company name of the
Buyer and clearly indicate that the Buyer is not an Affiliate of General
DataComm, Inc., General DataComm Industries, Inc. or GDC's affiliates.
-9-
<PAGE>
2.7 Global Patent License Agreement. At or immediately prior to the
-------------------------------
Closing, the Seller and the Licensee agree to enter into a Patent License
Agreement in the form attached hereto as Exhibit A (the "Global License
---------
Agreement"), for the consideration as set forth in Section 2.8 below.
2.8 Purchase Price. At the Closing, the Buyer and the Licensee agree to
--------------
pay an aggregate of Sixteen Million Three Hundred Twelve Thousand Five Hundred
Ninety-Three Dollars ($16,312,593.00) (the "Purchase Price") to the following
--------------
parties in the following manner:
(a) One Million Dollars ($1,000,000.00) to Greater Bay Trust Company,
Palo Alto, California, as escrow agent (the "Escrow Agent"), to be held,
------------
administered and released in accordance with the terms of an Escrow Agreement to
be executed by the Seller, the Buyer and Escrow Agent at the Closing in the form
of Exhibit B which will be used to satisfy indemnification claims of the Buyer
---------
pursuant to Section 8 hereof; and
(b) Two Million Five Hundred Thousand Dollars ($2,500,000) to the
Escrow Agent for the Continuing Employees (assuming not less than all entitled
employees of the Division become Continuing Employees, as defined in Section 5.1
below) (the " Acquisition Bonus Escrow Agent"), to be held, administered and
------------------------------
released in accordance with the terms of an escrow agreement to be executed by
the Seller, the Buyer and Acquisition Bonus Escrow Agent at the Closing in the
form of Exhibit C ("Bonus Pool Disbursement Agreement") which will be used for
--------- ---------------------------------
payment to Continuing Employees as an Acquisition Bonus in accordance with the
terms of the Acquisition Bonus Disbursement Agreement, and the Acquisition Bonus
Agreement and the Employment Agreements in substantially the form attached as
Exhibits D and E, respectively and to the extent not paid to said Continuing
- ----------------
Employees thereunder, shall be paid to the Seller;
(c) Twelve Million Eight Hundred Twelve Thousand Five Hundred Ninety-
Three Dollars ($12,812,593.00) to the Seller in cash payable by wire transfer
upon such wire instructions delivered by the Seller at the Closing.
Of the total amount of the Purchase Price, Eight Million One Hundred Fifty-Six
Thousand Two Hundred Ninety-Six and Fifty Cents ($8,156,296.50) shall be paid to
the Seller by each of the Buyer and the Licensee in connection with the purchase
of the Acquired Assets. The parties agree that all license fees previously paid
by the Buyer to the Seller in accordance with the June License Agreement shall
be retained by the Seller without recourse by the Buyer, and shall not be
considered part of the Purchase Price, notwithstanding anything to the contrary
set forth in the June License Agreement.
2.9 The Closing. The closing of the transactions contemplated by this
-----------
Agreement (the "Closing") shall take place at the offices of Wilson Sonsini
-------
Goodrich & Rosati, in Palo Alto, California, concurrent with the execution of
this Agreement and the collateral documents identified in Section 2.10 below
(the "Closing Date"). The Closing shall be deemed to have occurred upon the
------------
Closing Date, subject only to the receipt by the parties of the HSR Approval (as
defined in Section 3.3 below). Pending such receipt, the parties agree to place
all documents relevant to the Closing (as defined Section 2.10) and the Purchase
Price in escrow for distribution in accordance with terms as mutually agreed.
-10-
<PAGE>
2.10 Deliveries at the Closing. At the Closing, the parties will deliver
-------------------------
those agreements, certificates, opinions, instruments and documents required to
complete the transactions contemplated by this Agreement as are identified in
Exhibit F attached hereto and any other documents that the parties to this
- ---------
Agreement and their respective counsel believe are reasonably necessary or
appropriate (collectively, the "Closing Documents").
Following such delivery and promptly upon receipt of the HSR Approval,
the Seller will take all action as may be necessary to put the Buyer in
possession and operating control of the Acquired Assets.
At any time and from time to time after the Closing, at the request of
the Buyer and without further consideration, the Seller will execute and deliver
such other instruments of sale, transfer, conveyance, assignment and
confirmation and take such action as the Buyer may reasonably determine is
necessary to transfer, convey and assign to the Buyer, and to confirm the
Buyer's title to or interest in the Acquired Assets, and promptly upon receipt
of the HSR Approval, to put the Buyer in actual possession and operating control
thereof and to assist the Buyer in exercising all rights with respect thereto
except as otherwise expressly provided in the Agreement.
At any time and from time to time after the Closing, at the request of
the Seller and without further consideration, the Buyer will execute and deliver
such other instruments of sale, transfer, conveyance, assignment and
confirmation and take such action as the Seller may reasonably determine is
necessary to effectuate the purpose and intent of this Agreement, and promptly
upon receipt of the HSR Approval, to enable the Seller to exercise all rights of
the Seller in accordance with the terms of this Agreement.
2.11 Allocation of Purchase Price. The Parties agree that the allocation
----------------------------
of the Purchase Price for the Acquired Assets shall be as determined by the
Buyer within 30 days after the Closing, except the allocation for fixed assets
shall be fixed at the Seller's book value therefor.
2.12 License and Support Agreement. The parties shall enter into the
-----------------------------
License and Support Agreement substantially in the form attached as Exhibit G.
---------
3. Representations and Warranties of the Seller.
--------------------------------------------
The Seller represents and warrants to the Buyer that the statements
contained in this Section 3 are correct and complete as of the date of this
Agreement, except as set forth in the Disclosure Letter accompanying this
Agreement and initialed by the Parties (the "Disclosure Letter"). The
-----------------
Disclosure Letter will be arranged in paragraphs corresponding to the lettered
and numbered paragraphs contained in this Section 3.
3.1 Organization of the Seller. The Seller is a corporation duly
--------------------------
organized, validly existing and in good standing under the laws of the state or
other jurisdiction of its incorporation.
3.2 Authorization of Transaction. The Seller has the power and authority
----------------------------
(including full corporate power and authority) to execute and deliver this
Agreement and any other agreements
-11-
<PAGE>
related to the transactions contemplated by this Agreement and to perform its
obligations hereunder. All corporate and other actions or proceedings to be
taken by or on the part of the Seller to authorize and permit the execution and
delivery by it of this Agreement and the instruments required to be executed and
delivered by it pursuant hereto, the performance by the Seller of its
obligations hereunder, and the consummation by the Seller of the transactions
contemplated herein, have been duly and properly taken. This Agreement has been
duly executed and delivered by the Seller and constitutes the legal, valid and
binding obligation of the Seller, enforceable in accordance with its terms and
conditions.
3.3 Noncontravention. Neither the execution and the delivery of this
----------------
Agreement, any other agreements related to the transactions contemplated by
this Agreement, nor the consummation of the transactions contemplated hereby
(including the assignments and assumptions referred to in Section 2 above), will
(i) violate any statute, regulation, rule, injunction, judgment, order, decree,
ruling, charge or other restriction of any government, governmental agency or
court to which the Seller is subject or any provision of the charter or bylaws
of the Seller or (ii) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify or cancel, or require any notice under any
agreement, contract, lease, license, instrument, Lien, Security Interest or
other arrangement to which the Seller is a party or by which it is bound or to
which any of its assets is subject (or result in the imposition of any Security
Interest upon any of their assets) except where such violation, conflict,
breach, default, acceleration, termination, modification, cancellation, failure
to give notice or Security Interest would not have a material adverse effect on
the Acquired Assets or the Assumed Liabilities or on the ability of the Seller
to consummate the transactions contemplated by this Agreement. The Seller does
not need to give any notice to, make any filing with, or obtain any
authorization, consent or approval of any government or governmental agency in
order for the parties to consummate the transactions contemplated by this
Agreement (including the assignments and assumptions referred to in Section 2
above), except for the pre-merger notification requirements (the "HSR
---
Approval") of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
- --------
amended (the "HSR Act").
-------
3.4 Brokers' Fees. The Seller has no Liability to pay any fees or
-------------
commissions to any broker, finder or agent with respect to the transactions
contemplated by this Agreement for which the Buyer could become liable or
obligated.
3.5 Title to Assets. The Seller has good and valid title to, or a valid
---------------
and subsisting leasehold interest in, and the power to sell the Acquired Assets
being sold by it, free and clear of all Liens and Security Interests and the
Acquired Assets are assignable and transferable to the Buyer. Section 3.5 of the
Disclosure Letter sets forth a true and complete list of all Liens and Security
Interests related to the Acquired Assets the release of which by a third party
is required to satisfy the requirements of this Agreement.
3.6 Financial Statements. Attached hereto as Exhibit H are (i) an
-------------------- ---------
unaudited statement of Assets of the type that would be Acquired Assets as of
September 30, 1998 (the "Asset Statement"); and (ii) the related unaudited
---------------
statement of operating profit for the twelve-month period ended September 30,
1998 reflecting revenue from the Division and associated expenses (the "Income
------
Statement" and collectively with the Asset Statement, the "Financial
- --------- ---------
Statements"). The
-12-
<PAGE>
Financial Statements have been prepared in all material respects in accordance
with the books and records of the Division. The Asset Statement fairly presents
in all material respects the assets of the Division of the type that would be
Acquired Assets as at the date indicated, and the Income Statement fairly
presents in all material respects the results of operations of the Division for
the period indicated. No representation or warranty, express or implied, is made
in this Agreement as to the prospects or future success of the Division.
3.7 Indebtedness; Guarantees. The Seller does not have any indebtedness
------------------------
for money borrowed or for the deferred purchase price of property or services,
capital lease obligations, conditional sale or other title retention agreements
relating to the Acquired Assets or the Assumed Liabilities. The Seller is not a
guarantor of or otherwise liable for any Liability or obligation of any other
Person for any matter which relates to or affects the Acquired Assets or the
Assumed Liabilities.
3.8 Legal and Other Compliance. The Seller is in compliance with all
--------------------------
applicable laws (including rules, regulations, codes, plans, injunctions,
judgments, orders, decrees, rulings and charges thereunder) of federal, state,
local and foreign governments (and all agencies thereof) where any failure of
compliance would materially and adversely affect any of the Acquired Assets or
the Assumed Liabilities and no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, demand or notice has been filed or commenced against
the Seller alleging any failure so to comply.
3.9 Taxes. No unresolved claim has ever been made by an authority in a
-----
jurisdiction where the Seller does not file Tax Returns and in which any of the
Acquired Assets are subject that any Acquired Asset may be subject to taxation
by that jurisdiction. There are no Security Interests relating to the Acquired
Assets that arose in connection with any failure (or alleged failure) to pay any
Tax. There is no dispute or claim concerning any Tax Liability relating to any
Acquired Asset either (A) claimed or raised by any authority in writing or (B)
as to which the Seller has Knowledge based upon contact with any agent of such
authority. The Seller has not been a United States real property holding
corporation within the meaning of Code Section 897(c)(2) during the applicable
period specified in Code Section 897(c)(1)(A)(ii). The Seller is not a party to
any Tax allocation or sharing agreement that would affect any Acquired Asset or
Assumed Liability.
3.10 Real Property. The Sublease is legal, valid, binding, enforceable,
-------------
and in full force and effect. The Seller is not in breach or default, and no
event has occurred which, with notice or lapse of time, would constitute a
breach or default by the Seller so as to permit termination, modification, or
acceleration thereunder.
3.11 Environmental Matters.
---------------------
(a) The Seller has not transported, stored, used, manufactured,
released or exposed its employees or any other person to any Chemical Substance
or Extremely Hazardous Substance in the Leased Facility in violation of any
applicable statute, rule, regulation, order or law.
(b) No Environmental Permits are required to be obtained by the
Seller under any Environmental Laws applicable to the Leased Facility. To the
Knowledge of the Seller, the Seller
-13-
<PAGE>
is in compliance in all material respects with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in the Environmental Laws applicable to the
Leased Facility or contained in any regulation, code, plan, order, decree,
judgment, notice or demand letter issued, entered, promulgated or approved
thereunder. The Seller has not received any notice or is aware of any past or
present condition or practice of the businesses conducted by the Seller in the
Leased Facility which forms or could be reasonably expected to form the basis of
any material claim, action, suit, proceeding, hearing or investigation against
the Acquired Assets, arising out of the manufacture, processing, distribution,
use, treatment, storage, transport, or handling, or the Release or threatened
Release into the Environment, of any Chemical Substance or Extremely Hazardous
Substance by the Seller.
3.12 Property, Plant and Equipment. The Seller makes no representations
-----------------------------
and warranties regarding the operating or other condition of the Equipment,
which is being transferred to the Buyer "as is."
3.13 Intellectual Property. The Seller is not making any representations
---------------------
or warranties to the Buyer in this Agreement or otherwise as to the validity of
the Patents or as to the non-infringement by the Seller's Intellectual Property
of any patent rights or other intellectual property of any third party, except
as set forth in this Section 3.13.
(a) The Seller owns or has the right to use pursuant to license,
sublicense, agreement, or permission all Intellectual Property.
(b) To the knowledge of the Seller, none of the Intellectual Property
has interfered with, infringed upon, misappropriated, or otherwise come into
conflict with any intellectual property rights of third parties. To the
knowledge of the Seller, no third party has interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual Property.
(c) Section 3.13(c) of the Disclosure Letter identifies each patent
or registration which has been issued to or acquired by the Seller with respect
to any of the Intellectual Property, identifies each pending patent application
or application for registration which the Seller has made with respect to any of
its Intellectual Property, and identifies each current license, agreement, or
other permission which the Seller has granted to any third party with respect to
any of its Intellectual Property (together with any exceptions). The Seller has
delivered to the Buyer correct and complete copies of all such patents,
registrations, applications, licenses, agreements, and permissions (as amended
to date) and has made available to the Buyer correct and complete copies of all
other written documentation evidencing ownership and prosecution (if applicable)
of each such item. All licenses, agreements, and other permissions granted by
the Seller with respect to the Intellectual Property are assignable to the
Buyer. Section 3.13(c) of the Disclosure Letter also identifies each trade name
or unregistered trademark used by the Division in connection with any of its
businesses. With respect to each item of Intellectual Property required to be
identified in Section 3.13(c) of the Disclosure Letter:
(i) the Seller owns or has the right to use the item, free and
clear of any Lien, Security Interest, license, or other restriction;
-14-
<PAGE>
(ii) the item is not subject to any outstanding injunction,
judgment, order, decree, ruling, or charge;
(iii) to the knowledge of the Seller, no action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand is
pending or is threatened against the Seller which challenges the legality,
validity, enforceability, use, or ownership of the item; and
(iv) the Seller has not and has never agreed to indemnify any
Person for or against any interference, infringement, misappropriation, or other
conflict with respect to the item and which would constitute an Assumed
Liability.
(d) Section 3.13(d) of the Disclosure Letter identifies each item of
Intellectual Property that any third party licenses to the Division or to the
Seller and that the Seller uses pursuant to license, sublicense, agreement, or
permission. The Seller has delivered to the Buyer correct and complete copies
of all such licenses, sublicenses, agreements, and permissions, as amended to
date. With respect to each item of Intellectual Property required to be
identified in Section 3.13(d) of the Disclosure Letter:
(i) the license, sublicense, agreement, or permission covering
the item is legal, valid, binding, enforceable, and in full force and effect;
(ii) the license, sublicense, agreement, or permission is
assignable by the Seller to the Buyer;
(iii) the Seller is not in breach or default and no event has
occurred which with notice or lapse of time would constitute a breach or default
by the Seller so as to permit termination, modification, or acceleration
thereunder of any license, sublicense, agreement, or permission;
(iv) the Seller has not repudiated any provision of any
license, sublicense, agreement or permission;
(v) to the knowledge of the Seller, no action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand is
pending or, to the knowledge of the Seller, is threatened which challenges the
legality, validity, or enforceability of the underlying item of Intellectual
Property; and
(vi) the Seller has not granted any sublicense or similar right
with respect to the license, sublicense, agreement, or permission.
(e) Solely for the purpose of this Section 3.13, "the knowledge of
the Seller" shall mean and be confined to the actual knowledge of any officer of
the Seller, William Conway and Emil Ghelberg, and outside patent counsel, based
solely upon any written notice from any third party received within two years
prior to the Closing Date.
-15-
<PAGE>
(f) International Telecommunications Union. The Patents identified in
--------------------------------------
Section 3.13(f) of the Disclosure Letter are the only patents which are owned by
the Seller that relate to the V-34 or V-90 transmission standards. To the
Knowledge of the Seller, utilization of the inventions disclosed in the claims
of the Patents identified in Section 3.13(f) of the Disclosure Letter is
essential for compliance with standards promulgated by the International
Telecommunications Union. Section 3.13(f) of the Disclosure Letter identifies
each such Patent by patent number and identifies the specific standard for which
each such Patent is essential.
3.14 Tangible Assets. The Seller makes no representations and warranties
---------------
regarding the machinery, equipment, and other tangible assets necessary for the
conduct of the Division's business as presently conducted and presently proposed
to be conducted, which are being transferred to the Buyer "as is."
3.15 Contracts. With respect to each Contract included as part of the
---------
Acquired Assets, (A) the Contract is legal, valid, binding, enforceable, and in
full force and effect, and is assignable by the Seller to the Buyer; (B) the
Seller is not in breach or default, and no event has occurred which with notice
or lapse of time would constitute a breach or default by the Seller so as to
permit termination, modification, or acceleration, under the Contract; and (C)
the Seller has not repudiated any provision of the Contract.
3.16 Litigation. Section 3.16 of the Disclosure Letter sets forth each
----------
instance in which (i) the Seller or any Acquired Asset is subject to any
outstanding injunction, judgment, order, decree, ruling, or charge or (ii) the
Seller is a party or is threatened (based on written notice) to be made a party
to any action, suit, proceeding, hearing, or investigation of, in, or before any
court or quasi-judicial or administrative agency of any federal, state, local,
or foreign jurisdiction or before any arbitrator, which will have a material
adverse effect on any Acquired Asset or Assumed Liability.
3.17 Consents. Section 3.17 of the Disclosure Letter sets forth a true,
--------
correct and complete list of the consents or approvals which are required for
the acquisition of the Acquired Assets, and the assumption of the Assumed
Liabilities.
4. Representations and Warranties of the Buyer and the Licensee.
------------------------------------------------------------
The Buyer and the Licensee represent and warrant to the Seller that the
statements contained in this Section 4 are correct and complete as of the date
of this Agreement.
4.1 Organization of the Buyer. The Buyer is a corporation duly organized,
-------------------------
validly existing and in good standing under the laws of the jurisdiction of its
incorporation.
4.2 Authority for Agreement. Each of the Buyer and the Licensee has full
-----------------------
power and authority (including full corporate power and authority) to execute
and deliver this Agreement and to perform its obligations hereunder. All
corporate and other actions or proceedings to be taken by or on the part of the
Buyer and the Licensee to authorize and permit the execution and delivery by
each of them of this Agreement and the instruments required to be executed and
delivered by each
-16-
<PAGE>
of them pursuant hereto, the performance by each of the Buyer and the Licensee
of its obligations hereunder, and the consummation by the Buyer and the Licensee
of the transactions contemplated herein, have been duly and properly taken. This
Agreement has been duly executed and delivered by the Buyer and the Licensee and
constitutes the legal, valid and binding obligation of the Buyer and the
Licensee, enforceable against them in accordance with its terms and conditions.
4.3 Noncontravention. Neither the execution and the delivery of this
----------------
Agreement or any agreement related to the transactions contemplated by this
Agreement, nor the consummation of the transactions contemplated hereby
(including the assignments and assumptions referred to in Section 2 above), will
(i) violate any statute, regulation, rule, injunction, judgment, order, decree,
ruling, charge or other restriction of any government, governmental agency or
court to which the Buyer or the Licensee is subject or any provision of the
charter or bylaws of either or (ii) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify or cancel, or require any notice
under any agreement, contract, lease, license, instrument or other arrangement
to which the Buyer or the Licensee is a party or by which it is bound or to
which any of its assets is subject, except where such violation, conflict,
breach, default, acceleration, termination, modification, cancellation or
failure to give notice would not have an adverse effect on the ability of the
Buyer or the Licensee to consummate the transactions contemplated by this
Agreement. Neither of the Buyer nor the Licensee needs to give any notice to,
make any filing with, or obtain any authorization, consent or approval of any
government or governmental agency in order for the parties to consummate the
transactions contemplated by this Agreement (including the assignments and
assumptions referred to in Section 2 above), except for the pre-merger
notification requirements of the HSR Act.
4.4 Brokers' Fees. Neither of the Buyer nor the Licensee has any
-------------
Liability or obligation to pay any fees or commissions to any broker, finder or
agent with respect to the transactions contemplated by this Agreement for which
the Seller could become liable or obligated.
5. Covenants of the Parties.
------------------------
5.1 Employee Matters.
----------------
(a) Schedule 5.1(a) lists the employees of the Seller who are
employed by the Division and who have agreed with the Buyer to accept "at will"
employment after the Closing (the "Continuing Employees") and those Continuing
--------------------
Employees who are key to the Buyer's operations (the "Key Employees"). Each
-------------
Continuing Employee has agreed to release the Seller from any liability to pay
the Acquisition Bonus, as defined in each Continuing Employee's employment
agreement with GDC. For all Continuing Employees, the Seller agrees to (i)
terminate the employment with the Seller immediately prior to Closing and to pay
any and all Liabilities (other than the Acquisition Bonus) as relating to such
termination, including, without limitation any payments and benefits due such
Continuing Employees pursuant to accrued salary and wages, pension, retirement,
savings, health, welfare and other benefits and similar payments of the
Continuing Employees and (ii) provide to each Continuing Employee any notice
(which notice shall be reasonably acceptable to the Buyer) required under any
law or regulations in respect of such termination including, without limitation
COBRA.
-17-
<PAGE>
(b) Prior to the Closing, each of the Key Employees has entered into
an employment offer letter, in substantially the form attached as Exhibit E, and
---------
a non-competition agreement in the form attached as Exhibit I.
---------
5.2 Consolidated Financial Statements. The Seller shall provide the Buyer
---------------------------------
sufficient financial information concerning the Division to enable the Buyer to
prepare consolidated financial statements which satisfy the requirements (if
applicable) relating to the acquisition of a "significant subsidiary" in
accordance with the requirements of Regulation S-X.
5.3 Regulatory Filings; Reasonable Efforts. The Buyer and the Seller have
--------------------------------------
each filed with the United States Federal Trade Commission (the "FTC") and the
---
Antitrust Division of the United States Department of Justice ("DOJ")
---
Notification and Report Forms relating to the transactions contemplated herein
as required by the HSR Act, as well as comparable pre-merger notification forms
required by the merger notification or control laws and regulations of any
applicable jurisdiction, as agreed to by the parties. The Buyer and the Seller
each shall promptly (a) supply the other with any information which may be
required in order to effectuate such filings and (b) supply any additional
information which reasonably may be required by the FTC, the DOJ or the
competition or merger control authorities of any other jurisdiction and which
the parties may reasonably deem appropriate.
5.4 Access to Records after Closing. For a period of three years after
-------------------------------
the Closing Date, the Seller and its representatives on one hand and the Buyer
and its representatives on the other shall have reasonable access to any books,
records, documents, files and correspondence to the extent that such access may
reasonably be required in connection with matters relating to or affected by the
operation of the Division, in the case of the Seller prior to the Closing Date,
and in the case of the Buyer after the Closing Date. Such access shall be
afforded upon receipt of reasonable advance notice, during normal business hours
and at the expense of the party seeking access.
5.5 Transfer Taxes. The Seller and the Buyer shall promptly pay in equal
--------------
amounts any sales and use Taxes on the transfer of the Acquired Assets
hereunder.
5.6 Covenant Not to Compete and Solicitation of Employees. For a period
-----------------------------------------------------
of two years from and after the Closing Date ("Non-Competition Period"), each
----------------------
party shall not directly or indirectly, without the prior written consent of the
other party, engage anywhere in the Restricted Territory, or have any ownership
interest in (except for ownership of one percent (1%) or less of any entity
whose securities have been registered under the Securities Act or the Exchange
Act), or participate in the financing, operation, management or control of, any
firm, partnership, corporation, entity or business (other than the other party)
that engages or participates in a "PC-Tel Competing Business Purpose" with
respect to the Seller or a "GDC Competing Business Purpose" with respect to the
Buyer or Licensee. Notwithstanding the foregoing, in the event either the Buyer
or the Seller is acquired by a third party which is engaged in the Competing
Business Purpose of the other party, the foregoing restrictions under this
Section 5.6 shall terminate. The term "PC-Tel Competing Business Purpose" shall
consist of (i) design, technology and patent licensing of analog, cable, ADSL,
or VDSL modems, and (ii) designing, manufacturing, marketing, and selling
chipsets and/or software for analog, cable, ADSL and VDSL modems and the term
"GDC Competing Business
-18-
<PAGE>
Purpose" shall consist of designing, manufacturing, marketing, selling or
servicing data, voice or video communications systems products such as (but not
limited to) ATM switches, time division multiplexers, access products and
network management software. Systems products are sold in the form of stand-
alone and rack-mounted products, as well as individual printed circuit boards.
The GDC Competing Business Purpose shall not include products that are sold as
chipsets or stand-alone software, except as spare parts to such system products
or as embedded software or firmware. Also, GDC Competing Business Purpose shall
not include design, technology or patent licensing of analog, cable, ADSL, or
VDSL modems. Notwithstanding the foregoing, in the event either of the Buyer or
the Seller is acquired by a third party (whether by way of merger,
reorganization, sale of assets or transfer of more than 50% of outstanding
voting securities) which is engaged in the PC-Tel Competing Business Purpose (in
the case of an acquisition of the Seller) or in the GDC Competing Business
Purpose (in the case of an acquisition of the Buyer), the foregoing non-
competition covenant of the Seller (in the case of the acquisition of the
Seller) and of the Buyer (in the case of the acquisition of the Buyer) shall
terminate upon the completion of such acquisition. The term "Restricted
Territory" shall mean each and every country, province, state, city or other
political subdivision of the world. During the Non-Competition Period, none of
the parties shall, directly or indirectly, solicit, encourage or take any other
action which is intended to induce or encourage, or has the effect of inducing
of encouraging any employee of any other party to terminate his or her
employment with such party.
5.7 Bulk Sales Laws. The parties agree, subject to the requirements of
---------------
Section 6.2(a) below, that the Seller shall not be required to comply with the
requirements of any applicable bulk sales laws.
5.8 Post-Closing Operating Adjustments. Within not more than ninety (90)
----------------------------------
days following the receipt of the HSR Approval, each of the Seller and the Buyer
shall agree upon the operating expenses (including corporate overhead but not in
excess of the monthly average therefor based on the last five months) and
incomes (both actual and accrued) which result to the Seller during the period
of time from the Closing Date through and including the foregoing adjustments
after the date of the HSR Approval, and an appropriate payment in the net amount
of such expenses and incomes shall be paid to the appropriate party. The intent
of such payment shall be to ensure that the economic effect of the transactions
contemplated by this Agreement shall be fully taken into account as if actual
control of the Acquired Assets and the Assumed Liabilities by the Buyer, and the
employment by the Buyer of the Continuing Employees, had occurred at the Closing
Date.
5.9 Collection of Accounts Receivable. For a period of not to exceed one
---------------------------------
hundred twenty (120) days after the Closing Date, the Buyer agrees, at Seller's
request, to use its commercially reasonable efforts to cooperate with and assist
the Seller in the collection of any accounts receivable which arise under
Contracts with respect to periods prior to the Closing Date. Any amounts so
collected by the Buyer at any time shall be held in trust by the Buyer and
promptly remitted to the Seller upon receipt. The Seller agrees to reimburse
the Buyer for any reasonable out-of-pocket expenses which the Buyer may incur in
connection with its collection efforts hereunder. All payments which are
payable under the June License Agreement for periods prior to the Closing are
the property of and shall be paid to the Seller.
-19-
<PAGE>
5.10 Litigation Support. In the event and for so long as the Seller is
------------------
prosecuting, contesting or defending any action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand in connection with any fact,
status, condition, activity, occurrence, event, failure to act or transaction
with respect to the Acquired Assets or Liabilities on or prior to the Closing
Date, the Buyer agrees to (i) cooperate on a reasonable basis with the Seller
and its counsel and make available information in its possession relevant
thereto and (ii) make available its employees on a reasonable basis, as
necessary, to provide testimony, to be deposed, to act as witnesses and to
assist counsel, all during normal business hours without undue interference with
the Buyer's business and with the responsibilities of such employees. In
connection with Buyer's performance of its obligations under this paragraph, the
Seller shall pay to Buyer (x) out-of-pocket expenses incurred by the Buyer and
(y) $750.00 per day for each employee who is required to perform litigation
support in excess of 15 days.
5.11 License and Support Agreement. The Seller and the Buyer agree to the
-----------------------------
terms of the License and Support Agreement, including but not limited to the
provisions of Section 6 thereof. The parties agree that the terms and provisions
of the License and Support Agreement shall be construed separate and apart from
the terms of this Agreement, and neither this Agreement nor the License and
Support Agreement shall be limited by, or affect, the respective provisions of
either agreement.
5.12 401(k) Plan. At the Buyer's election and with the consent of any
-----------
affected Continuing Employee, as soon as administratively practicable after the
Closing, the Seller shall take any actions necessary or appropriate under the
Seller's 401(k) plan to permit a transfer of the account balances which are
attributable to the Continuing Employees, from the Seller's 401(k) plan to the
401(k) plan of the Buyer. If such an election is made by the Buyer, then the
Buyer may determine, with the consent of any affected Continuing Employee,
whether such account balances shall be transferred to the Buyer's 401(k) plan in
the aggregate or at the election of each Continuing Employee.
6. Survival of Representations and Warranties; Indemnification.
-----------------------------------------------------------
6.1 Survival of Representations and Warranties. The representations and
------------------------------------------
warranties of the Seller, the Buyer and the Licensee contained in this Agreement
or in any instrument delivered pursuant to this Agreement shall terminate on
June 30, 1999.
6.2 Indemnification by the Seller.
-----------------------------
(a) Indemnification by the Seller. The Seller shall indemnify and
-----------------------------
hold the Buyer, and its officers, directors, agents and Affiliates, harmless
against and in respect of all claims, losses, Liabilities, Liens, damages,
deficiencies, costs and expenses, including reasonable attorneys' fees and
expenses of investigation and defense (hereinafter individually, a "Loss" and
----
collectively, "Losses") incurred by the Buyer, or its officers, directors,
------
agents, or Affiliates, directly or indirectly, as a result of (i) any inaccuracy
or breach of a representation or warranty of the Seller contained in this
Agreement or in any instrument or certificate executed and delivered by the
Seller to the Buyer (or any Affiliate or subsidiary of the Buyer) in connection
with the transactions contemplated by this Agreement, or (ii) any failure by the
Seller to perform or comply with any covenant contained in this
-20-
<PAGE>
Agreement, or (iii) any Liability of the Seller that is not an Assumed Liability
hereunder and is not in excess of the amounts (where identified) of the Assumed
Liabilities set forth in Schedule 2.3(c), or (iv) any Liability resulting from
---------------
failure of the Seller to comply with any applicable bulk sales laws; (provided,
however, that the Seller shall have no obligation to indemnify the Buyer for any
Environmental Liabilities and Costs except to the extent any Environmental
Liabilities and Costs result from a breach of Section 3.11).
(b) Limitation on Liability. Notwithstanding the foregoing, the
-----------------------
Seller shall not be obligated to indemnify the Buyer, or any of its officers,
directors, agents and Affiliates, pursuant to this Section 6.2(b) unless and
until the amount of all Losses incurred by the Buyer, and its officers,
directors, agents and Affiliates taken as a group, exceeds Two Hundred Twenty-
Five Thousand Dollars ($225,000) in the aggregate, in which event the Seller
shall indemnify, pursuant to this Section 6.2(b), the Buyer, and its officers,
directors and agents and Affiliates, for all Losses incurred by them in the
aggregate from the first dollar of Losses. Except for any willful or fraudulent
breach of the representations, warranties or covenants contained herein, the
parties agree that the Buyer's sole and exclusive recourse against the Seller
for any Loss or claim of Loss arising out of or relating to this Agreement shall
not exceed $1,000,000 (and any accrued interest) and shall be expressly limited
to the indemnification provisions of this Section 6.
(c) Escrow Fund. At the Closing Date, the Buyer, the Seller, and the
-----------
Escrow Agent shall execute the Escrow Agreement, and the Buyer shall deposit
with the Escrow Agent in an interest-bearing account (or with the Closing Escrow
Agent for disbursement to the Escrow Agent following the date of receipt of the
HSR Approval) as partial payment of the Purchase Price hereunder, the sum of
$1,000,000 (the "Escrow Cash") to be held in the Escrow Fund and administered in
-----------
accordance with the Escrow Agreement attached as Exhibit B. The Escrow Fund, as
---------
such term is used herein, shall include the Escrow Cash deposited pursuant to
this Section 6 and any interest thereon, less any payments or distributions made
pursuant to the Escrow Agreement. All amounts included within the Escrow Fund
shall be deemed the property of the Seller unless distributed to the Buyer in
accordance with the provisions of the Escrow Agreement. The Escrow Agent shall
administer the Escrow Fund, as it may exist from time to time, on behalf of the
Buyer and the Seller, for the purposes of securing the Seller's indemnity
obligations under Section 6 hereof.
(i) Termination of Escrow Fund. Subject to the resolution of
--------------------------
pending claims prior to the expiration of the Escrow Fund, the Escrow Fund shall
remain in existence during the period of time (the "Escrow Period") between the
-------------
Closing Date and 5:00 p.m., Pacific Standard Time, on June 30, 1999 (the "Escrow
------
Release Date").
- ------------
(ii) Protection of Escrow Fund. The Escrow Agent shall hold and
-------------------------
safeguard the Escrow Fund during the Escrow Period, shall treat such fund as a
trust fund in accordance with the terms of this Agreement and not as the
property of the Buyer and shall hold and dispose of the Escrow Fund only in
accordance with the terms hereof.
-21-
<PAGE>
(iii) Claims Upon Escrow Fund.
-----------------------
(A) Upon receipt by the Escrow Agent at any time on or
before the last day of the Escrow Period of a certificate signed by any officer
of the Buyer (an "Officer's Certificate") stating that the Buyer has paid or
---------------------
properly accrued or reasonably anticipates that it will have to pay Losses
pursuant to Claims made during the Escrow Period in an aggregate stated amount
to which the Buyer is entitled to indemnity pursuant to this Agreement, and
specifying in reasonable detail the individual items of Losses included in the
amount so stated, the date each such item was paid or properly accrued, or the
basis for such anticipated liability, and the nature of the misrepresentation,
breach of warranty or claim to which such item is related, the Escrow Agent
shall deliver to the Buyer out of the Escrow Fund, as promptly as practicable,
an amount equal to such Losses as indemnity out of the Escrow Fund; provided,
however, that with respect to Losses the Buyer reasonably anticipates it will
have to pay, pursuant to Claims made during the Escrow Period, Escrow Cash shall
not be delivered to the Buyer by the Escrow Agent until such time as the Buyer
actually must pay such Losses.
(B) At the time of delivery of any Officer's Certificate
to the Escrow Agent, a duplicate copy of such Officer's Certificate shall be
delivered to the Seller by the Buyer and for a period of thirty (30) days after
delivery of the Officer's Certificate to the Escrow Agent, the Escrow Agent
shall make no delivery of the cash from the Escrow Fund pursuant to this Section
6(c) unless the Escrow Agent shall have received written authorization from the
Seller to make such delivery. After the expiration of such thirty (30) day
period, the Escrow Agent shall, without further notice or authorization of any
kind, make delivery of the amount of Losses from the Escrow Fund in accordance
with Section 5(a) above, provided that no such payment or delivery shall be made
if the Seller delivers written notice to the Escrow Agent and to the Buyer prior
to the expiration of such thirty (30) day period that the Seller disputes in
good faith the Claim set forth in the Officer's Certificate, with the basis for
such dispute set forth in reasonable detail.
(iv) Resolution of Conflicts; Arbitration.
------------------------------------
(A) In case the Seller shall object in writing to any
claim made in any Officer's Certificate as described in Section 6.2(c)(iii)
("Claim"), the Buyer shall have thirty (30) days to respond in a written
-----
statement to the Seller and the Escrow Agent. If after such thirty (30) day
period there remains a dispute as to any Claim, the Seller and the Buyer shall
attempt in good faith for sixty (60) days to agree upon the rights of the
respective parties with respect to each of such Claim. If the Seller and the
Buyer should so agree, a memorandum setting forth such agreement shall be
prepared and signed by both parties and shall be furnished to the Escrow Agent.
The Escrow Agent shall be entitled to conclusively rely on any such memorandum
and shall make the distributions from the Escrow Fund as promptly as practicable
only in accordance with the terms thereof or of the Escrow Agreement.
(B) If no such agreement can be reached, either the Buyer
or the Seller may, by written notice to the other, demand arbitration of the
matter in accordance with Section 7.3 of this Agreement, unless the amount of
the damage or loss is at issue in pending litigation with a third party, in
which event arbitration shall not be commenced until such amount
-22-
<PAGE>
is ascertained or both parties agree to arbitration. The decision of the
arbitrators as to the validity and amount of any Claim in such Officer's
Certificate shall be binding and conclusive upon the parties to this Escrow
Agreement, and, notwithstanding anything in Section 6 hereof, the Escrow Agent
shall be entitled to act in accordance with such decision and make or withhold
payments out of the Escrow Fund in accordance therewith.
(d) Third Party Claims.
------------------
(i) If any third party shall notify any of the parties or its
Affiliates with respect to any matter (hereinafter referred to as a "Third Party
-----------
Claim"), which may result in Losses, then the party receiving the notice (the
- -----
"Indemnitee") shall give notice to the other party (the "Indemnitor") as
---------- ----------
promptly as practical and in any event within not more than twenty (20) days of
the Indemnitee's becoming aware of any such Third Party Claim or of facts upon
which any such Third Party Claim will be based setting forth such material
information with respect to the Third Party Claim as is reasonably available to
the Indemnitee; provided, however, that no delay or failure on the part of the
-------- -------
Indemnitee in notifying the Indemnitor shall relieve the Indemnitor from any
obligation hereunder unless the Indemnitor is thereby materially prejudiced (and
then solely to the extent of such prejudice).
(ii) In case any Third Party Claim is asserted against the
Indemnitee or its Affiliates, and the Indemnitee notifies the Indemnitor thereof
pursuant to Section 6(d)(i) above, the Indemnitor will be entitled, if it so
elects by written notice delivered to the Indemnitee within ten (10) days after
receiving the Indemnitee's notice, to assume the defense thereof, at the expense
of the Indemnitor, so long as:
(A) the Third Party Claim involves only money damages and
does not seek an injunction or other equitable relief;
(B) settlement of, or an adverse judgment with respect to,
the Third Party Claim is not, in the good faith judgment of the Indemnitee,
likely to establish a precedential custom or practice adverse to the continuing
business interests of the Indemnitee which could have a material adverse effect
on the business or operations of the Indemnitee; and
(C) counsel selected by the Indemnitor is reasonably
acceptable to the Indemnitee.
If the Indemnitor so assumes any such defense, it shall conduct the defense of
the Third Party Claim actively and diligently. The Indemnitor shall not
compromise or settle such Third Party Claim or consent to entry of any judgment
in respect thereof without the prior written consent of the Indemnitee;
provided, however, that if such compromise, settlement or consent involves the
payment of cash only and the Indemnitee does not so consent, the Indemnitor's
liability with respect to any such Claim shall be limited to the amount of the
proposed compromise, settlement or consent. If the Indemnitor is not entitled
to assume the defense of the Third Party Claim, counsel may nevertheless be
selected by the Indemnitor, at its expense, subject to the approval of the
Indemnitee, which shall not be unreasonably withheld.
-23-
<PAGE>
(iii) In the event that the Indemnitor assumes the defense of
the Third Party Claim in accordance with Section 6.2(d)(ii) above, the
Indemnitee or its Affiliates may retain separate counsel and participate in the
defense of the Third Party Claim, but the fees and expenses of such counsel
shall be at the expense of the Indemnitee (and will permit the Indemnitor to
control such defense) unless the Indemnitee or its Affiliates shall reasonably
determine that there is a conflict of interest between or among the Indemnitee
or its Affiliates and the Indemnitor with respect to such Third Party Claim, in
which case the reasonable fees and expenses of such counsel will be borne by the
Indemnitor. The Indemnitee or its Affiliates will not consent to the entry of
any judgment or enter into any settlement with respect to the Third Party Claim
without the prior written consent of the Indemnitor. The Indemnitee will
cooperate in the defense of the Third Party Claim and will provide full access
to documents, assets, properties, books and records reasonably requested by the
Indemnitor and material to the claim and will make available all officers,
directors and employees reasonably requested by the Indemnitor for
investigation, depositions and trial.
(iv) In the event that the Indemnitor fails or elects not to
assume the defense of the Indemnitee or its Affiliates against such Third Party
Claim, which the Indemnitor had the right to assume under Section 6.2(d)(ii)
above, the Indemnitee or its Affiliates shall have the right to undertake the
defense, consent to the entry of any judgment or enter into any settlement with
respect to the Third Party Claim in any manner it may deem appropriate (and the
Indemnitee or its Affiliates need not consult with, or obtain any consent from,
the Indemnitor in connection therewith); provided, however, that except with the
-------- -------
written consent of the Indemnitor, no settlement of any such claim or consent to
the entry of any judgment with respect to such Third Party Claim shall alone be
determinative of the validity of the claim. In each case, the Indemnitee or its
Affiliates shall conduct the defense of the Third Party Claim actively and
diligently, and the Indemnitor will cooperate with the Indemnitee or its
Affiliates in the defense of that claim and will provide full access to
documents, assets, properties, books and records reasonably requested by the
Indemnitee and material to the claim and will make available all individuals
reasonably requested by the Indemnitee for investigation, depositions and trial.
6.3 Indemnification by the Buyer.
----------------------------
(a) Indemnification by the Buyer. The Buyer shall indemnify and hold
----------------------------
the Seller, and its officers, directors, agents and Affiliates, harmless against
and in respect of all claims, losses, Liabilities, Liens, damages, deficiencies,
costs and expenses, including reasonable attorneys' fees and expenses of
investigation and defense (hereinafter individually, a "Loss" and collectively,
----
"Losses") incurred by the Seller, or its officers, directors, agents or
------
Affiliates, directly or indirectly, as a result of (i) any inaccuracy or breach
of a representation or warranty of the Buyer contained in this Agreement or in
any instrument or certificate executed and delivered by the Buyer to the Seller
(or any Affiliate or subsidiary of the Seller) in connection with the
transactions contemplated by this Agreement, or (ii) any failure by the Buyer to
perform or comply with any covenant contained in this Agreement, or (iii) any
Assumed Liability.
(b) Limitation on Liability. Notwithstanding the foregoing, the Buyer
-----------------------
shall not be obligated to indemnify the Seller, or any of its officers,
directors, agents and Affiliates, pursuant to this Section 6.3(b) unless and
until the amount of all Losses incurred by the Seller, and its officers,
-24-
<PAGE>
directors, agents and Affiliates taken as a group, exceeds Two Hundred Twenty-
Five Thousand Dollars ($225,000) in the aggregate, in which event the Buyer
shall indemnify, pursuant to this Section 6.3(b), the Seller, and its officers,
directors, agents and Affiliates, for all Losses incurred by them in the
aggregate from the first dollar of Losses. Except for any willful or fraudulent
breach of the representations, warranties or covenants contained herein, the
parties agree that the Seller's sole and exclusive recourse against the Buyer
for any Loss or claim of Loss arising out of or relating to this Agreement shall
not exceed $1,000,000 and shall be expressly limited to the indemnification
provisions of this Section 6.
7. Miscellaneous.
-------------
7.1 Press Releases and Public Announcements. The parties shall issue a
---------------------------------------
mutually acceptable press release regarding the subject matter of this
Agreement. No party shall issue any press release or make any public
announcement relating to the subject matter of this Agreement prior to the
Closing without the prior written approval of the other party; provided,
however, that the Seller may make any public disclosure it believes in good
faith that it is required by applicable law or any listing or trading agreement
concerning its publicly-traded securities (in which case the Seller will advise
the Buyer prior to making the disclosure).
7.2 No Third Party Beneficiaries. This Agreement shall not confer any
----------------------------
rights or remedies upon any Person other than the parties hereto and their
respective successors and permitted assigns.
7.3 Arbitration. All disputes or controversies (whether of law or fact)
-----------
of any nature whatsoever arising from or relating to this Agreement and the
transactions contemplated hereby shall be decided by arbitration by the American
Arbitration Association in accordance with the rules and regulations of that
Association. The arbitrators shall be selected as follows: The Buyer and the
Seller shall, within thirty (30) days of the date of demand by either party for
arbitration, each select one independent, qualified arbitrator and the two
arbitrators so selected shall select the third arbitrator within thirty (30)
days after their appointment as party arbitrators. Each such party reserves the
right to object to any individual arbitrator who shall be employed by or
affiliated with a competing organization. In the event objection is made, the
American Arbitration Association (the "Association") shall resolve any dispute
-----------
regarding the propriety of an individual arbitrator acting in that capacity.
The Parties shall each bear the expenses of the arbitrator chosen by it, and
shall bear one-half the expenses of the independent arbitrator. Hearings in the
proceeding shall commence within one hundred twenty (120) days of the selection
of the neutral arbitrator. Arbitration shall take place in Chicago, Illinois.
At the request of either such party, arbitration proceedings will be conducted
confidentially; in such case all documents, testimony and records shall be
received, heard and maintained by the arbitrators in confidence under seal,
available for the inspection only by the Association, the Seller and the Buyer
and their respective attorneys and their respective experts who shall agree in
advance and in writing to receive all such information confidentially and to
maintain such information in confidence. The arbitrators, who shall act by
majority vote, shall be able to decree any and all relief of an equitable and
legal nature, including but not limited to such relief as a temporary
restraining order, a temporary and/or a permanent injunction, and shall also be
able to award damages, with or without an accounting and costs. The decree or
award rendered by the arbitrators may be entered as a final and binding judgment
in any court having jurisdiction thereof.
-25-
<PAGE>
The decision of the arbitrator shall be in writing, set forth the basis for the
decision and cannot amend or exceed the terms of this Agreement. Reasonable
notice of the time and place of arbitration shall be given to all persons, other
than the parties, as shall be required by law, in which case such persons or
those authorized representatives shall have the right to attend and/or
participate in all the arbitration hearings in such manner as the law shall
require.
7.4 Entire Agreement. This Agreement (including the Confidentiality
----------------
Agreement between the parties dated as of September 3, 1998, documents referred
to herein and attached hereto) constitutes the entire agreement between the
parties and supersedes any prior understandings, agreements or representations
by or between the parties, written or oral, to the extent they related in any
way to the subject matter hereof.
7.5 Succession and Assignment. This Agreement shall be binding upon and
-------------------------
inure to the benefit of the parties named herein and their respective successors
and permitted assigns. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other party, which approval will not unreasonably be withheld.
Notwithstanding the foregoing, this Agreement may be assigned without approval
in connection with the acquisition (whether by way of merger, reorganization,
sale of assets or transfer of more than 50% of outstanding voting securities) by
a third party of the Buyer or the Seller.
7.6 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
7.7 Headings. The section headings contained in this Agreement are
--------
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
7.8 Notices. All notices, requests, demands, claims, and other
-------
communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given (i) upon
confirmation of facsimile, (ii) when sent by overnight delivery and (iii) when
mailed by registered or certified mail return receipt requested and postage
prepaid at the following address:
If to the Seller: General DataComm, Inc.
---------------- 1579 Straits Turnpike
Middlebury, CT 06762
Tel: (203) 574-1118
Fax: (203) 758-8507
Attention: Chief Financial Officer
-26-
<PAGE>
Copy to: Weisman Celler Spett & Modlin, P.C.
------- 445 Park Avenue
New York, NY 10022
Tel: (212) 371-5400
Fax: (212) 371-5407
Attention: Howard S. Modlin, Esq.
If to the Buyer: PC-Tel, Inc.
--------------- 70 Rio Robles
San Jose, CA 95134
Tel: (408) 965-2100
Fax: (408) 383-0455
Attention: Chief Financial Officer
Copy to: Wilson Sonsini Goodrich & Rosati
------- 650 Page Mill Road
Palo Alto, CA 94304
Tel: (650) 493-9300
Fax: (650) 493-6811
Attention: Douglas H. Collom, Esq.
Any party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other party
notice in the manner herein set forth.
7.9 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the domestic laws of the State of Delaware without giving effect
to any choice or conflict of law provision or rule (whether of the State of
Delaware or any other jurisdiction) that would cause the application of the laws
of any jurisdiction other than the State of Delaware.
7.10 Amendments and Waivers. No amendment of any provision of this
----------------------
Agreement shall be valid unless the same shall be in writing and signed by the
Buyer and the Seller. No waiver by any party of any default, misrepresentation,
or breach of warranty or covenant hereunder, whether intentional or not, shall
be deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.
7.11 Severability. Any term or provision of this Agreement that is invalid
------------
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
-27-
<PAGE>
7.12 Expenses. Whether or not the transactions contemplated hereby are
--------
consummated, all fees and expenses, including any legal, accounting, investment
banking and other professional services, costs and expenses, incurred in
connection with the negotiation and/or effectuation of the transactions
contemplated hereby shall be the obligation of the respective party incurring
such fees and expenses.
7.13 Incorporation of Exhibits and Schedules. The Exhibits and Schedules
---------------------------------------
identified in this Agreement are incorporated herein by reference and made a
part hereof.
7.14 Specific Performance. Each of the parties acknowledges and agrees
--------------------
that the other party would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the Parties agrees that
the other party shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any action instituted in any
court of the United States or any state thereof having jurisdiction over the
parties and the matter in addition to any other remedy to which it may be
entitled, at law or in equity.
-28-
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on the
date first above written.
The "Buyer" PC-TEL, INC.
By: /s/ Peter Chen
-----------------------------------------
Title: President & CEO
--------------------------------------
The "Licensee" PC-TEL GLOBAL LTD.
By: /s/ Peter Chen
-----------------------------------------
Title: President & CEO
--------------------------------------
The "Seller" GENERAL DATACOMM, INC.
By: /s/ William Lawrence
-----------------------------------------
Title: Senior Vice President & CFO
--------------------------------------
-29-
<PAGE>
EXHIBIT 10.11
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (the "Escrow Agreement") is made and entered into as
----------------
of December 22, 1998 by and among PC-Tel, Inc., a Delaware corporation ("PC-Tel"
------
or the "Buyer"), General DataComm, Inc., a Delaware corporation ("GDC" or the
----- ---
"Seller"), and Greater Bay Trust Company, as escrow agent (the "Escrow Agent").
------ ------------
RECITALS
--------
A. PC-Tel, a subsidiary of PC-Tel and GDC are parties to that certain
Asset Purchase Agreement dated as of December 22, 1998 (the "Purchase
--------
Agreement"), providing for the purchase by PC-Tel of substantially all of the
- ---------
assets of Technology Alliance Group, a division of GDC. Capitalized terms used
but not defined herein shall have the meanings set forth in the Purchase
Agreement.
B. One of the conditions to the closing of the Purchase Agreement, as set
forth in the Purchase Agreement, is the execution and delivery of this Escrow
Agreement.
C. Pursuant to Section 6.2(c) of the Purchase Agreement, PC-Tel and its
subsidiary shall deposit with the Escrow Agent One Million Dollars
($1,000,000.00) (the "Escrow Cash") into an escrow fund (the "Escrow Fund") to
----------- -----------
be used to satisfy any potential indemnification obligations of GDC to PC-Tel
and its directors, officers and Affiliates ("Indemnified Persons") for Losses
-------------------
under Section 6.2 of the Purchase Agreement.
D. This Escrow Agreement sets forth the basis on which the Escrow Agent
will receive and hold, and make disbursements from, the Escrow Fund and the
duties for which the Escrow Agent will be responsible.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt of which is hereby acknowledged, the parties
agree as follows:
1. Appointment. PC-Tel and GDC hereby appoint the Escrow Agent as escrow
-----------
agent to serve in such capacity in accordance with the terms and conditions set
forth in this Escrow Agreement. The Escrow Agent hereby accepts such
appointment.
2. Asset Purchase Agreement. The Escrow Agent acknowledges receipt of a
------------------------
copy of the Purchase Agreement; however, except for reference thereto for
definitions of certain words or terms not defined herein, the Escrow Agent is
not charged with any duties or responsibilities with respect to the Purchase
Agreement.
3. Escrow Cash. At the Closing, PC-Tel and its Subsidiary shall deposit
-----------
the Escrow Cash to the Federated Investors Government Obligations Fund or, if
such fund is not available, in a mutually agreed interest-bearing account
directly with the Escrow Agent, the receipt of which shall be acknowledged, and
the same accepted, by the Escrow Agent as escrow agent hereunder. The Escrow
<PAGE>
Fund, as such term is used herein, shall include the Escrow Cash deposited
pursuant to this Section 3 and any interest earned thereon, less any payments or
distributions made hereunder.
4. Interest.
--------
The parties acknowledge that payment of any interest earned on the
funds invested in this escrow will be subject to backup withholding penalties
unless either a properly completed Internal Revenue Service Form W8 or W9
certification is submitted to Escrow Agent.
5. Claims Upon Escrow Fund.
-----------------------
(a) Upon receipt by the Escrow Agent on or before the last day of the
Escrow Release Date of a certificate signed by any officer of PC-Tel (an
"Officer's Certificate") (i) stating that PC-Tel has paid or properly accrued or
---------------------
reasonably anticipates that it will have to pay Losses pursuant to Claims made
during the Escrow Period, in an aggregate stated amount to which PC-Tel is
entitled to indemnity pursuant to the Purchase Agreement, and (ii) specifying in
reasonable detail the individual items of Losses included in the amount so
stated, the date each such item was paid or properly accrued, or the basis for
such anticipated liability, and the nature of the misrepresentation, breach of
warranty or claim to which such item is related, the Escrow Agent shall deliver
to PC-Tel out of the Escrow Fund, as promptly as practicable, an amount equal to
such Losses as indemnity out of the Escrow Fund; provided, however, that with
respect to Losses PC-Tel reasonably anticipates it will have to pay pursuant to
Claims made during the Escrow Period, Escrow Cash shall not be delivered to PC-
Tel by the Escrow Agent until such time as PC-Tel actually must pay such Losses,
the Escrow Agent shall, subject to the provisions of Section 5(b) below, deliver
to PC-Tel, as promptly as practicable, an amount out of the Escrow Fund equal to
such Losses as indemnity. The Escrow Agent shall be entitled to conclusively
rely on such Officer's Certificate and shall make such distributions from the
Escrow Fund only in accordance with the terms thereof.
(b) At the time of delivery of any Officer's Certificate to the Escrow
Agent, a duplicate copy of such Officer's Certificate shall be delivered to GDC
by PC-Tel and for a period of thirty (30) days after delivery of the Officer's
Certificate to the Escrow Agent, the Escrow Agent shall make no delivery of the
cash from the Escrow Fund pursuant to Section 5(a) above unless the Escrow Agent
shall have received written authorization from GDC to make such delivery. After
the expiration of such thirty (30) day period, the Escrow Agent shall, without
further notice or authorization of any kind, make delivery of the amount of
Losses from the Escrow Fund in accordance with Section 5(a) above, provided that
no such payment or delivery shall be made if GDC delivers written notice to the
Escrow Agent and to PC-Tel prior to the expiration of such thirty (30) day
period that GDC disputes in good faith the Claim set forth in the Officer's
Certificate, with the basis for such dispute set forth in reasonable detail.
6. Resolution of Conflicts; Arbitration.
------------------------------------
(a) In case GDC shall object in writing to any claim made in any
Officer's Certificate as described in Section 5(b) ("Claim"), PC-Tel shall have
-----
thirty (30) days to respond in a written
-2-
<PAGE>
statement to GDC and the Escrow Agent. If after such thirty (30) day period
there remains a dispute as to any Claim, GDC and PC-Tel shall attempt in good
faith for sixty (60) days to agree upon the rights of the respective parties
with respect to each of such Claim. If GDC and PC-Tel should so agree, a
memorandum setting forth such agreement shall be prepared and signed by both
parties and shall be furnished to the Escrow Agent. The Escrow Agent shall be
entitled to conclusively rely on any such memorandum and shall make the
distributions from the Escrow Fund as promptly as practicable only in accordance
with the terms thereof or of the Escrow Agreement.
(b) If no such agreement can be reached, either PC-Tel or GDC may, by
written notice to the other, demand arbitration of the matter in accordance with
Section 7.3 of the Purchase Agreement, unless the amount of the damage or loss
is at issue in pending litigation with a third party, in which event arbitration
shall not be commenced until such amount is ascertained or both parties agree to
arbitration. The decision of the arbitrators as to the validity and amount of
any Claim in such Officer's Certificate shall be binding and conclusive upon the
parties to this Escrow Agreement, and, notwithstanding anything in Section 5
hereof, the Escrow Agent shall be entitled to act in accordance with such
decision and make or withhold payments out of the Escrow Fund in accordance
therewith.
7. Escrow Provisions.
-----------------
(a) The Escrow Agent may rely and shall be protected in acting or
refraining from acting upon any written notice, request, waiver, consent,
receipt or other paper or document from any duly authorized officer or agent of
PC-Tel or any other Indemnified Person or from GDC, not only as to its due
execution and the validity and effectiveness of its provisions, but also as to
the truth of any information therein contained, that the Escrow Agent in good
faith believes to be genuine and as to which the Escrow Agent shall have no
actual notice of invalidity, lack of authority or other deficiency.
(b) The Escrow Agent shall not be liable for any error of judgment, or
for any act done or step taken or omitted by it in good faith, or for any
mistake of fact or law, or for anything which it may do or refrain from doing in
connection therewith, except for any liability arising from its own negligence,
willful misconduct or bad faith.
(c) The Escrow Agent shall be entitled to consult with competent and
responsible counsel of its choice with respect to the interpretation of the
provisions hereof, and any other legal matters relating hereto, and shall be
fully protected in taking any action or omitting to take any action in good
faith in accordance with the advice of such counsel.
(d) PC-Tel and GDC jointly and severally agree to indemnify and hold
the Escrow Agent harmless for any and all claims, liabilities, costs, payments
and expenses, including without limitation, fees of counsel (who may be selected
by the Escrow Agent) for court actions, for anything done or omitted by it in
the performance of this Escrow Agreement, except as a result of the Escrow
Agent's own negligence, willful misconduct or bad faith.
(e) All evidence of investment of funds in the Escrow Fund (including,
but not limited to, savings account passbooks, certificates, notes and other
similar items) shall be kept in a place
-3-
<PAGE>
of safekeeping at an office of the Escrow Agent, or with a safe deposit company,
including any such safe deposit company owned in whole or in part by the Escrow
Agent or by any affiliate of the Escrow Agent. The Escrow Agent shall keep
accurate accounts of all income and interest earned by the funds in the Escrow
Fund.
(f) All fees and related expenses of the Escrow Agent for its services
hereunder (including fees of its legal counsel) shall be paid by PC-Tel. Such
fees and expenses shall be determined in accordance with the fee schedule
attached hereto as Schedule A or as otherwise provided to PC-Tel.
----------
(g) None of the provisions contained in this Escrow Agreement shall
cause the Escrow Agent to advance its own funds in the performance of its duties
herein described.
8. Successor Escrow Agent. The Escrow Agent, or any successor, may resign
----------------------
at any time upon giving written notice to PC-Tel and GDC thirty (30) days before
such resignation shall take effect. In addition, PC-Tel and GDC may terminate
the Escrow Agent's appointment as escrow agent upon giving written notice
(jointly signed by PC-Tel and GDC) to the Escrow Agent thirty (30) days before
such termination shall take effect. If the Escrow Agent shall resign, be
terminated or be unable to serve, then it shall be succeeded by such bank or
trust company jointly named by PC-Tel and GDC in such thirty (30) day period, or
if no such appointment is made by that time, then by a bank or trust company
appointed by a court of competent jurisdiction upon petition by either PC-Tel or
GDC (in which action the other party shall be afforded a reasonable opportunity
to participate) to appoint a successor escrow agent. The Escrow Agent shall
transfer the Escrow Cash to its successor and shall thereupon be discharged, and
the successor shall thereupon succeed to all of the rights, powers and duties
and shall assume all of the obligations of the Escrow Agent originally named in
this Escrow Agreement.
9. Payment of Taxes. GDC shall be treated as the owner of the Escrow Cash
----------------
for all tax and other purposes while and to the extent that the Escrow Cash is
held by the Escrow Agent. The Escrow Agent shall cause all information
statements to be prepared in accordance with this Section 9 and all parties
shall prepare their tax returns accordingly.
10. Termination.
-----------
(a) Subject to the resolution of pending claims prior to the
expiration of the Escrow Fund ("Pending Claims"), the Escrow Fund shall remain
--------------
in existence during the period of time (the "Escrow Period") between the Closing
-------------
Date and 5:00 p.m., Pacific Standard Time, on June 30, 1999 (the "Escrow Release
--------------
Date").
- ----
(b) Promptly following the Escrow Release Date and upon receipt of
instructions from PC-Tel and GDC, the Escrow Agent shall, to the extent funds
are available therefor in the Escrow Fund and in the following order of
priority:
(i) withhold funds in the Escrow Fund in sufficient amount, or to
the extent funds are available therefor, to satisfy the maximum amount of Losses
estimated by PC-Tel in its written
-4-
<PAGE>
instructions relating to any and all Pending Claims noticed as provided in
Sections 5 and 6 above until resolution of such Pending Claims;
(ii) distribute any funds remaining after the allocations and
distributions provided for in clause (i) above to GDC.
(c) Promptly following the Termination Date and upon receipt of
instructions from GDC, the Escrow Agent shall, to the extent funds are available
therefor in the Escrow Fund, distribute any funds remaining in the Escrow Fund
to GDC.
11. Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed given or delivered if delivered personally or by
express courier, mailed by registered or certified mail (return receipt
requested) or sent by telecopy, confirmation received, to the parties at the
following addresses and telecopy numbers (or at such other address or number for
a party as shall be specified by like notice):
(a) If to PC-Tel to:
PC-Tel, Inc.
70 Rio Robles
San Jose, CA 95134
Attn: Chief Financial Officer
Tel: (408) 965-2100
Fax: (408) 383-0455
with a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304-1050
Attn: Douglas H. Collom, Esq.
Tel: (650) 493-9300
Fax: (650) 493-6811
(b) if to GDC, to:
General DataComm, Inc.
1579 Straits Turnpike
Middlebury, CT 06762
Tel: (203) 574-1118
Fax: (203) 758-8507
Attention: Chief Financial Officer
-5-
<PAGE>
with a copy to:
Weisman Celler Spett & Modlin, P.C.
445 Park Avenue
New York, NY 10022
Attention: Howard S. Modlin, Esq.
Tel: (212) 371-5400
Fax: (212) 371-5407
(c) If to the Escrow Agent:
Greater Bay Trust Company
400 Emerson Street
Palo Alto, California 94301
Attn: Corporate Trust Department
Telecopy No.: 650-473-1326
Telephone No.: 650-614-5720
12. Successors and Assigns. This Escrow Agreement and all action taken
----------------------
hereunder in accordance with its terms shall be binding upon and inure to the
benefit of PC-Tel, its subsidiaries, and their respective successors and
assigns, the Escrow Agent and its successors, and GDC and its successors,
assigns, heirs, executors, administrators and legal representatives.
13. Entire Agreement. This Escrow Agreement constitutes the entire
----------------
agreement among the parties with the Escrow Agent, and among the other parties
with respect to this particular escrow except as set forth under the Purchase
Agreement, and it supersedes all prior or concurrent arrangements or
understandings with respect thereto. The other parties hereby acknowledge and
agree that the Escrow Agent's duties and obligations hereunder are limited, and
that the Escrow Agent shall have no duties or obligations except as clearly
specified herein, and no implied duties or obligations shall be read into this
Escrow Agreement against the Escrow Agent, nor shall the Escrow Agent have any
responsibility for the enforcement of the obligations of any parties hereto.
14. Waivers. No waiver by any party hereto of any condition or of any
-------
breach of any provision of this Escrow Agreement shall be effective unless in
writing. No waiver by any party of any such condition or breach, in any one
instance, shall be deemed to be a further or continuing waiver of any such
condition or breach or a waiver of any other condition or breach of any other
provision contained herein.
15. Counterparts. This Escrow Agreement may be executed in several
------------
counterparts, each of which shall be deemed an original, but such counterparts
shall together constitute one and the same instrument.
16. Governing Law. This Escrow Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of California.
-6-
<PAGE>
17. Consequential Losses. In no event shall the Escrow Agent be liable
--------------------
for special, indirect or consequential loss or damage of any kind whatsoever
(including but not limited to lost profits), even if the Escrow Agent has been
advised of the likelihood of such loss or damage and regardless of the form of
action.
-7-
<PAGE>
IN WITNESS WHEREOF, the parties have executed or caused this Escrow
Agreement to be duly executed as of the day and year first above written.
"PC-TEL" PC-TEL, INC.
By: /s/ Peter Chen
--------------------------------------------
Title: President & CEO
-----------------------------------------
"GDC" GENERAL DATACOMM, INC.
By: /s/ FR Crow
--------------------------------------------
Title: Vice President
-----------------------------------------
"ESCROW AGENT" GREATER BAY TRUST COMPANY
By: /s/ Hall Palmer
--------------------------------------------
Title: Hall Palmer
-----------------------------------------
Executive Vice President
and Senior Trust Officer
<PAGE>
SCHEDULE A
----------
ESCROW AGENT FEE SCHEDULE
The Escrow Fee shall be $5,000.
<PAGE>
EXHIBIT 10.12
BONUS POOL DISBURSEMENT AGREEMENT
THIS BONUS POOL DISBURSEMENT AGREEMENT (the "Bonus Disbursement Agreement")
----------------------------
is made and entered into as of December 22, 1998 by and among PC-Tel, Inc., a
Delaware corporation ("PC-Tel" or the "Company"), General DataComm, Inc., a
------ -------
Delaware corporation ("GDC"), and Greater Bay Trust Company, as escrow agent
---
(the "Escrow Agent") and each of the Employees (as defined below).
------------
RECITALS
--------
A. PC-Tel, a subsidiary of PC-Tel and GDC are parties to that certain
Asset Purchase Agreement dated as of December 22, 1998 (the "Purchase
--------
Agreement"), providing for the purchase by PC-Tel of substantially all of the
- ---------
assets of Technology Alliance Group, a division of GDC. Capitalized terms used
but not defined herein shall have the meanings set forth in the Purchase
Agreement.
B. Pursuant to Section 2.8(b) of the Purchase Agreement, PC-Tel and its
subsidiary shall deposit with the Escrow Agent the sum of Two Million, Five
Hundred Thousand Dollars ($2,500,000) (the "Escrow Amount") into an escrow fund
(the "Escrow Fund") as an acquisition bonus and employee retention program for
those former employees of GDC who are continuing as employees of PC-Tel
following completion of the Asset Purchase, as set forth in Schedule A attached
----------
hereto (individually, an "Employee" and collectively, the "Employees"). Each
Employee has entered into an Acquisition Bonus Agreement with the Company, a
copy of which has been provided to the Escrow Agent (the "Bonus Agreement"),
which sets forth the terms and conditions for the disbursement of the Escrow
Fund. Capitalized terms used but not defined herein shall have the meanings set
forth in the Bonus Agreement.
C. This Escrow Agreement sets forth the basis on which the Escrow Agent
will receive and hold, and make disbursements from, the Escrow Fund and the
duties for which the Escrow Agent will be responsible.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt of which is hereby acknowledged, the parties
agree as follows:
1. Appointment. PC-Tel, GDC and each of the Employees hereby appoint the
-----------
Escrow Agent as escrow agent to serve in such capacity in accordance with the
terms and conditions set forth in this Escrow Agreement. The Escrow Agent
hereby accepts such appointment.
2. Asset Purchase Agreement. The Escrow Agent acknowledges receipt of a
------------------------
copy of the Purchase Agreement; however, except for reference thereto for
definitions of certain words or terms not defined herein, the Escrow Agent is
not charged with any duties or responsibilities with respect to the Purchase
Agreement.
3. Escrow Cash. At the Closing, as partial payment of the Purchase Price
-----------
under the Purchase Agreement, PC-Tel and a subsidiary of PC-Tel shall deposit
the Escrow Cash directly with the
<PAGE>
Escrow Agent, the receipt of which shall be acknowledged, and the same accepted,
by the Escrow Agent as escrow agent hereunder. The Escrow Cash shall be held in
trust by the Escrow Agent and shall be invested, promptly upon receipt and
pending disbursement in securities and investments as may be directed by each of
the Employees through self-directed investments to the extent permitted by the
Escrow Agent. Schedule B attached hereto sets forth a current list of those
----------
investment vehicles which will be available through the Escrow Agent. The Escrow
Agent shall establish and separately administer a discrete account for each
Employee in respect of that portion of the Escrow Fund which is allocable to
such Employee and which is identified in each Employee's Bonus Agreement (the
"Allocable Amount"). The Escrow Fund, as such term is used herein, shall include
the aggregate of the Allocable Amounts of all the Employees comprising the
Escrow Cash; the separate accounts holding the Allocable Amounts shall each be
increased by the amount of any appreciation, interest or other property which
may result from such Employee-directed investment, less any disbursements or
investment-related losses.
4. Interest. The parties acknowledge that payment of any appreciation,
--------
interest or other property earned on the funds invested in this escrow will be
subject to backup withholding penalties unless either a properly completed
Internal Revenue Service Form W8 or W9 certification is submitted to Escrow
Agent.
5. Claims Upon Escrow Fund.
-----------------------
(a) Within five days of each Payment Date, PC-Tel shall notify GDC,
the Escrow Agent and each Employee in writing of the amount of the Bonus to be
paid to each Employee in accordance with the terms of the Bonus Agreement. Such
instruction shall provide for the deduction of any federal, state and other
withholding taxes that may be required to be deducted in connection with such
payment. Upon receipt of such instruction, the Escrow Agent shall promptly
provide for the disbursement of the Escrow Fund to each of the Employees in the
amounts specified in the instruction.
(b) In the event of the termination of the employment of any Employee
with PC-Tel for any reason prior to the third anniversary of the Closing, within
not more than thirty days of such event, PC-Tel shall notify GDC, the Escrow
Agent and the affected Employee in writing of the event of such termination and
any instruction for the disbursement of a Bonus payment (net of any applicable
withholding taxes) in accordance with the terms of the Bonus Agreement. In the
event the instruction provides for the disbursement of a Bonus payment to the
affected Employee, such disbursement shall be made as soon as practicable
following receipt of the instruction. In the event the instruction provides for
the remittance of a portion of the Escrow Fund to GDC, no withholding shall be
required and the required remittance shall be made as promptly as practicable
following receipt of both the instruction of PC-Tel and the written consent of
the affected Employee.
(c) In the event PC-Tel shall fail to provide the required instruction
within the time period specified in Section 5(a) or (b) above, the affected
Employee or GDC as applicable may provide the required instruction to the Escrow
Agent; provided, however, no disbursement of funds may be made without the
written consent of PC-Tel.
-2-
<PAGE>
(d) In the event there is any Allocable Amount which for any reason
remains undisbursed to the Employees in accordance with the terms hereof upon
the expiration of this Agreement, such Allocable Amount shall be remitted to
GDC.
6. Escrow Provisions.
-----------------
(a) In acting in accordance with the provisions of this Agreement, the
Escrow Agent may rely and shall be protected in acting or refraining from acting
upon any written notice, request, waiver, consent, receipt or other paper or
document from any Employee or any duly authorized officer or agent of PC-Tel,
not only as to its due execution and the validity and effectiveness of its
provisions, but also as to the truth of any information therein contained, that
the Escrow Agent in good faith believes to be genuine and as to which the Escrow
Agent shall have no actual notice of invalidity, lack of authority or other
deficiency.
(b) The Escrow Agent shall not be liable for any error of judgment, or
for any act done or step taken or omitted by it in good faith, or for any
mistake of fact or law, or for anything which it may do or refrain from doing in
connection therewith, except for any liability arising from its own negligence,
willful misconduct or bad faith.
(c) The Escrow Agent shall be entitled to consult with competent and
responsible counsel of its choice with respect to the interpretation of the
provisions hereof, and any other legal matters relating hereto, and shall be
fully protected in taking any action or omitting to take any action in good
faith in accordance with the advice of such counsel.
(d) PC-Tel agrees to indemnify and hold the Escrow Agent harmless for
any and all claims, liabilities, costs, payments and expenses, including without
limitation, fees of counsel (who may be selected by the Escrow Agent) for court
actions, for anything done or omitted by it in the performance of this Escrow
Agreement, except as a result of the Escrow Agent's own negligence, willful
misconduct or bad faith.
(e) All evidence of investment of funds in the Escrow Fund (including,
but not limited to, savings account passbooks, certificates, notes and other
similar items) shall be kept in a place of safekeeping at an office of the
Escrow Agent, or with a safe deposit company, including any such safe deposit
company owned in whole or in part by the Escrow Agent or by any affiliate of the
Escrow Agent. The Escrow Agent shall keep accurate accounts of all income and
interest earned by the funds in the Escrow Fund.
(f) All fees and related expenses of the Escrow Agent for its services
hereunder (including fees of its legal counsel) shall be paid by PC-Tel. Such
fees and expenses shall be determined in accordance with the fee schedule
attached hereto as Schedule C or as otherwise provided to PC-Tel.
----------
(g) None of the provisions contained in this Escrow Agreement shall
cause the Escrow Agent to advance its own funds in the performance of its duties
herein described.
-3-
<PAGE>
7. Successor Escrow Agent. The Escrow Agent, or any successor, may
----------------------
resign at any time upon giving written notice to PC-Tel, GDC and each of the
Employees thirty (30) days before such resignation shall take effect. In
addition, PC-Tel and GDC may terminate the Escrow Agent's appointment as escrow
agent upon giving written notice to the Escrow Agent and each of the Employees
thirty (30) days before such termination shall take effect. If the Escrow Agent
shall resign, be terminated or be unable to serve, then it shall be succeeded by
such bank or trust company named by PC-Tel and GDC in such thirty (30) day
period, or if no such appointment is made by that time, then by a bank or trust
company appointed by a court of competent jurisdiction upon petition by PC-Tel
to appoint a successor escrow agent. The Escrow Agent shall transfer the Escrow
Cash to its successor and shall thereupon be discharged, and the successor shall
thereupon succeed to all of the rights, powers and duties and shall assume all
of the obligations of the Escrow Agent originally named in this Escrow
Agreement.
8. Payment of Taxes. Each of the Employees shall be treated as the owner
----------------
of the Allocable Amount owing to such Employee for all tax purposes, but only
upon disbursement of the Allocable Amount to such Employee. Escrow Agent shall
cause all information statements to be prepared in accordance with this Section
8 and all parties shall prepare their tax returns accordingly.
9. Expiration. Unless extended in writing by the parties hereto, the
----------
escrow provided for in this Escrow Agreement shall expire upon written notice
from PC-Tel and GDC.
10. Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed given or delivered if delivered personally or by
express courier, mailed by registered or certified mail (return receipt
requested) or sent by telecopy, confirmation received, to the parties at the
following addresses and telecopy numbers (or at such other address or number for
a party as shall be specified by like notice):
(a) If to PC-Tel to:
PC-Tel, Inc.
70 Rio Robles
San Jose, CA 95134
Attn: Chief Financial Officer
Tel: (408) 965-2100
Fax: (408) 383-0455
(b) If to GDC to:
General DataComm, Inc.
1579 Straits Turnpike
Middlebury, CT 06762
Attn: Chief Financial Officer
Tel: (203) 574-1118
Fax: (203) 758-8507
-4-
<PAGE>
(c) if to an Employee, at the Employee's address as set forth opposite
such Employees name in Exhibit A to the Bonus Agreement.
11. Nonassignability. Notwithstanding anything to the contrary contained
----------------
herein, no Allocable Amount or any beneficial interest therein may be sold,
assigned or otherwise transferred, including by operation of law, by any
Employee or be taken or reached by any legal or equitable process in
satisfaction of any debt or other liability of such Employee. Any such
attempted transfer in violation of this Section shall be null and void.
12. Successors and Assigns. This Escrow Agreement and all action taken
----------------------
hereunder in accordance with its terms shall be binding upon and inure to the
benefit of PC-Tel, its subsidiaries, GDC and their respective successors and
assigns, the Escrow Agent and its successors, and each Employee and such
Employee's successors, assigns, heirs, executors, administrators and legal
representatives.
13. Entire Agreement. This Escrow Agreement constitutes the entire
----------------
Agreement among the parties with the Escrow Agent, and among the other parties
with respect to this particular escrow except as set forth under the Purchase
Agreement, and it supersedes all prior or concurrent arrangements or
understandings with respect thereto. The other parties hereby acknowledge and
agree that the Escrow Agent's duties and obligations hereunder are limited, and
that the Escrow Agent shall have no duties or obligations except as clearly
specified herein, and no implied duties or obligations shall be read into this
Escrow Agreement against the Escrow Agent, nor shall the Escrow Agent have any
responsibility for the enforcement of the obligations of any parties hereto.
14. Waivers. No waiver by any party hereto of any condition or of any
-------
breach of any provision of this Escrow Agreement shall be effective unless in
writing. No waiver by any party of any such condition or breach, in any one
instance, shall be deemed to be a further or continuing waiver of any such
condition or breach or a waiver of any other condition or breach of any other
provision contained herein.
15. Counterparts. This Escrow Agreement may be executed in several
------------
counterparts, each of which shall be deemed an original, but such counterparts
shall together constitute one and the same instrument.
16. Governing Law. This Escrow Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of California. Any dispute
between PC-Tel and any Employee arising hereunder shall be resolved by
arbitration in accordance with the terms of the Employee's employment letter
with the Company.
17. Consequential Losses. In no event shall the Escrow Agent be liable
--------------------
for special, indirect or consequential loss or damage of any kind whatsoever
(including but not limited to lost profits), even if the Escrow Agent has been
advised of the likelihood of such loss or damage and regardless of the form of
action.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties have executed or caused this Bonus Pool
Disbursement Agreement to be duly executed as of the day and year first above
written.
"PC-TEL" PC-TEL, INC.
By:
------------------------------------------
Title:
---------------------------------------
"ESCROW AGENT" GREATER BAY TRUST COMPANY
By:
------------------------------------------
Title:
---------------------------------------
"EMPLOYEE"
---------------------------------------------
(signature)
---------------------------------------------
(print name)
"GDC" GENERAL DATACOMM, INC.
By:
------------------------------------------
Title:
---------------------------------------
<PAGE>
SCHEDULE A
----------
LIST OF EMPLOYEES
Emil Ghelberg
William Conway
Tat Ho
Yuri Goldstein
Caroline Delphia
Brian Hannigan
James Kay
Sandra Knobloch
Val Maizenberg
Khalid Syed
Vitaly Drucker
Terry Engel
William Hanna
David Moon
Yuriy Okunev
Michael Richardson
Qin Wang
Eldad Zeira
<PAGE>
SCHEDULE B
----------
LIST OF INVESTMENT VEHICLES
<PAGE>
SCHEDULE C
----------
ESCROW AGENT FEE SCHEDULE
For each individual Employee, a $300 annual fee shall be charged. For each
transaction performed on behalf of the Employee, a $20 fee shall be charged.
<PAGE>
EXHIBIT 10.13
PC-TEL, INC.
ACQUISITION BONUS AGREEMENT
This Acquisition Bonus Agreement is entered into as of December 22, 1998
between PC-Tel, Inc., a Delaware corporation (the "Company") and _____, a former
employee of the Technology Alliance Group of General DataComm, Inc., a Delaware
corporation ("GDC"), who is continuing as an employee of the Company (the
"Employee").
RECITALS
--------
A. Pursuant to an employment offer letter between the Employee and the
Company to which this Agreement is attached (the "Employment Letter"), the
Employee has agreed to become an employee of the Company in connection with the
transactions contemplated by the Asset Purchase Agreement dated as of December
22, 1998 between the Company, a subsidiary of the Company and GDC (the "Purchase
Agreement").
B. Under the terms of the Employee's employment arrangements with GDC,
the Employee is entitled to participate in a defined portion of any purchase
consideration received by GDC in connection with the sale of the assets of the
Technology Alliance Group.
C. The Company and the Employee desire to provide for a cash retention
arrangement substantially in accordance with the terms of the Employee's
arrangements with GDC, on the terms and conditions set forth below.
The parties therefore agree as follows, effective upon the commencement of
the Employee's employment with the Company as contemplated by the Purchase
Agreement.
1. Term of Agreement. This Agreement shall become effective only upon
-----------------
completion of the transactions contemplated under the Purchase Agreement, and
shall remain in effect until the earlier to occur of the disbursement to the
Employee of all funds to which the Employee is entitled hereunder, or the third
anniversary of the closing date of the transactions contemplated by the Purchase
Agreement.
2. Bonus Pool. A bonus pool in the aggregate amount of up to $2,500,000
----------
(depending on the number of Technology Alliance Group employees who elect to
continue as employees of the Company) has been established using a portion of
the purchase proceeds payable by the Company under the Purchase Agreement and
has been deposited with Greater Bay Trust Company, Palo Alto, California (the
"Agent"). Of this pool, the sum of $_____ has been set aside for the benefit of
the Employee (the "Bonus"). The Bonus shall be held in trust by the Agent and
shall be invested, promptly upon receipt and pending disbursement in accordance
with this Agreement and the Bonus Pool Disbursement Agreement between the
Company, GDC, the Employee and the Agent dated as of December 22), in securities
and investments as directed by the Employee through self-directed investment to
the extent permitted by the Agent. For purposes of this Agreement, "Bonus" as
used
<PAGE>
herein shall be deemed to include any appreciation, interest or other property
which may result from such Employee-directed investment, less any disbursements
or investment-related losses. All risk of loss with respect to the investment
of the Bonus shall be borne entirely by the employee.
3. Participation. The right of the Employee to participate in and
-------------
receive the Bonus may not be terminated except as provided in this Agreement.
4. Schedule of Payments. Subject to the provisions of the Agreement, the
--------------------
Bonus payable to the Employee shall be paid by the Agent by check, delivered to
the Employee at the Company's location in Waterbury, Connecticut, as soon as
practicable following each of the dates (measured from the closing date of the
Purchase Agreement) (the "Payment Dates") and in the fractional amounts
(expressed as a percentage of the total Bonus remaining as of any Payment Date)
as follows:
Date Percentage Amount
---- -----------------
Closing 15% of the remaining Bonus
1st Anniversary 30% of the remaining Bonus
2nd Anniversary 50% of the remaining Bonus
3rd Anniversary 100% of the remaining Bonus
5. Employment Condition. The distribution of the Bonus to the Employee
--------------------
is contingent upon the Employee's continuation as an employee of the Company on
each Payment Date as provided above, subject to the following:
(i) In the event the Employee's employment by the Company has
been terminated on or before any Payment Date as a result of the Employee's
voluntary resignation or as a result of termination for Cause (as defined
below), then the entire remaining Bonus shall be remitted promptly by the Agent
to GDC unless the Employee shall dispute the Company's stated basis for
termination, in which event no remittance shall be made to GDC until such
dispute has been resolved and the Employee has indicated in writing his or her
consent to such resolution.
(ii) In the event the Employee's employment by the Company has
been terminated (whether by the Employee or the Company) as a result of a
termination for Good Reason (as defined below) or as a result of disability (as
defined in the Company's then existing employment policies) or death, then the
full remaining amount of the Employee's Bonus shall immediately vest and be paid
by the Agent to the Employee or the Employee's estate.
(a) Termination for Cause. For purposes of this Agreement only, Cause
---------------------
shall mean (i) a material breach by the Employee of any obligation or covenant
required to be performed or observed by the Employee pursuant to this Agreement,
the Employment Letter or the Proprietary
-2-
<PAGE>
Information and Inventions Agreement which the Company requires of its employees
as a condition of employment; (ii) any violation by the Employee of any
statutory or common law duty of loyalty or fiduciary duty to the Company; (iii)
the refusal or continued failure of the Employee to perform the Employee's
duties under the Employment Letter or the Proprietary Information and Inventions
Agreement; or (iv) the personal or professional conduct of the Employee which,
in the reasonable and good faith judgment of the Company, injures or tends to
injure the Company's reputation or otherwise adversely affects the Company's
interests. The Employee shall have a one time right to cure any breach of clause
(i) or (iii) of this Agreement within ten days following written notice of
breach from the Company.
(b) Termination for Good Reason. The Employee shall be deemed
---------------------------
terminated for Good Reason for purposes of this Agreement in the event (i) the
Employee is asked to relocate to a business location more than 20 miles from the
Company's facility in Waterbury, Connecticut and more than 50 miles from the
Employee's existing home, or (ii) the Employee's employment by the Company is
terminated by the Company other than for Cause (and such termination does not
result from the Employee's voluntary resignation or from death or disability).
6. Withholding. Distributions to the Employee pursuant to this Agreement
-----------
shall be subject to all applicable federal and state tax and withholding
requirements.
7. Employment. The Employee's employment with the Company is strictly
----------
"at will" and no provision of this Agreement shall be construed as conferring on
the Employee the right to continue as an employee of the Company.
8. Governing Law. This Agreement shall be governed by the laws of the
-------------
State of California.
9. Entire Agreement. This Agreement, together with the Employment Letter
----------------
and the Acquisition Bonus Disbursement Agreement, constitutes the entire
agreement between the parties on this subject matter and supersedes any prior
agreements, arrangements or understandings that may have existed prior to the
date of this Agreement between the Employee and GDC. This Agreement may be
amended only upon execution of a written agreement between the Employee and the
Company.
10. Counterpart Signatures. This Agreement may be executed in
-----------------------
counterpart, and all counterparts together shall constitute a single agreement.
11. Arbitration. Any dispute between the parties arising hereunder shall
-----------
be resolved by arbitration in accordance with the terms of the Employment Letter
between the Company and the Employee.
-3-
<PAGE>
This Agreement has been executed by the parties hereto as of the date set forth
above.
"COMPANY" PC-Tel, Inc.,
a Delaware corporation
By:
-------------------------------------
Title:
----------------------------------
"EMPLOYEE"
----------------------------------------
(signature)
----------------------------------------
(print name)
-4-
<PAGE>
Exhibit 10.14
DIRECT SALES AGENT AGREEMENT
This Agreement is made and entered into this 4th day of December 1998 by and
between Kawasaki LSI U.S.A., Inc., a California corporation having its principal
place of business at 2570 North First Street, Suite 301, San Jose, CA 95131
("KLSI") and PC-TEL Global Technologies Ltd. with its office at ( P.O. Box 258 )
First Home Tower, British American Centre, George Town, Grand Cayman, Cayman
Island, British West Indies ("Agent").
In consideration of the mutual undertakings and agreements contained herein, the
parties hereto agree as follows:
1. APPOINTMENT AND ACCEPTANCE
- -----------------------------
1.1 Subject to the terms and conditions herein set forth, KLSI hereby appoints
Agent as its independent non-exclusive sales agent to solicit orders for and to
promote the sales of those products listed in Exhibit A ("Products") in the
geographic territory specified in Exhibit B ("Territory").
1.2 Agent hereby accepts such appointments and agrees to diligently solicit
orders for and promote the sales of the Products. Agent agrees to act as an
independent entity and as such agrees to conduct all of its business in its own
name as an independent contractor.
2. SOLICITATION AND ACCEPTANCE OF ORDERS
- ----------------------------------------
2.1 KLSI may, in its sole discretion, accept or reject any order solicited by
Agent or otherwise procured. No orders shall be considered binding or booked
unless and until accepted in writing by KLSI. Agent has no right, power or
authority, expressed or implied, to accept any order as binding upon KLSI and
Agent shall so inform to all its customers.
2.2 All sales shall be at prices and upon such terms and conditions as are
established by Agent and negotiated with customers by Agent. Agent shall not
accept orders in its own name.
2.3 All orders in connection with the Products shall be placed with KLSI through
Agent. Shipment of the Products from KLSI shall be made to Agent, and Agent
shall ship the Products to the customers at its own expense on behalf of KLSI.
All invoices in connection with the Products shall be rendered by Agent to
customers on behalf of KLSI. It is agreed that Agent shall assume the
responsibility to make any collection of any unpaid invoices issued to the
customers on behalf of KLSI.
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3. COMPENSATION
- ---------------
3.1 The sole compensation to which Agent shall be entitled for any service
rendered under this Agreement shall be service fees to be paid in accordance
with the provisions of this section.
3.2 Service fees shall be earned for the orders accepted by KLSI hereunder upon
the delivery to the customers by Agent. Such service fees shall be computed
based on the following formula:
{Unit Invoice Price of the Products (as billed to the customers) - Unit
Price to be mutually agreed to by and between KLSI and Agent} X Quantity
3.3 Agent shall pay the unit price mutually agreed to by and between KLSI and
Agent as mentioned in the above formula as soon as Agent collects payments from
the customers, provided, however, that payment terms from Agent to KLSI shall
not exceed sixty (60) calendar days after delivery of the Products to Agent, but
no event prior to payment to Agent.
4. RESPONSIBILITY OF AGENT
- --------------------------
Throughout the term of this Agreement and any extension thereof, Agent shall:
4.1 With the best of its skill, knowledge and attention, exert its best efforts
and devote such time as is necessary to promote the sales of the Products in the
Territory by all means at its disposal, including personal visits and
demonstrations;
4.2 Provide and maintain at its own expense a proper and sufficient sales office
and sales organization within the Territory. Agent shall not appoint subagents
to promote and maintain sales of the Products in the Territory without the prior
written consent of KLSI in each instance;
4.3 Obtain any information legally obtained concerning activities of competitors
in terms of the Products in the Territory, including such competitors'
literature and price information;
4.4 Maintain a current mailing list of prospective customers in the Territory;
4.5 Implement and carry through promotional and merchandising campaigns
including, in particular, mailing at its own expense promotional literature to
prospective customers;
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4.6 Display, at its own expense, Products at appropriate trade shows in the
Territory;
4.7 Avoid all circumstances and actions which would place Agent in a position of
divided loyalty or conflict of interest with respect to the obligations
undertaken under this Agreement for promoting the sale and use of the Products
manufactured or offered for sale by KLSI for which Agent is authorized to
solicit orders pursuant to the terms of this Agreement;
4.8 Quote prices, terms and conditions on the Products and make representations
with respect to the Products and their capability and quality;
4.9 Identify prospective customers and appropriate design-in opportunities for
the Products;
4.10 Qualify prospects, their ability to pay for the Products, and identify the
business and technical requirements that may lead to booking an order;
4.11 Transmit any purchase orders or change orders regarding the Products to
KLSI;
4.12 Provide KLSI with information regarding such as periodical forecasts of
anticipated orders from customers; and
4.13 Provide customers with technical services before and after sales.
4.14 Bear sole responsibility for any warranty claims from Agent's customers
regardless of billing to Agent's customers under KLSI invoices, provided,
however, that this provision shall not relieve KLSI of its warranty obligation
directly to Agent.
5. OBLIGATION OF KLSI
- ---------------------
Throughout the term of this Agreement and any extension thereof, KLSI shall:
5.1 Provide Agent with commercial information for production capacity and turn
around time;
5.2 Manufacture the Products to specification and ship the Products to Agent;
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5.3 Provide Agent with technical support as reasonably requested;
5.4 Promptly notify Agent of all shipments, invoices, and changes in delivery
schedule.
6. TERM AND TERMINATION
- -----------------------
6.1 This Agreement shall commence as of the date first set forth hereinabove and
shall remain in effect for two(2) years, unless terminated earlier in accordance
with this Agreement. Thereafter this Agreement will be automatically renewed
each subsequent year for additional one (1) year, unless written notice of
termination is sent by either party to the other at least sixty (60) days prior
to the end of the initial term or any renewal term hereof.
6.2 Either party hereto may terminate this Agreement with or without cause at
any time with not less than sixty (60) days prior written notice to the other
party. The effective date of termination shall be the date specified in said
notice, provided, that it is not less than sixty (60) days from the date of
mailing, as aforesaid.
6.3 This Agreement shall terminate by its own force without notice in the event
that either party becomes insolvent, or a petition of bankruptcy is filed
designating either party as a bankrupt, or either party is dissolved or adjudged
bankrupt, or becomes involved in any reorganization or arrangement or insolvency
proceeding in accordance with any law for the relief of debtors, or any receiver
is appointed for either party, or either party makes an assignment for the
benefit of creditors.
6.4 If either party shall fail to perform properly the terms and conditions of
this Agreement and the defaulting party has failed to cure the breach or default
within thirty (30) days after written notice, the aggrieved party may terminate
this Agreement immediately upon written notice given at any time after the end
of said thirty (30) day period. However, if the nature of the breach or default
is such that it cannot be remedied, this Agreement may be terminated immediately
upon written notice to the defaulting party.
6.5 The parties recognize that termination of this Agreement in accordance with
its terms or its failure to be renewed or extended may result in loss or damage
to either party, but hereby expressly agree that neither party shall be liable
to the other party by reason of any loss or damage resulting from such
termination or expiration ( including, without limitation, any loss of
prospective profits or any damage occasioned by loss of goodwill ) or by reason
of any expenditures, investments, leases or
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commitments made in anticipation of the continuance of this Agreement.
7. NON-COMPETITION
- ------------------
Agent covenants and agrees that during the term of this Agreement, Agent shall
not represent any products or services, directly or indirectly competitive with
the Products in the Territory.
8. CONFIDENTIALITY
- ------------------
8.1 Each party acknowledges that by reason of its relationship to the other
hereunder, it will access to certain information and materials that are
confidential and of substantial value to the other, which value would be
impaired if such information were disclosed to third parties. Each party agrees
that it shall not use in any way for its account or the account of any third
party, nor disclose to any third party any Confidential Information revealed to
it by the other. Each party shall take every necessary precaution to protect the
confidence of all Confidential Information. "Confidential Information" hereunder
consists of (i) any information designated as confidential, (ii) any trade
secrets related to the Products and (iii) any information relating to the
other's product plans, product designs, product costs, finances, business plans,
marketing plans, business opportunities, personnel, research, development and
know-how. These restrictions shall survive the termination or expiration of this
Agreement for any reasons five (5) years after the termination or expiration.
8.2 The foregoing restrictions shall not apply to information that (i) has
become publicly known through no breach by the other party of the
confidentiality obligations hereunder or (ii) has been rightfully received from
a third party authorized to make such disclosure without restriction.
8.3 Any breach of the restrictions contained in this section 8 is a breach of
this Agreement which will cause irreparable harm to the other party entitling
the other party to injunctive relief in addition to all legal remedies.
9. LIMITATION OF LIABILITY
- --------------------------
LIABILITIES OF BOTH PARTIES ARISING OUT OF THIS AGREEMENT OR ITS TERMINATION OR
EXPIRATION SHALL BE LIMITED TO THE AGGREGATE SERVICE FEES PAID OR PAYABLE
HEREUNDER. IN NO EVENT EITHER KLSI OR AGENT SHALL BE LIABLE TO THE OTHER PARTY
OR ANY THIRD PARTY FOR ANY SPECIAL, CONSEQUENTIAL, INCIDENTAL, OR INDIRECT
DAMAGES, HOWEVER CAUSED, OR ON ANY THEORY OF LIABILITY ARISING OUT OF THIS
AGREEMENT OR ITS
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TERMINATION OR EXPIRATION. THIS LIMITATION SHALL APPLY NOTWITHSTANDING ANY
FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY.
10. RELATIONSHIP
- ----------------
Agent shall in all matters relating to this Agreement act as an independent
contractor, in all matters, neither Agent nor its employees are, or shall act
as, employees of KLSI-within the meaning or application of any federal or state
unemployment insurance laws, old age benefit laws, social security laws,
worker's compensation or industrial accident laws, or under any other laws or
regulations which would impute any obligation or liability to KLSI by reason of
any employment relationship. Agent will reimburse KLSI for any liabilities or
obligations imposed or attempted to be imposed upon KLSI by any one or more such
laws or regulations with respect to employees of Agent in performance of this
Agreement. Agent shall have no authority to assume or create any obligation,
express or implied, on behalf of KLSI or to represent KLSI as an agent, partner,
employee or in any other capacity other than as herein set forth
11. INDEMINITY
- --------------
Either KLSI or Agent shall indemnify the other Party for any and all damages,
costs or expenses the other Party may incur by reason of any misfeasance or
nonfeasance ( including, without limitation, intellectual property right
infringement or defective product ) on the part of either KLSI or Agent
including, without limitation, the making of unauthorized representations and
warranties to any third party.
12. EXPENSES
- ------------
Agent shall pay all costs of conducting its sales agent business hereunder,
including commissions or other compensation to salesmen employed or appointed by
Agent.
13. GENERAL PROVISIONS
- ----------------------
13.1 This Agreement shall be governed by and construed under the laws of the
State of California without reference to the conflict of laws.
13.2 In case of any dispute or claim arising out of or in connection with this
Agreement or the performance, breach or termination thereof, the Parties shall
meet together in view of reaching an amicable settlement. If the Parties fail to
reach an amicable settlement, then such dispute or claim shall
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be finally settled by binding arbitration which shall take place in the County
of Santa Clara under the rules of the American Arbitration Association. Judgment
on the award rendered by the arbitrators may be entered in any court having
jurisdiction thereof.
13.3 No modification of or amendment to this Agreement, nor any waiver of any
rights under this Agreement, shall be effective unless in writing signed by the
party to be charged, and the waiver of any breach or default shall not
constitute a waiver of any other right hereunder or any subsequent breach or
default.
13.4 Any notice required or permitted by this Agreement shall be deemed given if
sent by registered or certified mail, postage prepaid, addressed to the other
party at the address shown at the beginning of this Agreement or at other
address for which such party gives notice hereunder. Delivery shall be deemed
effective three (3) days after deposit with postal authorities.
13.5 Non-performance of either party shall be excused to the extent that
performance is rendered impossible by strike, fire, flood, governmental acts,
orders or restrictions, or any other reason where failure to perform is beyond
the control and not caused by the negligence of the non-performing party.
13.6 Any assignment permitted hereunder shall be subject to the written consent
of the assignee to all the terms and conditions of this Agreement. Neither party
shall assign, transfer or otherwise dispose of this Agreement in part or in
whole or any right or obligation hereunder to any individual, firm or
corporation without the prior written consent of the other party; except that,
in all events, either party may, after giving prior written notice, assign this
Agreement to any successor in interest to its assets and business related to
this Agreement other than a successor in interest which is a direct competitor
of the non-assigning party.
13.7 This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original.
13.8 In the event that it is determined by a court of competent jurisdiction as
part of a final non- appealable ruling, government action or binding
arbitration, that any provision of this Agreement (or part thereof is invalid,
illegal, or otherwise unenforceable, such provision shall be enforced as nearly
as possible in accordance with the stated intention of the parties, while the
remainder of this Agreement shall remain in full force and effect and bind
parties according to its terms. To the extent of
7
<PAGE>
any provision (or part thereof) cannot be enforced in accordance with the stated
intentions of the parties, such provisions (or part thereof) shall be deemed not
to be part of this Agreement.
13.9 This Agreement contains the entire understanding of the parties and
supersedes any other oral or written agreements concerning the subject matter
herein.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement.
Kawasaki LSI U.S.A., Inc. PC-TEL Global Technologies Ltd.
/s/ Masanori Kodama /s/ Peter Chen
- ----------------------------- -----------------------------
Masanori Kodama Peter Chen
President President & CEO
PC-TEL, Inc. hereby guarantees the performance of PC-TEL Global Technologies
Ltd.'s obligation hereunder, and If PC-TEL Global Technologies Ltd. fails to
make any payments hereunder, PC-TEL, Inc. agrees to make payments on behalf of
PC-TEL Global Technologies Ltd.
PC-TEL, Inc.
/s/ Peter Chen
- -----------------------------
Peter Chen
President & CEO
8
<PAGE>
EXHIBIT A
---------
Products
ASICs
EXHIBIT B
---------
Territory
All Over the World
9
<PAGE>
Exhibit 10.15
PCtel, Inc/Silicon Labs
Volume Purchase Agreement
1. ACCEPTANCE: EXCEPT AS SET FORTH ON THE ATTACHED ADDENDUM WHICH SHALL TAKE
PRECEDENCE IN THE EVENT OF ANY CONFLICT, THE TERMS OF SALE CONTAINED HEREIN
STATE THE EXCLUSIVE TERMS APPLICABLE TO SALES BY SILICON LABORATORIES INC. (THE
"SELLER") TO PC-TEL Global, INC. (THE "BUYER") HEREUNDER, NOTWITHSTANDING ANY
DIFFERENT OR ADDITIONAL TERMS IN BUYER'S PURCHASE ORDER, TO WHICH SELLER HEREBY
OBJECTS. SELLER'S FAILURE TO OBJECT TO PROVISIONS CONTAINED IN ANY COMMUNICATION
FROM BUYER SHALL NOT BE DEEMED A WAIVER OF THE CONDITIONS OF THIS ACCEPTANCE.
ANY CHANGES IN THE TERMS CONTAINED HEREIN MUST SPECIFICALLY BE AGREED TO IN
WRITING BY AN OFFICER OF THE SELLER BEFORE BECOMING BINDING ON EITHER THE SELLER
OR THE BUYER. All orders or contracts must be approved and accepted by the
Seller at its home office. These terms shall be applicable whether or not they
are attached to or enclosed with the products to be sold or sold hereunder. No
Seller prices shall be subject to audit.
2. DURATION:
This Agreement shall become effective on June 1st, 1998 ("Effective
Date") and continue in effect for a term of two (2) years.
3. PAYMENT:
(a) Unless otherwise agreed by Seller in writing, all invoices are due and
payable thirty (30) days from date of invoice. No discounts are authorized.
Shipments, deliveries, and performance of work shall at all times be subject to
the approval of the Seller's credit department and the Seller may at any time
decline to make any shipments or deliveries or perform any work except upon
receipt of payment or upon terms and conditions or security satisfactory to such
department.
(b) If, in the sole judgement of the Seller, the financial condition or
payment history of the Buyer at any time does not justify continuation of
production or shipment on the terms of payment originally specified, the Seller
may require full or partial payment in advance and, in the event of the
bankruptcy or insolvency of the Buyer under the bankruptcy or insolvency laws,
the Seller shall be entitled to cancel any order then outstanding and shall
receive reimbursements for its cancellation charges.
(c) Each shipment shall be considered a separate and independent
transaction, and payment therefor shall be made accordingly. If shipments are
delayed by the Buyer, payments shall become due on the date when the Seller is
prepared to make shipment. If the work covered by the purchase order is delayed
by the Buyer, payments shall be made based on the purchase price and the
percentage of completion. Products held for the Buyer shall be at the risk and
expense of the Buyer.
4. TAXES: Unless otherwise provided herein, the amount of any present or
future sales, use, revenue, excise or other taxes, fees, or other charges of any
nature, imposed by any public authority (national, state, local or other)
applicable to the products covered by any order, or the manufacture or sales
thereof shall be added to the purchase price and shall be paid by the Buyer, or
in lieu thereof, prior to shipment the Buyer shall provide the Seller with a
tax exemption certificate acceptable to the taxing authority.
5. PRICES AND RELEASES:
(a) All prices are quoted in U.S. dollars.
(b) SI Labs agrees to provide pricing for all similar products to PCtel on
a most favored customer basis to PCtel within market segments limited
to soft modem chipset or board level suppliers and controllerless
modem chipset or board level suppliers PCtel shall always have a price
lower than any other customer for similar products. In the event that
a price is quoted by SILABS or products are shipped by SILABS to other
customers for any similar products which is equal to or lower than
that price offered to PCtel, a retroactive price protection shall be
granted to PCtel for all products shipped by SILABS to PCtel ninety
(90) days prior to the infringing quotation or shipment. In addition
any backlog PCtel orders shall be reset to the new price. The
foregoing shall be the exclusive remedy given by SILabs to PCtel.
(c) Prices and associated volumes shall be described in the adjunct
"addendum A" to this agreement.
<PAGE>
6. PRICE ADJUSTMENTS: Seller's unit prices are based on certain material
costs. These materials include, but are not limited to, gold, packages and
silicon. Adjustments shall be as follows:
(a) Gold. If Seller has a Gold Price Adjustment List, the price at the
time of shipment shall be adjusted for increases in the cost of gold in
accordance with that list. This adjustment will be shown as a separate line item
on each invoice.
(b) Other Materials. In the event of significant increases in the price of
other materials, Seller reserves the right to renegotiate the unit prices.
7. SPECIAL PRODUCTS. The following provisions are to be considered a part of
all Special Product quotations and orders. "Special Products" are those calling
for products not contained in Seller's current catalog or price list, or those
requiring modifications to catalog products (including semi-custom, custom, or
application specific products), or those requiring sample, environmental,
mechanical or life testing, 100% reliability screening, quality conformance
qualification, or any combination thereof. These provisions supersede any other
terms or conditions which are inconsistent herewith.
(a) Delivery dates are best estimates only and are subject to (1) Seller's
receipt of order and negotiable specifications containing where applicable, all
quoted waivers or exceptions; (2) successful first-time passage of products
submitted to electrical performance test, to environmental or life test
processing required by applicable specifications.
(b) Seller assumes no responsibility for refund or replacement of products
shipped at Buyer's request prior to successful completion of acceptance or
qualification tests performed by Seller, whether such tests are at Buyer's
request or otherwise.
(c) Buyer may not make changes in the drawings, designs or specifications
for the items to be sold hereunder without Seller's prior consent.
(d) Unless otherwise agreed in a writing signed by both Buyer and Seller,
Seller shall retain title to and possession of all tooling of any kind
(including but not limited to masks and pattern generator tapes) used in
production of products furnished hereunder.
(e) All proprietary designs, concepts, drawings, data, processes, pattern
generator tapes, masks and any other information which shall be disclosed by
Seller in making a quotation or in the performance of a contract to sell the
goods covered hereby, shall not be disclosed to third parties by Buyer. If
Seller and Buyer have executed a "Non-Disclosure Agreement," all applicable
provisions shall hereby be incorporated by reference.
(f) As between Seller and Buyer, Seller shall own all patents, copyrights
and mask work rights in or relating to each product developed by Seller whether
or not such product is developed to specifications furnished by Buyer.
8. MINIMUM ORDER: Unless otherwise agreed by Seller in writing, Seller's
minimum order amount shall be one hundred dollars ($100.00) for individual
production orders.
9. TITLE: Unless otherwise agreed in writing by Seller, delivery of the
products hereunder shall be made F.O.B. Texas, Seller's plant, and title and
liability for loss or damage thereto shall pass to Buyer upon Seller's tender of
delivery of the goods to a carrier for shipment to Buyer, and any loss or damage
thereafter shall not relieve Buyer from obligation hereunder. Transportation
expenses and insurance shall be paid by the Buyer.
10. DELIVERY: Shipping dates are approximate and are based upon prompt receipt
from Buyer of all necessary information. In no event will Seller be liable for
any re-procurement costs, nor for delay or non-delivery, due to causes beyond
its reasonable control including, but not limited to, acts of God, acts of civil
or military authority, priorities, fires, strikes, lockouts, slow-downs,
shortages, factory or poor conditions, yield problems, or inability to obtain
necessary labor, materials, or manufacturing facilities. In the event of any
such delay, the date of delivery shall, at the request of the Seller, be
deferred for a period equal to the time lost by reason of the delay.
11. SUBSTITUTIONS AND MODIFICATIONS OF GOODS: Seller may modify the
specifications of goods designed by Seller and substitute goods manufactured to
such modified specifications for those specified herein provided such goods
substantially conform to this contract, provided Seller receives Buyer's written
approval.
12. SOFTWARE: All software provided by Seller shall be subject to the license
agreement and/or terms and conditions accompanying the software. Without
limitation, a license agreement and/or terms and conditions may be printed or
may be provided electronically. ALL SOFTWARE IS PROVIDED "AS IS" WITH NO
WARRANTY WHATSOEVER.
<PAGE>
13. ACCESS TO TECHNOLOGY: in the event that SILABS becomes the subject of
voluntary or involuntary petition in bankruptcy or any proceeding related to
insolvency, or composition for the benefit of creditors, SILABS agrees to grant
access to the Product Technology though means of a standard form of third party
technology escrow which would release and license (at no charge) the Product
technology. Furthermore, SILABS agrees to enter into and execute the before
mentioned escrow agreement within (90) ninety days following the execution of
this agreement. In the event SILABS emerges from any such bankruptcy or
insolvency proceeding, the Product Technology will be returned to SILABS and
SILABS will resume supply of Products to PC-TEL.
14. CAPACITY AND FORECAST FLEXIBILITY: Based upon a six month rolling forecast
from PC-TEL, SILABS guarantees 50% upside quantities for the first two months of
the 6 month rolling forecast and 100% upside quantities for months three through
six. The six month rolling forecast will be provided by PC-Tel to SILABS on a
monthly basis on or before the first Tuesday of each Month. The SILABS upside
guarantee shall become effective 60 days after receiving the first six month
rolling forecast from PC-TEL. PC-Tel will make best efforts to provide timely
and accurate forecasts.
15. LIMITED WARRANTY:
(a) General. Seller warrants that its packaged products furnished
hereunder will at the time of delivery be free from defects in material and
workmanship and will conform on the basis of form, fit and function to Seller's
applicable specifications or, if appropriate, to specifications accepted by
Seller therefor. Seller's obligation or liability hereunder shall be limited to,
at Seller's option, either refunding the purchase price of, repairing, or
replacing, any products for which written notice of nonconformance hereunder is
received by Seller within two years following the date of shipment, provided,
such nonconforming products are, with Seller's prior written authorization,
returned to Seller, FOB Seller's plant, within thirty (30) days after the two
year period. This warranty shall not apply to unpackaged semiconductor device
die or wafers or to any products in other than their original condition, or to
any products which Seller determines have, by Buyer or otherwise, been subjected
to operating or environmental conditions in excess of the maximum value
established therefor in the applicable specifications or otherwise have been the
subject of mishandling, misuse, neglect, improper testing, repair, alteration or
damage.
(b) Die. Seller warrants that its device die or wafers furnished hereunder
will at the time of delivery be free of defects in material and workmanship and
will conform to specifications established therefor, or if applicable, to
specifications accepted by Seller. Seller's obligation hereunder shall be
limited to, at Seller's option, replacing or refunding the purchase price for
any products for which written notice of nonconformance hereunder is received by
Seller within sixty (60) days following the date of shipment, provided such
nonconforming products are, with Seller's prior written authorization, returned
to Seller, F.O.B. Seller's plant, within thirty (30) days after the sixty (60)
day period. This warranty shall not apply to any die or wafers which Seller
determines have, by Buyer or otherwise, been subjected to operating or
environmental conditions in excess of the maximum value established therefor in
the applicable specifications or otherwise have been the subject of mishandling,
misuse, neglect, improper testing, repair, alteration or damage.
(c) Technical Assistance. Seller's warranty as herein above set forth
shall not be enlarged, diminished or affected by, and no obligation or liability
shall arise or grow out of, Seller's rendering of technical advice, facilities
or service in connection with Buyer's order of the goods furnished hereunder.
(d) Moisture/Static Sensitive. Seller ships all products in vacuum sealed
antistatic packages. Seller's warranty as hereinabove set forth shall not cover
warranty repair, replacement, or refund on product or devices damaged by static
due to Buyer's failure to properly ground.
(e) Software. Software delivered hereunder is furnished "AS IS". SELLER
MAKES NO WARRANTIES, WHETHER EXPRESS, IMPLIED, STATUTORY, OR OTHERWISE, WITH
RESPECT TO SUCH SOFTWARE AND DOCUMENTATION DESCRIBING SUCH SOFTWARE, ITS
QUALITY, ITS PERFORMANCE, ITS MERCHANTABILITY, OR FITNESS FOR A PARTICULAR
PURPOSE. The entire risk as to the quality and performance of software and
documentation describing such software is with Buyer.
(f) Disclaimer. THE ABOVE WARRANTIES EXTEND TO BUYER ONLY AND NOT TO
BUYER'S CUSTOMERS OR USERS OF BUYER'S PRODUCTS AND ARE IN LIEU OF ALL OTHER
WARRANTIES WHETHER EXPRESS, IMPLIED, STATUTORY, OR OTHERWISE, INCLUDING IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. IN NO EVENT
SHALL SELLER OR BUYER BE LIABLE FOR SPECIAL OR CONSEQUENTIAL DAMAGES REGARDLESS
OF WHETHER IT HAS BEEN NOTIFIED IN ADVANCE OF THE POSSIBILITY THEREOF
<PAGE>
16. REMEDIES: If Seller breaches its warranties as contained in paragraph 13
herein, Seller's sole and exclusive liability shall be (at Seller's option) to
refund the purchase price of, repair or replace any such goods which are
returned by Buyer during the applicable warranty period set forth above,
provided that (a) Seller is promptly notified in writing upon discovery by Buyer
that such goods failed to conform to this contract with detailed explanation of
any alleged deficiencies, (b) such goods are returned to Seller, F.O.B. Seller's
plant from which goods were shipped and (c) Seller's examination of such goods
shall disclose that such alleged deficiencies actually exist and were not caused
by accident, misuse, neglect, alteration, improper installation, unauthorized
repair, or improper testing. If such goods fail to perform as warranted, Seller
shall reimburse Buyer for the transportation charges paid by Buyer for such
goods. If Seller elects to repair or replace such goods, Seller shall have a
reasonable time to make such repairs or replace such goods.
17. LIMITATION OF LIABILITY: EXCEPT WITH RESPECT TO THIRD PARTY CLAIMS ARISING
OUT OF THE OPERATION OF SECTION 22 OR A BREACH OF SECTION 23, IN NO EVENT SHALL
EITHER PARTY BE LIABLE TO THE OTHER FOR ANY SPECIAL, COLLATERAL, INDIRECT,
INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF THIS CONTRACT, INCLUDING,
WITHOUT LIMITATION, PROVISIONS REGARDING WARRANTIES, GUARANTEES, INDEMNITIES,
AND PATENT INFRINGEMENT, SUCH DAMAGES TO INCLUDE BUT NOT BE LIMITED TO, COSTS OF
REMOVAL AND REINSTALLATION OF ITEMS, LOSS OF GOODWILL, LOSS OF PROFITS, OR LOSS
OF USE, REGARDLESS OF WHETHER SELLER HAS BEEN NOTIFIED IN ADVANCE OF THE
POSSIBILITY THEREOF EXCEPT WITH RESPECT TO THIRD PARTY CLAIMS ARISING OUT OF THE
OPERATION OF SECTION 22 OR A BREACH OF SECTION 23 OR IN THE CASE OF GROSS
NEGLIGENCE OR INTENTIONAL MISCONDUCT. THESE LIMITATIONS SHALL APPLY
NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY.
18. INSPECTION: Unless otherwise specified and agreed upon, the material to be
furnished under this contract shall be subject to the Seller's standard
inspection at the place of manufacture. If it has been agreed upon and specified
in this order that Buyer is to inspect or provide for inspection at place of
manufacture such inspection shall be so conducted as to not interfere
unreasonably with Seller's instructions and consequent approval or rejection by
the Buyer shall be made before shipment of the material. Notwithstanding the
foregoing, if, upon receipt of such material by Buyer, the same shall appear not
to conform to this contract, the Buyer shall immediately notify the Seller of
such conditions and afford the Seller a reasonable opportunity to inspect the
material. No material shall be returned without Seller's consent. Seller's
Return Material Authorization Control Number must accompany such returned
material.
19. ACCEPTANCE: Within twenty (20) days after shipment by Seller, Buyer may,
by prompt written notice to Seller, reject any product furnished hereunder
which, as delivered by Seller, has a defect in material or workmanship or (i)
with respect to packaged products, does not conform to Seller's applicable
specifications or, if appropriate, to specifications accepted by Seller
therefor, or (ii) with respect to die or wafers, does not conform to
specifications established therefor or, if applicable to specifications accepted
by Seller. Buyer's rights, and Seller's obligation or liability, with respect to
rejected products shall be limited to, at Seller's option, either refunding the
purchase price of, repairing, or replacing any products for which written notice
of nonconformance hereunder is received by Seller as set forth herein within
thirty (30) days after shipment by Seller. Any product which is not so rejected
by Buyer shall be deemed irrevocably accepted. Notwithstanding the foregoing,
any product which has been the subject of mishandling, misuse, neglect, improper
testing, repair, alteration, extreme environmental conditions, or damage shall
be deemed accepted. Product returns shall be in accordance with the procedures
specified in paragraph 16.
20. RESCHEDULING: Buyer may reschedule orders for standard products under this
contract on written notice to Seller at least thirty (30) days prior to Seller's
scheduled delivery date. Buyer may reschedule orders for application specific
versions of standard products, semi-custom products, or custom products on
written notice to Seller at least thirty (30) days prior to Seller's scheduled
delivery date. All quantities must be rescheduled for delivery within twelve
(12) months of Seller's original scheduled delivery dates; otherwise this
contract may be cancelled by Seller, and Buyer shall be liable for termination
charges as provided herein.
<PAGE>
21. TERMINATION AND CANCELLATION: Except to the extent noted below orders are
not subject to cancellation or termination for convenience.
(a) Buyer may terminated this contract upon sixty (60) days advance written
notice to Seller. Buyer may terminate orders, or portions of orders, upon
written notice to Seller at least sixty (60) days prior to the scheduled
delivery date. In each such event, Buyer shall be liable for termination
charges which shall include a price adjustment based on the quantity of
goods actually delivered, and all costs, direct or indirect, incurred and
committed for this contract together with a reasonable allowance for
prorated expenses and anticipated profits.
(b) Unless otherwise specified on the face hereof, all quantities must be
released no more than twelve (12) months and shipments scheduled no more
than twelve (12) months from the date of Seller's receipt of Buyer's
initial purchase order, otherwise this contract may be terminated by Seller
and Buyer shall be liable for termination charges as provided herein.
(c) If either party defaults in performance of any material obligation
hereunder and if any such default is not corrected within (60) sixty days
after the defaulting party receive written notice thereof from the non-
defaulting party, then the non defaulting party, at its option, may in
addition to any other remedies it may have, terminated this agreement.
(d) Either party may terminate this agreement effective upon written notice
to the other party in the event that the other part becomes the subject of
voluntary or involuntary petition in bankruptcy or any proceeding related
to insolvency, or composition for the benefit of creditors, if that
petition or proceeding is not dismissed within (60) sixty days after
filing.
22. INDEMNITY: Seller shall defend Buyer against any suite or proceeding
brought against Buyer insofar as such suit or proceeding is based on a claim
that any goods manufactured and supplied by Seller to Buyer constitute direct
infringement of any copyright, mask work right, or duly issued United States
patent and Seller shall pay all damages and costs finally awarded therein
against Buyer, provided that Seller is promptly informed and furnished a copy of
each communication, notice or other action relating to the alleged infringement
and is given complete authority, information and assistance (at Seller's
expense) necessary to defend or settle said suit or proceeding; provided, that
Seller shall not be obligated to defend or be liable for costs and damages if
the infringement arises out of compliance with Buyer's specifications, or from a
combination with, and addition to, or modification of the goods after delivery
by Seller, or from use of the goods, or any part thereof, in the practice of a
process, or from any settlement or compromise incurred or made by Buyer without
Seller's prior written consent. Seller's obligations hereunder shall not apply
to any infringement occurring after Buyer has received notice of such suit or
proceeding alleging infringement unless Seller has given written permission for
the continued use of goods after notice of such infringement. If any goods
manufactured and supplied by Seller to Buyer shall be held to infringe any
copyright, mask work right, or United States patent and Buyer shall be enjoined
from using same, Seller at its option and its expense, will use good faith
efforts to, (a) procure for Buyer the right to use such goods free of any
liability for infringement, or (b) replace such goods with a non-infringing
substitute otherwise complying substantially with all requirements of this
contract, or (c) refund the purchase price and the transportation costs of such
goods. If the infringement by Buyer is alleged prior to completion of delivery
of the goods under this contract, Seller may decline to make further shipments
without being in breach of this contract, and, provided Seller has not been
enjoined from selling said goods to Buyer, Seller agrees to supply said goods to
Buyer if Buyer furnishes to Seller the written agreement of Buyer that the
indemnity obligations herein stated with respect to Seller shall reciprocally
apply with respect to Buyer.
Seller's liability and obligations arising out of this section with respect
to any units shall not exceed the amount received by Seller from Buyer for such
units.
If any such suit or proceeding is brought against Seller based on a claim
that the goods manufactured by Seller in compliance with Buyer's specifications
and supplied to Buyer directly infringe any copyright, mask work right or United
States patent, then the indemnity obligations herein stated with respect to
Seller shall reciprocally apply with respect to Buyer. The sale by Seller of the
items ordered hereunder does not grant to, convey, or confer upon Buyer or
Buyer's customers, or upon anyone claiming under Buyer, a license, express or
implied, under any copyrights, mask work rights, or patent rights of Seller
covering or relating to any combinations, machines or processes in which said
items might be or are used.
THE FOREGOING STATE THE SOLE AND EXCLUSIVE LIABILITY OF THE PARTIES HERETO
FOR INFRINGEMENT AND IS IN LIEU OF ALL WARRANTIES, EXPRESS, IMPLIED, STATUTORY,
OR OTHERWISE IN REGARD THERETO.
<PAGE>
23. CONFIDENTIALITY: Each party agrees that it will keep in confidence, and
prevent the use (other than for the purposes of this contract) or disclosure to
any person, all technical information and data (hereinafter referred to as
"data") which is designated in writing, or by appropriate stamps, or legend by
the disclosing party, to be of a proprietary or confidential nature, and is
received from the other under this Agreement and which pertains to proprietary
or confidential data regarding its technological techniques, inventions, or
research and development, provided; however, that neither party shall be liable
for the of any data if the same: (A) was generally available to the public at
the time of disclosure to the receiving party; or (B) becomes generally
available to the public, except as the result of unauthorized disclosure by the
receiving party; or (C) was known, without confidentiality restriction, to the
receiving party and documented in writing prior to its receipt, and so informs
the disclosing party of such facts at the time of disclosure; or (D) is
disclosed inadvertently, despite the exercise of the same degree of care as each
party takes to preserve and safeguard its own proprietary information; or (E) if
the disclosing party agrees in writing that it can be disclosed by the receiving
party to a third party; or (F) becomes known to the receiving party, without
confidentiality restriction, from a source other than the disclosing party
without breach of this Agreement by the receiving party; or (G) is independently
developed by the receiving party without use of the disclosing party's data; or
(H) is required by law to be released; or (I) is disclosed after three (3) years
from the date of this contract.
SiLabs will honor all active Non Disclosure Agreements in place between
SiLabs and PC-TEL, and use extreme care in handling all information related
to products not yet released to the marketplace. Furthermore, SiLabs will
work closely with PC-TEL on the appropriate language and marketing messages
related to the PC-TEL - SiLabs relationship. SiLabs agrees to only
communicate information to third parties (related to the PC-TEL
relationship, technology, and products) that has been approved by PC-TEL.
24. NON-WAIVER OF DEFAULT: In the event of any default by Buyer, Seller may
decline to make further shipments without being in breach hereof. If Seller
elects to continue to make shipments, Seller's action shall not constitute a
waiver of any default by Buyer or in any way affect Seller's legal remedies for
any default hereunder.
25. ASSIGNMENT: This contract shall be binding upon and inure to the benefit of
the parties and the successors and assigns of the entire business and goodwill
of either Seller or Buyer, or of that part of the business of either used in the
performance of this contract, but shall not be otherwise assignable.
26. LEGAL COMPLIANCE: Buyer at all times shall comply with all applicable
federal, state, and local laws and regulations.
THE PRODUCTS COVERED BY THIS CONTRACT MAY FALL WITHIN THE GROUP OF "STRATEGIC"
ELECTRONIC PRODUCTS THAT ARE WHOLLY OR PARTLY OF U.S. ORIGIN OR TECHNOLOGY, THE
EXPORT OF WHICH IS SUBJECT TO EXPORT LICENSE CONTROL BY THE U.S. GOVERNMENT.
BUYER, BY ACCEPTING THESE PRODUCTS, CERTIFIES THAT HE WILL NOT EXPORT OR RE-
EXPORT THE PRODUCTS FURNISHED HEREUNDER UNLESS HE COMPLIES FULLY WITH ALL LAWS
AND REGULATIONS OF THE UNITED STATES RELATING TO SUCH EXPORT OR RE-EXPORT,
INCLUDING BUT NOT LIMITED TO THE EXPORT ADMINISTRATION ACT OF 1979, AS AMENDED
AND THE EXPORT ADMINISTRATION REGULATIONS OF THE U.S. DEPARTMENT OF COMMERCE.
27. APPLICABLE LAW: The validity, performance, and construction of this
contract shall be governed by the internal laws of the State of California,
without reference to conflict of laws principles.
28. U.S. GOVERNMENT CONTRACTS: In the event the goods furnished hereunder are
used in the performance of a U.S. Government contract or subcontract, the
Government procurement regulation clauses required to be passed on to
subcontractors are excluded from this agreement unless separately agreed to in
writing by Seller. In no event shall Government clauses regarding "Rights in
Data" or "Subcontractor Cost and Pricing Data" be incorporated herein.
29. ATTORNEYS FEES: In the event that any action is brought to enforce any
provision of this contract, the prevailing party shall be entitled to recover
from the other party, in addition to any judgment, its attorneys fees and
expenses.
30. LIFE SUPPORT AND NUCLEAR POLICY: Seller's products are not designed,
intended, authorized, or warranted to be suitable for use in life support or
nuclear applications, devices or systems. Examples of nuclear applications are
applications in nuclear reactors or any device designed or used in connection
with the handling, processing, packaging, preparation, utilization, fabricating,
alloying, storing, or disposal of fissionable material or waste products
thereof. Inclusion by Buyer of Seller's products in such applications is fully
at Buyer's risk, and Buyer shall indemnify and hold Seller and its suppliers
harmless from all costs, loss, liability, and expense (including without
limitation
<PAGE>
court costs and attorneys (fees) arising out of such inclusion by Buyer or its
direct or indirect customers.
31. MODIFICATION: THIS CONTRACT CONSTITUTES THE ENTIRE AGREEMENT BETWEEN THE
PARTIES RELATING TO THE SALE OF THE GOODS DESCRIBED ON THE FACE HEREOF AND
SUPERSEDES ALL PRIOR OR CONTEMPORANEOUS COMMUNICATIONS, REPRESENTATIONS, OR
AGREEMENTS, EITHER ORAL OR WRITTEN, WITH RESPECT TO THE SUBJECT MATTER HEREOF,
AND ANY REPRESENTATIONS OR STATEMENTS OF ANY KIND MADE BY ANY REPRESENTATIVE OF
SELLER, WHICH ARE NOT STATED HEREIN, SHALL NOT BE BINDING ON SELLER. NO
MODIFICATION OF ANY PROVISION UPON THE FACE OR REVERSE OF THIS CONTRACT SHALL BE
BINDING UPON SELLER UNLESS MADE IN WRITING AND SIGNED BY A DULY AUTHORIZED
REPRESENTATIVE OF SELLER LOCATED IN AUSTIN, TEXAS.
PC-TEL, INC. Silicon Labs, Inc.
By: /s/ Steve Manuel By: /s/ Gary R. Gay
----------------------- -----------------------
Title: V.P. Marketing Title: V.P. of Sales
----------------------- -----------------------
Date: 10/28/98 Date: 10/16/98
----------------------- -----------------------
<PAGE>
ADDENDUM "A"
Pricing and Volumes
1. Prices: SiLabs shall honor a price point $2.33 per unit for Products
shipped to PCT in calendar year 1998, commencing on August 27, 1998. No later
than sixty (60) days prior to the conclusion of calendar year 1998, and each
annual period thereafter, the parties will negotiate the unit prices applicable
to succeeding calendar year. In the event that the parties are unable to agree
on such unit price for the upcoming annual period, the prices shall be set at
no greater than the existing unit price.
2. Minimum Volume Commitment. PCtel shall purchase a minimum annual quantity
of 600,000 units of SiLab's DAA chipset in calendar year 1998. This volume may
consist of the current SI3033/PCtel 301 or future versions of chips containing
Silicon Labs integrated Codec/DAA technology. No later than sixty (60) days
prior to the conclusion of calendar year 1998, and each annual period
thereafter, the parties will negotiate the annual minimum quantity, if any,
applicable to succeeding calendar year.
<PAGE>
SCHEDULE C
----------
ESCROW AGENT FEE SCHEDULE
For each individual Employee, a $300 annual fee shall be charged. For each
transaction performed on behalf of the Employee, a $20 fee shall be charged.
<PAGE>
EXHIBIT 21.1
List of Subsidiaries of the Registrant
1. PC-TEL Global Technologies Ltd.
2. PC-TEL Japan, K.K.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and to all references to our firm included in or made a part of this
registration statement.
San Jose, California Arthur Andersen LLP
August 4, 1999
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report dated December 15, 1998, relating to the financial statements and
financial statement schedules of the Technology Alliance Group Division of
General DataComm, Inc., which appear in such Registration Statement. We also
consent to the reference to us under the heading "Experts" in such Registration
Statement.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Stamford, CT
August 4, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM S-1 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 JUN-30-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 JUN-30-1999
<CASH> 12,988 17,252
<SECURITIES> 0 6,282
<RECEIVABLES> 14,620 8,898
<ALLOWANCES> (1,689) (3,382)
<INVENTORY> 2,073 3,590
<CURRENT-ASSETS> 32,461 37,770
<PP&E> 1,615 2,305
<DEPRECIATION> (573) (830)
<TOTAL-ASSETS> 45,996 50,483
<CURRENT-LIABILITIES> 16,148 18,992
<BONDS> 14,709 13,630
0 0
9 9
<COMMON> 2 2
<OTHER-SE> 15,128 17,850
<TOTAL-LIABILITY-AND-EQUITY> 45,996 50,483
<SALES> 33,004 33,046
<TOTAL-REVENUES> 33,004 33,046
<CGS> 13,878 16,997
<TOTAL-COSTS> 13,878 16,997
<OTHER-EXPENSES> 18,898 11,595
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (479) 592
<INCOME-PRETAX> 707 3,862
<INCOME-TAX> 212 1,158
<INCOME-CONTINUING> 495 2,704
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 495 2,704
<EPS-BASIC> 0.21 1.10
<EPS-DILUTED> 0.04 0.21
</TABLE>
