<PAGE>
As filed with the Securities and Exchange Commission on May 5, 1999
Registration No. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
----------------
EFFICIENT NETWORKS, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 3661 75-2486865
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
----------------
4201 Spring Valley Road, Suite 1200
Dallas, Texas 75244-3666
(972) 991-3884
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
----------------
MARK A. FLOYD
Chief Executive Officer
4201 Spring Valley Road, Suite 1200
Dallas, Texas 75244-3666
(972) 991-3884
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------
Copies to:
KENNETH M. SIEGEL S. MICHAEL DUNN, P.C.
ADAM R. DOLINKO MICHELLE KWAN MONTOYA
PETER F. STEWART Brobeck, Phleger & Harrison LLP
HELEN E. QUINN 301 Congress Avenue, Suite 1200
Wilson Sonsini Goodrich & Rosati Austin, Texas 78701
Professional Corporation (512) 477-5495
650 Page Mill Road
Palo Alto, California 94304
(650) 493-9300
----------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, 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, 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,
check the following box. [_]
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proposed Maximum
Title of Each Class of Aggregate Offering Amount of
Securities to be Registered Price(1) Registration Fee
- ------------------------------------------------------------------------------
<S> <C> <C>
Common Stock $0.001 par value... $60,000,000 $16,680.00
- ------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(o) under the Securities Act.
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 hereafter 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>
[INSIDE FRONT COVER OF PROSPECTUS]
[Graphic of network: Internet and corporate local area networks, over a DSL
provider's network to four types of users; small business Internet users;
consumer Internet users; branch office remote access users; and telecommuters]
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MAY 5, 1999
Shares
[EFFICIENT NETWORKS LOGO]
Common Stock
--------
Prior to this offering, there has been no public market for our common stock.
The initial public offering price is expected to be between $ and $
per share. We have applied to list the shares on The Nasdaq Stock Market's
National Market under the symbol "EFNT."
The underwriters have an option to purchase a maximum of additional
shares to cover over-allotments of shares.
Investing in our common stock involves risks. See "Risk Factors" on page 6.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions Efficient
-------------- -------------- --------------
<S> <C> <C> <C>
Per Share.......................... $ $ $
Total.............................. $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about , 1999.
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.
Credit Suisse First Boston
BancBoston Robertson Stephens
Volpe Brown Whelan & Company
The date of this prospectus is , 1999.
<PAGE>
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................. 3
Risk Factors........................ 6
Special Note Regarding Forward-
Looking Statements................. 17
Use Of Proceeds..................... 18
Dividend Policy..................... 18
Capitalization...................... 19
Dilution............................ 20
Selected Consolidated Financial
Data............................... 21
Management's Discussion And Analysis
Of Financial Condition And Results
Of Operations...................... 22
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Business.............................................................. 32
Management............................................................ 50
Certain Transactions.................................................. 57
Principal Stockholders................................................ 59
Description Of Capital Stock.......................................... 62
Shares Eligible For Future Sale....................................... 65
Underwriting.......................................................... 67
Notice To Canadian Residents.......................................... 69
Legal Matters......................................................... 70
Experts............................................................... 70
Additional Efficient Information...................................... 70
Index To Consolidated Financial Statements............................ F-1
</TABLE>
------------
You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.
We have registered the trademarks "Efficient Networks" and "SpeedStream."
"Advanced Status" and "ProfileBuilder" are also our trademarks. All other
trademarks or service marks appearing in this prospectus are trademarks or
service marks of the respective companies that use them.
Dealer Prospectus Delivery Obligation
Until , 1999 (25 days after the commencement of this offering), all
dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This
is in addition to the dealer's obligation to deliver a prospectus when acting
as an underwriter and with respect to unsold allotments or subscriptions.
2
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and does not contain all the information you
should consider before buying shares in the offering. You should read the
entire prospectus carefully.
Efficient Networks, Inc.
------------
Efficient Networks is a leading worldwide independent supplier of high-speed
digital subscriber line customer premises equipment for the broadband access
market. Our digital subscriber line, or DSL, solutions enable
telecommunications and other network service providers to provide high-speed,
cost-effective broadband access services over the existing copper wire
telephone infrastructure. We believe there is significant demand for high-speed
broadband access, especially among business users and consumers who have found
current solutions to be inadequate or too expensive. We therefore focus on
developing and producing single- and multiple-user DSL customer premises
equipment for small- to medium-size businesses, branch offices of large
corporations and consumers. Our DSL products enable applications such as high-
speed Internet access, electronic commerce, remote access, telecommuting and
extensions of corporate networks to branch offices.
Business-critical Internet-based applications, such as electronic commerce,
supply chain management, Web hosting and remote access for telecommuters,
generate enormous data traffic over the existing communications infrastructure.
The growth in Internet use, increased competition resulting from domestic and
international deregulation, and pressure from alternative means of providing
high-bandwidth access services have led both traditional and new operators of
the existing copper networks to deploy DSL. DSL technology enables these
network service providers to exploit the existing copper infrastructure to
provide broadband access at a low cost to most businesses and homes currently
connected by telephone lines.
In order to offer cost-effective DSL services to end users, network service
providers are actively seeking DSL customer premises equipment solutions that
offer seamless end-to-end interoperability within their networks and which
provide for simple and low-cost installation and maintenance. Our SpeedStream
family of products consists of routing and bridging, external universal serial
bus and internal DSL customer premises equipment. Our products satisfy the
requirements of network service providers, as they:
. Enable DSL Deployments. We enable network service providers to rapidly deploy
DSL services, thereby allowing them to quickly capture market share in
today's intensely competitive broadband services market.
. Ensure End-To-End Interoperability. We leverage our core technology expertise
and relationships with network equipment vendors, such as ADC
Telecommunications, Advanced Fibre Communications, Alcatel, Diamond Lane
Communications, DSC Communications, Ericsson, Lucent Technologies, Newbridge
Networks, Nokia, Nortel Networks and Siemens, and network service providers
to ensure interoperability from the end user's personal computer through the
service provider's network.
. Provide for Efficient and Cost-Effective Installation. Our ProfileBuilder
software tool allows a network service provider to pre-configure the customer
premises equipment to the parameters of a particular network, reducing the
costs associated with having installers perform these activities during each
end-user installation.
. Provide for Cost-Effective Maintenance. Our Advanced Status software allows a
network service provider to easily monitor, diagnose and often remotely fix
the customer's problems quickly, which can substantially reduce the network
service provider's customer support costs.
3
<PAGE>
Our objective is to be the leading worldwide provider of high-performance
DSL broadband access customer premises equipment for businesses, remote
offices, telecommuters and consumers. To achieve this goal, we intend to
capitalize on our early market acceptance by network service providers and to
leverage our relationships with network equipment vendors. In addition, we will
continue developing enhancements to our current DSL products as well as create
new bundled voice and data access DSL products. Finally, we plan to extend our
distribution channels to meet the growing demand for broadband access solutions
and increase our brand awareness.
We sell our products to network equipment vendors and DSL network service
providers. As of March 31, 1999, our products have been deployed by Ameritech,
BellSouth, Covad Communications, Hong Kong Telecom, Singapore Telecom and six
other network service providers, and purchased by eight network equipment
vendors. An additional 39 network service providers have begun to test our
customer premises equipment solutions.
We were incorporated in Delaware in 1993. Our principal executive offices
are located at 4201 Spring Valley Road, Suite 1200, Dallas, Texas 75244-3666
and our telephone number is (972) 991-3884. Our Website is located at
http://www.efficient.com. Information contained on our Website does not
constitute part of this prospectus.
The Offering
<TABLE>
<S> <C>
Common stock offered.............. shares
Common stock to be outstanding
after this offering.............. shares
Use of proceeds................... For general corporate purposes, principally
working capital, additional sales and
marketing efforts, and potential
acquisitions.
Proposed Nasdaq National Market
symbol........................... EFNT
</TABLE>
- --------
The above table is based on shares outstanding as of March 31, 1999. However,
this table also includes 3,082,191 shares that will be issued prior to the
closing of this offering upon exercise of presently outstanding warrants for
redeemable convertible preferred stock. These warrants will terminate if not
exercised prior to the closing of this offering. See "Capitalization" and
"Certain Transactions." This table excludes:
. 6,470,575 shares subject to options outstanding as of March 31, 1999
under our stock option plans;
. 3,700,000 shares reserved for future issuance under our stock option and
employee stock purchase plans; and
. 167,746 shares issuable upon exercise of certain outstanding warrants.
------------
You should be aware that our fiscal year ends on June 30; thus, a reference
to "fiscal 1998," for example, is to the fiscal year ended June 30, 1998. In
addition, except as otherwise indicated, information in this prospectus is
based on the following assumptions:
. that certain investors will convert an aggregate of $9.0 million owed to
them by Efficient into an aggregate of 3,082,191 shares of redeemable
convertible preferred stock through the exercise of outstanding warrants;
. that each outstanding share of redeemable convertible preferred stock
will convert into one share of common stock immediately prior to the
closing of this offering;
. that the underwriters' over-allotment option will not be exercised; and
. that we will file our amended and restated certificate of incorporation.
4
<PAGE>
Summary Consolidated Financial Information
(in thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended
Fiscal Year Ended June 30, March 31,
---------------------------- ------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net revenues................ $ 3,687 $ 4,122 $ 3,370 $ 2,703 $ 7,139
Cost of revenues............ 2,209 2,386 2,160 1,553 6,699
-------- -------- -------- -------- --------
Gross profit................ 1,478 1,736 1,210 1,150 440
Loss from operations........ (5,823) (6,174) (8,070) (5,158) (11,016)
Net loss.................... $ (5,646) $ (6,049) $ (7,940) $ (5,077) $(12,996)
======== ======== ======== ======== ========
Net loss per share:
Basic and diluted......... $ (1.99) $ (2.00) $ (2.44) $ (1.59) $ (3.48)
======== ======== ======== ======== ========
Weighted average shares... 2,838 3,027 3,254 3,193 3,807
======== ======== ======== ======== ========
Pro forma net loss per
share:
Basic and diluted......... $ (0.35) $ (0.64)
======== ========
Weighted average shares... 22,886 27,077
======== ========
</TABLE>
<TABLE>
<CAPTION>
March 31, 1999
----------------------------------
Pro Forma
Actual Pro Forma As Adjusted
---------- ----------- -----------
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents................... $ 4,596 $6,596 $
Working capital............................. 9,473 9,473
Total assets................................ 17,234 19,234
Long-term debt, net of discount............. 4,253 --
Redeemable convertible preferred stock...... 40,408 --
Total stockholders' equity (deficit)........ (33,036) 13,625
</TABLE>
------------
See Note 2 of Notes to Consolidated Financial Statements for an explanation
of the determination of the number of shares used in computing per share data.
The pro forma numbers reflect:
. the conversion of $9.0 million in long-term debt into an aggregate of
3,082,191 shares of redeemable convertible preferred stock through the
exercise of certain warrants; and
. the conversion into common stock of all redeemable convertible preferred
stock immediately prior to the closing of this offering.
The pro forma as adjusted numbers give effect to our receipt of the
estimated net proceeds from the sale of the shares of common stock
offered hereby at an assumed initial public offering price of $ per
share, after deducting underwriting discounts and commissions and estimated
offering expenses payable by us. See "Use of Proceeds" and "Capitalization."
5
<PAGE>
RISK FACTORS
You should carefully consider the risks described below before making a
decision to invest in Efficient. You may lose all or part of your investment.
The risks and uncertainties described below are not the only ones facing us.
Risks Associated With the Digital Subscriber Line Industry
Sales of our products depend on the widespread adoption of broadband access
services and if the demand for broadband access service does not develop, then
our results of operations and financial condition would be adversely affected.
Our business would be harmed, and our results of operations and financial
condition would be adversely affected, if the use of broadband access services
does not increase as anticipated, or if our customers' broadband access
services are not well received in the marketplace. Certain critical factors
will likely continue to affect the development of the broadband access services
market. These factors include:
. inconsistent quality and reliability of service;
. lack of availability of cost-effective, high-speed service;
. inability to integrate business applications on the Internet;
. lack of interoperability among multiple vendors' network equipment;
. congestion in service providers' networks;
. inadequate security; and
. inability to meet growing demands for increasing bandwidth.
Even if these factors are adequately addressed, the market for broadband
access services to the Internet and corporate networks may fail to develop or
may develop more slowly than anticipated. If this market fails to develop or
develops more slowly than anticipated, our business would be harmed, and our
results of operations and financial condition would be adversely affected.
Many competing technologies may serve our target market, and if the DSL
technology upon which our products is based does not succeed as a technological
solution for broadband access, we would not be able to sustain or grow our
business.
The market for high-speed data transmission services has several competing
technologies which offer alternative solutions, and the demand for DSL services
is uncertain in light of this competition. The introduction of new products by
competitors, market acceptance of products based on new or alternative
technologies or the emergence of new industry standards could render our
products less competitive or obsolete. If any of these events occur, we would
be unable to sustain or grow our business. Technologies which compete with DSL
are:
. other access solutions provided by telephone network service providers
such as dial-up analog modems, integrated services digital networks and
T1 services;
. broadband wireless technologies; and
. broadband cable technologies.
If these alternatives gain market share at the expense of DSL technologies,
demand for our products would be reduced, and we would be unable to sustain or
grow our business. Additionally, wireless and cable network service providers
are well funded, and cable network service providers have large existing
customer bases. As a result, competition from these companies is intense and
expected to increase.
6
<PAGE>
We depend upon network service providers to deploy DSL technologies and
services in a broad and timely manner, and if they do not, we would be unable
to sell our products.
If network service providers do not increase their deployment of DSL
services rapidly, we would be unable to sell our products as anticipated, if at
all. Factors that impact deployments include:
. the demand from end users;
. a prolonged approval process, including laboratory tests, technical
trials, marketing trials, initial commercial deployment and full
commercial deployment;
. the development of a viable business model for DSL services, including
the capability to market, sell, install and maintain DSL services;
. cost constraints, such as installation costs and space and power
requirements at the network service providers' central offices;
. varying and uncertain conditions of the installed copper wire, including
size and length, electrical interference, and crossover interference with
voice and data telecommunications services;
. problems of interoperability among DSL network equipment vendors'
products;
. evolving industry standards for DSL technologies; and
. domestic and foreign government regulation.
Risks We Face Within the DSL Industry
Competition within the DSL market is intense and includes numerous established
competitors, and if we are unable to compete effectively, our business would be
harmed.
Competition in the DSL customer premises equipment market is intense, and we
expect competition to increase. Many of our competitors and potential
competitors have substantially greater name recognition and technical,
financial and marketing resources than we have. If we are unable to compete
successfully, our business will be harmed and our results of operations and
financial condition would be adversely affected. We cannot assure you that we
will have the financial resources, technical expertise or marketing,
distribution and support capabilities to compete successfully. See "Business--
Industry Background" and "--Competition."
Competitive pressures could adversely affect us in the following ways:
. reduce demand for our products;
. cause delays or cancellations of customer orders;
. cause us to reduce prices on our existing products; or
. increase our expenses.
Our failure to enhance our existing products or to develop and introduce new
products that meet changing customer requirements and emerging industry
standards would adversely impact our ability to sell our products.
The market for high-speed broadband access is characterized by rapidly
changing customer demands and short product life cycles. If our product
development and enhancements take longer than planned, the availability of our
products would be delayed. Any such delay would adversely impact our ability to
sell our products and our results of operations and financial condition would
be adversely affected. Our future success will depend in large part upon our
ability to:
. identify and respond to emerging technological trends in the market;
. develop and maintain competitive products that meet changing customer
demands;
7
<PAGE>
. enhance our products by adding innovative features that differentiate our
products from those of our competitors;
. bring products to market on a timely basis;
. introduce products that have competitive prices; and
. respond effectively to new technological changes or new product
announcements by others.
The technical innovations required for us to remain competitive in the DSL
industry are inherently complex, require long development cycles and sometimes
depend on sole-source suppliers. We will be required to continue to invest in
research and development in order to maintain and enhance our existing
technologies and products, but we may not have sufficient funds available to do
so. Even if we have sufficient funds, these investments may not serve the needs
of customers or be interoperable with changing technological requirements or
standards. We will have to incur most research and development expenses before
the technical feasibility or commercial viability of enhanced or new products
can be ascertained. Our revenues from future or enhanced products may not be
sufficient to recover our associated development costs.
Our current products are not interoperable with certain products offered by
suppliers to our customers and are subject to evolving industry standards. If
our products do not interoperate with our target customers' networks or an
industry standard that achieves market acceptance, customers may refuse to
purchase our products.
In some cases, network equipment vendors, such as Cisco Systems, Inc., sell
to our target customers proprietary or non-interoperable systems with which our
products will not function. In these cases, potential customers who wish to
purchase DSL customer premises equipment and who have purchased other network
equipment which does not function with our DSL customer premises equipment may
not purchase our products.
Also, the emergence of new industry standards, whether through adoption by
official standards committees or widespread use by our target customers, could
require us to redesign our products. If such standards become widespread and
our products do not meet these standards, our customers and potential customers
would not purchase our products. In this case, our business would be harmed,
and our financial condition and results of operations would be adversely
affected. The rapid development of new standards increases the risk that
competitors could develop products that would reduce the competitiveness of our
products or could result in greater competition and additional pricing
pressure. If we fail to develop and introduce new products or enhancements in
the face of new industry standards, our product sales would decrease, and our
business would be harmed. See "Business--Competition."
We may not be able to produce sufficient quantities of our DSL products because
we depend on third-party manufacturers. If these manufacturers fail to produce
our products in a timely manner, our ability to fulfill our customer orders
would be adversely impacted.
Any manufacturing disruption could impair our ability to fulfill orders, and
if this occurs, our revenues would be adversely affected. Solectron Corporation
is currently the sole manufacturer of many of our products. Since third parties
manufacture our products and we expect this to continue in the future, our
success will depend, in significant part, on our ability to have third parties
manufacture our products cost effectively and in sufficient quantities to meet
our customer demand. There are a number of risks associated with our dependence
on third-party manufacturers, including the following:
. reduced control over delivery schedules;
. quality assurance;
. manufacturing yields and costs;
. the potential lack of adequate capacity during periods of excess demand;
8
<PAGE>
. limited warranties on products supplied to us;
. increases in prices; and
. the potential misappropriation of our intellectual property.
Any of these risks, if not adequately addressed by our third-party
manufacturers, would harm our business.
We have no long-term contracts or arrangements with any of our vendors that
guarantee product availability, the continuation of particular payment terms or
the extension of credit limits. The competitive dynamics of our market require
us to obtain components at favorable prices, but we may not be able to obtain
additional volume purchase or manufacturing arrangements on terms that we
consider acceptable, if at all. If we enter into a high-volume or long-term
supply arrangement and subsequently decide that we cannot use the products or
services provided for in the agreement, our business would also be harmed.
We may not be able to produce sufficient quantities of our products because we
obtain certain key components from, and depend on, certain sole-source
suppliers. If we are unable to obtain these sole-source components, we would
not be able to ship our products in a timely manner and our strategic
relationships with our customers would be detrimentally affected.
We obtain certain parts, components and equipment used in our products from
sole sources of supply. For example, we obtain certain semiconductor chipsets
from Alcatel Microelectronics, Analog Devices, Inc., Texas Instruments
Incorporated, and Conexant Systems, Inc. If we fail to obtain components in
sufficient quantities when required, and are unable to meet customer demand,
our business could be harmed, as our customers would consider purchasing
products from our competitors. We also rely on Texas Instruments Incorporated,
Samsung Semiconductor Inc., and VLSI Technology, Inc. to manufacture our
application specific integrated circuits. Developing and maintaining these
strategic relationships is critical in order for us to be successful. If our
relationships with our equipment vendor and network service provider customers
are harmed as a result of a failure to obtain sole-source components for our
products on a timely basis, our business would be harmed.
Any of our sole-source suppliers may:
. enter into exclusive arrangements with our competitors;
. stop selling their products or components to us at commercially
reasonable prices; or
. refuse to sell their products or components to us at any price.
If we are unable to obtain sufficient quantities of sole-source components
or to develop alternative sources for components for any reason, our business
would be harmed. Furthermore, additional sole-source components may be
incorporated into our future products, thereby increasing our sole-source
supplier risks. If any of our sole-source manufacturers delay or halt
production of any of their components, our business would be harmed, and our
results of operations and financial condition would be adversely affected.
We may be subject to product returns and product liability claims resulting
from defects in our products. Product returns and product liability claims
could result in the failure to attain market acceptance of our products and
harm our business.
Our products are complex and may contain undetected defects, errors or
failures. The occurrence of any defects, errors or failures could result in
delays in installation, product returns and other losses to us or to our
customers or end users. Any of these occurrences could also result in the loss
of or delay in market acceptance of our products, either of which would harm
our business and adversely affect our operating results and financial
condition. We will likely have limited experience with any problems that may
arise with new products that we introduce.
9
<PAGE>
Although we have not experienced any product liability claims to date, the
sale and support of our products entail the risk of these claims. A successful
product liability claim brought against us could be expensive, divert the
attention of management from ordinary business activities and, correspondingly,
harm our business.
Risks That May Cause Financial Fluctuations
We have a short operating history, have incurred net losses since our inception
and expect future losses. Accordingly, we may not be able to achieve
profitability, and even if we do become profitable, we may not be able to
sustain profitability.
We first commenced product shipments in August 1994 and did not introduce
DSL products until March 1998. We have incurred net losses in every fiscal
quarter and annual period since inception and expect to continue to operate at
a loss for the foreseeable future. As of March 31, 1999, we had an accumulated
deficit of approximately $38.6 million. Due to our limited operating history
and our history of losses, we may never be able to achieve profitability, and
even if we do, we may not be able to remain profitable. To achieve profitable
operations on a continuing basis, we must successfully design, develop, test,
manufacture, introduce, market and distribute our products on a broad
commercial basis.
Our ability to generate future revenues will depend on a number of factors,
many of which are beyond our control. These factors include:
. the rate of market acceptance of DSL broadband access;
. the level of demand for DSL systems that incorporate our products;
. changes in industry standards governing DSL technology solutions;
. the extent and timing of new customer transactions;
. changes in our development schedules and those of system companies that
provide complementary DSL products, or changes in their levels of
expenditure on research and development;
. personnel changes, particularly those involving engineering and technical
personnel;
. the costs associated with protecting our intellectual property;
. regulatory developments; and
. general economic trends.
Due to these factors, we cannot forecast with any degree of accuracy what
our revenues will be in future periods or how quickly network service providers
will select our products for use in their systems. In view of these factors, we
may not be able achieve or sustain profitability.
If sales forecasted for a particular period are not realized in that period due
to the lengthy sales cycle of our products, our operating results for that
period would be adversely affected.
If we fail to realize forecasted sales for a particular period, our
operating results would be adversely affected and our stock price would likely
decline and could decline significantly. The sales cycle of our products is
typically lengthy and involves:
. a significant technical evaluation;
. delays associated with network service providers' internal procedures to
commit to a particular product line offering and approve large capital
expenditures;
. time required to deploy new technologies within service providers'
networks; and
. testing and acceptance of new technologies.
10
<PAGE>
For these and other reasons, a sale of our products generally requires six
to 12 months to complete. Furthermore, the announcement and projected
implementation of new standards may affect sales cycles, as network service
providers may choose to delay large-scale deployment of DSL services until
compliant products are available.
Our product cycles tend to be short, and we may incur substantial non-
recoverable expenses or devote significant resources to sales that do not occur
when anticipated.
In the rapidly changing technology environment in which we operate, product
cycles tend to be short. Therefore, the resources we devote to product sales
and marketing may not generate material revenues for us, and from time to time
we may need to write off excess and obsolete inventory. If we incur substantial
sales, marketing and inventory expenses in the future that we are not able to
recover, and we are not able to compensate for such expenses, our operating
results would be adversely affected. In addition, if we sell our products at
reduced prices in anticipation of cost reductions and we still have higher cost
products in inventory, our business would be harmed, and our results of
operations and financial condition would be adversely affected.
Our operating results in one or more future periods are likely to fluctuate
significantly and may fail to meet or exceed the expectations of securities
analysts or investors, causing our stock price to decline.
Our operating results are likely to fluctuate significantly in the future on
a quarterly and an annual basis due to a number of factors, many of which are
outside our control. If our operating results do not meet the expectations of
securities analysts or investors, our stock price may decline. We cannot assure
you that this will not occur because of the numerous factors that could cause
our revenues and costs to fluctuate. These factors include the following:
. the timing and size of sales of our products and services;
. announcements of new products and product enhancements by competitors;
. the entry of new competitors into our market, including by acquisition;
. unexpected delays in introducing new or enhanced products, including
manufacturing delays;
. our ability to control expenses;
. our ability to ship products on a timely basis and at a reasonable cost;
. the mix of our products sold;
. the volume and average cost of products manufactured;
. the type of distribution channel through which we sell our products;
. the average selling prices of our products; and
. the effectiveness of our product cost reduction efforts.
The amount and timing of our operating expenses generally will vary from
quarter to quarter depending on the level of actual and anticipated business
activities. Research and development expenses will vary as we develop new
products. Due to competitive factors in our market, in the past we have
experienced, and we anticipate that we will continue to experience, decreases
in the average selling prices of our products. Due to these and other factors,
our quarterly revenues, expenses and results of operations could vary
significantly in the future, and you should not rely upon period-to-period
comparisons as indications of future performance. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
11
<PAGE>
Our customer base is concentrated, and the loss of one or more of our customers
could harm our business.
Because DSL service relies upon existing telephone lines to reach end users,
a substantial majority of potential DSL end-user accounts in the U.S. and in
other countries are controlled by a relatively small number of network service
providers. If we are not successful in maintaining relationships with these few
network service providers and the network equipment vendors that supply them,
our business will be harmed.
Although deregulation and increasing competition are expanding our potential
customer base, a small number of customers has accounted for a large portion of
our revenues to date. We sell our DSL products primarily to network service
providers, network equipment vendors and telephone company-aligned
distributors. For the nine months ended March 31, 1999, Covad Communications
Group, Inc. represented 19.6% of our net revenues, and Lucent Technologies Inc.
represented 10.2% of our net revenues. For the fiscal year ended June 30, 1998,
Victron, Inc., a manufacturer for Xylan Corporation, represented 19.6% of our
net revenues, and Telecom Equipment, a distributor for Singapore Telecom,
represented 12.6% of our net revenues. Our top ten customers for the nine
months ended March 31, 1999 accounted for 80.5% of our net revenues. We expect
to continue to be dependent upon a relatively small number of large customers
in future periods, although the specific customers may vary from period to
period. If we are not successful in maintaining relationships with key
customers, and winning new customers, our business would be harmed.
We derive a substantial amount of our revenues from international sources, and
difficulties associated with international operations could harm our business.
A substantial portion of our revenues has been derived from customers
located outside of the U.S. We believe that our continued growth and ability to
attain profitability will require us to continue to penetrate international
markets. If we are unable to successfully overcome the difficulties associated
with international operations and maintain and expand our international
operations, our business would be harmed. These difficulties include:
. difficulties staffing and managing foreign operations;
. changes in regulatory requirements;
. costs and risks of deploying systems in foreign countries;
. licenses, tariffs and other trade barriers;
. political and economic instability;
. potentially adverse tax consequences;
. difficulties obtaining governmental approvals for products;
. compliance with a wide variety of complex foreign laws and treaties; and
. delays or difficulties collecting accounts receivable.
To date, our international sales and component purchases have been
denominated solely in U.S. dollars and, accordingly, we have not been exposed
to fluctuations in non-U.S. currency exchange rates. In the future, a portion
of our international sales may be denominated in currencies other than U.S.
dollars, which would expose us to gains and losses based upon exchange rate
fluctuations. Such gains and losses may contribute to fluctuations in our
operating results.
12
<PAGE>
Risks That May Affect Our Ability to Execute Our Business Plans
We rely on indirect distribution channels and strategic relationships to sell
and manufacture our products, and if we are not able to maintain existing and
develop additional strategic relationships and indirect distribution channels,
our business would be harmed.
Our business strategy relies on our strategic relationships with network
equipment vendors, network service providers, and suppliers of DSL technology.
If our existing relationships are not successful or our competitors are better
able to develop these relationships, our business would be harmed. End users
typically purchase DSL customer premises equipment from network service
providers, and network service providers may purchase DSL customer premises
equipment from independent network equipment vendors and distributors. We
typically work closely with our potential customers and suppliers to ensure
interoperability of products with customer networks and of components with our
DSL customer premises equipment. In addition, we rely on our strategic
relationships with telephone company-aligned distributors in order to broaden
our distribution network. Also, larger vendors of DSL customer premises
equipment may be able to leverage their size and established distribution
channels to gain a significant competitive advantage over us. We cannot assure
you that we will be able to maintain or expand our existing strategic
relationships or that we will be able to establish new relationships in the
future. See "Business--Strategic Relationships."
We continue to rapidly and significantly expand our operations, and our failure
to manage growth could harm our business and adversely affect our results of
operations and financial condition.
We have rapidly and significantly expanded our operations, including the
number of our employees, the geographic scope of our activities and our product
offerings. We expect that further significant expansion will be required to
address potential growth in our customer base and market opportunities. Any
failure to manage growth effectively could harm our business and adversely
affect our operating results and financial condition. We cannot assure you that
we will be able to do any of the following, which we believe are essential to
successfully manage the anticipated growth of our operations:
. improve our existing and implement new operational, financial and
management information controls, reporting systems and procedures;
. hire, train and manage additional qualified personnel;
. expand and upgrade our core technologies; and
. effectively manage multiple relationships with our customers, suppliers
and other third parties.
In the future, we may also experience difficulties meeting the demand for
our products. The installation and use of our products require training. If we
are unable to provide training and support for our products, more time may be
necessary to complete the implementation process and customer satisfaction may
be adversely affected. In addition, our suppliers may not be able to meet
increased demand for our products. We cannot assure you that our systems,
procedures or controls will be adequate to support the anticipated growth in
our operations.
Competition for qualified personnel in the networking equipment and
telecommunications industries is intense, and if we are not successful in
attracting and retaining these personnel, our business would be harmed.
Our future success will depend on the ability of our management to operate
effectively, both individually and as a group. Therefore, the future success of
our business will also depend on our ability to attract and retain high-caliber
personnel. The loss of the services of any of our key personnel, the inability
to attract or retain qualified personnel in the future or delays in hiring
required personnel, particularly engineers, could harm our business.
Because competition for qualified personnel in the networking equipment and
telecommunications industries is intense, we may not be successful in
attracting and retaining such personnel. During 1998, we
13
<PAGE>
added 36 employees to our total work force, representing an increase of
approximately 61% from December 31, 1997. We expect to add additional personnel
in the near future, including direct sales and marketing personnel. There may
be only a limited number of people with the requisite skills to serve in those
positions, and it may become increasingly difficult to hire these people. In
addition, we are actively searching for research and development engineers, who
also are in short supply. Our business will be harmed if we encounter delays in
hiring additional engineers. Furthermore, competitors and others have in the
past and may in the future attempt to recruit our employees. We do not have
employment contracts with any of our key personnel. Although we currently
maintain key person life insurance on our key personnel, we will not continue
to maintain it after the offering.
The loss of the services of one or more of our executive officers or key
employees could harm our business.
Our executive officers and certain key personnel may not remain with us in
the future. These officers and key personnel are critical to our business and
its future success. If we lost the services of one or more of our executive
officers or key employees, or if one or more of them decided to join a
competitor or otherwise compete directly or indirectly with us, this could have
a significant adverse effect on our business. None of our officers or key
employees is bound by agreements for any specific employment term or covenants
not to compete.
Our future success will depend in part on our ability to protect our
proprietary rights and the technologies used in our principal products, and if
we do not enforce and protect our intellectual property or if others bring
infringement claims against us, our business would be harmed.
We rely on a combination of patent, copyright and trademark laws, trade
secrets, confidentiality provisions and other contractual provisions to protect
our proprietary rights. However, these measures afford only limited protection.
Our failure to adequately protect our proprietary rights may adversely affect
us. Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or to obtain and use trade secrets
or other information that we regard as proprietary.
Our means of protecting our proprietary rights in the U.S. or abroad may not
be adequate, and competitors may independently develop similar technologies. In
addition, the laws of some foreign countries do not protect our proprietary
rights as fully as do the laws of the U.S. Issued patents may not preserve our
proprietary position. Even if they do, competitors or others may develop
technologies similar to or superior to our own.
We may become involved in litigation over proprietary rights. In the event
of an adverse result in any future litigation with third parties relating to
proprietary rights, we could be required:
. to pay substantial damages, including treble damages if we are held to
have willfully infringed;
. to halt the manufacture, use and sale of infringing products;
. to expend significant resources to develop non-infringing technology; or
. to obtain licenses to the infringing technology.
Licenses may not be available from any third party that asserts intellectual
property claims against us, on commercially reasonable terms, or at all. In
addition, litigation frequently involves substantial expenditures and can
require significant management attention, even if we ultimately prevail.
However, there can be no assurance that we would be able to successfully
resolve such disputes in the future.
From time to time, third parties, including our competitors, have asserted
patent, copyright and other intellectual property rights to technologies that
are important to us. We expect that we will increasingly be subject to
infringement claims as the number of products and competitors in the high-speed
data access market grows and the functionality of products overlaps. See
"Business--Intellectual Property."
14
<PAGE>
Our products and those of our customers are subject to government regulations,
and changes in current or future laws or regulations that negatively impact our
products and technologies could harm our business.
The jurisdiction of the Federal Communications Commission, or the FCC,
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 certain 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 results of operations and financial condition.
Additional Risks That May Affect Our Stock Price
Our failure or the failure of our key suppliers and customers to be Year 2000
compliant would harm our business.
Many currently installed computer systems are not capable of distinguishing
21st century dates from 20th century dates. As a result, beginning on January
1, 2000, computer systems and software used by many companies and organizations
in a wide variety of industries, including technology, transportation,
utilities, finance and telecommunications, will produce erroneous results or
fail unless they have been modified or upgraded to process date information
correctly. Year 2000 compliance efforts may involve significant time and
expense, and uncorrected problems could adversely affect our business,
financial condition and operating results. We may face claims based on Year
2000 issues arising from the integration of multiple products within an overall
network. We may also experience reduced sales of our products as potential
customers reduce their budgets for network equipment and network services due
to increased expenditures on their own Year 2000 compliance efforts. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000 Issues."
We have broad discretion to use the offering proceeds, and we cannot assure you
that how we invest these proceeds will yield a favorable return.
Substantially all of the net proceeds of this offering are not allocated for
specific uses other than working capital and general corporate purposes. Thus,
our management will have broad discretion over how these proceeds are used and
could spend most of these proceeds in ways with which the stockholders may not
agree. We cannot assure you that the proceeds will be invested to yield a
favorable return. See "Use of Proceeds."
We may need additional capital in the future, and if we are unable to secure
adequate funds on terms acceptable to us, we may be unable to execute our
business plan.
If the proceeds of this offering, together with our existing cash balances
and cash flow expected from future operations, are not sufficient to meet our
liquidity needs, we will need to raise additional funds. If adequate funds are
not available on acceptable terms or at all, we may not be able to take
advantage of market opportunities, to develop new products or to otherwise
respond to competitive pressures. This inability would harm our business.
In addition, we expect from time to time to review potential acquisitions
that would complement our existing product offerings or enhance our technical
capabilities. While we have no current agreements or negotiations underway with
respect to any potential acquisition, any future transaction of this nature
could require potentially significant amounts of capital. Funds may not be
available at the time or times needed, or available on terms acceptable to us.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
15
<PAGE>
Our securities have no prior market, and our stock price may decline after the
offering.
Before this offering, there has not been a public market for our common
stock and an active public market for our common stock may not develop or be
sustained after this offering. We cannot assure you that our stock price will
not fluctuate or decline below our initial public offering price. The initial
public offering price will be determined by negotiations between us and the
representatives of the underwriters. See "Underwriting" for a discussion of the
factors to be considered in determining the initial public offering price.
There are substantial shares of common stock eligible for future sale, and such
sales may depress our stock price.
After this offering, we will have outstanding shares of common stock.
The shares sold in this offering will be freely tradeable. The remaining
shares of common stock outstanding after this offering will be available for
sale, assuming the effectiveness of certain lock-up arrangements with the
underwriters under which the stockholders have agreed not to sell or otherwise
dispose of their shares of common stock, in the public market as follows:
<TABLE>
<CAPTION>
Number
of
Shares Date of Availability for Sale
- ------ -----------------------------
<S> <C>
, 1999 (date of this prospectus)
, 1999 (90 days after the date of this
prospectus)
, 1999 (after 180 days following the date of
this prospectus); and the remaining shares at various
times thereafter upon the expiration of one-year holding
periods
</TABLE>
If our stockholders sell substantial amounts of common stock in the public
market, including shares issuable upon the exercise of outstanding options, the
market price of our common stock could fall. See "Shares Eligible for Future
Sale" and "Underwriting."
New investors will incur substantial and immediate dilution.
Investors purchasing stock in this offering will incur substantial and
immediate dilution in net tangible book value of $ per share. To the
extent that currently outstanding options and warrants are exercised, there
will be further dilution in net tangible book value.
Our principal stockholders and management have the ability to control
stockholder votes regarding changes in control and other actions, and such
control could adversely affect our stock price or lessen any premium over
market price that an acquiror might otherwise pay.
Our executive officers and directors and principal stockholders will own
more than % of the outstanding common stock after this offering, or %
if the underwriters' option is fully exercised. These stockholders may
therefore determine the composition of the board of directors, approve all
matters that require stockholder approval and influence management affairs.
This concentration of ownership may delay or prevent a beneficial merger or
discourage a potential acquiror. This level of control could adversely affect
our stock's market price or lessen any premium over market price that an
acquiror might otherwise pay. See "Management" and "Principal Stockholders."
Certain provisions of our charter documents may make acquiring control of our
company more difficult for a third party, which could adversely affect our
stock's market price or lessen any premium over market price that an acquiror
might otherwise pay.
Our charter documents contain provisions providing for a classified board of
directors, eliminating cumulative voting in the election of directors and
restricting our stockholders from acting without a meeting. These provisions
may make certain corporate actions more difficult and might delay or prevent a
change in control and therefore limit the price that new investors will pay for
our stock. Further, the board of directors may issue up to 10,000,000 new
shares of preferred stock with certain rights, preferences, privileges and
16
<PAGE>
restrictions, including voting rights, without any vote by our stockholders.
Our existing stockholders may be adversely affected by the rights of this
preferred stock. New preferred stock might also be used to make acquiring
control more difficult. We have no current plans to issue shares of preferred
stock. We will also indemnify officers and directors against losses incurred in
legal proceedings to the broadest extent permitted by Delaware law.
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.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of these
statements. We are under no duty to update any of the forward-looking
statements after the date of this prospectus to conform these statements to
actual results.
17
<PAGE>
USE OF PROCEEDS
The net proceeds to us from the sale of the shares of common
stock offered by us are estimated to be $ , or approximately $ if
the underwriters' over-allotment option is exercised in full, at the assumed
initial public offering price of $ per share, after deducting
underwriting discounts and commissions and the estimated offering expenses.
We intend to use the net proceeds of this offering primarily for general
corporate purposes including working capital and sales and marketing efforts.
We may also 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 to do so. Pending use of
the net proceeds of this offering, we intend to invest the net proceeds in
interest-bearing, investment-grade 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.
18
<PAGE>
CAPITALIZATION
The table below sets forth the following information:
. the actual capitalization of Efficient as of March 31, 1999;
. the pro forma capitalization of Efficient after giving effect to (1) the
conversion of $9.0 million of long-term debt into 3,082,191 shares of
redeemable convertible preferred stock through the exercise of certain
outstanding warrants and (2) the conversion of all outstanding shares of
redeemable convertible preferred stock into presently outstanding shares
of common stock; and
. the pro forma capitalization as adjusted to give effect to the sale of
shares of common stock at the assumed initial public offering
price of $ per share in this offering, less underwriting discounts
and commissions and the estimated offering expenses payable by Efficient.
<TABLE>
<CAPTION>
March 31, 1999
---------------------------------
Pro
Forma As
Actual Pro Forma Adjusted
------------ ----------- --------
(in thousands, except share and
per share data)
<S> <C> <C> <C>
Long-term debt, net of discount............. $ 4,253 $ -- $
Redeemable convertible preferred stock;
issuable in series, $0.001 par value,
31,136,913 shares authorized, 24,720,213
shares issued and outstanding, actual; none
issued and outstanding, pro forma and pro
forma as adjusted.......................... 40,408 --
Stockholders' equity (deficit):
Common stock, $0.001 par value; 100,000,000
shares authorized; 3,918,765 shares issued
and outstanding, actual; 31,721,169 shares
issued and outstanding, pro forma and
shares outstanding, pro forma as
adjusted................................... 4 32
Additional paid-in capital.................. 18,041 68,865
Deferred stock option compensation.......... (12,436) (12,436)
Accumulated deficit......................... (38,645) (42,836)
------- ------- -----
Total stockholders' equity (deficit)........ (33,036) 13,625
------- ------- -----
Total capitalization........................ $11,625 $13,625 $
======= ======= =====
</TABLE>
This table excludes the following shares:
. 6,470,575 shares subject to options outstanding as of March 31, 1999
under our stock option plans;
. 3,700,000 shares reserved for future issuance under our stock option and
employee stock purchase plans; and
. 167,746 shares issuable upon exercise of certain outstanding warrants.
See "Management--Benefit Plans," "Description of Capital Stock" and Notes 8,
9 and 10 of Notes to Consolidated Financial Statements.
19
<PAGE>
DILUTION
The pro forma net tangible book value of our common stock on March 31, 1999
was $13.6 million, or approximately $0.43 per share. Pro forma net tangible
book value per share represents the amount of our total tangible assets less
total liabilities, divided by the number of shares of common stock outstanding
after giving pro forma effect to (1) the conversion of $9.0 million of long-
term debt into an aggregate of 3,082,191 shares of redeemable convertible
preferred stock through the exercise of certain warrants and (2) the conversion
of all outstanding shares of redeemable convertible preferred stock into
24,720,213 shares of common stock, each as if they had occurred at March 31,
1999. Dilution in pro forma net tangible book value per share represents the
difference between the amount per share paid by purchasers of shares of our
common stock in this offering and the pro forma net tangible book value per
share of our common stock immediately afterwards. After giving effect to our
sale of shares of common stock offered by this prospectus at the
assumed initial public offering price of $ per share and after deducting
underwriting discounts and commissions and the estimated offering expenses
payable by us, our pro forma net tangible book value would have been $ ,
or approximately $ per share. This represents an immediate increase in
pro forma net tangible book value of $ per share to existing stockholders
and an immediate dilution in net tangible book value of $ per share to
new investors.
<TABLE>
<S> <C> <C>
Assumed public offering price per share............................ $
Pro forma net tangible book value per share as of March 31,
1999............................................................ $0.43
Increase per share attributable to new investors.................
-----
Pro forma net tangible book value per share after the offering.....
Dilution in pro forma net tangible book value per share to new
investors......................................................... $
====
</TABLE>
This table excludes all options and warrants outstanding as of March 31,
1999, other than the warrants to purchase 3,082,191 shares of redeemable
convertible preferred stock that will be exercised immediately prior to the
completion of this offering. See Notes 6 and 7 of Notes to Consolidated
Financial Statements. The exercise of outstanding options and warrants having
an exercise price less than the offering price would increase the dilutive
effect to new investors.
The following table sets forth, as of March 31, 1999, the differences
between the number of shares of common stock purchased from us, the total
consideration and average price per share paid by existing stockholders and by
the new investors, before deducting the underwriting discounts and commissions
and estimated expenses payable by us, assuming an initial public offering price
of $ per share.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
--------------------- ---------------------- Average Price
Number Percentage Amount Percentage Per Share
---------- ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders... 31,721,169 % $55,785,000 % $ 1.76
New investors...........
---------- ----- ----------- -----
Total................. 100.0% $ 100.0%
========== ===== =========== =====
</TABLE>
The existing stockholder information includes warrants to purchase 3,082,191
shares of redeemable convertible preferred stock that will be exercised prior
to the completion of this offering. See "Capitalization" and "Certain
Transactions."
If the underwriters' over-allotment option is exercised in full, the
following will occur:
. the number of shares of common stock held by existing stockholders will
decrease to approximately % of the total number of shares of common
stock outstanding after this offering; and
. the number of shares held by new public investors will be increased to
or approximately % of the total number of shares of our
common stock outstanding after this offering.
20
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and are qualified by reference to the Consolidated Financial
Statements and Notes thereto appearing elsewhere in this prospectus. The
statement of operations data set forth below for the years ended June 30, 1996,
1997 and 1998, and the nine months ended March 31, 1999 and the balance sheet
data at June 30, 1997, 1998 and March 31, 1999, are derived from, and are
qualified by reference to, the audited Consolidated Financial Statements of
Efficient included elsewhere in this prospectus. The statement of operations
data set forth below for the years ended June 30, 1994 and 1995 and the balance
sheet data at June 30, 1995 and 1996 are derived from audited Consolidated
Financial Statements of Efficient not included in this prospectus. The balance
sheet data at June 30, 1994 is derived from unaudited financial statements not
included in this prospectus. The statement of operations data for the nine
months ended March 31, 1998 and balance sheet data at the end of that period
are derived from unaudited interim consolidated financial statements of
Efficient. In the opinion of management, such unaudited consolidated financial
statements have been prepared on the same basis as the audited consolidated
financial statements referred to above and contain all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of
Efficient's financial results and position for the indicated periods and dates.
The historical results are not necessarily indicative of results to be expected
for any future period.
<TABLE>
<CAPTION>
Nine Months Ended
Fiscal Year Ended June 30, March 31,
------------------------------------------------ ------------------
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Net revenues............ $ 500 $ 2,314 $ 3,687 $ 4,122 $ 3,370 $ 2,703 $ 7,139
Cost of revenues........ -- 1,125 2,209 2,386 2,160 1,553 6,699
-------- -------- -------- -------- -------- -------- --------
Gross profit............ 500 1,189 1,478 1,736 1,210 1,150 440
-------- -------- -------- -------- -------- -------- --------
Operating expenses:
Sales and marketing... 238 1,505 2,366 2,409 3,436 2,232 3,856
Research and
development.......... 1,341 3,405 3,853 4,183 4,157 2,845 5,546
General and
administrative....... 692 822 1,082 1,245 1,641 1,197 1,234
Stock option
compensation......... -- -- -- 73 46 34 820
-------- -------- -------- -------- -------- -------- --------
Total operating
expenses............ 2,271 5,732 7,301 7,910 9,280 6,308 11,456
-------- -------- -------- -------- -------- -------- --------
Loss from operations.... (1,771) (4,543) (5,823) (6,174) (8,070) (5,158) (11,016)
Interest and other
income (expense), net.. 67 248 177 125 130 81 (1,980)
-------- -------- -------- -------- -------- -------- --------
Net loss................ $ (1,704) $ (4,295) $ (5,646) $ (6,049) $ (7,940) $ (5,077) $(12,996)
======== ======== ======== ======== ======== ======== ========
Basic and diluted net
loss per share(1)...... $ (0.68) $ (1.56) $ (1.99) $ (2.00) $ (2.44) $ (1.59) $ (3.48)
======== ======== ======== ======== ======== ======== ========
Weighted average
shares(1).............. 2,521 2,750 2,838 3,027 3,254 3,193 3,807
======== ======== ======== ======== ======== ======== ========
Unaudited pro forma
basic and diluted net
loss per share......... $ (0.35) $ (0.64)
======== ========
Weighted average shares
used to compute
unaudited pro forma
basic and diluted net
loss per share......... 22,886 27,077
======== ========
Consolidated Balance
Sheet Data:
Cash and cash
equivalents............ $ 1,617 $ 2,711 $ 1,363 $ 3,413 $ 7,607 $ 4,617 $ 4,596
Working capital......... 1,565 3,400 2,619 4,370 7,870 5,457 9,473
Total assets............ 2,710 6,357 5,150 6,454 10,667 7,919 17,234
Redeemable convertible
preferred stock........ 4,125 11,155 16,155 23,635 34,743 25,142 40,408
Total stockholders'
deficit................ (1,716) (6,008) (11,644) (17,610) (25,374) (22,671) (33,036)
</TABLE>
- --------
(1) Note 2 of Notes to Consolidated Financial Statements provides an
explanation of the determination of the weighted average shares used to
compute net loss per share.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements and Notes thereto, as well as the other information
included elsewhere in this prospectus.
Overview
We are a leading worldwide independent supplier of high-speed DSL customer
premises equipment for the broadband access market. Our DSL solutions enable
telecommunications and other network service providers to provide high-speed,
cost-effective broadband access services over the existing copper wire
telephone infrastructure to both business and residential markets. We therefore
focus on developing and producing single- and multiple-user DSL customer
premises equipment for small- to medium-size businesses, branch offices of
large corporations and consumers. Our DSL products enable applications such as
high-speed Internet access, electronic commerce, remote access, telecommuting
and extensions of corporate networks to branch offices.
We were incorporated in June 1993. From inception through fiscal 1997, we
primarily focused on developing and selling ATM-based products for local area
network, or LAN, applications. During fiscal 1997 we began to leverage our ATM,
personal computing environment and networking expertise to develop DSL modem
products for high-speed Internet access. Although we continue to sell ATM LAN
products, we have largely discontinued further development efforts on such
products and are currently focusing on our DSL products. We shipped our first
DSL products in the third quarter of fiscal 1998. Our DSL products, which
accounted for less than three percent of net revenues in fiscal 1998,
represented 87.3% of our net revenues in the third quarter of fiscal 1999. We
expect sales of our ATM LAN products to continue to gradually decrease in
absolute amount over the next one to two years, and to decrease substantially
as a percentage of net revenues during that time.
We derive our revenues from sales of our SpeedStream family of DSL products
and, to a lesser extent, our ATM LAN products. We sell our DSL products
primarily to network service providers, network equipment vendors and telephone
company-aligned distributors. For the nine months ended March 31, 1999, Covad
Communications represented 19.6% of our net revenues, and Lucent Technologies
represented 10.2% of our net revenues. For the fiscal year ended June 30, 1998,
Victron, a manufacturer for Xylan, represented 19.6% of our net revenues, and
Telecom Equipment, a distributor for Singapore Telecom, represented 12.6% of
our net revenues. Our top ten customers for the nine months ended March 31,
1999 accounted for 80.5% of our net revenues. We expect to continue to be
dependent upon a relatively small number of large customers in future periods,
although the specific customers may vary from period to period.
Since inception, a substantial portion of our revenues has been derived from
customers located outside of the United States and we expect this trend to
continue. Revenues derived from customers outside the United States represented
52% of our net revenues in fiscal 1998 and 35% of our net revenues for the nine
months ended March 31, 1999. We currently maintain a European sales office in
Amsterdam and are opening an Asian sales office in Singapore in May 1999. We
believe that in order to continue growing and attain profitability, we must
continue to penetrate international markets. Accordingly, we will need to
expand our international operations and to hire qualified personnel for these
operations.
To date, international sales have been denominated solely in U.S. dollars
and, accordingly, we have not been exposed to fluctuations in non-U.S. currency
exchange rates. In the future, a portion of our international sales may be
denominated in currencies other than U.S. dollars, which would then expose us
to gains and losses based upon exchange rate fluctuations.
The gross margins on our DSL products have been below the levels that our
business has historically achieved. The lower gross margins on our DSL products
have been a result of manufacturing start-up costs and volume discounts given
to quickly introduce products into the market. While we believe that our gross
margins
22
<PAGE>
will improve in the near term as a result of manufacturing and component cost
reductions, we do not expect to attain gross margins comparable to those we
historically achieved until at least the second half of fiscal 2000. Other
factors that will affect our gross margin include the product mix sold in any
particular period, distribution channels, competitive pressures and levels of
volume discounts.
Our limited operating history in the DSL market makes it difficult to
forecast our future operating results. To date, we have not achieved
profitability in any quarter or annual period, and as of March 31, 1999, we had
an accumulated deficit of $38.6 million. Although our net revenues have grown
in recent quarters, we cannot be certain that our net revenues will increase at
a rate sufficient to achieve and maintain profitability.
For the fiscal years 1997 and 1998 and for the nine months ended March 31,
1999, we accrued an aggregate of $13.4 million in deferred stock option
compensation. This amount represents the difference between the exercise price
of certain stock options granted during such periods and the deemed fair market
value of our common stock at the time of such option grants. We are amortizing
the deferred stock option compensation over the vesting periods of the
applicable options, generally four years. We amortized deferred stock option
compensation in the amounts of $73,000, $46,000 and $820,000 in fiscal years
1997 and 1998 and the nine months ended March 31, 1999, respectively. We expect
to amortize the deferred stock option compensation at the rate of approximately
$830,000 per quarter until fully amortized.
The following table sets forth, for the periods presented, certain data from
Efficient's consolidated statement of operations expressed as a percentage of
net revenues.
<TABLE>
<CAPTION>
Nine Months
Fiscal Year Ended Ended March
June 30, 31,
------------------------ ---------------
1996 1997 1998 1998 1999
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net revenues..................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues................. 59.9 57.9 64.1 57.5 93.8
------ ------ ------ ------ ------
Gross profit..................... 40.1 42.1 35.9 42.5 6.2
------ ------ ------ ------ ------
Operating expenses:
Sales and marketing............ 64.2 58.4 102.0 82.6 54.0
Research and development....... 104.5 101.5 123.3 105.2 77.7
General and administrative..... 29.3 30.2 48.7 44.3 17.3
Stock option compensation...... -- 1.8 1.4 1.2 11.5
------ ------ ------ ------ ------
Total operating expenses..... 198.0 191.9 275.4 233.3 160.5
------ ------ ------ ------ ------
Loss from operations............. (157.9) (149.8) (239.5) (190.8) (154.3)
Interest and other income
(expense), net.................. 4.8 3.1 3.9 3.0 (27.7)
------ ------ ------ ------ ------
Net loss......................... (153.1)% (146.7)% (235.6)% (187.8)% (182.0)%
====== ====== ====== ====== ======
</TABLE>
23
<PAGE>
Results of Operations
Nine Months Ended March 31, 1998 and 1999
Net Revenues
Net revenues consist of product sales, net of allowances for returns. Net
revenues increased 164.1%, from $2.7 million for the nine months ended March
31, 1998 to $7.1 million for the nine months ended March 31, 1999. This
increase was attributable to the initial market adoption of our DSL products,
which first became available in the quarter ended March 31, 1998, partially
offset by a decrease in ATM LAN product revenues as we continued to shift
emphasis toward DSL products. We expect ATM LAN product revenues to continue to
decrease over time.
Cost of Revenues
Cost of revenues consists of amounts paid to third-party contract
manufacturers, manufacturing start-up expenses and the personnel and related
costs of our manufacturing operation. Cost of revenues increased 331.4% from
$1.6 million for the nine months ended March 31, 1998 to $6.7 million for the
nine months ended March 31, 1999, reflecting the substantial increase in DSL
product sales. Gross margin represented 42.5% of net revenues for the nine
months ended March 31, 1998, compared to 6.2% for the nine months ended
March 31, 1999. Our gross margin was lower in the current period as we focused
on bringing our DSL products to market quickly and as we began to add personnel
to our manufacturing operations in anticipation of higher levels of business
going forward. We took a number of actions that were designed to bring our DSL
products to market quickly but which also adversely affected our gross margins.
These actions included initial volume price discounts for key customers and
incremental costs such as manufacturing start-up, expedite and other
incremental shipping and handling charges associated with initial low volume
manufacturing. The higher costs incurred on our DSL products were partially
offset by improved manufacturing efficiencies realized on our ATM LAN products.
We expect our gross margins to continue to remain below our historical levels
through at least the first half of fiscal 2000 as we continue to focus on
quickly bringing our DSL products to market.
Sales and Marketing Expenses
Sales and marketing expenses consist primarily of employee salaries,
commissions and benefits, and advertising, promotional materials and trade show
exhibit expenses. Sales and marketing expenses increased 72.8% from $2.2
million for the nine months ended March 31, 1998 to $3.9 million for the nine
months ended March 31, 1999. As a percentage of net revenues, sales and
marketing expenses decreased from 82.6% for the nine months ended March 31,
1998 to 54.0% for the nine months ended March 31, 1999. The substantial
increase in sales and marketing expenses in absolute amounts was attributable
to our aggressive efforts to launch our DSL products. The decrease in such
expenses as a percentage of net revenues was a result of the rapid increase in
DSL revenues. We expect sales and marketing expenses to increase in dollar
amount in future periods as we continue to expand our domestic and
international sales and marketing organization.
Research and Development Expenses
Research and development expenses consist primarily of personnel and related
costs associated with our product development efforts, including third-party
consulting and prototyping costs. Research and development expenses increased
94.9% from $2.8 million for the nine months ended March 31, 1998 to $5.5
million for the nine months ended March 31, 1999. As a percentage of net
revenues, research and development expenses decreased from 105.2% for the nine
months ended March 31, 1998 to 77.7% for the nine months ended March 31, 1999.
The substantial increase in research and development spending from period to
period was primarily a result of increased personnel and related costs
associated with a larger research and development organization, as well as
design and prototype expenses incurred in connection with the roll-out of our
DSL products. Additionally, research and development spending in fiscal 1998
was partially offset by $1.1 million of nonrecurring engineering expenses
reimbursed by third parties. These amounts are treated as an offset to the
24
<PAGE>
related research and development spending. We received no such reimbursements
in the fiscal 1999 period. The decrease in such expenses as a percentage of net
revenues was a result of the rapid increase in DSL revenues. We expect research
and development expenses to increase in dollar amount in future periods as we
continue to expand our research and development organization to develop new
products and technologies.
General and Administrative Expenses
General and administrative expenses consist primarily of employee salaries
and related expenses for executive, administrative and accounting personnel,
facility costs, insurance costs and professional fees. General and
administrative expenses remained consistent at $1.2 million for the nine months
ended March 31, 1998 and March 31, 1999. As a percentage of net revenues,
general and administrative expenses decreased from 44.3% for the nine months
ended March 31, 1998 to 17.3% for the nine months ended March 31, 1999. The
decrease in such expenses as a percentage of net revenues was a result of the
increase in DSL revenues. We expect general and administrative expenses to
increase in dollar amount in future periods as we continue to build our
infrastructure and as a result of operating as a publicly-held company.
Stock Option Compensation
During the nine months ended March 31, 1998, stock option compensation
totaled $34,000. For the nine months ended March 31, 1999, this expense totaled
$820,000. See Note 8 of Notes to Consolidated Financial Statements for a
discussion of our stock option compensation.
Interest and Other Income (Expense), Net
Interest and other income (expense), net consists primarily of interest
earned on cash and cash equivalents offset by miscellaneous non-operating
expenses. Interest and other income (expense), net went from income of $81,000
for the nine months ended March 31, 1998 to an expense of $2.0 million for the
nine months ended March 31, 1999. In the quarter ended March 31, 1999, we
borrowed $7.0 million from our existing investors. These notes bear interest at
10% per year, and are payable on the earlier of January 2002 or the completion
of an initial public offering. In connection with these notes, we issued the
investors warrants to purchase 2,397,260 shares of Series H preferred stock at
an exercise price of $2.92 per share. The principal amount of the outstanding
debt is expected to be canceled through the exercise of these warrants. The
proceeds were allocated between the notes and the warrants based on their pro
rata fair values resulting in a discount. As the notes will be canceled in
connection with this offering, the discount is being amortized as interest
expense over six months. Accordingly, we expect the interest related to these
notes to be an expense of approximately $4.1 million for the quarter ending
June 30, 1999. Thereafter, we expect interest and other income (expense), net
to vary depending upon changes in the amount and mix of interest-bearing
investments outstanding during each period.
Income Taxes
From inception through March 31, 1999, we incurred net losses for federal
and state tax purposes and have not recognized any tax provision or benefit. As
of March 31, 1999, we had approximately $36.0 million of federal net operating
loss carryforwards to offset future taxable income which will begin to expire
in varying amounts beginning in 2008. Given our limited operating history,
losses incurred to date and the difficulty in accurately forecasting our future
results, management does not believe that the recognition of the related
deferred income tax asset meets the criteria required by generally accepted
accounting principles. Accordingly, a 100% valuation allowance has been
recorded. Furthermore, as a result of changes in Efficient's equity ownership
from Efficient's redeemable convertible preferred stock financings, note
financings and this offering, utilization of the net operating losses and tax
credits may be subject to substantial annual limitations due to the ownership
change limitations provided by the Internal Revenue Code of 1986, as amended,
and similar state provisions. The annual limitation may result in the
expiration of net operating losses and tax credits before utilization. See Note
11 of Notes to Consolidated Financial Statements.
25
<PAGE>
Fiscal Years Ended June 30, 1996, 1997 and 1998
Net Revenues
Net revenues increased 11.8%, from $3.7 million in fiscal 1996 to $4.1
million in fiscal 1997. Net revenues decreased 18.2% to $3.4 million in fiscal
1998. Our DSL products, first introduced in late fiscal 1998, represented less
than 3% of net revenues in that year. Accordingly, for fiscal 1998 and earlier,
sales of DSL products were not a material portion of our business. ATM LAN
product revenues increased from fiscal 1996 to 1997 primarily as a result of
increased sales of higher-priced ATM LAN products. During fiscal 1997, we made
the strategic decision to begin focusing on developing our DSL products and, as
a result, significantly reduced the level of development and support activities
associated with our ATM LAN products. As a result of this change in focus, ATM
LAN product revenues declined from fiscal 1997 to 1998. This decrease was only
slightly offset by sales of prototype DSL products that began in the second
half of fiscal 1998.
Cost of Revenues
Cost of revenues increased from $2.2 million in fiscal 1996 to $2.4 million
in fiscal 1997, and then decreased to $2.2 million in fiscal 1998, reflecting
the increase in net revenues from fiscal 1996 to 1997 and the subsequent
decrease in net revenues from fiscal 1997 to 1998. Gross margins were 40.1% in
fiscal 1996, 42.1% in fiscal 1997 and 35.9% in fiscal 1998. The improvement in
gross margins from fiscal 1996 to 1997 reflected better pricing that we were
able to obtain from our component suppliers and contract manufacturers, as well
as increased sales of higher margin ATM LAN products. Gross margins decreased
from fiscal 1997 to 1998 as we began to incur manufacturing start-up costs
associated with our DSL products.
Sales and Marketing Expenses
Sales and marketing expenses remained relatively consistent at $2.4 million
in fiscal 1996 and 1997. The expenses increased 42.6% to $3.4 million in fiscal
1998. The increases in sales and marketing expenses in absolute amount from
fiscal 1997 to 1998 resulted primarily from sales and marketing activities
associated with the launch of our DSL products. These launch costs included
significant personnel-related expenses associated with increasing the size of
our sales and marketing organization, and increased trade show activities and
related travel expenses. Sales and marketing expenses represented 64.2% of net
revenues in fiscal 1996, 58.4% in fiscal 1997 and 102.0% in fiscal 1998. The
decrease in sales and marketing expenses as a percentage of net revenues from
fiscal 1996 to 1997 reflected the growth in net revenues from period to period.
The increases in sales and marketing expenses as a percentage of net revenues
from fiscal 1997 to 1998 were primarily a result of the up front spending
required to launch our DSL products, which only began to constitute a
significant portion of our revenues in fiscal 1999.
Research and Development Expenses
Research and development expenses increased 8.6%, from $3.9 million in
fiscal 1996 to $4.2 million in fiscal 1997. These expenses remained consistent
in fiscal 1998 at $4.2 million. The increase in research and development
expenses in absolute amount from fiscal 1996 to 1997 reflected the beginning of
our DSL product development efforts. In fiscal 1998, we received $1.1 million
from third parties for nonrecurring engineering expenses related to certain DSL
product development activity, which was used to offset research and development
spending. Accordingly, while the net amount of research and development
spending in fiscal 1998 was consistent with the fiscal 1997 level, our gross
research and development spending increased 25.7% from fiscal 1997 to 1998.
Research and development expenses represented 104.5% of net revenues in fiscal
1996, 101.5% in fiscal 1997 and 123.3% in fiscal 1998. The slight decreases in
research and development expenses as a percentage of net revenues from fiscal
1996 to 1997 primarily reflected the higher rate of revenue growth in fiscal
1997. The substantial increases in research and development expenses as a
percentage of net revenues from fiscal 1997 to 1998 reflected our early
investment in developing our DSL products.
General and Administrative Expenses
General and administrative expenses increased 15.1%, from $1.1 million in
fiscal 1996 to $1.2 million in fiscal 1997, and 31.8% to $1.6 million in fiscal
1998. The increases in absolute amount of general and
26
<PAGE>
administrative spending from period to period were primarily a result of
increases in headcount associated with building our infrastructure. General and
administrative expenses represented 29.3% of net revenues in fiscal 1996, 30.2%
in fiscal 1997 and 48.7% in fiscal 1998. The substantial increase in general
and administrative expenses as a percentage of net revenues in fiscal 1998
primarily reflected lower revenues in that year.
Stock Option Compensation
For the year ended June 30, 1997, we recorded aggregate deferred stock
option compensation totaling $256,000 in connection with certain stock option
grants. Amortization of deferred stock option compensation was $73,000 for that
year and $46,000 for fiscal 1998. Efficient did not record deferred stock
option compensation for periods prior to fiscal 1997. See Note 8 of Notes to
Consolidated Financial Statements for a discussion of our deferred stock option
compensation.
Interest and Other Income (Expense), Net
Interest and other income (expense), net decreased from $177,000 in fiscal
1996 to $125,000 in fiscal 1997, and increased to $130,000 in fiscal 1998.
Interest and other income (expense), net fluctuated during these periods
primarily due to changes in the amount and mix of interest-bearing investments
outstanding during each period.
27
<PAGE>
Quarterly Results of Operation
The following table sets forth, for the periods presented, certain data from
Efficient's consolidated statement of operations and such data as a percentage
of net revenues. The consolidated statement of operations data have been
derived from our unaudited consolidated financial statements. In management's
opinion, these statements have been prepared on substantially the same basis as
the audited consolidated financial statements and include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial information for the periods presented. This
information should be read in conjunction with the Consolidated Financial
Statements and Notes thereto included elsewhere in this prospectus. The
operating results in any quarter are not necessarily indicative of the results
that may be expected for any future period. We have incurred net losses in each
quarter since inception, and we expect to continue to incur losses for the
foreseeable future.
<TABLE>
<CAPTION>
Quarter Ended
-------------------------------------------------------------------------------------
September 30, December 31, March 31, June 30, September 30, December 31, March 31,
1997 1997 1998 1998 1998 1998 1999
------------- ------------ --------- -------- ------------- ------------ ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net revenues............ $ 676 $ 833 $ 1,194 $ 667 $ 1,174 $ 1,850 $ 4,115
Cost of revenues........ 396 413 744 607 863 1,647 4,189
------- ------- ------- ------- ------- ------- -------
Gross profit............ 280 420 450 60 311 203 (74)
Operating expenses:
Sales and marketing.... 643 694 895 1,204 1,168 1,303 1,385
Research and
development........... 1,044 737 1,064 1,312 1,826 1,790 1,930
General and
administrative........ 305 346 546 444 339 411 484
Stock option
compensation.......... 11 11 12 12 24 67 729
------- ------- ------- ------- ------- ------- -------
Total operating
expenses.............. 2,003 1,788 2,517 2,972 3,357 3,571 4,528
------- ------- ------- ------- ------- ------- -------
Loss from operations.... (1,723) (1,368) (2,067) (2,912) (3,046) (3,368) (4,602)
Interest and other
income (expense), net.. 34 12 35 49 80 30 (2,090)
------- ------- ------- ------- ------- ------- -------
Net loss................ $(1,689) $(1,356) $(2,032) $(2,863) $(2,966) $(3,338) $(6,692)
======= ======= ======= ======= ======= ======= =======
As a Percentage of Net
Revenues:
Net revenues............ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues........ 58.6 49.6 62.3 91.0 73.5 89.0 101.8
------- ------- ------- ------- ------- ------- -------
Gross profit............ 41.4 50.4 37.7 9.0 26.5 11.0 (1.8)
Operating expenses:
Sales and marketing.... 95.1 83.3 75.0 180.5 99.5 70.4 33.6
Research and
development........... 154.5 88.5 89.1 196.7 155.5 96.8 46.9
General and
administrative........ 45.1 41.5 45.7 66.6 28.9 22.2 11.8
Stock option
compensation.......... 1.6 1.3 1.0 1.8 2.0 3.6 17.7
------- ------- ------- ------- ------- ------- -------
Total operating
expenses.............. 296.3 214.6 210.8 445.6 285.9 193.0 110.0
------- ------- ------- ------- ------- ------- -------
Loss from operations.... (254.9) (164.2) (173.1) (436.6) (259.4) (182.0) (111.8)
Interest and other
income (expense), net.. 5.0 1.4 2.9 7.3 6.8 1.6 (50.8)
------- ------- ------- ------- ------- ------- -------
Net loss................ (249.9)% (162.8)% (170.2)% (429.2)% (252.6)% (180.4)% (162.6)%
======= ======= ======= ======= ======= ======= =======
</TABLE>
Our net revenues and results of operations have fluctuated significantly
from quarter to quarter in the past, and we expect these fluctuations to
continue in the future. The following discussion highlights significant events
that have impacted our net revenues and financial results for the seven
quarters in the period ended March 31, 1999.
28
<PAGE>
Net Revenues
Net revenues increased each quarter beginning in the quarter ended June 30,
1998 due to increased sales of our new DSL products, partially offset in two
quarters by decreased revenues from our ATM LAN products. Sales of our DSL
products have increased significantly quarter to quarter since we introduced
them in the third quarter of fiscal 1998. Net revenues increased in the first
three quarters of fiscal 1998 as demand for our ATM LAN products was
increasing. With the decision to focus on DSL products, we greatly reduced our
sales, marketing and development efforts for our ATM LAN products. As a result,
sales of these products began to decline in the fourth quarter of fiscal 1998,
and have fluctuated during the first three quarters of fiscal 1999. We expect
sales of our ATM LAN products to continue to gradually decrease in absolute
amount over the next one to two years, although sales of such products may
fluctuate from quarter to quarter.
Cost of Revenues
Cost of revenues has increased in absolute dollars in most quarterly
periods. Gross margins have fluctuated from a high of 50.4% in the second
quarter of fiscal 1998 to a gross loss of 1.8% for the quarter ended March 31,
1999. Gross margins have been adversely affected by volume price discounts for
customers in order to get our DSL products quickly into the marketplace as well
as manufacturing start-up costs and inefficiencies related to the relatively
low manufacturing levels for some of our DSL products.
Operating Expenses
Operating expenses generally increased in absolute amount from quarter to
quarter during fiscal 1998 and 1999. As a percentage of net revenues, these
expenses fluctuated, in some periods significantly, as a result of the
fluctuations in revenues.
Interest and Other Income (Expense), Net
Interest and other income (expense), net has varied somewhat from quarter to
quarter, based primarily upon changes in the amount and mix of interest-bearing
investments outstanding during each period. In the quarter ended March 31,
1999, interest and other income (expense), net was an expense of $2.1 million.
As indicated above, this was a result of the note and warrant transaction
consummated in that quarter. After the interest expense associated with that
transaction is fully amortized, we expect interest and other income (expense),
net to increase from historical levels as we invest the proceeds of this
offering pending use in our business.
Liquidity and Capital Resources
Since inception, we have financed our operations primarily through the sale
of preferred equity securities and, in the quarter ended March 31, 1999,
through borrowings from our investors. We have raised an aggregate of $40.2
million (net of transaction expenses) from the sale of equity securities and an
additional $7.0 million through the recent loan transactions. In addition, we
raised an additional $2.0 million through a loan transaction completed in April
1999.
At March 31, 1999, we had cash and cash equivalents of $4.6 million. At
March 31, 1999, we did not have a line of credit or other borrowing facility
available, nor did we have any material capital commitments.
Cash used in operating activities for the nine months ended March 31, 1999
was $14.1 million. Cash used in operating activities was $6.4 million in fiscal
1998, $4.6 million in fiscal 1997 and $5.4 million in fiscal 1996. Cash used in
operating activities has primarily represented funding of our net losses,
partially offset by accounts payable and accrued expenses.
Cash used in investing activities for the nine months ended March 31, 1999
was $1.3 million. Cash used for investing activities was $572,000 in fiscal
1998, $525,000 in fiscal 1997 and $800,000 in fiscal 1996. In each period,
these amounts related primarily to the purchase of computers and other
equipment used in our development activities and other equipment and furniture
used in our operations.
29
<PAGE>
Cash provided by financing activities for the nine months ended March 31,
1999 was $12.4 million, consisting of funds raised from issuances of redeemable
convertible preferred stock and borrowings from our investors. See "Certain
Transactions" and Notes 6 and 7 of Notes to Consolidated Financial Statements
for a description of the loan and equity transactions. Cash provided by
financing activities was $11.2 million in fiscal 1998, $7.3 million in fiscal
1997 and $4.8 million in fiscal 1996. In each year, financing activities
consisted primarily of the private placement of redeemable convertible
preferred stock.
Our future capital requirements will depend upon a number of factors,
including the timing and level of research and development activities and sales
and marketing campaigns. We believe that our cash and cash equivalent balances
and the proceeds from this offering will provide sufficient capital to fund our
operations at least through the end of fiscal 2000. Thereafter, we may require
additional capital to fund our business. In addition, from time to time we
evaluate opportunities to acquire complementary technologies or companies.
Should we identify any such opportunities, we may need to raise additional
capital to fund the acquisitions. There can be no assurance that financing will
be available to us when we need it on favorable terms or at all.
Year 2000 Issues
Many currently installed computer systems, software products and other
control devices are unable to accept four digit entries to distinguish 21st
century dates from 20th century dates. As a result, many companies' computer
systems, software products and control devices may need to be upgraded or
replaced in order to operate properly in the year 2000 and beyond.
We have designed our products to be year 2000 compliant. However, there can
be no assurance that our current products do not contain undetected errors or
defects associated with year 2000 date functions. If such errors or defects do
exist, we may incur material costs to resolve them.
The internal systems used to deliver our services utilize third-party
hardware and software. We have contacted the vendors of these products in order
to gauge their year 2000 compliance. Based on these vendors' representations,
we believe that the third-party hardware and software we use are year 2000
compliant. There can be no assurance, however, that we will not experience
unanticipated negative consequences, including material costs, caused by
undetected errors or defects in the technology used in our internal systems.
We have no specific contingency plan to address the effect of year 2000
noncompliance. If, in the future, it comes to our attention that certain of our
products need modification, or certain of our third-party hardware and software
are not year 2000 compliant, then we will seek to make modifications. In such
cases, we expect such modifications to be made on a timely basis and we do not
believe that the cost of such modifications will have a material effect on our
operating results. There can be no assurance, however, that we will be able to
modify our products, services and systems in a timely and successful manner to
comply with year 2000 requirements, which could have a material adverse effect
on our business.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information," ("SFAS No. 131") which establishes
standards for reporting information about operating segments in interim and
annual financial reporting. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
SFAS No. 131 is effective for fiscal years beginning after December 15, 1997.
SFAS No. 131 did not have a material effect on our consolidated financial
statements.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use." Statement of Position 98-1 is
effective for consolidated financial statements for years beginning after
December 15, 1998. Statement of Position 98-1 provides guidance over accounting
for computer software developed or obtained for internal use including the
requirement to capitalize specified costs and amortization of such costs. We
have adopted the provisions of Statement of Position 98-1 for our year ending
June 30, 1999.
30
<PAGE>
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivatives and Hedging
Activities," ("SFAS No. 133") which establishes accounting and reporting
standards of derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. SFAS No. 133 is
effective for fiscal years beginning after June 15, 1999. The adoption of
Statement of Financial Accounting Standards No. 133 is not expected to have a
material effect on our results of operations, financial position or cash flows
as we do not currently hold derivative instruments or engage in hedging
activities.
31
<PAGE>
BUSINESS
Efficient Networks is a leading worldwide independent supplier of high-speed
digital subscriber line customer premises equipment, or CPE, for the broadband
access market. Our DSL solutions enable telecommunications and other network
service providers to provide high-speed, cost-effective broadband access
services over the existing copper wire telephone infrastructure. We believe
there is significant demand for high-speed broadband access, especially among
business users and consumers who have found current solutions to be inadequate
or too expensive. We therefore focus on developing and producing single- and
multiple-user DSL customer premises equipment for small- to medium-size
businesses, branch offices of large corporations and consumers. Our DSL
products enable applications such as high-speed Internet access, electronic
commerce, remote access, telecommuting and extensions of corporate networks to
branch offices.
Industry Background
The Growing Need for High-Speed Broadband Communications
The amount of data being carried over the Internet and private
communications networks has grown dramatically and is expected to continue to
grow as the number of users accessing these networks increases. The increase in
the quantity of data being carried over the Internet and private networks also
is being driven by the broadening range of activities for which these networks
are being used. In order to enhance their reach to customers and suppliers,
businesses are increasingly engaging in mission-critical Internet-based
applications, such as electronic commerce, supply chain management, Web
hosting, and global marketing and customer support. Businesses also
increasingly use the Internet to create secure data networks known as virtual
private networks among corporate sites, remote offices and telecommuters.
International Data Corporation estimates that there were approximately ten
million telecommuters in 1998, of which 72 percent used online services at
least once a day. By utilizing the Internet, businesses can streamline internal
operations by facilitating employee communications, e-mail, file sharing, and
research and analysis. Consumers are also increasingly accessing the Internet
to communicate, collect and publish bandwidth intensive information, conduct
retail purchases, and access online entertainment. These growing network-
dependent activities require the transmission of large amounts of data, which
in turn, requires high-speed broadband data access services for end users to
obtain the data reliably and within practical time constraints.
Traditional Access Solutions are Inadequate
To meet the growing demand for high-speed, high-bandwidth data transmission,
network service providers have installed high-bandwidth fiber optic
transmission equipment, high-speed switches and core routers in the Internet
backbone and in interoffice networks. While this network backbone is capable of
delivering data at very high speeds, an access bottleneck exists between the
ends of these fiber optic networks at telephone companies' central offices and
the end users' premises. The copper line connections between the central office
and the end user are commonly known as the "last mile." Last mile connections
are typically made via dial-up analog or integrated services digital network,
commonly known as ISDN, modems over the copper infrastructure that was
originally built to transmit analog voice signals. Data transmission speed,
otherwise known as bandwidth, is typically expressed in bits per second. Along
the fiber optic network backbone, data moves at speeds up to 2.5 billion bits
per second, or 2.5 Gbps, while analog modems transmit data at rates up to 56.6
thousand bits per second, or 56.6 Kbps, and most ISDN modems transmit at rates
up to 128 Kbps. Even at ISDN speeds, several minutes are often required to
access a media rich Website, and several hours may be required to transfer or
download large files. During this time, the telephone line cannot be used for
any other purpose. This bottleneck frustrates end users and limits the
capability of network service providers to deliver applications such as
efficient Internet access, multimedia entertainment, real-time telecommuting
and branch office internetworking.
In an effort to provide greater bandwidth, telecommunications network
service providers have traditionally deployed T1 services. A T1 line is a high-
capacity, dedicated telecommunications line which can support data
transmissions rates of up to 1.5 million bits per second, or 1.5 Mbps, which is
roughly 25 times the speed of analog modems. Although T1 services have helped
fill the need for broadband access for large businesses, network service
providers have generally been unable to offer T1 services to small businesses,
remote offices,
32
<PAGE>
telecommuters and consumers as a result of the complexity and high costs of
deployment. Because analog and ISDN modem technology fails to satisfy the
bandwidth needs of end users, and T1 access is prohibitively expensive, network
service providers continue to seek alternatives for providing cost-effective
broadband access to both businesses and consumers. Additionally, the continued
growth in both the number of analog modem users and their time spent connected
to the Internet congests many network service providers' networks while
providing them with little or no additional revenue.
Competition is Driving Rapid DSL Deployment
Until recently, the incumbent local exchange carriers, commonly known as
ILECs, such as Ameritech, Bell Atlantic, BellSouth, GTE, Pacific Bell, SBC
Communications and US West, were the exclusive operators of the last mile.
Since analog dialup modems, ISDN and T1 services offered over the ILECs'
networks did not adequately satisfy the demand for cost-effective broadband
access for a majority of users, alternative solutions were developed such as
broadband wireless and cable access. The deployment of these alternative
broadband solutions is now pressuring ILECs to deliver cost-effective broadband
access to their customers.
In addition, the Federal Telecommunications Act of 1996 intensified the
competitive environment because that Act requires ILECs to lease portions of
their networks, including the last mile, to competitive local exchange
carriers, commonly known as CLECs. As a result, many new companies, long
distance telephone companies and Internet service providers have applied for
and been granted regulatory approval for CLEC status. Leading CLECs, including
Covad Communications, MCI WorldCom, NorthPoint Communications, Rhythms
NetConnections and Sprint, are now deploying high-speed services over the
copper infrastructure owned by the ILECs. In response to these competitive
pressures and in an effort to increase revenues and maintain their existing
customer base, ILECs are now beginning to commit the resources necessary to
deploy cost-effective, high-speed data services over their existing copper
infrastructure.
Similar dynamics are occurring internationally. The growth in Internet use,
telecommunications deregulation and competition from alternative broadband
access technologies have caused foreign telephone network service providers, or
PTTs, to commit similar resources to broadband access deployment.
ILEC, CLEC and PTT service providers are deploying DSL technology as the
cost-effective broadband access solution. DSL technology utilizes sophisticated
data modulation techniques to achieve high-speed data transmission 100 times
faster than analog modems over existing copper telephone wires. A typical
implementation of a DSL solution is shown below:
[Graphic showing a DSL network including routers, switches, servers, DSLAMs and
DSL CPE.]
The equipment needed to enable a DSL link generally consists of two pieces,
one in the network operator's central office and one at the premises of the
business or consumer. The central office equipment is often called a DSL access
multiplexer, commonly known as a DSLAM, which aggregates data traffic from
multiple DSL links into a common link to a fiber optic network backbone. The
CPE and the DSLAM must also
33
<PAGE>
interoperate with the rest of the equipment in a given network. DSL can enable
cost-effective, high-speed data transmission from the premises of a business or
consumer into a DSL network operator's central office where existing high-
capacity networks can then carry data to a destination across an Internet or
other service provider's network.
The market for DSL services is expanding rapidly. Several ILECs and CLECs
have begun to offer DSL services to their customers directly and through
Internet service providers. In April 1998, GTE Network Services announced plans
to offer DSL service in approximately 300 central offices across 16 states. In
May 1998, Pacific Bell announced plans to deploy DSL service to 87 central
offices which would provide service to approximately 650,000 business customers
and 4.4 million homes across California. In January 1999, Pacific Bell further
announced it would spend more than $100 million in 1999 to upgrade its DSL
technology and equip 255 central offices. Also in January 1999, Southwestern
Bell announced a rollout to 271 central offices allowing DSL service to reach
over 440,000 businesses and 3.2 million homes. Covad Communications, a CLEC,
announced the availability of its DSL services in the San Francisco Bay area in
December 1997. By May 1998, Covad's service was available to over one million
potential customers. By the end of 1998, Covad extended its DSL offerings to
over 6 million businesses and homes in five major metropolitan areas, and by
April 1999, Covad had deployed DSL capability to over 11.2 million homes and
businesses in nine metropolitan areas.
Existing Customer Premises Solutions are Constraining DSL Deployment
As these and other network service providers are deploying DSL services,
they are encountering several challenges. In particular, interoperability still
presents substantial technical challenges despite recent industry efforts to
standardize the various implementations of DSL. Service providers are actively
seeking DSL CPE solutions that offer seamless end-to-end interoperability
within their networks. End-to-end interoperability requires that DSL solutions
be compatible with the customer's computer hardware, operating systems,
networking equipment and software, the CPE and DSLAM, and the switching and
routing equipment in the service providers' network. Network service providers
face additional challenges in deployment and maintenance, because DSL services
are typically targeted at branch offices, small businesses or individuals where
no particular level of networking expertise can be assumed. Therefore, to
implement rapid and widespread DSL deployment, it is of primary importance that
DSL CPE provides for simple and cost-effective installation and maintenance.
The Efficient Solution
Efficient designs and manufactures the SpeedStream family of DSL CPE and
related software as part of an overall solution for high-speed remote access
and data transmission. Our solutions enable DSL deployment, ensure end-to-end
interoperability and provide for efficient and cost-effective installation and
maintenance.
Enable DSL Deployments. Efficient enables network service providers to
rapidly and cost-effectively deploy DSL services, thereby allowing them to
quickly capture market share in today's intensely competitive environment.
Efficient's products are specifically targeted to small- to medium-size
companies and consumers for applications such as high-speed Internet access,
and to large corporations for applications such as remote access, telecommuting
and extensions of corporate networks to branch offices.
Ensure End-To-End Interoperability. Efficient's DSL solutions offer seamless
interoperability from the customer's computer through the service providers'
network. To ensure this interoperability, Efficient leverages our core
technology expertise in combination with our relationships with network service
providers, such as Ameritech, BellSouth and Covad Communications, and network
equipment vendors, such as ADC Telecommunications, Advanced Fibre
Communications, Alcatel, Diamond Lane Communications, DSC Communications,
Ericsson, Lucent Technologies, Newbridge Networks, Nokia, Nortel Networks and
Siemens. Since these industry leaders recognize that end-to-end
interoperability is a necessary requirement for full scale DSL deployment,
network equipment vendors have provided us with early releases of their systems
and technologies so that we can ensure that our products will seamlessly
interoperate with their systems. Our
34
<PAGE>
relationships with network service providers and network equipment vendors
enable us to maintain and use one of the most complete DSL interoperability
test labs in the industry. In addition, Efficient actively participates in
developing industry-wide standards to continue to facilitate end-to-end
interoperability.
Provide for Efficient and Cost-Effective Installation. Efficient offers a
full suite of easily installable DSL solutions, including DSL CPE that provides
routing and bridging capabilities which connect seamlessly into multiple user
environments via an Ethernet port. For single user environments, Efficient
provides internal DSL CPE installed directly into the end user's computer and
external CPE that connect to the end user's computer by simply plugging into
the computer's universal serial bus, or USB, port. Efficient's internal and USB
modems are supported by Efficient's ProfileBuilder software which allows the
network service provider to configure the CPE for a particular network before
the CPE is sent out into the field. Pre-configuration of the CPE obviates the
cost and time associated with having installers perform these configuration
activities with each end-user installation.
Provide for Cost-Effective Maintenance. Efficient offers network service
providers our Advanced Status software, a troubleshooting and diagnostic tool.
With Advanced Status software, a network service provider's customer support
technician can walk an end user through the diagnostic process over the
telephone. This allows the network service provider to easily monitor, diagnose
and often remotely fix the customer's problems quickly, which can substantially
reduce the network service provider's customer support costs. In the event that
a technician needs to be dispatched, Advanced Status provides easy diagnosis
and facilitates on-site repair.
The Efficient Strategy
Our objective is to be the leading worldwide provider of high-performance
DSL broadband access customer premises equipment for businesses, remote
offices, telecommuters and consumers. Key elements of our strategy include the
following:
Capitalize upon our Early Market Acceptance by Network Service Providers. We
intend to leverage our products' early market acceptance to extend our market
share. We have been focused on the high-speed network connectivity market for
six years and specifically on the DSL market for three years. We believe that
our SpeedStream products have been deployed in more networks than those of any
other independent DSL CPE supplier. Our DSL CPE products have been deployed by
Ameritech, BellSouth, Covad Communications, Hong Kong Telecom, Singapore
Telecom, and six other network service providers. An additional 39 network
service providers have begun to test our CPE solutions. We intend to build upon
this early acceptance of our products to become the primary provider of DSL CPE
to these and other network service providers as they deploy their DSL networks.
Leverage Strategic Relationships with Network Equipment Vendors. We intend
to leverage both current and future relationships to continue to promote
Efficient in the industry, extend our sales capabilities, increase our volume
distribution, and build brand awareness. We believe successful deployment of
DSL necessitates close working relationships with network equipment vendors.
Since most network equipment vendors do not have complete DSL CPE solutions,
they typically bundle and sell their network equipment with third-party CPE
solutions. We have established relationships with ADC Telecommunications,
Alcatel, Diamond Lane Communications, DSC Communications, Ericsson, Nokia,
Nortel Networks and Siemens, among others.
Continued Development of Broadband Access CPE. We intend to continue
developing DSL CPE products that enhance the features of our current line as
well as create new bundled voice and data access products. We are developing
advanced functionality, enhanced routing and bridging capabilities, additional
software, and new products based on different physical interfaces. We are
continually pursuing techniques to reduce product costs. In developing new
technologies and products, we benefit from our relationships with key industry
leaders that offer early visibility into market requirements and deployment
trends.
Broaden Distribution Channels. We plan to extend our distribution channels
to meet the growing demand for broadband access solutions. When we first
deployed our current generation DSL products, we initially targeted ILECs and
network equipment providers in order to secure large contracts, establish
credibility in the
35
<PAGE>
marketplace and strengthen key network service provider relationships. We have
since built a direct sales force to target CLECs, PTTs and Internet service
providers as well. Moreover, we are developing alternative distribution
channels such as telephone company-aligned distributors, traditional two-tier
distribution partners, third-party integrators, and retail partners. To this
end, we have recently signed agreements with Innotrac, Nortel Supply and Sprint
North Supply, three leading telephone company-aligned distributors. We are also
expanding our global presence by extending our international direct sales
force, securing additional international value-added resellers and establishing
retail sales abroad.
Build the Efficient Brand Name. In addition to increasing brand awareness
with network service providers and network equipment vendors, we believe it is
critical to establish brand awareness and differentiation from our competitors
with end customers through superior performance, ease of use and customer
service. We plan to continue building brand awareness of Efficient and
SpeedStream to identify us as the leading provider of DSL CPE solutions. All of
our DSL products, even when deployed by network service providers, carry the
Efficient and SpeedStream brand names. In some instances, we co-brand our
products with prominent network equipment vendors such as Alcatel in order to
build this name recognition. In addition, we plan to increase our investments
in a broad range of marketing programs, including active trade show
participation, advertising in print publications, direct marketing and Web-
based marketing.
Products
Efficient has developed the SpeedStream family of DSL products that enables
broadband access for businesses and consumers. Our products are designed to
support a number of operating systems, DSL implementations, and network
architectures. Our asymmetric DSL, or ADSL, products provide transmission
speeds of up to 8 Mbps in the downstream direction from the network to the
user, and up to 800 Kpbs in the upstream direction. Our symmetric DSL, or SDSL,
products provide equal upstream and downstream speeds of up to 1.1 Mbps. Our
SpeedStream products are separated into three different product series:
. 3000 Series -- Designed for the single user and installable into a
peripheral component interface, or PCI, bus slot within a personal
computer
. 4000 Series -- Designed for the single user and connected to a personal
computer through a USB port
. 5000 Series -- Designed to provide routing and/or bridging capabilities
and allow multiple users to connect through an Ethernet port
Although SpeedStream products currently account for most of our revenues, we
continue to generate a small portion of our revenues from the sale of our high-
speed ATM local area network products which were originally introduced in 1994.
ATM, or asynchronous transfer mode, is a transmission technology that breaks
data down into individual packets with unique identification and destination
addresses and may be used to transmit data, voice and video within a network.
These ATM products are specifically designed for use in private data
communications networks within office or home environments which are commonly
known as local area networks, or LANs.
Efficient also provides a full suite of pre-configuration and diagnostic
software tools. Our pre-configuration software, ProfileBuilder, enables network
service providers to architect scalable DSL services and ensures rapid and
reliable installation while reducing or eliminating the need for on-site
configuration. Our diagnostic and troubleshooting software, Advanced Status, is
designed to reduce a network service provider's expense associated with ongoing
maintenance and repair. We believe that these software capabilities can reduce
the overall expense for DSL service deployment and maintenance.
36
<PAGE>
The SpeedStream 3000 Series
The SpeedStream 3000 Series consists of internal modems which provide high-
speed ADSL connectivity for a personal computer.
. Installs into any PCI bus slot
. Configures using Efficient
ProfileBuilder software for easy
setup
[Picture of Product]
. Includes Efficient Advanced Status
diagnostic software tools for
rapid error diagnosis and
correction
. Supports the four most prevalent
data encapsulation standards to
ensure network interoperability
with Internet Protocol and ATM
networking equipment
. Provides ATM traffic shaping that
enables reliable data transmission
. Offers remote management
capability
. Supports Microsoft Windows 95,
Windows 98 and Windows NT
operating systems
<TABLE>
<CAPTION>
SpeedStream 3000 Series
--------------------------------------------------------------------------
3010 3020/3021 3041 3060
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Relies on external ADC, AFC, Siemens Alcatel, DSC
DSL modem Diamond Lane, Communications
DSLAM Interoperability Ericsson, Lucent,
Newbridge, Nokia,
Nortel
- -----------------------------------------------------------------------------------------------
Calendar Year of First First half of 1998 First half of 1998/ Expected second Second half
Commercial Availability Expected second half of 1999 of 1998
half of 1999
- -----------------------------------------------------------------------------------------------
Suggested Retail Price $129 $269 $269 $269
</TABLE>
- --------------------------------------------------------------------------------
37
<PAGE>
The SpeedStream 4000 Series
The SpeedStream 4000 Series consists of external modems which provide high-
speed ADSL connectivity through a personal computer's USB port.
. Attaches externally via a personal
computer's USB port
[Picture of Product] . Configures using Efficient
ProfileBuilder software for easy
setup
. Includes Efficient Advanced Status
diagnostic software tools for
rapid error diagnosis and
correction
. Supports the four most prevalent
data encapsulation standards to
ensure network interoperability
with Internet Protocol and ATM
networking equipment
. Provides ATM traffic shaping that
enables reliable data transmission
. Offers remote management
capability
. Supports Microsoft Windows 98
operating system
----------------------------------------------------------
<TABLE>
<CAPTION>
SpeedStream 4000 Series
----------------------------------------------------------
4020/4021 4041 4060
<S> <C> <C> <C>
ADC, AFC, Siemens Alcatel, DSC
DSLAM Diamond Lane, Communications
Interoperability Ericsson, Lucent,
Newbridge, Nokia,
Nortel
- -------------------------------------------------------------------------------
Calendar Year of First half of 1999/ Expected second First half of 1999
First Commercial Expected second half of 1999
Availability half of 1999
- -------------------------------------------------------------------------------
Suggested Retail Price $299 $299 $299
</TABLE>
38
<PAGE>
The SpeedStream 5000 Series
The SpeedStream 5000 Series provides high-speed remote ADSL or SDSL
connectivity for one or more personal computers, workstations or other network
devices over a standard networking architecture called Ethernet.
. Facilitates DSL connectivity for
multiple users via a standard
Ethernet port
[Picture of Product]
. Provides routing and bridging
capabilities (except 5250,
designed for bridging only)
. Pre-configures for rapid network
deployment
. Supports the four most prevalent
data encapsulation standards to
ensure network interoperability
with Internet Protocol and ATM
networking equipment
. Provides ATM traffic shaping that
enables reliable data transmission
. Offers remote management
capability
----------------------------------------------------------
-----------------------------------------------------------
<TABLE>
<CAPTION>
SpeedStream 5000 Series
--------------------------------------------------------------------------
5010/5621 5250 5650 5660
<S> <C> <C> <C> <C>
ADC, AFC, Diamond Lane Diamond Lane Alcatel, DSC
DSLAM Diamond Lane, Communications
Interoperability Ericsson, Lucent,
Newbridge, Nokia,
Nortel
- -----------------------------------------------------------------------------------------------
ADSL or SDSL ADSL SDSL SDSL ADSL
- -----------------------------------------------------------------------------------------------
Calendar Year of First half of 1998/ Second half of 1998 Expected second Expected second
First Commercial Expected second half of 1999 half of 1999
Availability half of 1999
- -----------------------------------------------------------------------------------------------
Suggested Retail Price $595 $499 $595 $595
</TABLE>
39
<PAGE>
ProfileBuilder Software
Our ProfileBuilder software tool supports all SpeedStream DSL products for
single personal computer environments. ProfileBuilder allows a network system
provider to select configuration settings for the CPE that match its specific
network. This CPE pre-configuration allows a network operator the flexibility
to choose network settings unique to the network's service offerings, without
requiring an end user or an installation technician to individually configure
each unit. Thus, by setting the attributes for DSL, ATM rate control, and data
encapsulation prior to installation of the CPE, the speed of DSL equipment
installation is increased. We believe that this ability to pre-configure DSL
CPE provides cost savings for network service providers and allows them to
scale their DSL service offerings rapidly and reliably.
Advanced Status Software
All SpeedStream DSL products for single-user environments include embedded
diagnostic and troubleshooting software called Advanced Status. During normal
network conditions, the end user is unaware that this software is operating.
However, if network degradation or failure occurs, a customer service
representative can work with the end user to diagnose and isolate problems with
the DSL link, the CPE or the network itself. Advanced Status software provides
information such as status indications and performance statistics for DSL, ATM
and packet communication layers. This information helps identify problems and
determine whether they must be solved at the central office or the customer
premises. Advanced Status software minimizes the need to send a technician to
the customer premises and speeds troubleshooting and repair. We believe that
our Advanced Status software reduces the overall expense of DSL service.
ATM LAN Products
Prior to developing our SpeedStream product families, Efficient developed
and produced high-speed client/server interface products. Our 155 Mbps and 25
Mbps ATM LAN products were commercially introduced in 1994 and 1996,
respectively. These products utilize the same application specific integrated
circuit technology as our SpeedStream product family and are geared toward
enterprise customers. Also, these products support Windows 95, Windows NT, Sun
OS, and Sun Solaris operating systems, and provide support for switched virtual
circuits. Furthermore, development of our ATM LAN products required expertise
in networking, ATM and personal computer environments. This expertise provided
the foundation for development and commercialization of our DSL products.
Products under Development
Efficient is developing a new family of business class products that will
integrate voice and data traffic through a single platform. This family of
products is intended to enable service providers to offer bundled voice and
data services over a single copper connection. We intend to release the first
of these new products in the first half of calendar 2000. We believe that as
competition among network service providers intensifies, the ability to provide
bundled voice and data services will provide competitive differentiation among
network service providers.
In addition, Efficient is presently working to add new features, enhance
existing features and reduce the cost of our SpeedStream products.
Specifically, we are working to integrate splitterless DSL features, routing
capabilities, advanced management tools and new physical interfaces into
SpeedStream products.
40
<PAGE>
Technology
Efficient designs and manufactures DSL CPE as part of an overall solution
for high-speed remote access and data transmission. Efficient's SpeedStream
family of DSL CPE includes products intended for a single user such as a
telecommuter, as well as for multiple users within branch offices or small
businesses. Efficient integrates a diverse set of technologies and expertise,
primarily in the following areas:
. DSL System Architecture
. Asynchronous Transfer Mode and Data Encapsulation Techniques
. Software
. Application Specific Integrated Circuit Design
. Routing and Bridging
DSL System Architecture Expertise
We structure our product architectures to consist of highly modular blocks
of hardware and software. By utilizing our expertise in developing multiple
products with diverse types of DSL technology, we have developed a core set of
hardware and software designs. Consequently, it is a relatively straightforward
activity to restructure the components and develop a new SpeedStream product.
Similarly, as new features are developed, they can be made available across a
number of products all based upon common components. This design modularity
helps Efficient respond quickly to new market requirements.
Our product architectures use Efficient's proprietary application specific
integrated circuits, or ASICs, as well as chipsets from third-party suppliers.
We believe that the use of our ASICs in conjunction with these third-party
chipsets has advantages for CPE performance and cost. Because DSL signals
operate across a broad frequency range, circuits must be carefully designed to
ensure that high performance is achieved without disrupting other equipment in
the end user's home or office (such as televisions). We believe that our
techniques for DSL circuit design, component selection and layout, emissions
shielding and certification testing result in high-performance products that
meet a broad range of emissions and safety certifications mandated by the
Federal Communications Commission, international regulatory bodies, consumer
safety laboratories and network operators.
Asynchronous Transfer Mode and Data Encapsulation Techniques Expertise
All of our SpeedStream CPE products employ our own ATM hardware and software
technology. ATM technology enables multiple communication sessions to occur
simultaneously and bursty packet traffic to co-exist with delay-sensitive
traffic such as voice or video information. In order to allow this data to be
carried across an ATM network, it must be formatted into fixed-size ATM cells,
a technique known as data encapsulation. ATM and data encapsulation permit a
common network infrastructure to offer diverse services. There are numerous
data encapsulation techniques which network service providers, Internet service
providers or other network operators may implement.
We have been able to implement these numerous ATM and data encapsulation
techniques because of our prior experience in designing, manufacturing, and
commercializing ATM LAN equipment. Key pieces of silicon and software
technology were re-used from these products to enable rapid development of our
SpeedStream CPE. We believe that this intellectual property, as well as the ATM
networking expertise associated with it, represents one of our key competitive
advantages.
Software Expertise
Our software engineers have expertise in developing code that addresses the
needs of network service providers. Our modular software architecture enables
re-use of much of our software code across products. This modularity also
enables rapid development of new products. Our knowledge of network operation
and architectures and data encapsulation techniques allows us to write software
that ensures that our products are
41
<PAGE>
interoperable with other network equipment vendors' products. In addition, our
understanding of various operating systems and personal computer environments
allows us to create software that provides for trouble-free installation and
network maintenance. Our software engineers also design, build and operate
comprehensive testing environments to ensure not only that our products are
interoperable, but also offer high performance.
Efficient has developed a suite of software for our single-user SpeedStream
products that enables communication in a personal computer environment. This
software is commonly called a "driver" and allows application software, such as
e-mail or a Web browser, to send and receive data over the DSL network link,
just as it would over a modem or a LAN connection. By building upon software
source code and skills developed for ATM LAN products, Efficient is able to
support a number of diverse personal computer environments. To date, Efficient
has leveraged our software expertise to develop and release high-performance,
rapidly installing drivers for our SpeedStream 3000 and 4000 Series products.
This software is interoperable with numerous brands and models of personal
computers, operating system environments such as Windows 95, Windows 98 and
Windows NT version 4, and upcoming environments such as Windows 2000.
Efficient has also developed and released our ProfileBuilder and Advanced
Status software tools. In addition, Efficient works closely with network
service providers to create software specific to their networks, which allows
them to rapidly and reliably deploy and maintain DSL service.
Application Specific Integrated Circuit Design Expertise
Efficient has developed custom application specific integrated circuits that
enable high-speed ATM networking using PCI or USB bus attachments. Our ASICs
provide high-speed interfaces to the personal computer and also perform several
ATM functions, including segmentation and reassembly functions whereby variable
length packets are converted into fixed size ATM cells. They also perform
traffic shaping functions that control the flow of data from the end user's
equipment into the service provider's network. The use of custom ASICs allows
us to better control the cost of our products and helps ensure their
performance and interoperability with diverse brands of personal computers and
network equipment.
Routing and Bridging Expertise
Efficient's multi-user products offer a shared Ethernet port for local
attachment to a computer network and an ATM DSL port for transmission and
receipt of data across a DSL interface. A bridging device forwards Ethernet
packets between the product's Ethernet port and its ATM DSL port based on
addresses contained in the Ethernet packets. Efficient's Ethernet bridging
products examine addressing information in each packet to determine whether it
should be forwarded between the local Ethernet port and the ATM DSL port. Our
bridging CPE requires little or no configuration, thereby reducing the network
service provider's installation expense. Because all packet forwarding
decisions are made independently of the network protocol carried by the
Ethernet packets, our bridging CPE can support numerous network types,
including older LAN environments such as Novell's IPX or Apple's AppleTalk, as
well as networks based on the Internet Protocol.
Efficient's routing products forward Internet Protocol, or IP, packets based
upon addressing information contained in the packet header. Support for several
different methods of ATM data encapsulation helps ensure network
interoperability. Efficient's routing products provide features that enhance
security and ease network administration for end users, such as packet
filtering, which prevents unwanted access to local servers or other private
resources, and a technique known as network address translation, which masks
the presence of local computers from other computers on the Internet. Our
routing products also implement an address management technique called the
dynamic host configuration protocol that automates the assignment of IP
addresses to computers attached locally to the router. The network address
translation and dynamic host configuration protocol features of our routing
products can help minimize address interoperability issues, and may be able to
accelerate deployment of DSL services.
Efficient's routing products include a complete suite of management
capabilities that enable local and remote troubleshooting as well as upgrades
to system configuration or software. This is important as DSL is a complex
technology typically intended for a technologically unsophisticated user base.
We believe that our
42
<PAGE>
products' combination of management capabilities which can be accessed either
locally or remotely can help reduce the cost of network administration for DSL
network service providers.
Customers
Historically, sales of our CPE have been to two main classes of customers:
network equipment vendors who supply DSL central office equipment and DSL
network service providers. To date, Efficient has sold products to eight
network equipment vendors and 11 network service providers. An additional 39
network service providers have begun to test our CPE solutions.
Network equipment vendors include our products as an element of a complete
solution offered to their network service provider customers. In many cases,
several different network equipment vendors specify our products as the
preferred or bundled CPE in response to bid requests issued by a network
service provider for complete DSL access solutions. Network service providers
will then provide the CPE to end users for access to their DSL network. In
some cases, we sell CPE to the network equipment vendor for resale as part of
a bundled solution to the network service provider. In other cases, we sell
directly to the network service provider.
The following table sets forth the top 20 customers for our DSL products in
the current fiscal year, categorized by customer type:
<TABLE>
<CAPTION>
Network Equipment Vendors Network Service Providers Telephone Company-Aligned
and Other Distributors
- --------------------------------------------------------------------------------------------
<S> <C> <C>
ADC Telecommunications Ameritech Global Technology Integrator
Alcatel Covad Communications Innotrac for BellSouth's network
Diamond Lane Communications Flashcom Semitron
Ericsson Hong Kong Telecom Telecom Equipment for Singapore
Lucent Technologies Panhandle Telecommunications Telecom's network
Nokia Services Universe Computers
Nortel Networks SourceNet
Siemens Southwestern Bell
</TABLE>
The following case studies illustrate how certain network service providers
have deployed our products:
BellSouth. BellSouth Telecommunications is the predominant telephone
network service provider in nine southeastern states with 23 million local
phone lines. BellSouth provides wholesale ADSL service to Internet service
providers, including its own Internet service provider, BellSouth.net.
BellSouth's FastAccess ADSL service is currently available in Atlanta,
Birmingham, Charlotte, Fort Lauderdale, Jacksonville, New Orleans and Raleigh.
BellSouth has announced that FastAccess ADSL service will be extended to 23
new cities during 1999 with over five million ADSL capable phone lines
becoming available during this rollout. As a DSL service provider, BellSouth
relies on its partner Internet service providers to generate demand for DSL-
based Internet access and to manage the installation and support of CPE.
BellSouth has chosen to work with Efficient on a promotional program intended
to encourage Internet service providers to generate customer demand for DSL.
We believe that BellSouth chose to work with us because of the breadth of our
product line and our products' ease of use features, as well as our responsive
support of its DSL lab testing.
Covad Communications. Covad Communications is a leading data CLEC that
initially focused on providing high-speed Internet access to small and medium
business users. Covad has recently announced a nationwide branch office
connectivity and telecommuting service in partnership with AT&T and Qwest, as
well as high-performance residential Internet services. Covad currently offers
DSL service in Baltimore, Boston, Los Angeles, New York, Philadelphia,
Sacramento, San Diego, San Francisco, Seattle and Washington, D.C. By the end
of 1998, Covad had DSL service-ready co-locations in 168 central offices, with
service available to six million homes and businesses. Covad has announced
plans to expand into a total of 22 markets by the first quarter of 2000. We
worked closely with Covad to develop the feature set of a product intended to
enable
43
<PAGE>
Covad to deploy DSL service rapidly and cost effectively. Our SpeedStream 5250
is interoperable with the DSLAM used by Covad, and requires no user
configuration during or after its installation. This provides for a rapid
installation, with minimal chance for mis-configuration. We continue to work
with Covad on the definition of future products and feature sets.
Singapore Telecom. Singapore Telecom is the incumbent telecommunications
provider in Singapore with 1.7 million local phone lines. SingTel launched its
ADSL Magix service in November 1997 as the world's first commercial deployment
of DSL service. SingTel's Magix service is offered to all residents of
Singapore through 27 central offices. We have worked closely with SingTel since
1997 to help match our CPE to SingTel's network, and have provided customized
software with our CPE that is unique to SingTel's DSL service. Based on our
ability to provide reliable, easy-to-install CPE, we were chosen by SingTel as
one of two suppliers for SingTel's Magix network. The Magix service comprises
both Internet access and delivery of television shows, music videos and video
conferencing over DSL. SingTel felt that our expertise in ATM products and
networks was crucial in offering these disparate services simultaneously over
SingTel's network. SingTel has recently purchased our SpeedStream 3060 internal
DSL modem, which obviates the need for both an ATM LAN adapter and an external
modem, resulting in cost savings for SingTel.
The foregoing customer case studies, which have been prepared by Efficient,
are descriptions of the relationships between Efficient and selected customers.
These customer case studies are not to be construed as having been prepared or
certified by such persons as "experts" with respect to such matters within the
meaning of the federal securities laws, or any rule or regulation promulgated
thereunder.
Strategic Relationships
We believe that establishing relationships with leaders in DSL technology
and services is critical to our success. Accordingly, we have formed strategic
relationships and, in some cases, entered into joint development agreements
with network service providers, network equipment vendors and developers of DSL
semiconductor technology. We are also pursuing strategic relationships to
ensure that high-volume distribution channels are in place for our products.
Network Service Providers
Ameritech. Efficient has entered into an agreement to provide DSL CPE to
Ameritech. We have worked closely with the technical and product management
staff responsible for DSL service deployment at Ameritech. We have also
provided early software releases of new products to Ameritech, and have
provided Ameritech with training for both customer service and field support.
BellSouth. Efficient has entered into a joint promotion agreement with
BellSouth for DSL CPE. BellSouth provides a financial incentive for Internet
service providers that bring customers into the BellSouth DSL service. For the
term of the program, subscribing Internet service providers are offered
SpeedStream CPE at a reduced cost. Efficient has also entered into a supply
agreement with BellSouth. We believe that the joint promotion agreement in
conjunction with the supply agreement with BellSouth will create significant
demand for our products.
Covad Communications. Efficient has worked closely with Covad to tune the
feature set of our SpeedStream 5250 SDSL bridging modem to their network
requirements. We are working with Covad to develop new products intended
specifically for its network and also are involved in discussions with Covad
about our next-generation products as well.
Singapore Telecom. Efficient has worked closely with SingTel to provide
customized software with our CPE that is unique to SingTel's advanced Magix DSL
service. We are involved in discussions with SingTel with respect to the
evolution of SingTel's network architecture and service offerings. SingTel has
consistently volunteered to work with us to test our new products.
44
<PAGE>
Network Equipment Vendors
ADC Telecommunications. ADC is an investor in Efficient and was the first
company with whom we developed a partnership for DSL CPE. ADC has actively
promoted our products to network service providers in conjunction with ADC's
Cellworx central office platform. William L. Martin III, Senior Vice President
of ADC and President of the Business Broadband Group of ADC, is a member of our
board of directors.
Alcatel. Efficient and Alcatel have established a joint development and
marketing agreement for CPE that is interoperable with Alcatel's DSLAM. We are
working together to develop two successive generations of DSL CPE based around
our USB, ATM and software technology, and employing Alcatel's DSL chipsets and
software. In certain cases, we co-brand products which are sold by both
Efficient and Alcatel.
DSC Communications. DSC Communications was recently purchased by Alcatel.
Aside from our relationship with Alcatel and prior to its acquisition, we had
entered into a partnership with DSC for CPE. DSC manufactures the Lightspan
digital loop carrier system, which has been employed in DSL service offerings
to extend the number of customers to whom DSL service can be offered. We
believe that our continuing relationship with DSC can increase the exposure of
our CPE into network service providers.
Ericsson. Efficient and Ericsson have entered into a long term agreement
whereby we supply our SpeedStream 3000 PCI and 4000 USB products. Under the
provisions of this agreement, we are the exclusive supplier to Ericsson of USB
DSL CPE through the end of 1999. After 1999, we will provide these products on
a non-exclusive basis.
Nokia. Efficient and Nokia have entered into a purchase and distribution
agreement whereby we supply our SpeedStream 3000 PCI and 4000 USB products.
Under the provisions of this agreement, Nokia resells our products along with
its EKSOS family of DSL equipment and the SpeedLink DSLAM of Diamond Lane.
Nokia recently acquired Diamond Lane Communications.
Nortel Networks. Efficient has an agreement to supply Nortel with DSL CPE
that is interoperable with Nortel's Universal Edge 9000 access product. Nortel
offers the Universal Edge 9000 to both new and existing customers as an upgrade
for both Nortel's DMS voice switches and its access node digital loop carriers.
Based on this relationship, we are working with Nortel on next-generation
products.
Siemens. Siemens is an investor in Efficient. We have worked with Siemens to
specifically design and produce certain DSL CPE that is interoperable with both
Siemens' XpressLink D DSLAM and with DSL interfaces for Siemens' installed base
of voice switches. Anthony T. Maher, who is a member of the board of Siemens AG
Information and Communication Networks, is also a member of our board of
directors.
Developers of DSL Semiconductor Technology
Analog Devices. Many of our products use ADSL technology from ADI. Efficient
was one of two CPE vendors to engage in an early availability program with ADI
for G.lite, a splitterless DSL technology. G.lite is expected to enable
deployment of DSL service without requiring a network service provider
technician to perform on-site wiring changes or installation of CPE.
Texas Instruments Incorporated. Texas Instruments is an investor in
Efficient. Some SpeedStream products under development use ADSL technology from
Texas Instruments. We have licensed pieces of our ATM silicon and software to
Texas Instruments, and have assisted in the development of reference designs
for application of Texas Instruments' ADSL components. Texas Instruments has
provided us with access to its ADSL components at most favored prices. Texas
Instruments also fabricates one of our ATM ASICs and has provided introductions
for Efficient to personal computer manufacturers who are searching for sources
of DSL CPE.
45
<PAGE>
Telephone Company-Aligned Distributors
Sprint North Supply. Sprint North Supply is a primary supplier of
telecommunications equipment to Sprint. Many other network service providers
also source networking products from Sprint North Supply. Efficient has entered
into a distribution agreement with Sprint North Supply that enables it to carry
selected members of our SpeedStream product family.
Nortel Supply. Nortel Supply is a distributor of Nortel and other network
equipment vendors' products. Through our agreement with Nortel Supply,
Efficient leverages Nortel Supply's worldwide distribution capabilities.
Innotrac. Innotrac is a distributor of consumer telecommunications equipment
for several ILECs, including BellSouth. Efficient, Innotrac and BellSouth
jointly promote BellSouth's DSL services with Efficient's SpeedStream CPE. We
believe that we can leverage Innotrac's relationship with several ILECs, as
well as Innotrac's experience in distributing products in high volume.
Manufacturing
Efficient outsources the assembly and testing of products and printed
circuit boards to turnkey contract manufacturers. Currently, Solectron Corp.
manufactures the majority of Efficient's products at its facility in Austin,
Texas. Efficient also contracts with Xetel, Inc. for the manufacturing of
certain of our products in Dallas, Texas. Both of these manufacturers are
certified by the International Standards Organization for manufacturing and
design processes. Efficient plans to engage an additional contract manufacturer
to meet our anticipated manufacturing requirements and to continue reducing the
cost of our products.
Efficient has a limited in-house manufacturing capability. We have complete
capabilities for final test, packaging and shipping of our products. We perform
comprehensive inspection tests and use statistical process controls to assure
the reliability and quality of our products. Our manufacturing engineers design
and build all test procedures and fixtures for our products. We integrate these
manufacturing tests with the contract manufacturers' build processes. Our
manufacturing personnel work with our design engineers to ensure that the test
environment remains current as DSL technology evolves. We also perform warranty
and repair work at our Dallas facility.
Efficient's engineers design custom ASICs that are incorporated into the
majority of our products. Efficient contracts with silicon manufacturers to
fabricate the ASICs for prototype testing. We perform design verification and
simulation testing at our facilities. After successful completion of these
tests, Texas Instruments, Samsung Semiconductor and VLSI Technology manufacture
our ASICs in volume on a turnkey basis. We purchase only packaged and tested
ASICs.
Other than our ASICs, we try to use standard parts and components whenever
possible. We currently purchase certain key parts and components from sole-
source suppliers such as Alcatel Microelectronics, Analog Devices, Conexant
Systems and Texas Instruments.
Sales and Marketing
Since 1996, Efficient has worked closely with network equipment vendors that
supply DSL-based central office equipment. These vendors offer our SpeedStream
products to network service providers as part of a complete, interoperable DSL
solution. We engage in joint sales activities with our partners and regularly
provide them with collateral materials to enable their sales forces to promote
our products. Our relationships with network equipment vendors result in
introductions to large network service providers. In many cases, with DSL
interoperability assured by Efficient and our partners, network service
providers choose to purchase CPE directly from Efficient.
46
<PAGE>
Efficient also works closely with network service providers to ensure that
our CPE is matched to their DSL service offerings. Initial discussions with
network service providers generally involve our sales, marketing and business
development personnel who work to communicate the strengths of our company and
our products. Detailed responses to request for purchase documents are
submitted to network service providers, often by both Efficient and one or more
network equipment vendors.
Next, at the network service provider's request, we engage in a technical
certification process involving our system engineers who work in a lab
environment, in some cases for days or weeks, with their counterparts from the
network service provider. We frequently provide informal consultation on
network deployment and testing as well as customized training for network
service providers. In some cases, we create special software releases or
product combinations for major network service providers. While the actual sale
and distribution of CPE varies network by network, this initial relationship-
building stage is critical in every case. We believe that it is difficult to
provide CPE into DSL service offerings without these close relationships with
network service providers.
We engage in a variety of marketing activities to build brand awareness. We
issue press releases concerning significant product releases, partnerships and
network design wins. We also conduct briefings for analysts and members of the
press. We participate in a number of industry trade shows and pursue speaking
engagements at related events. Efficient uses direct mail campaigns to increase
awareness of our company and our products among Internet service providers, who
are increasingly active in introducing customers to DSL services. Our broad
goals are to continue to increase the awareness of Efficient as a company, and
of our DSL CPE product line brand, SpeedStream.
As the scope of our marketing efforts expands, our Website continues to be a
strategic resource in disseminating information to interested parties. Our
Website also plays an active role in collecting sales leads, working remotely
with partners and key customers, and performing customer support. In the
future, we believe that our Website may become an important tool for direct
sales of our products.
Research and Development
We believe that our future success depends on our ability to adapt to the
rapidly changing communications environment, maintain our significant expertise
in core technologies, and continue meeting and anticipating our customers'
needs. We continually review and evaluate technological changes affecting the
telecommunications market and invest substantially in applications-based
research and development. We are committed to an ongoing program of new product
development that combines internal development efforts with joint ventures and
licensing or marketing arrangements relating to new products and technologies
from outside sources.
Efficient's core research and development activities are focused on both
hardware and software technologies. In our hardware development activities, we
possess significant expertise in ASIC development, analog and mixed signal
hardware design, ATM architecture and bus architectures, such as PCI and USB.
In software development, Efficient has particular strengths in data networking
protocols and operating systems, device driver development and traffic
management, and techniques for advanced routing and systems management.
To enable successful deployment of DSL services, our CPE must be
interoperable with the DSLAM, ATM switching equipment and other networking
equipment from multiple vendors. In our development efforts, we leverage our
relationships with prominent DSLAM vendors to ensure DSL interoperability. The
continued development and use of our own industry-tested ASICs and software
ensure ATM switching interoperability. In addition, our support for a number of
protocol stacks provides data encapsulation interoperability with routers at
Internet service providers or within corporate networks. Efficient has a solid
understanding of the end-to-end technologies in use, and we actively work to
ensure interoperability while using technology that we control. Our design
verification procedures include testing in complex network environments created
in our laboratories
47
<PAGE>
that simulate end-to-end network architectures used in DSL service deployments.
We believe that our stringent design verification and test procedures allow us
to provide cost-effective, high-performance DSL CPE that minimizes the
technology risk for network operators.
Most of the technology associated with Efficient's SpeedStream products
continues to evolve. ADSL supports high frequency digital data transmission
simultaneously with analog voice signals on a single copper phone line. Digital
data and analog voice have the capability to disrupt one another. One common
method of minimizing this disruption is to electrically separate the voice
signals from the data signals using a circuit known as a filter or a
"splitter." At present, the use of a splitter often requires a network
technician or the end user to install the device using hand tools and to modify
phone wiring inside a home or business. We are currently researching analog
filtering circuit technology and are working with other companies to enable
filter designs that can be installed without tools or changes to interior
wiring.
Another future technology involves ATM switched virtual circuits. Switched
virtual circuits create a dedicated connection between two points of a network.
Current ATM/DSL deployments typically use permanent virtual circuits to create
these dedicated connections. Permanent virtual circuits must be created
manually, while switched virtual circuits employ software to automatically
create a circuit across the ATM network without manual intervention. Some
network operators have expressed a concern that DSL deployments may not scale
rapidly if permanent virtual circuits are employed. Switched virtual circuit
implementations are complex and may represent a technology barrier for
competitors. Efficient has sold ATM LAN products supporting switched virtual
circuits for several years. We believe we are well suited to help enable large-
scale DSL deployments as network operators demand support for switched virtual
circuits.
Competition
The network equipment industry is highly competitive, and we believe that
competition may increase substantially as the introduction of new technologies,
deployment of broadband networks and potential regulatory changes create new
opportunities for established and emerging companies. In addition, a number of
our competitors and potential competitors have significantly greater financial
and other resources than us which may enable them to more aptly meet new
competitive opportunities. We compete directly with other providers of DSL CPE
including 3Com, Alcatel, Cisco Systems, FlowPoint and Netopia, among others.
Other vendors with whom we compete also have proprietary systems with which our
products are not interoperable. Included among these vendors are Cisco Systems,
Orckit Communications, PairGain Technologies and Westell Technology. In
addition, a number of potential competitors, such as Intel Corporation,
Matsushita which markets its products under the Panasonic name, Sony
Corporation, SGS-Thomson and Toshiba America, may enter the DSL CPE market.
Furthermore, DSL as a technology for deploying broadband connections is
competing with alternative technologies including ISDN, T1, broadband wireless
and cable solutions.
The rapid technological developments within the network equipment industry
results in frequent changes to our group of competitors. The principal
competitive factors in our market include:
. Industry relationships with network service providers and network
equipment vendors;
. product reliability, performance and interoperability;
. product features;
. product availability;
. price;
. ability to distribute products;
. ease of installation and use;
. technical support and customer service; and
. brand recognition.
48
<PAGE>
We believe we are successfully addressing each of these competitive factors.
Nonetheless, we expect to face increasing competitive pressures from both
current and future competitors in the markets we serve.
Intellectual Property
We rely on a combination of copyright, patent, trademark, trade secret and
other intellectual property laws, nondisclosure agreements and other protective
measures to protect our proprietary rights. We also utilize unpatented
proprietary know-how and trade secrets and employ various methods to protect
our trade secrets and know-how. To date, we have been granted one U.S. patent
with counterpart patents pending in three international jurisdictions and have
an additional nine U.S. patent applications pending.
Although we employ a variety of intellectual property in the development and
manufacturing of our products, we believe that none of our intellectual
property is individually critical to our current operations. However, taken as
a whole, we believe our intellectual property rights are significant and that
the loss of all or a substantial portion of such rights could have a material
adverse effect on our results of operations. There can be no assurance that our
intellectual property protection measures will be sufficient to prevent
misappropriation of our technology. In addition, the laws of many foreign
countries do not protect our intellectual properties to the same extent as the
laws of the United States. From time to time, we may desire or be required to
renew or to obtain licenses from others in order to further develop and market
commercially viable products effectively. There can be no assurance that any
necessary licenses will be available on reasonable terms.
Employees
As of March 31, 1999, we employed approximately 104 full-time employees,
including 27 in sales and marketing, 12 in manufacturing, 54 in engineering,
nine in finance and administration and two in customer service. Most of our
employees are located in the United States with six sales and sales engineering
employees located in The Netherlands. None of our employees is represented by
collective bargaining agreements, and management considers relations with our
employees to be good.
Properties
We lease an approximately 26,000 square foot facility in Dallas, Texas for
executive offices and for administrative, sales and marketing, and research and
development purposes. The lease for this facility expires in 2001. We also
lease an approximately 11,000 square foot facility in Dallas, Texas for
manufacturing, shipping and receiving of product. This lease also expires in
2001. Additionally, we lease an approximately 2,500 square foot facility in
Amsterdam, The Netherlands for our European operations. This lease expires in
2004.
Legal Proceedings
Efficient is not a party to any material legal proceedings.
49
<PAGE>
MANAGEMENT
Executive Officers and Directors
The following table sets forth certain information with respect to the
executive officers and directors of Efficient as of April 30, 1999.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Mark A. Floyd............ 43 Chairman of the Board, Chief Executive Officer and
President
Paul E. Couturier........ 37 Vice President of International Operations
Patricia W. Hosek........ 37 Vice President of Engineering
Gregory L. Langdon....... 38 Vice President of Marketing
Jill S. Manning.......... 36 Vice President and Chief Financial Officer
David B. Stefan.......... 36 Vice President of Sales
Bruce W. Brown........... 49 Director
James P. Gauer........... 47 Director
Robert A. Hoff........... 46 Director
Anthony T. Maher......... 53 Director
William L. Martin III.... 51 Director
Thomas H. Peterson....... 42 Director
</TABLE>
Mark A. Floyd co-founded Efficient in June 1993 and has served as President,
Chief Executive Officer and a director of Efficient since its inception. Prior
to founding Efficient, from June 1991 to July 1993, Mr. Floyd was Chief
Operating Officer and a director of Networth, Inc., a provider of LAN products
including Ethernet hubs, switches and network interface cards. From May 1984 to
June 1991, Mr. Floyd held the positions of Executive Vice President, Chief
Financial Officer and director of Interphase Corporation, a provider of
enterprise server connectivity solutions for high-speed LAN, high capacity
storage and remote access applications. Mr. Floyd holds a B.B.A. in Finance
from the University of Texas at Austin.
Paul E. Couturier has served as Efficient's Vice President of International
Operations since February 1997. From March 1995 to February 1997, he served as
Efficient's Managing Director, Europe. From June 1993 to January 1995, he was
Pan-European Business Development Manager at SynOptics, a manufacturer of
synthetic crystals and optical products. Prior to that, Mr. Couturier held the
position of Director of Sales and Marketing at Gandalf Benelux, a division of
Mitel Corporation dedicated to the corporate access segment of the remote
access market. Mr. Couturier has a bachelors degree in Marketing and in Foreign
Languages from the University of Amsterdam.
Patricia W. Hosek has served as Vice President of Engineering of Efficient
since February 1997. From October 1995 to February 1997, she served as
Efficient's Director of Software Engineering. From December 1990 to October
1995, she worked as a senior manager and developer at DSC Communications
Corporation, a global provider of telecommunications products. Ms. Hosek holds
a B.S. in Computer Science from Texas A&M University.
Gregory L. Langdon has served as Vice President of Marketing of Efficient
since February 1997. From February 1996 to February 1997, he served as
Efficient's Director of Product Management. From January 1990 to February 1996,
he worked as an engineer at DSC Communications Corporation. Mr. Langdon holds a
B.S. in Electrical Engineering from Vanderbilt University.
Jill S. Manning has served as Vice President and Chief Financial Officer of
Efficient since February 1997. From November 1994 to February 1997, she served
as Efficient's Controller. From July 1984 to November 1994, Ms. Manning was a
senior manager at KPMG LLP, an international accounting firm. Ms. Manning holds
a B.B.A. in Accounting and in Computer Information Systems from Baylor
University.
David B. Stefan has served as Vice President of Sales of Efficient since
October 1997. From March 1997 to October 1997, Mr. Stefan worked as Vice
President of Sales of Dagaz Technologies, a manufacturer of
50
<PAGE>
telecommunications equipment that was acquired by Cisco Systems in September
1997. From May 1996 to March 1997, Mr. Stefan held the position of Director of
Sales of Sourcecom Corporation, a computer networking equipment and software
reseller. From November 1992 to May 1996, he worked as a territory manager and
system engineer for Primary Access, a division of 3Com Corporation, a computer
networking products company. Mr. Stefan holds an M.S.E.E. from George
Washington University and a B.S. in Electrical Engineering from Michigan State
University.
Bruce W. Brown has served as a director of Efficient since October 1995.
Since August 1995, he has served as President, Chief Executive Officer and a
director of Vertel Corp., a provider of telecommunications network management
software and services. From July 1993 to August 1995, Mr. Brown held the
positions of President and Chief Executive Officer of ADC Fibermax Corporation,
a supplier of fiber optic networking products. Mr. Brown holds an M.P.A. from
Drake University and a B.S. in Psychology from Iowa State University.
James P. Gauer has served as a director of Efficient since July 1993. Since
April 1999, he has been a General Partner of Palomar Ventures, and from
December 1992 to November 1997, he was a General Partner of Enterprise
Partners, both of which are venture capital firms and investors in Efficient.
Mr. Gauer holds a B.A. in Mathematics from the University of California, Los
Angeles.
Robert A. Hoff has served as a director of Efficient since July 1993. Since
1983, he has been a General Partner of Crosspoint Venture Partners, a venture
capital firm and investor in Efficient. Mr. Hoff also serves as a director of
Com21, Inc., PairGain Technologies, Inc., Onyx Acceptance Corp. and U.S.
Web/CKS Corporation. Mr. Hoff holds an M.B.A. from Harvard University and a
B.S. in Business Administration from Bucknell University.
Anthony T. Maher was appointed to Efficient's board of directors in April
1999. Mr. Maher is a member of the board of Siemens AG Information and
Communication Networks. Siemens, a network equipment vendor, is an investor in
Efficient. Since May 1978, Mr. Maher has held various positions with Siemens,
including the following positions within the Siemens Public Communication
Networks Group: October 1997 to September 1998, member of the board of
directors; October 1995 to September 1997, Executive Director; and January 1993
to September 1995, Executive Director of Worldwide Product Planning. Prior to
his positions within the Public Communication Networks Group, Mr. Maher was
manager and then deputy director of system engineering for EWSD architecture
and processor technology. Mr. Maher holds a M.S. in Electrical Engineering and
Solid State Physics from the University of Illinois.
William L. Martin III has served as a director of Efficient since January
1997. Since September 1994, Mr. Martin has been Senior Vice President of ADC
Telecommunications, Inc. and President of the Business Broadband Group of ADC
Telecommunications, Inc., a provider of communications networks systems and
solutions and an investor in Efficient. Mr. Martin holds an M.B.A. from Harvard
University, an M.S. of Aerospace Engineering and a B.S. in Engineering from the
California Institute of Technology.
Thomas H. Peterson has served as a director of Efficient since July 1993.
Since July 1994, Mr. Peterson has served as director of Rogue Wave Software,
Inc., a provider of software solutions for creating and managing enterprise
systems. Since May 1991, Mr. Peterson has been a General Partner of El Dorado
Ventures, a venture capital firm and investor in Efficient. Mr. Peterson holds
an M.B.A. from the University of California, Los Angeles and a B.S. in
Electrical Engineering from Iowa State University.
Classified Board
Our board of directors is currently composed of seven members. Upon
completion of this offering, our certificate of incorporation 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. To implement the classified structure,
prior to the consummation of the offering, two of our
51
<PAGE>
directors will be elected to one-year terms, two will be elected to two-year
terms and three will be elected to three-year terms. Thereafter, directors will
be elected for three-year terms. and have been designated
Class I directors whose term expires at the 1999 annual meeting of
stockholders. and have been designated Class II
directors whose term expires at the 2000 annual meeting of stockholders.
, , and have been designated Class III directors whose
term expires at the 2001 annual meeting of stockholders. See "Description of
Capital Stock--Delaware Anti-Takeover Law and Certain Charter and Bylaw
Provisions."
Executive officers are appointed by the board of directors on an annual
basis and serve until their successors have been duly elected and qualified.
There are no family relationships among any of our directors, officers or key
employees.
Board Committees
We established an audit committee and a compensation committee in April
1999.
Our audit committee consists of Messrs. Martin and Hoff. The audit committee
reviews our internal accounting procedures and consults with and reviews the
services provided by our independent accountants.
Our compensation committee consists of Messrs. Brown and Gauer. The
compensation committee reviews and recommends to the board of directors the
compensation and benefits of our employees. The compensation committee also
administers our stock-based employee benefit plans.
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
Directors do not currently receive any cash compensation from us for their
service as members of the board of directors. Directors are eligible to receive
option grants under our 1999 Stock Plan. For a description of this plan, see
"--Benefit Plans." In December 1996, the board granted options to purchase
100,000 shares of common stock to Mr. Brown. During 1998, the board granted
options to purchase 50,000 shares of common stock to each of Messrs. Gauer,
Hoff, Martin and Peterson.
52
<PAGE>
Executive Compensation
Summary Compensation Table
The table below sets forth the compensation earned for services rendered to
Efficient in all capacities for the fiscal year ended June 30, 1998 by our
Chief Executive Officer and our next four most highly compensated executive
officers who earned more than $100,000 during fiscal 1998. These executives are
referred to as the "named executive officers" elsewhere in this prospectus.
<TABLE>
<CAPTION>
Long-Term
Compensation
Awards
------------
Annual Securities
Compensation Underlying
---------------- ------------ All Other
Name and Principal Position Salary Bonus Options (#) Compensation
--------------------------- -------- ------- ------------ ------------
<S> <C> <C> <C> <C>
Mark A. Floyd....................... $178,127 $20,000 350,000 $16,667(1)
President and Chief Executive
Officer
David B. Stefan..................... 93,391 37,500 125,000 23,140(2)
Vice President of Sales
Patricia W. Hosek................... 107,625 21,313 50,000 --
Vice President of Engineering
Gregory L. Langdon.................. 103,290 21,051 50,000 --
Vice President of Marketing
Paul E. Couturier................... 85,399 48,739 37,500 28,332(3)
Vice President of International
Operations
</TABLE>
- --------
(1) Represents amount paid in lieu of accrued sabbatical benefit.
(2) Represents a moving allowance.
(3) Represents an annual car and vacation allowance.
53
<PAGE>
Option Grants During Last Fiscal Year. The following table sets forth
certain information with respect to stock options granted to each of the named
executive officers in fiscal 1998, including the potential realizable value
over the ten-year term of the options, based on assumed rates of stock
appreciation of 5% and 10%, compounded annually. These assumed rates of
appreciation comply with the rules of the Securities and Exchange Commission
and do not represent our estimate of future stock price. Actual gains, if any,
on stock option exercises will be dependent on the future performance of our
common stock.
In fiscal 1998, we granted options to purchase up to an aggregate of
1,631,000 shares to employees, directors and consultants. All options were
granted at exercise prices equal to the fair market value of our common stock
on the date of grant, as determined in good faith by our board of directors.
All options have a term of ten years. Optionees may pay the exercise price by
cash, check or delivery of already-owned shares of our common stock. All option
shares vest over four years, with 25% of the option shares vesting one year
after the option grant date and the remaining option shares vesting ratably on
a monthly basis over the succeeding 36 months.
<TABLE>
<CAPTION>
Potential
Realizable Value
at Assumed Annual
Rates of Stock
Price
Appreciation for
Individual Grants Option Term
------------------------------------------ -----------------
Percent of
Total
Number of Options
Securities Granted to
Underlying Employees
Options In Last Exercise Expiration
Name Granted Fiscal Year Price Date 5% 10%
---- ---------- ----------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Mark A. Floyd........... 350,000 21.46% $0.60 2/16/08 $132,067 $334,685
David B. Stefan......... 75,000 4.60 0.50 11/17/07 23,583 59,765
50,000 3.07 0.60 3/11/08 18,866 47,812
Patricia W. Hosek....... 50,000 3.07 0.60 3/11/08 18,866 47,812
Gregory L. Langdon...... 50,000 3.07 0.60 3/11/08 18,866 47,812
Paul E. Couturier....... 37,500 2.30 0.50 11/17/07 11,791 29,882
</TABLE>
Aggregate Option Exercises During the Last Fiscal Year and Fiscal Year-End
Option Values. The following table sets forth information with respect to the
named executive officers concerning their option exercises in fiscal 1998, and
exercisable and unexercisable options held as of June 30, 1998. The "Value of
Unexercised In-the-Money Options at June 30, 1998" is based on a value of $0.60
per share, the fair market value of our common stock as of June 30, 1998 as
determined by the board of directors, less the per share exercise price,
multiplied by the number of shares issuable upon exercise of the options.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at Fiscal In-the-Money Options at
Shares Year-End Fiscal Year-End
Acquired Value ------------------------- -------------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Mark A. Floyd........... -- -- 93,750 506,250 $32,812 $54,688
David B. Stefan......... -- -- -- 125,000 -- 7,500
Patricia W. Hosek....... 32,292 $14,531 18,750 98,958 6,563 10,938
Gregory L. Langdon...... -- -- 44,791 105,209 18,385 21,615
Paul E. Couturier....... -- -- 54,844 57,656 21,828 13,172
</TABLE>
The value realized by Ms. Hosek upon the exercise of her options represents
the aggregate amount of the difference between the fair market value for a
share of common stock on the date of exercise, which was $0.60 per share, and
the exercise price of such options, $0.15.
54
<PAGE>
Benefit Plans
1999 Stock Plan
Our 1999 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, and for the granting to employees and consultants of
nonstatutory stock options and stock purchase rights. The stock plan was
approved by the board of directors in April 1999 and by our stockholders in May
1999. Unless terminated sooner, the stock plan will terminate automatically in
2009. A total of 3,500,000 shares of our common stock is reserved for issuance,
plus annual increases equal to the lesser of:
. 1,000,000 shares;
. 3% of the outstanding shares on such date; or
. a lesser amount determined by the board of directors.
The stock plan may be administered by the board of directors or a committee
of the board. The board or a committee of the board will have the power to
determine the terms of the options granted, including the exercise price, the
number of shares subject to each option, the vesting provisions, the
exercisability thereof and the form of consideration payable upon such
exercise.
The stock plan provides that in the event of a merger of Efficient with or
into another corporation, or the sale of substantially all of our assets, each
outstanding option or stock purchase right will be assumed or substituted for
by the successor corporation. In addition, if the options are not substituted
for in the merger, each outstanding option will vest and become exercisable as
to all unvested shares and each stock purchase right shall lapse as to all the
shares for a period of 15 days after receipt of notice from Efficient.
1999 Employee Stock Purchase Plan
Our 1999 employee stock purchase plan was adopted by our board of directors
in April 1999 and by our stockholders in May 1999. A total of 200,000 shares of
common stock has been reserved for issuance under the purchase plan, plus
annual increases equal to the lesser of:
. 100,000 shares;
. 1% of the outstanding shares on such date; or
. a lesser amount determined by the board on the first day of each fiscal
year.
The purchase plan, which is intended to qualify under Section 423 of the
Internal Revenue Code of 1986, as amended, contains successive six-month
offering periods. The offering periods generally start on the first trading day
on or after June 1 and December 1 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
November 30.
Our employees are eligible to participate if they are employed by us or any
of our participating subsidiaries for at least 20 hours per week and more than
five months in any calendar year. However, the following employees may not
purchase stock under the purchase plan:
. 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
. any employee whose rights to purchase stock under any of our employee
stock purchase plans accrue at a rate that exceeds $25,000 worth of stock
for each calendar year.
Participants may purchase common stock through payroll deductions of up to
10% of the participant's compensation. The maximum number of shares a
participant may purchase during a single offering period is 500 shares.
Amounts deducted and accumulated by the participant will be used to purchase
shares of common stock at the end of each offering period. The price of stock
purchased under the purchase plan is 85% of the lower of the fair market value
of the common stock at the beginning of the offering period and at the end of
each offering period.
55
<PAGE>
The purchase plan provides that, in the event of a merger of Efficient with
or into another corporation or a sale of substantially all of our assets,
outstanding options 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 will be set, which will occur before the proposed sale
or merger.
The purchase plan will terminate in 2009. The board of directors has the
authority to amend or terminate the purchase plan, except that no such action
may adversely affect any outstanding rights to purchase stock.
401(k) Plan
We maintain a tax-qualified employee savings and retirement plan, a 401(k)
plan, that covers all of our eligible employees. Pursuant to the 401(k) plan,
participants may elect to reduce their current compensation, on a pre-tax
basis, up to 15% or the statutorily prescribed annual limit, whichever is
lower, and have the amount of such reduction contributed to the 401(k) plan.
Participants' salary reduction contributions are fully vested at all times.
Efficient, in its sole discretion, may make additional employer contributions
to the 401(k) plan. Participants' interests in their additional employer
contributions, if any, vest in accordance with a four-year graduated vesting
schedule. To date, Efficient has not made any employer contributions.
Participants generally are eligible for a distribution from the 401(k) plan
upon their reaching age 59 1/2, age 65, death, disability or separation from
service with Efficient. The 401(k) plan is intended to qualify under Section
401(a) of the Internal Revenue Code of 1986, as amended, and its accompanying
trust is intended to be a tax-exempt trust under Section 501(a) of the Internal
Revenue Code of 1986, as amended. Contributions made on behalf of participants,
on a pre-tax basis, to the 401(k) plan, and income earned on such
contributions, are not currently taxable to participants. All such
contributions are tax deductible by Efficient.
Limitations on Directors' Liability and Indemnification
Our certificate of incorporation limits the liability of our 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 of
the following:
. any breach of their duty of loyalty to the corporation or its
stockholders;
. acts or omissions not in good faith or that 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.
This limitation of liability does not apply to liabilities arising under the
federal securities laws and does 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 executive officers, and that we may indemnify our other
officers and 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 such
capacity, regardless of whether the bylaws would permit indemnification.
We have entered into agreements to indemnify our directors and executive
officers, in addition to indemnification provided for in our bylaws. These
agreements, among other things, provide for indemnification of our directors
and executive officers for expenses, judgments, fines and settlement amounts
incurred by any such person in any action or proceeding arising out of such
person's services as a director or executive officer of Efficient or at our
request. We believe that these provisions and agreements are necessary to
attract and retain qualified persons as directors and executive officers. We
also maintain directors and officers liability insurance. At present, we are
not aware of any pending litigation or proceeding involving any director,
officer, employee or agent of Efficient where indemnification will be required
or permitted. Furthermore, we are not aware of any threatened litigation or
proceeding that might result in a claim for indemnity by these individuals.
56
<PAGE>
CERTAIN TRANSACTIONS
The following is a description of transactions during our last three fiscal
years to which we have been a party, in which the amount involved in the
transaction exceeds $60,000 and in which any director, executive officer or
holder of more than 5% of our capital stock had or will have a direct or
indirect material interest other than compensation arrangements that are
otherwise required to be described under "Management."
During the past three fiscal years, we have issued redeemable convertible
preferred stock, subordinated promissory notes and warrants as follows:
. In September 1995, we sold 2,473,644 shares of Series D preferred stock in a
private placement at a purchase price of $2.02 per share;
. In December 1996, we sold 3,091,430 shares of Series E preferred stock in a
private placement at a purchase price of $2.41 per share;
. In February 1998, we sold 2,057,159 shares of Series F preferred stock in a
private placement at a purchase price of $2.92 per share;
. In June 1998, we sold 1,866,800 shares of Series G preferred stock in a
private placement at a purchase price of $2.92 per share;
. In January 1999, we issued an aggregate $7.0 million of 10% subordinated
promissory notes due January 2002, together with warrants to purchase
2,397,260 shares of Series H preferred stock in a private placement at an
exercise price of $2.92 per share;
. In March 1999, we sold 1,850,000 shares of Series G preferred stock in a
private placement at a purchase price of $2.92 per share; and
. In April 1999, we issued an aggregate $2.0 million of 10% subordinated
promissory notes due January 2002, together with warrants to purchase
684,931 shares of Series H preferred stock in a private placement at an
exercise price of $2.92 per share.
Our officers, directors and 5% stockholders participated in the foregoing
transactions as follows:
<TABLE>
<CAPTION>
Principal
Number of Number of Number of Number of Amount Number of
Shares of Shares of Shares of Shares of of 10% Series H
Name Of Purchaser Series D Series E Series F Series G Notes Warrants
----------------- --------- --------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Texas Instruments
Incorporated........... 2,473,644 -- 1,712,329 -- -- --
ADC Telecommunications.. -- 2,066,420 45,881 -- -- --
Enterprise Partners..... -- 265,836 81,773 -- -- --
Crosspoint Venture
Partners............... -- 236,880 72,848 -- $5,000,000 1,712,329
El Dorado Ventures...... -- 236,367 72,689 -- $2,000,000 684,931
Menlo Ventures.......... -- 144,332 44,381 -- -- --
Siemens................. -- -- -- 3,716,800 -- --
Palomar Ventures........ -- -- -- -- $2,000,000 684,931
</TABLE>
Mr. Martin, a member of our board of directors, is affiliated with ADC
Telecommunications. Mr. Hoff, a member of our board of directors, is affiliated
with Crosspoint Venture Partners. Mr. Peterson, a member of our board of
directors, is affiliated with El Dorado Ventures. Mr. Maher, a member of our
board of directors, is affiliated with Siemens. Mr. Gauer, a member of our
board of directors, was formerly affiliated with Enterprise Partners and is
presently affiliated with Palomar Ventures.
57
<PAGE>
Note Repayment and Warrant Exercise Agreement
Each holder of a 10% subordinated promissory note is expected to enter into
a note repayment and warrant exercise agreement with Efficient prior to the
closing date of this offering. Pursuant to the terms of the agreement,
immediately prior to the closing of this offering, the aggregate $9.0 million
principal amount of the notes will be applied toward the aggregate exercise
price of the warrants to purchase 3,082,191 shares of Series H preferred stock
at an exercise price of $2.92 per share.
ADC Telecommunications, Inc., December 1996
In December 1996, Efficient entered into a seven-year strategic alliance
agreement with ADC. The agreement provides for joint development and promotion
of products incorporating ADC's and Efficient's technology.
Texas Instruments Incorporated, November 1997
In November 1997, Efficient and Texas Instruments Incorporated entered into
an agreement to develop a DSL network interface card and associated software.
In February 1998, Efficient and Texas Instruments amended the agreement to
provide that Efficient would focus a percentage of our resources on products,
product developments and marketing programs that support Texas Instruments ADSL
integrated circuits. In March 1999, Efficient and Texas Instruments amended the
agreement to provide Texas Instruments with the right to make and license a
certain Efficient ASIC.
Siemens AG, June 1998
In June 1998, Efficient entered into an original equipment manufacturer
purchase agreement with Siemens. The agreement provides for the purchase by
Siemens of our SpeedStream 3010 and 3040 models, including supporting software
and hardware and software design, customization and support services.
58
<PAGE>
PRINCIPAL STOCKHOLDERS
The table on the following page sets forth information regarding the
beneficial ownership of our common stock as of April 30, 1999, by (a) each
person or entity who is known by us to own beneficially more than 5% of our
outstanding stock; (b) each of our directors; (c) each of the named executive
officers; and (d) all directors and executive officers as a group.
<TABLE>
<CAPTION>
Percentage of Percentage of
Shares Shares
Number of Shares Beneficially Owned Beneficially Owned
Name and Address Beneficially Owned Prior to Offering After the Offering
- ---------------- ------------------ ------------------ ------------------
<S> <C> <C> <C>
Crosspoint Venture
Partners(1)............ 5,116,619 16.0%
18552 MacArthur Blvd.,
Suite 400
Irvine, CA 92612
Texas Instruments
Incorporated........... 4,185,973 13.1
P.O. Box 660199, M.S.
8650
Dallas, TX 75266-0199
El Dorado Ventures(2)... 4,081,800 12.7
2400 Sand Hill Road,
Suite 100
Menlo Park, CA 94025
Enterprise Partners(3).. 3,821,374 11.9
5000 Birch Street, Suite
6200
Newport Beach, CA 92600
Siemens AG.............. 3,716,800 11.6
Hofmannstrasse 51
81359 Munchen, Germany
ADC Telecommunications,
Inc.................... 2,144,113 6.7
2240 Campbell Creek Road
Richardson, TX 75082
Menlo Ventures(4)....... 2,043,210 6.6
3000 Sand Hill Road,
Bldg. 4, Suite 100
Menlo Park, CA 94025
Chase Bailey............ 1,650,000 5.2
258 Main Street #D
Los Gatos, CA 95030
Mark A. Floyd(5)........ 1,460,417 4.5
Bruce W. Brown(6)....... 75,000 *
Robert A. Hoff(7)....... 5,078,619 15.8
Thomas H. Peterson(8)... 4,043,883 12.6
James P. Gauer(9)....... 1,971,234 6.2
Anthony T. Maher(10).... -- --
William L. Martin
III(11)................ 12,500 *
David B. Stefan(12)..... 50,521 *
Patricia W. Hosek(13)... 98,459 *
Gregory L. Langdon(14).. 91,667 *
Paul E. Couturier(15)... 81,823 *
All directors and
officers as a group (12
persons)(16)........... 2,005,596 6.1
</TABLE>
- --------
59
<PAGE>
Applicable percentage ownership in the above table is based on 31,994,808
shares of common stock outstanding as of April 30, 1999, as adjusted to
reflect:
. the conversion of $9.0 million in debt into an aggregate of 3,082,191
shares of preferred stock through the exercise of certain outstanding
warrants;
. 167,746 shares of redeemable convertible preferred stock issuable upon
the exercise of certain outstanding warrants;
. the issuance of 105,893 shares of common stock pursuant to the exercise
of options between March 31, 1999 and April 30, 1999; and
. the conversion of all outstanding shares of preferred stock into common
stock upon the closing of this offering.
Unless otherwise indicated above, each stockholder named in the table has
sole voting and investment power with respect to all shares shown as
beneficially owned by them, subject to community property laws where
applicable. Unless otherwise indicated, the address for each stockholder listed
in the following table is c/o Efficient Networks, Inc., 4201 Spring Valley
Road, Suite 1200, Dallas, Texas 75244.
* Less than 1% of the outstanding shares of common stock.
(1) Represents 3,301,480 shares held by Crosspoint Venture Partners III,
102,810 shares held by Crosspoint 1993 Entrepreneurs Fund and a warrant
held by Crosspoint Ventures LS 1997 L.P. for the purchase of 1,712,329
shares of Series H preferred stock exercisable prior to the consummation
of this offering.
(2) Represents 3,236,226 shares held by El Dorado Ventures III, 59,936 shares
held by El Dorado C&L Fund, L.P., 100,707 shares held by El Dorado
Technology IV, L.P., a warrant held by El Dorado Ventures IV, L.P. for the
purchase of 632,626 shares of Series H preferred stock and a warrant held
by El Dorado Technology '98, L.P. for the purchase of 52,305 shares of
Series H preferred stock, each exercisable prior to the consummation of
this offering.
(3) Represents 3,502,945 shares held by Enterprise Partners II, L.P., and
318,429 shares held by Enterprise Partners Associates, L.P.
(4) Represents 2,013,011 shares held by Menlo Ventures VI, L.P. and 30,199
shares held by Menlo Entrepreneurs Fund VI, L.P.
(5) Includes 360,417 shares issuable upon exercise of stock options
exercisable within 60 days of June 30, 1999.
(6) Includes 75,000 shares issuable upon exercise of stock options exercisable
within 60 days of June 30, 1999.
(7) Mr. Hoff is a general partner of Crosspoint Venture Partners. The shares
listed represent (a) 5,066,119 shares held by Crosspoint Venture Partners
and (b) 12,500 shares held by Mr. Hoff issuable upon exercise of stock
options within 60 days of June 30, 1999. Mr. Hoff disclaims beneficial
ownership of the shares held by Crosspoint Venture Partners, except to the
extent of his pecuniary interest therein.
(8) Mr. Peterson is a general partner of El Dorado Ventures. The shares listed
represent (a) 4,031,383 shares held by El Dorado Ventures and (b) 12,500
shares held by Mr. Peterson issuable upon exercise of stock options within
60 days of June 30, 1999. Mr. Peterson disclaims beneficial ownership of
the shares held by El Dorado Ventures, except to the extent of his
pecuniary interest therein.
(9) Mr. Gauer is a general partner of Palomar Ventures and Ocean Park
Ventures, L.P. The shares listed represent (a) a warrant held by Palomar
Ventures for the purchase of 684,931 shares of Series H preferred stock
exercisable prior to the consummation of this offering, (b) 1,273,803
shares held by Ocean Park Ventures and (c) 12,500 shares held by Mr. Gauer
issuable upon exercise of stock options within 60 days of June 30, 1999.
Mr. Gauer disclaims beneficial ownership of the shares held by Palomar
Ventures and Ocean Park Ventures, except to the extent of his pecuniary
interest therein.
(10) Mr. Maher is a member of the board of Siemens AG Information and
Communication Networks. Mr. Maher disclaims beneficial ownership of the
shares held by Siemens.
60
<PAGE>
(11) Mr. Martin is a Senior Vice President of ADC Telecommunications, Inc. and
President of the Business Broadband Group of ADC Telecommunications, Inc.
The shares listed represent 12,500 shares held by Mr. Martin issuable upon
exercise of stock options within 60 days of June 30, 1999. Mr. Martin
disclaims beneficial ownership of the shares held by ADC
Telecommunications, Inc.
(12) Includes 50,521 shares issuable upon exercise of stock options exercisable
within 60 days of June 30, 1999.
(13) Includes 66,167 shares issuable upon exercise of stock options exercisable
within 60 days of June 30, 1999.
(14) Includes 91,667 shares issuable upon exercise of stock options exercisable
within 60 days of June 30, 1999.
(15) Includes 81,823 shares issuable upon exercise of stock options exercisable
within 60 days of June 30, 1999.
(16) Includes an aggregate of 853,304 shares issuable upon exercise of stock
options exercisable within 60 days of June 30, 1999.
61
<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
Upon the completion of this offering, we will be authorized to issue
200,000,000 shares of common stock, $0.001 par value, and 10,000,000 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 March 31, 1999, there were 31,721,169 shares of common stock
outstanding after giving pro forma effect to (1) the conversion of $9.0 million
in debt of Efficient into an aggregate of 3,082,191 shares of redeemable
convertible preferred stock, and (2) the conversion of all outstanding shares
of redeemable convertible preferred stock into common stock upon the closing of
this offering. These shares were held of record by approximately 60
stockholders including 24,720,213 shares of common stock to be issued upon the
closing of this offering upon conversion of all outstanding shares of
redeemable convertible preferred stock.
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 Efficient, 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 holders
of common stock have no preemptive or conversion rights or other subscription
rights. There are no redemption or sinking fund provisions applicable to the
common stock. Wilson Sonsini Goodrich & Rosati, Professional Corporation,
counsel to Efficient, shall opine that the shares of common stock to be issued
upon the closing of this offering, when issued and sold in the manner described
in this prospectus and in accordance with the resolutions adopted by the board
of directors, will be fully paid and nonassessable.
Preferred Stock
The board of directors has the authority, without action by the
stockholders, to designate and issue preferred stock in one or more series and
to designate the rights, preferences and privileges of each series, which may
be greater than the rights of the common stock. It is not possible to state the
actual effect of the issuance of any shares of preferred stock upon the rights
of holders of the common stock until the board of directors determines the
specific rights of the holders of such preferred stock. However, the effects
might include, among other things:
. restricting dividends on the common stock;
. diluting the voting power of the common stock;
. impairing the liquidation rights of the common stock; or
. delaying or preventing a change in control of Efficient without further
action by the stockholders.
Upon the closing of this offering no shares of preferred stock will be
outstanding, and we have no present plans to issue any shares of preferred
stock.
Warrants
At March 31, 1999, there were warrants outstanding to purchase 96,000 shares
of Series A preferred stock, 37,500 shares of Series C preferred stock and
34,246 shares of Series G preferred stock. Upon completion of
62
<PAGE>
this offering, these warrants will become exercisable to purchase an aggregate
of 167,746 shares of common stock. These numbers exclude warrants to purchase
3,082,191 shares of Series H preferred stock. It is anticipated that the Series
H warrants will be exercised prior to completion of this offering and will
convert into 3,082,191 shares of common stock upon completion of this offering.
Registration Rights
The holders of 24,720,213 shares of redeemable convertible preferred stock,
and the holders of warrants to purchase 3,082,191 shares of redeemable
convertible preferred stock are entitled to certain rights with respect to the
registration of shares of common stock that are issuable upon the conversion of
such preferred stock under the Securities Act. Certain of these rights are
provided under the terms of an agreement between Efficient and the holders of
the registrable securities. Beginning 180 days following the date of this
prospectus, holders of at least 50% of the then outstanding registrable
securities may require on up to two occasions that we register their shares for
public resale. Also, holders of registrable securities may require on one
occasion within any twelve month period that we register their shares for
public resale on Form S-3 or similar short-form registration if the value of
the securities to be registered is at least $1.0 million. We may defer a
registration on Form S-3 for 60 days in view of market conditions. Furthermore,
in the event we elect to register any of our shares of common stock for
purposes of effecting any public offering, the holders of registrable
securities are entitled to include their shares of common stock in the
registration, but we may reduce the number of shares proposed to be registered
in view of market conditions. These registration rights have been waived with
respect to this offering. All expenses incurred in connection with any
registration, other than underwriting discounts and commissions attributable to
registrable securities, will be borne by us. All registration rights will
terminate six years following the consummation of this offering, or, with
respect to each holder of registrable securities, at such time as the holder is
entitled to sell all of its shares in any three-month period under Rule 144(k)
of the Securities Act.
The holder of a warrant to purchase 96,000 shares of preferred stock
convertible into 96,000 shares of common stock is also entitled to certain
rights with respect to registration of such shares under the Securities Act.
Beginning 180 days following the date of this prospectus, the holder may
require us to register the holder's shares for public resale on Form S-3 or
similar short-form registration; however, we may defer such registration for 90
days in view of market conditions. In addition to Form S-3 registration rights,
the holder also has rights to include its shares in any registration of our
shares of common stock for purposes of effecting a public offering, but we may
reduce the number of shares proposed to registered in view of market condition.
These registration rights have been waived with respect to this offering.
Delaware Anti-Takeover Law and Certain Charter and Bylaw Provisions
Certain provisions of Delaware law and our certificate of incorporation and
bylaws could make the following transactions more difficult:
. the acquisition of Efficient by means of a tender offer;
. the acquisition of Efficient by means of a proxy contest or otherwise; or
. the removal of our incumbent officers and directors.
These provisions, summarized below, are expected to discourage certain types
of coercive takeover practices and inadequate takeover bids. These provisions
are also designed to encourage persons seeking to acquire control of Efficient
to first negotiate with our board of directors. We believe that the benefits of
our increased ability to negotiate with the proponent of an unfriendly or
unsolicited proposal to acquire or restructure Efficient outweigh the
disadvantages of discouraging such proposals as negotiation of such proposals
could result in an improvement of their terms.
Election and Removal of Directors. Our board of directors is divided into
three classes. The directors in each class will serve for a three-year term,
one class being elected each year by our stockholders. See
63
<PAGE>
"Management--Executive Officers and Directors." This system of electing and
removing directors may tend to discourage a third party from making a tender
offer or otherwise attempting to obtain control of Efficient because it
generally makes it more difficult for stockholders to replace a majority of
the directors.
Stockholder Meetings. Under our bylaws, only our board of directors,
Chairman of the Board and President may call special meetings of stockholders.
Requirements for Advance Notification of Stockholder Nominations and
Proposals. Our bylaws establish advance notice procedures with respect to
stockholder proposals and the nomination of candidates for election as
directors, other than nominations made by or at the direction of the board of
directors or a committee of the board.
Delaware Anti-Takeover Law. 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 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 may have an anti-
takeover effect with respect to transactions not approved in advance by our
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.
Elimination of Stockholder Action By Written Consent. Our certificate of
incorporation eliminates the right of stockholders to act by written consent
without a meeting.
Elimination of Cumulative Voting. Our certificate of incorporation and
bylaws do not provide for cumulative voting in the election of directors.
Undesignated Preferred Stock. The authorization of undesignated preferred
stock makes it possible for the board of directors to issue preferred stock
with voting or other rights or preferences that could impede the success of
any attempt to change control of Efficient. These and other provisions may
have the effect of deterring hostile takeovers or delaying changes in control
or management of Efficient.
Amendment of Charter Provisions. The amendment of any of the above
provisions would require approval by holders of at least 66 2/3% of the
outstanding common stock.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is Harris Trust
Company of California.
Nasdaq National Market Listing
We have applied for the listing of our shares on The Nasdaq National Market
under the symbol "EFNT."
64
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock, and there can be no assurance that a significant public market for the
common stock will 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 the sale of our equity securities.
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 and based on shares outstanding at March
31, 1999, we will have outstanding shares of common stock. Of these
shares, all the shares sold in this offering, plus any shares issued upon
exercise of the underwriters' over-allotment option, will be freely tradable
without restriction under the Securities Act, unless purchased by our
"affiliates" as that term is defined in Rule 144 under the Securities Act.
The remaining 31,721,169 shares of common stock outstanding are "restricted
securities" within the meaning of Rule 144 under the Securities Act. Restricted
securities may be sold in the public market only if registered or if they
qualify for an exemption from registration under Rules 144, 144(k) or 701
promulgated under the Securities Act, which are summarized below.
Our directors, officers and stockholders have entered into lock-up
agreements with the underwriters of this offering generally providing that they
will not offer, sell, contract to sell or grant any option to purchase or
otherwise dispose of our shares of common stock or any securities exercisable
for or convertible into our common stock owned by them prior to this offering
for a period of 180 days after the effective date of the registration statement
filed pursuant to this offering without the prior written consent of Credit
Suisse First Boston Corporation. As a result of these contractual restrictions,
notwithstanding possible earlier eligibility for sale under the provisions of
Rules 144, 144(k) and 701, shares subject to lock-up agreements may not be sold
until such agreements expire or are waived by Credit Suisse First Boston
Corporation. Taking into account the lock-up agreements, and assuming Credit
Suisse First Boston Corporation does not release stockholders from these
agreements prior to the expiration of the 180 day lock-up period, the following
shares will be eligible for sale in the public market at the following times:
. beginning on the effective date of the registration statement, the
shares sold in this offering, and additional shares, will be
immediately available for sale in the public market;
. beginning 90 days after the effective date, additional shares will be
available for sale in the public market;
. after 180 days following the date of this prospectus, additional
shares will become eligible for sale under Rule 144 subject to volume
restrictions as described below; and
. the remainder of the restricted securities will be eligible for sale from
time to time thereafter, subject in some cases to compliance with Rule
144.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned restricted
shares for at least one year, including the holding period of any prior owner
except an affiliate, would be entitled to sell within any three-month period a
number of shares that does not exceed the greater of:
. 1% of the number of shares of common stock then outstanding, which will
equal approximately shares immediately after this offering; or
. the average weekly trading volume of our common stock during the four
calendar weeks preceding the filing of a Form 144 with respect to such
sale.
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 Efficient. Under Rule 144(k), a person who is not deemed to
65
<PAGE>
have been an affiliate of Efficient at any time during the three months
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 except
an affiliate, is entitled to sell such shares without complying with the manner
of sale, public information, volume limitation or notice provisions of Rule
144.
Rule 701, as currently in effect, permits resales of shares in reliance upon
Rule 144 but without compliance with certain restrictions, including the
holding period requirement, of Rule 144. Any of our employees, officers,
directors, or consultant who purchased shares under a written compensatory plan
or contract may be entitled to rely on the resale provisions 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, 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 Credit Suisse First Boston Corporation.
Within 90 days following the effectiveness of this offering, we will file a
registration statement on Form S-8 registering 10,170,575 shares of common
stock subject to outstanding options or reserved for future issuance under our
stock plans. As of March 31, 1999, options to purchase a total of 6,470,575
shares were outstanding and 3,700,000 shares were reserved for future issuance
under our stock plans. Upon the filing of the registration statement on Form S-
8, common stock issued upon exercise of outstanding vested options or issued
under our purchase plan, other than common stock issued to our affiliates, will
be available for immediate resale in the open market.
Also beginning six months after the date of this offering, holders of
27,802,404 restricted shares and certain holders of warrants to purchase 96,000
shares of common stock will be entitled to certain registration rights. 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
purchased by affiliates, immediately upon the effectiveness of such
registration.
66
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 1999, we have agreed to sell to the underwriters named
below, for whom Credit Suisse First Boston Corporation, BancBoston Robertson
Stephens, Inc. and Volpe Brown Whelan & Company, LLC are acting as
representatives, the following respective numbers of shares of common stock:
<TABLE>
<CAPTION>
Number
of
Underwriters Shares
------------ ------
<S> <C>
Credit Suisse First Boston Corporation.............................
BancBoston Robertson Stephens, Inc.................................
Volpe Brown Whelan & Company, LLC..................................
----
Total............................................................
====
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that, if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to additional shares at the initial public offering price less
the underwriting discounts and commissions. The option may be exercised only to
cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and selling group members may allow a discount of $ per share
on sales to other broker/dealers. After the initial public offering, the public
offering price and concession and discount to dealers may be changed by the
representatives.
The following table summarizes the compensation and estimated expenses we
will pay:
<TABLE>
<CAPTION>
Total
-----------------------------
Per Without With
Share Over-allotment Over-allotment
----- -------------- --------------
<S> <C> <C> <C>
Underwriting Discounts and Commissions
paid by us............................... $ $ $
Expenses payable by us.................... $ $ $
</TABLE>
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.
We, our officers and directors and certain other stockholders have agreed
that we and they will not offer, sell, contract to sell, announce our intention
to sell, pledge or otherwise dispose of, directly or indirectly, or file with
the Securities and Exchange Commission a registration statement under the
Securities Act relating to, any additional shares of our common stock or
securities convertible into or exchangeable or exercisable for any of our
common stock without the prior written consent of Credit Suisse First Boston
Corporation for a period of 180 days after the date of this prospectus, except
in the case of issuances by Efficient upon the exercise of employee stock
options outstanding on the date hereof.
The underwriters have reserved for sale, at the initial public offering
price, up to shares of the common stock for employees, directors and
certain other persons associated with us who have expressed an interest in
purchasing common stock in the offering. The number of shares available for
sale to the general public in the offering will be reduced to the extent these
persons purchase the reserved shares. Any reserved shares not purchased will be
offered by the underwriters to the general public on the same terms as the
other shares.
67
<PAGE>
We have agreed to indemnify the underwriters against liabilities under the
Securities Act, or contribute to payments which the underwriters may be
required to make in that respect.
We have applied to list the shares of common stock on The Nasdaq National
Market under the symbol "EFNT."
Prior to this offering, there has been no public market for the common
stock. The initial public offering price will be determined by negotiation
between us and the representatives. The principal factors to be considered in
determining the public offering price will include: the information set forth
in this prospectus and otherwise available to the representatives; the history
and the prospects for the industry in which we will compete; the ability of our
management; the prospects for our future earnings; the present state of our
development and our current financial condition; the general condition of the
securities markets at the time of this offering; and the recent market prices
of, and the demand for, publicly-traded common stock of generally comparable
companies.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation
M under the Securities Exchange Act of 1934, as amended. Over-allotment
involves syndicate sales in excess of the offering size, which creates a
syndicate short position. Stabilizing transactions permit bids to purchase the
underlying security so long as the stabilizing bids do not exceed a specified
maximum. Syndicate covering transactions involve purchases of the common stock
in the open market after the distribution has been completed in order to cover
syndicate short positions. Penalty bids permit the representatives to reclaim a
selling concession from a syndicate member when the common stock originally
sold by such syndicate member is purchased in a syndicate covering transaction
to cover syndicate short positions. These stabilizing transactions, syndicate
covering transactions and penalty bids may cause the price of the common stock
to be higher than it would otherwise be in the absence of these transactions.
These transactions may be effected on The Nasdaq National Market or otherwise
and, if commenced, may be discontinued at any time.
68
<PAGE>
NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common
stock in Canada must be made in accordance with applicable securities laws
which will vary depending on the relevant jurisdiction, and which may require
resales to be made in accordance with available statutory exemptions or
pursuant to a discretionary exemption granted by the applicable Canadian
securities regulatory authority. Purchasers are advised to seek legal advice
prior to any resale of the common stock.
Representations of Purchasers
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom such
purchase confirmation is received that (1) the purchaser is entitled under
applicable provincial securities laws to purchase the common stock without the
benefit of a prospectus qualified under these securities laws, (2) where
required by law, that the purchaser is purchasing as principal and not as
agent, and (3) the purchaser has reviewed the text above under "Resale
Restrictions."
Rights of Action of Ontario Purchasers
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
Enforcement of Legal Rights
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be
possible for Canadian purchasers to effect service of process within Canada
upon the issuer or these persons. All or a substantial portion of the assets of
the issuer and these persons may be located outside of Canada and, as a result,
it may not be possible to satisfy a judgment against the issuer or these
persons in Canada or to enforce a judgment obtained in Canadian courts against
the issuer or these persons outside of Canada.
Notice to British Columbia Residents
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that the purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by the purchaser pursuant to this offering. This report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from us. Only one report must
be filed in respect of common stock acquired on the same date and under the
same prospectus exemption.
Taxation and Eligibility for Investment
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.
69
<PAGE>
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
Efficient 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, Austin, Texas.
EXPERTS
The consolidated financial statements of Efficient Networks, Inc. as of June
30, 1997, June 30, 1998 and March 31, 1999, and for each of the years in the
three-year period ended June 30, 1998 and the nine months ended March 31, 1999,
included in this prospectus and registration statement have been audited by
KPMG LLP, independent auditors, as set forth in their reports, which are
included in this prospectus and registration statement, and are included in
reliance upon their reports given on their authority as experts in accounting
and auditing.
ADDITIONAL EFFICIENT INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the common stock
offered in this offering. This prospectus does not contain all of the
information set forth in the registration statement and the exhibits and
schedules thereto. For further information with respect to Efficient and the
common stock offered in this offering, we refer you to the registration
statement and to the attached exhibits and schedules. With respect to each such
document filed as an exhibit to the registration statement, we refer you to the
exhibit for a more complete description of the matter involved.
You may inspect our registration statement and the attached exhibits and
schedules without charge at the public reference facilities maintained by the
Securities and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, and at the regional offices of the Securities and Exchange Commission
located at Seven World Trade Center, 13th Floor, New York, NY 10048, and the
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Please call the Securities and Exchange Commission at 1-800-
SEC-0330 for further information about public reference rooms. You may obtain
copies of all or any part of our registration statement from the Securities and
Exchange Commission upon payment of prescribed fees. You may also inspect
reports, proxy, and information statements and other information regarding
registrants that file electronically with the Securities and Exchange
Commission without charge at a Web site maintained by the Securities and
Exchange Commission at http://www.sec.gov.
70
<PAGE>
EFFICIENT NETWORKS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report............................................... F-2
Consolidated Balance Sheets................................................ F-3
Consolidated Statements of Operations...................................... F-4
Consolidated Statements of Stockholders' Equity (Deficit).................. F-5
Consolidated Statements of Cash Flows...................................... F-6
Notes to Consolidated Financial Statements................................. F-7
</TABLE>
F-1
<PAGE>
Independent Auditors' Report
The Board of Directors
Efficient Networks, Inc.:
We have audited the accompanying consolidated balance sheets of Efficient
Networks, Inc. and subsidiary as of June 30, 1997 and 1998 and March 31, 1999,
and the related consolidated statements of operations, stockholders' equity
(deficit), and cash flows for each of the years in the three-year period ended
June 30, 1998 and for the nine months ended March 31, 1999. These consolidated
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 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 Efficient
Networks, Inc. and subsidiary as of June 30, 1997 and 1998 and March 31, 1999,
and the results of their operations and their cash flows for each of the years
in the three-year period ended June 30, 1998 and for the nine months ended
March 31, 1999, in conformity with generally accepted accounting principles.
KPMG LLP
Dallas, Texas
April 26, 1999
F-2
<PAGE>
EFFICIENT NETWORKS, INC.
Consolidated Balance Sheets
June 30, 1997 and 1998 and March 31, 1999
(in thousands, except share data)
<TABLE>
<CAPTION>
June 30 March 31, 1999
----------------- --------------------
Pro forma
1997 1998 Actual (unaudited)
Assets -------- ------- ------- -----------
<S> <C> <C> <C> <C> <C>
Current assets: (note 2(l))
Cash and cash equivalents....... $ 3,413 $ 7,607 $ 4,596 $ 6,596
Accounts receivable, net of
allowance for doubtful accounts
of $25 in 1997, $15 in 1998 and
$70 in 1999.................... 779 461 6,499 6,499
Inventories..................... 594 898 3,917 3,917
Other assets.................... -- 202 48 48
-------- ------- ------- -----------
Total current assets.......... 4,786 9,168 15,060 17,060
Furniture and equipment, net...... 1,559 1,404 2,130 2,130
Other assets, net................. 109 95 44 44
-------- ------- ------- -----------
$ 6,454 $10,667 $17,234 $ 19,234
======== ======= ======= ===========
<CAPTION>
Liabilities, Redeemable
Convertible
Preferred Stock and Stockholders'
Equity (Deficit)
<S> <C> <C> <C> <C> <C>
Current liabilities:
Accounts payable................ $ 184 $ 547 $ 3,995 $ 3,995
Accrued liabilities............. 232 751 967 967
Deferred revenue................ -- -- 625 625
-------- ------- ------- -----------
Total current liabilities..... 416 1,298 5,587 5,587
Long-term debt, net of discount... -- -- 4,253 --
Other liabilities................. 13 -- 22 22
-------- ------- ------- -----------
Total liabilities............. 429 1,298 9,862 5,609
-------- ------- ------- -----------
Redeemable convertible preferred
stock (note 7) 23,635 34,743 40,408 --
Commitments and contingencies
Stockholders' equity (deficit):
Common stock, par value $.001
per share, 100,000,000 shares
authorized; 3,054,771,
3,616,964 and 3,918,765 shares
issued and outstanding in 1997,
1998 and 1999, respectively;
pro forma--31,721,169 shares
issued and outstanding......... 3 4 4 32
Additional paid-in capital...... 279 408 18,041 68,865
Deferred stock option
compensation................... (183) (137) (12,436) (12,436)
Accumulated deficit............. (17,709) (25,649) (38,645) (42,836)
-------- ------- ------- -----------
Total stockholders' equity
(deficit).................... (17,610) (25,374) (33,036) 13,625
-------- ------- ------- -----------
$ 6,454 $10,667 $17,234 $ 19,234
======== ======= ======= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
EFFICIENT NETWORKS, INC.
Consolidated Statements of Operations
Years ended June 30, 1996, 1997 and 1998, and the nine months ended March 31,
1998 and 1999
(in thousands, except per share data)
<TABLE>
<CAPTION>
Nine months ended
---------------------
March 31,
1998 March 31,
1996 1997 1998 (unaudited) 1999
-------- ------- ------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net revenues................. $ 3,687 $ 4,122 $ 3,370 $ 2,703 $ 7,139
Cost of revenues............. 2,209 2,386 2,160 1,553 6,699
-------- ------- ------- ------- --------
Gross profit............. 1,478 1,736 1,210 1,150 440
-------- ------- ------- ------- --------
Operating expenses:
Sales and marketing........ 2,366 2,409 3,436 2,232 3,856
Research and development... 3,853 4,183 4,157 2,845 5,546
General and
administrative............ 1,082 1,245 1,641 1,197 1,234
Stock option compensation.. -- 73 46 34 820
-------- ------- ------- ------- --------
Total operating
expenses................ 7,301 7,910 9,280 6,308 11,456
-------- ------- ------- ------- --------
Loss from operations..... (5,823) (6,174) (8,070) (5,158) (11,016)
Interest expense............. -- -- (10) -- (2,130)
Interest income.............. 177 144 146 87 154
Other, net................... -- (19) (6) (6) (4)
-------- ------- ------- ------- --------
Net loss................. $ (5,646) $(6,049) $(7,940) $(5,077) $(12,996)
======== ======= ======= ======= ========
Basic and diluted net
loss per share of common
stock................... $ (1.99) $ (2.00) $ (2.44) $ (1.59) $ (3.48)
======== ======= ======= ======= ========
Weighted-average shares
of common stock
outstanding............. 2,838 3,027 3,254 3,193 3,807
======== ======= ======= ======= ========
Unaudited pro forma basic
and diluted net loss per
share................... $ (0.35) $ (0.64)
======= ========
Weighted average shares
used to compute
unaudited pro forma
basic and diluted net
loss per share.......... 22,886 27,077
======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
EFFICIENT NETWORKS, INC.
Consolidated Statements of Stockholders Equity (Deficit)
Years ended June 30, 1996, 1997 and 1998, and the nine months ended March 31,
1999
(in thousands, except share data)
<TABLE>
<CAPTION>
Total
Common Stock Additional Deferred stockholders'
----------------- paid-in stock option Accumulated equity
Shares Amount capital compensation deficit (deficit)
---------- ------ ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30,
1995................... 2,811,875 $ 3 $ 3 $ -- $ (6,014) $(6,008)
Issuance of common
stock under stock
option plan.......... 180,396 -- 11 -- -- 11
Net loss.............. -- -- -- -- (5,646) (5,646)
---------- --- ------- -------- -------- -------
Balance at June 30,
1996................... 2,992,271 3 14 -- (11,660) (11,643)
Issuance of common
stock under stock
option plan.......... 62,500 -- 9 -- -- 9
Deferred stock option
compensation......... -- -- 256 (256) -- --
Amortization of
deferred stock option
compensation......... -- -- -- 73 -- 73
Net loss.............. -- -- -- -- (6,049) (6,049)
---------- --- ------- -------- -------- -------
Balance at June 30,
1997................... 3,054,771 3 279 (183) (17,709) (17,610)
Issuance of common
stock under stock
option plan.......... 448,125 1 61 -- -- 62
Issuance of common
stock................ 114,068 -- 68 -- -- 68
Amortization of
deferred stock option
compensation......... -- -- -- 46 -- 46
Net loss.............. -- -- -- -- (7,940) (7,940)
---------- --- ------- -------- -------- -------
Balance at June 30,
1998................... 3,616,964 4 408 (137) (25,649) (25,374)
Issuance of common
stock under stock
option plan.......... 301,801 -- 48 -- -- 48
Issuance of warrants.. -- -- 4,729 -- -- 4,729
Deferred stock option
compensation......... -- -- 13,119 (13,119) -- --
Amortization of
deferred stock option
compensation......... -- -- -- 820 -- 820
Accretion of issuance
costs on redeemable
convertible preferred
stock................ -- -- (263) -- -- (263)
Net loss.............. -- -- -- -- (12,996) (12,996)
---------- --- ------- -------- -------- -------
Balance at March 31,
1999................... 3,918,765 4 18,041 (12,436) (38,645) (33,036)
Unaudited pro forma
issuance of common
stock upon conversion
of redeemable
convertible preferred
stock................ 24,720,213 25 40,470 -- -- 40,495
Unaudited pro forma
accretion of issuance
costs on redeemable
convertible preferred
stock................ -- -- (87) -- -- (87)
Unaudited pro forma
net loss related to
accretion of
remaining discount on
long term debt....... -- -- -- -- (4,191) (4,191)
Unaudited pro forma
issuance of common
stock upon exercise
of warrants.......... 3,082,191 3 10,441 -- -- 10,444
---------- --- ------- -------- -------- -------
Unaudited pro forma
balance at March 31,
1999................... 31,721,169 $32 $68,865 $(12,436) $(42,836) $13,625
========== === ======= ======== ======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
EFFICIENT NETWORKS, INC.
Consolidated Statements of Cash Flows
Years ended June 30, 1996, 1997 and 1998, and the nine months ended March 31,
1998 and 1999
(in thousands)
<TABLE>
<CAPTION>
Nine months ended
---------------------
March 31,
1998 March 31,
1996 1997 1998 (unaudited) 1999
------- ------- ------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss..................... $(5,646) $(6,049) $(7,940) $(5,077) $(12,996)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and
amortization............... 800 861 727 544 588
Amortization of deferred
stock option compensation.. -- 73 46 34 820
Accretion of discount on
subordinated promissory
notes...................... -- -- -- -- 1,982
Changes in operating assets
and liabilities:
Accounts receivable........ (84) (12) 318 (473) (6,038)
Inventories................ (76) 443 (304) (50) (3,019)
Other assets and
liabilities............... 19 59 (201) 74 230
Accounts payable and
accrued liabilities....... (386) (18) 967 539 3,672
Deferred revenue........... -- -- -- -- 625
------- ------- ------- ------- --------
Net cash used in operating
activities............... (5,373) (4,643) (6,387) (4,409) (14,136)
------- ------- ------- ------- --------
Cash flows used in investing
activities--purchase of
furniture and equipment...... (800) (525) (572) (356) (1,314)
------- ------- ------- ------- --------
Cash flows from financing
activities:
Principal payments on capital
lease obligations........... (185) (192) (78) (60) (11)
Proceeds from issuance of
promissory notes and
warrants.................... -- 1,500 1,000 1,000 7,000
Proceeds from issuance of
common stock................ 11 9 130 29 48
Proceeds from issuance of
preferred stock............. 5,000 5,961 10,101 5,000 5,402
------- ------- ------- ------- --------
Net cash provided by
financing activities..... 4,826 7,278 11,153 5,969 12,439
------- ------- ------- ------- --------
Increase (decrease) in cash
and cash equivalents......... (1,347) 2,110 4,194 1,204 (3,011)
Cash and cash equivalents at
beginning of year............ 2,650 1,303 3,413 3,413 7,607
------- ------- ------- ------- --------
Cash and cash equivalents at
end of year.................. $ 1,303 $ 3,413 $ 7,607 $ 4,617 $ 4,596
======= ======= ======= ======= ========
Supplemental disclosure--cash
paid during the year for:
Interest..................... $ 36 $ 6 $ 4 $ 3 $ --
======= ======= ======= ======= ========
Non-cash financing
transaction--
Exchange of promissory notes
and related interest for
redeemable convertible
preferred stock............. $ -- $ 1,519 $ 1,007 $ 1,007 $ --
======= ======= ======= ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
EFFICIENT NETWORKS, INC.
Notes to Consolidated Financial Statements
June 30, 1997 and 1998 and March 31, 1999
(1) Incorporation and Nature of Business
Efficient Networks, Inc. (the "Company") was incorporated under the laws of
the State of Delaware on June 10, 1993. The Company designs, develops,
manufactures and sells Digital Subscriber Line ("DSL") customer premise
equipment ("CPE") for the broadband access market.
(2) Summary of Significant Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned sales subsidiary located in The
Netherlands. All significant intercompany accounts and transactions
have been eliminated in consolidation.
(b) Cash Equivalents
Cash equivalents consist primarily of an investment account comprised
of investments in commercial paper, repurchase agreements and money
market funds. For purposes of the statements of cash flows, the Company
considers all highly liquid investments with original maturities of
three months or less to be cash equivalents.
(c) Inventories
Inventories are stated at the lower of average cost or market (net
realizable value).
(d) Furniture and Equipment
Furniture and equipment are stated at cost. Equipment under capital
leases is stated at the present value of minimum lease payments.
Depreciation on plant and equipment is calculated on the straight-line
method over the estimated useful lives of the assets. Plant and
equipment held under capital leases and leasehold improvements are
amortized on a straight-line basis over the shorter of the lease term
or estimated useful life of the asset. The estimated useful lives are
as follows:
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Computers.............................. 5
Software............................... 3
Equipment.............................. 5
Furniture and fixtures................. 5
</TABLE>
(e) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date.
F-7
<PAGE>
EFFICIENT NETWORKS, INC.
Notes to Consolidated Financial Statements--(continued)
June 30, 1997 and 1998 and March 31, 1999
(f) Revenue Recognition
Revenue from product sales is recognized upon shipment to the customer.
Reserves for estimated sales returns and allowances are recorded in the
same period as the related revenues.
(g) Stock-Based Compensation
The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board ("APB") Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations,
in accounting for its fixed plan stock options. As such, compensation
expense would be recorded on the date of grant only if the current
market price of the underlying stock exceeded the exercise price.
(h) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Recoverability
of assets to be held and used is measured by a comparison of the
carrying amount of an asset to future net cash flows expected to be
generated by the asset. Assets to be disposed of are reported at the
lower of the carrying amount or fair value less costs to sell.
(i) Net Loss Per Share of Common Stock
Net loss per share of common stock is presented in accordance with the
provisions of Statement of Financial Accounting Standards ("SFAS") No.
128, Earnings Per Share. Under SFAS No. 128, basic earnings/loss per
share excludes dilution for potentially dilutive securities and is
computed by dividing income or loss available to common stockholders by
the weighted average number of common shares outstanding during the
period. Diluted earnings/loss per share reflects the potential dilution
that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock. Potentially dilutive
securities are excluded from the computation of diluted earnings/loss
per share when their inclusion would be antidilutive. The computation
of basic and diluted weighted average shares is as follows (in
thousands):
<TABLE>
<CAPTION>
Nine-month
Year ended June 30, period ended
-------------------------- ---------------------
March 31,
1998 March 31,
1996 1997 1998 (unaudited) 1999
------- ------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Numerator:
Net loss.............. $(5,646) $(6,049) $ (7,940) $(5,077) $(12,996)
Accretion of
redeemable
convertible preferred
stock................ -- -- -- -- (263)
------- ------- -------- ------- --------
Numerator for basic
and diluted net loss
per share............ $(5,646) $(6,049) $ (7,940) $(5,077) $(13,259)
======= ======= ======== ======= ========
Denominator for basic
and diluted net loss
per share--weighted
average common shares
outstanding............ 2,838 3,027 3,254 3,193 3,807
======= ======= ======== ======= ========
</TABLE>
F-8
<PAGE>
EFFICIENT NETWORKS, INC.
Notes to Consolidated Financial Statements--(continued)
June 30, 1997 and 1998 and March 31, 1999
Pro forma basic and diluted net loss per share has been calculated
assuming: (a) the conversion of redeemable convertible preferred stock
outstanding at June 30, 1998 and March 31, 1999, as if the redeemable
convertible preferred stock had converted immediately upon its
issuance, resulting in 19,631,974 and 22,870,213 additional shares of
common stock outstanding, respectively; (b) the warrants issued in
January 1999 in connection with the issuance of subordinated promissory
notes were exercised immediately upon their issuance using the
principal amount of the notes to satisfy the exercise price, resulting
in 399,544 additional shares of common stock outstanding and a charge
of $2,747,000 against earnings for the accretion of the discount
recorded on the notes; and (c) the warrants issued in April 1999 in
connection with the issuance of a subordinated promissory note were
exercised at March 31, 1999 using the principal amount of the note to
satisfy the exercise price, resulting in no incremental weighted
average shares outstanding and a charge of $1,443,810 against earnings
for the accretion of the discount recorded on the note.
(j) Fair Value of Financial Instruments
The carrying values of cash equivalents, accounts receivable and
accounts payable approximate fair value due to their short maturities.
It was not practicable to estimate the fair value of the Company's
subordinated promissory notes which were issued in a private placement,
as such notes are not traded in the open market and a market price is
not readily available.
(k) Comprehensive Income
On July 1, 1998, the Company adopted SFAS No. 130, Reporting
Comprehensive Income, which establishes standards for reporting and
presentation of comprehensive income and its components in the
financial statements. Comprehensive income includes all changes in
equity during a period except those resulting from investments by and
distributions to owners. To date, no elements of comprehensive income
exist other than net loss from operations.
(l) Pro Forma Balance Sheet
The pro forma balance sheet reflects the following transactions as
though they had occurred as of March 31, 1999 (see notes 6 and 7):
. the April 8, 1999 issuance of subordinated promissory notes with
detachable warrants in exchange for $2 million,
. the conversion of $9 million of subordinated promissory notes into
an aggregate of 3,082,191 shares of redeemable convertible preferred
stock through the exercise of the warrants issued therewith, and
. the conversion of each outstanding share of redeemable convertible
preferred stock into one share of common stock.
(m) Use of Estimates
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period to prepare these financial statements in
conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
F-9
<PAGE>
EFFICIENT NETWORKS, INC.
Notes to Consolidated Financial Statements--(continued)
June 30, 1997 and 1998 and March 31, 1999
(3)Inventories
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
June 30,
------------- March 31,
1997 1998 1999
------ ------ ---------
<S> <C> <C> <C>
Raw materials........................................ $ 171 $ 354 $1,634
Finished goods....................................... 423 544 2,283
------ ------ ------
Total................................................ $ 594 $ 898 $3,917
====== ====== ======
</TABLE>
(4)Furniture and Equipment
Furniture and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
June 30,
--------------- March 31,
1997 1998 1999
------- ------ ---------
<S> <C> <C> <C>
Computers........................................ $ 1,766 $1,941 $2,606
Purchased software............................... 1,411 611 855
Equipment........................................ 303 241 513
Furniture and fixtures........................... 62 66 120
Leasehold improvements........................... 97 121 191
------- ------ ------
Total furniture and equipment.................... 3,639 2,980 4,285
Less accumulated depreciation and amortization... (2,080) (1,576) (2,155)
------- ------ ------
Furniture and equipment, net..................... $ 1,559 $1,404 $2,130
======= ====== ======
</TABLE>
The Company leases certain equipment under capital lease arrangements. At
June 30, 1997 and 1998, and March 31, 1999, the cost of assets under such
leases aggregated $456,665, $152,183, and $152,183, respectively, and
related accumulated amortization was $354,046, $134,065, and $152,183,
respectively. Amortization of assets leased under capital lease
arrangements is included in amortization expense.
(5)Accrued Liabilities
Accrued liabilities consisted of the following (in thousands):
<TABLE>
<CAPTION>
June 30,
-------------- March 31,
1997 1998 1999
------ ------- ---------
<S> <C> <C> <C>
Accrued compensation and benefits................... $ 37 $ 247 $ 562
Accrued professional fees........................... 53 320 3
Accrued interest.................................... -- -- 145
Deferred rent....................................... 39 39 38
Current portion of capital lease obligation......... 78 11 --
Other............................................... 25 134 219
------ ------- ------
Total............................................... $ 232 $ 751 $ 967
====== ======= ======
</TABLE>
F-10
<PAGE>
EFFICIENT NETWORKS, INC.
Notes to Consolidated Financial Statements--(continued)
June 30, 1997 and 1998 and March 31, 1999
(6)Long-term debt
In January 1999, the Company issued subordinated promissory notes with
detachable warrants in exchange for $7,000,000 in cash. On April 8, 1999,
the Company issued a subordinated promissory note with a detachable warrant
in exchange for $2,000,000 in cash. The notes bear interest of 10% per
annum and interest is payable quarterly. The notes are due at the earlier
of January 2002 or (a) a consummation of a qualifying liquidation event
which includes a firm commitment underwritten offering pursuant to a
registration statement under the Securities Act of 1933, the public
offering price of which is not less than $5.00 per share and $10,000,000 in
the aggregate; (b) any consolidation or merger of the Company with or into
any other corporation or corporations; (c) sale, conveyance or disposition
of all or substantially all of the assets of the Company; or (d) the
effectuation by the Company of a transaction or series of related
transactions in which more than 50% of the voting power of the Company is
disposed.
The notes issued in January and April 1999 were issued with detachable
warrants to purchase 2,397,260 shares and 684,931 shares, respectively, of
the Company's Series H redeemable convertible preferred stock at an
exercise price of $2.92 per share. The warrants expire at the earlier of
January 2002 or the consummation by the Company of the sale of its common
stock in a firm commitment underwritten offering at a price not less than
$5.00 per share and providing not less than $10,000,000 of net proceeds.
The proceeds were allocated between the notes and the warrants based on
their pro-rata fair values. As a result, the warrants issued in January and
April were valued at $4,728,889 and $1,443,810, respectively. This amount
was recorded as paid-in capital. The resulting discount on the notes is
being accreted as interest expense over the expected term of the related
promissory notes.
(7)Redeemable Convertible Preferred Stock
Preferred stock has voting rights equal to the number of shares of common
stock into which the preferred stock is convertible. The preferred stock is
convertible at the option of the holder into such number of shares of
common stock as is determined by dividing the original issue price of the
preferred stock plus all declared but unpaid dividends by the applicable
conversion price at the date of conversion. The conversion price per share
is the original issue price adjusted for any dilution that may occur from
future offerings.
Each share of outstanding preferred stock will be required to convert to
common stock upon the earlier of the time of the Company's initial public
offering, if certain offering parameters are met, or the date on which the
Company obtains the consent of the holders of a majority of the then
outstanding shares of preferred stock.
The outstanding preferred stock is redeemable into cash at the request of a
majority of the holders of the then outstanding shares of preferred stock
at an amount equal to the original issue price plus all declared but unpaid
dividends. Amounts due to the preferred shareholders on redemption are
payable in three equal annual installments on the fifth, sixth and seventh
anniversaries of the original purchase dates.
Dividends may be declared at the sole discretion of the Board of Directors
and are noncumulative. To date, no such dividends have been declared. The
holders of the preferred stock are entitled to a liquidation preference
equivalent to the original issue price of the respective series of
preferred stock plus declared but unpaid dividends.
The following indicates the series of redeemable convertible preferred
stock in existence at March 31, 1999. Series for which preferred stock has
been issued and remains outstanding are stated at the redemption
F-11
<PAGE>
EFFICIENT NETWORKS, INC.
Notes to Consolidated Financial Statements--(continued)
June 30, 1997 and 1998 and March 31, 1999
amount; issuance costs are netted against the proceeds and accreted as a
charge against additional paid-in capital over the expected life of the
related series of preferred stock (all in thousands, except share and per
share data):
<TABLE>
<CAPTION>
Dividend June 30,
Rate ---------------- March 31,
Per Share 1997 1998 1999
--------- -------- ------- ---------
<S> <C> <C> <C> <C>
Series A--7,096,000 shares authorized;
7,000,000 shares issued and
outstanding.......................... $0.03 $ 3,500 $ 3,500 $ 3,500
Series B--522,848 shares authorized,
issued and outstanding............... $0.07 625 625 625
Series C--5,895,832 shares authorized;
5,858,332 shares issued and
outstanding.......................... $0.07 7,030 7,030 7,030
Series D--2,473,644 shares authorized,
issued and outstanding............... $0.12 5,000 5,000 5,000
Series E--3,091,430 shares authorized,
issued and outstanding............... $0.15 7,480 7,480 7,480
Series F--2,057,159 shares authorized,
issued and outstanding in 1998 and
1999................................. $0.18 -- 6,007 6,007
Series G--6,000,000 shares authorized;
1,866,800 and 3,716,800 shares issued
and outstanding in 1998 and 1999..... $0.18 -- 5,451 10,853
Issuance costs, net of accretion...... -- (350) (87)
-------- ------- -------
$ 23,635 $34,743 $40,408
======== ======= =======
</TABLE>
Series H--4,000,000 shares authorized,
none issued or outstanding........... $0.18 -- -- --
The Company issued promissory notes in exchange for cash of $1,000,000 and
$500,000 on September 17, 1996 and December 12, 1996, respectively. The
promissory notes bore interest at 6% and were due on demand. On December
31, 1996, the Company issued 3,091,430 shares of Series E redeemable
convertible preferred stock in exchange for the principal and related
accrued interest on the promissory notes amounting to $1,518,657 and
$5,961,498 in cash.
The Company issued promissory notes in exchange for $1,000,000 on January
7, 1998. The promissory notes bore interest at 6% and were due on demand.
On February 17, 1998, the Company issued 2,057,159 shares of Series F
redeemable convertible preferred stock in exchange for the principal and
related accrued interest on the promissory notes amounting to $1,006,904
and $5,000,000 in cash.
In June 1998, the Company issued 1,866,800 shares of Series G redeemable
convertible preferred stock for $5,451,056 in cash. The issuance was
recorded net of issuance costs of $350,000. In March 1999, the Company
issued an additional 1,850,000 shares of Series G redeemable convertible
preferred stock for $5,402,000 in cash.
(8)Stock Option Plan
In 1993, the Company adopted a stock option plan (the "Plan") pursuant to
which the Company's Board of Directors may grant stock options to officers,
directors and key employees. The Plan authorizes grants of options to
purchase up to 10,000,000 shares of unissued common stock. The Board of
Directors determines the terms of each option, including exercise price
(within limits set forth in the plan), number of shares and the rate at
which each option is exercisable. The options generally vest ratably over a
period of four years from the date of grant.
F-12
<PAGE>
EFFICIENT NETWORKS, INC.
Notes to Consolidated Financial Statements--(continued)
June 30, 1997 and 1998 and March 31, 1999
In 1998, the Company adopted the Directors' Stock Option Plan (the
"Directors' Plan") pursuant to which stock options may be granted to non-
employee members of the Company's Board of Directors. The Directors' Plan
authorizes grants of options to purchase up to 275,000 shares of common
stock.
Option grants under the Directors' Plan are nondiscretionary and automatic.
Non-employee directors serving on the Company's board of directors at the
date of the adoption of the Directors' Plan were granted options to
purchase 50,000 shares on the effective date of the plan. Subsequent non-
employee directors are granted an option to purchase 15,000 shares on the
date they become a director. After their initial grant, non-employee
directors are granted an option to purchase 15,000 shares on January 1 of
each year provided they have served on the board for at least six months.
At March 31, 1999, there were options to purchase 75,000 shares available
for grant under the Directors' Plan.
At March 31, 1999, there were options to purchase 2,404,728 shares
available for grant under both plans. The per share weighted-average fair
value of stock options granted during each of the years ended June 30,
1996, 1997 and 1998 and the nine months ended March 31, 1999 was $0.10,
$0.16, $0.19 and $5.37, respectively, on the date of grant as estimated
using the minimum value option-pricing model with the following weighted-
average assumptions in all years: expected dividend yield of 0.0%, an
expected life of four years, and a risk-free interest rate of 6%.
The Company applies APB Opinion No. 25 in accounting for stock options
granted to employees and non-employee directors under its stock option
plans. The Company recorded $256,000 and $13,119,000 of deferred stock
option compensation during the year ended June 30, 1997 and the nine months
ended March 31, 1999, respectively, as a result of granting stock options
with exercise prices below the estimated fair value per share of the
Company's common stock at the date of grant. Deferred stock option
compensation has been recorded as a component of stockholders' equity
(deficit) and is being amortized as a charge to operations over the vesting
period of the applicable options. Amortization of deferred stock option
compensation of $73,000, $46,000 and $820,000 was recognized in the years
ended June 30, 1997 and 1998, and the nine months ended March 31, 1999,
respectively.
F-13
<PAGE>
EFFICIENT NETWORKS, INC.
Notes to Consolidated Financial Statements--(continued)
June 30, 1997 and 1998 and March 31, 1999
Had the Company determined compensation cost based on the estimated fair
value of stock options at the grant date in accordance with SFAS No. 123,
the Company's net loss would have been increased to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
Nine months
Year ended June 30, ended
------------------------- March 31,
1996 1997 1998 1999
------- ------- ------- -----------
<S> <C> <C> <C> <C>
Net loss:
As reported....................... $(5,646) $(6,049) $(7,940) $(12,996)
Pro forma......................... $(5,652) $(6,067) $(7,951) $(13,154)
Basic and diluted net loss per share
of common stock:
As reported....................... $ (1.99) $ (2.00) $ (2.44) $ (3.48)
Pro forma......................... $ (1.99) $ (2.00) $ (2.44) $ (3.52)
</TABLE>
Pro forma net loss reflects only stock options granted after June 30, 1995.
Therefore, the full impact of calculating compensation cost for stock
options under SFAS No. 123 is not reflected in the pro forma net loss
amounts presented above because compensation cost is reflected over the
options' vesting periods of four years and compensation expense pertaining
to stock options granted in prior periods is not considered.
Stock option activity for both plans during the periods indicated is as
follows:
<TABLE>
<CAPTION>
Weighted
Average
Number of Exercise
shares Price
--------- --------
<S> <C> <C>
Balance at June 30, 1996.............................. 2,396,500 $0.11
Granted............................................. 1,716,883 0.24
Exercised........................................... (62,500) 0.15
Forfeited........................................... (454,883) 0.15
---------
Balance at June 30, 1997.............................. 3,596,000 $0.19
Granted............................................. 1,631,000 0.58
Exercised........................................... (448,125) 0.12
Forfeited........................................... (344,458) 0.22
---------
Balance at June 30, 1998.............................. 4,434,417 $0.33
Granted............................................. 2,473,500 2.37
Exercised........................................... (301,801) 0.14
Forfeited........................................... (135,541) 0.87
---------
Balance at March 31, 1999............................. 6,470,575 $1.11
=========
</TABLE>
Options granted during the year ended June 30, 1997 and the nine-month
period ended March 31, 1999 had an exercise price less than the estimated
fair value of the Company's common stock on the date of grant; the
weighted-average grant-date fair value of options granted during those
periods was $0.45 and $7.79, respectively. All options granted during the
year ended June 30, 1998 had an exercise price equal to the estimated fair
value of the Company's common stock on the date of grant.
F-14
<PAGE>
EFFICIENT NETWORKS, INC.
Notes to Consolidated Financial Statements--(continued)
June 30, 1997 and 1998 and March 31, 1999
The following presents certain information about outstanding stock options
at March 31, 1999:
<TABLE>
<CAPTION>
Options
Options outstanding exercisable
------------------------------- ------------------
Weighted average Weighted
-------------------- average
Number Exercise Contractual Number of exercise
Range of exercise price of options price life options price
----------------------- ---------- -------- ----------- --------- --------
<S> <C> <C> <C> <C> <C>
$0.05-0.25.............. 2,497,075 $0.19 6.9 years 1,728,443 $0.17
$0.50-0.60.............. 1,547,500 $0.58 9.0 years 402,458 $0.57
$1.50-2.50.............. 2,346,000 $2.23 9.5 years -- --
$7.50................... 75,000 $7.50 9.8 years -- --
</TABLE>
At June 30, 1996, 1997 and 1998, and at March 31, 1999, the number of
options exercisable was 672,946, 1,227,480, 1,634,901 and 2,130,901,
respectively, and the weighted-average exercise price of those options was
$0.10, $0.15, $0.30 and $0.25, respectively.
(9)Research and Development Arrangements
On October 31, 1997, the Company entered into a development and license
agreement with a customer who owns preferred stock of the Company. The
agreement obligated the Company to develop a product that meets mutually
agreed upon specifications in exchange for $850,000. The Company has
fulfilled its development obligations and the proceeds under the
arrangement were offset against research and development expense during the
year ended June 30, 1998.
On November 11, 1997, the Company entered into a development and marketing
agreement with a customer. The agreement obligated the Company to develop a
product in accordance with certain specifications and to provide 114,068
shares of the Company's common stock for an aggregate purchase price of
$300,000. The common stock issuance was recorded at estimated fair value.
The Company has fulfilled its development obligations and the remainder of
the purchase price, $231,559, was offset against research and development
expense during the year ended June 30, 1998.
(10)Lease Commitments
The Company has operating lease agreements relating to certain facilities
and equipment which expire at various dates. Rent expense on operating
leases for the years ended June 30, 1996, 1997 and 1998 and for the nine
months ended March 31, 1999 was $270,122, $367,308, $380,794 and $267,388,
respectively. Minimum lease payments for the three months ended June 30,
1999 are $103,652. The Company entered into several agreements for the sale
and leaseback of certain equipment. The leases were classified as capital
leases and expired during the nine months ended March 31, 1999. Future
minimum lease payments under noncancelable operating leases as of March 31,
1999 are:
<TABLE>
<CAPTION>
Operating
Leases
---------
<S> <C>
Years ended June 30:
2000.......................................................... $417,097
2001.......................................................... 329,765
2002.......................................................... 124,327
2003.......................................................... 35,955
2004.......................................................... 5,993
--------
Total minimum lease payments................................ $913,137
========
</TABLE>
F-15
<PAGE>
EFFICIENT NETWORKS, INC.
Notes to Consolidated Financial Statements--(continued)
June 30, 1997 and 1998 and March 31, 1999
In connection with certain capital lease transactions, the Company issued
warrants to purchase (a) 96,000 shares of Series A preferred stock at $0.50
per share expiring on the earlier of December 16, 2003 or the fifth annual
anniversary of the consummation of the Company's initial public offering of
its common stock, if certain offering parameters are met, and (b) 37,500
shares of its Series C preferred stock at $1.20 per share expiring on the
later of March 13, 2005 or five years from the effective date of the
Company's initial public offering.
(11)Income Taxes
The Company has not recognized any tax benefits for its net operating loss
carryforwards.
Net deferred tax assets as of June 30, 1997 and 1998 and March 31, 1999 are
as follows (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
------ ------ -------
<S> <C> <C> <C>
Deferred tax assets:
Operating loss carryforwards................... $6,241 $8,943 $13,083
Stock compensation............................. 26 17 295
Receivables and inventory reserves............. 30 59 123
Accrued liabilities............................ -- 87 142
------ ------ -------
Deferred tax assets.......................... 6,297 9,106 13,643
Valuation allowance.......................... (6,027) (8,909) (13,587)
------ ------ -------
270 197 56
Deferred tax liability - furniture
and equipment................................. (270) (197) (56)
Net deferred tax assets...................... $ -- $ -- $ --
====== ====== =======
</TABLE>
The net change in the valuation allowance for the years ended June 30, 1997
and 1998 and for the nine months ended March 31, 1999 was $2,059,164,
$2,882,756 and $4,677,553, respectively.
As of March 31, 1999, the Company has net operating loss carryforwards of
approximately $36 million which begin to expire in 2008 and are available
to reduce future regular federal income taxes, if any.
(12)Segment Information and Concentration of Credit Risk
All of the Company's products are produced in the United States. The
Company grants credit to customers located in several geographical regions
in North America, Europe and the Pacific Rim. The following represents
sales to customers in each of those geographical regions as a percentage of
total revenues:
<TABLE>
<CAPTION>
March 31,
Geographic Region 1996 1997 1998 1999
----------------- ---- ---- ---- ---------
<S> <C> <C> <C> <C>
North America.................................... 71% 65% 48% 65%
Europe........................................... 13% 25% 40% 15%
Pacific Rim...................................... 16% 10% 12% 20%
</TABLE>
For the years ended June 30, 1996 and 1997, revenues from individual
customers amounted to 13% and 38% of total revenue, respectively. For the
year ended June 30, 1998, revenues from individual customers amounted to
20% and 13% of total revenues. As of and for the nine months ended March
31, 1999, revenues from individual customers amounted to 20% and 10% of
total revenues, and accounts receivable related to these customers was
approximately $1,120,000 and $702,000, respectively. The Company performs
ongoing evaluations of its customers' financial conditions and generally
does not require collateral.
F-16
<PAGE>
INSIDE BACK COVER PAGE
[Product pictures: Speedstream 3000, 4000 and 5000 Series with product
packaging].
<PAGE>
OUTSIDE BACK COVER PAGE
[Efficient Networks Logo]
<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 Efficient 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............................................. $ 16,680
NASD filing fee.................................................. 6,500
Nasdaq National Market listing fee............................... 150,000
Printing and engraving costs..................................... 250,000
Legal fees and expenses.......................................... 300,000
Accounting fees and expenses..................................... 175,000
Blue Sky fees and expenses....................................... 10,000
Transfer Agent and Registrar fees................................ 10,000
Miscellaneous expenses........................................... 81,820
Total.......................................................... $1,000,000
</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 and officers, provisions expanding the scope of indemnification
beyond that specifically provided by the current law.
Article IX of the Registrant's Restated Certificate of Incorporation
provides that directors and officers may be indemnified to the fullest extent
permissible under Delaware law.
Article VI of the Registrant's Bylaws provides for the indemnification of
officers and directors to the fullest extent permissible under Delaware law.
The Registrant has entered into indemnification agreements with its
directors and executive officers, in addition to indemnification provided for
in the Registrant's Bylaws, and intends to enter into indemnification
agreements with any new directors and executive officers in the future.
The Underwriting Agreement, Exhibit 1.1 hereto, provides for indemnification
by the Underwriters of the registrant and its executive officers and directors,
and by the registrant of the underwriters for certain liabilities, including
liabilities arising under the Securities Act, in connection with matters
specifically provided in writing by the Underwriters for inclusion in the
Registration Statement.
Item 15. Recent Sales of Unregistered Securities
During the past three years, the Registrant has issued unregistered
securities to a limited number of persons as described below. In each case, we
relied on the exemption from registration provided by Section 4(2) of the
Securities Act.
In September 1995, we sold 2,473,644 shares of Series D Preferred Stock to
Texas Instruments Incorporated at a purchase price of $2.02 per share.
In December 1996, we sold 3,091,430 shares of Series E Preferred Stock to
certain accredited investors at a purchase price of $2.41 per share.
II-1
<PAGE>
In November 1997, we sold 114,068 shares of Common Stock to DSC Telecom,
L.P. at a purchase price of $2.63 per share.
In February 1998, we sold 2,057,159 shares of Series F Preferred Stock to
certain accredited investors at a purchase price of $2.92 per share.
In June 1998, we sold 1,866,800 shares of Series G Preferred Stock to
Siemens A.G. at a purchase price of $2.92 per share.
In June 1998, we issued a warrant to purchase 34,264 shares of Series G
Preferred Stock at an exercise price of $2.92 per share to Hambrecht & Quist
LLC.
In January 1999, we issued Subordinated Promissory Notes for an aggregate
principal amount of $7.0 million and warrants to purchase an aggregate of
2,397,260 shares of Series H Preferred Stock at an exercise price of $2.92 per
share to El Dorado Ventures IV, LP and Crosspoint Ventures LS 1997 LP.
In March 1999, we sold 1,850,000 shares of Series G Preferred Stock to
Siemens A.G. at a purchase price of $2.92 per share.
In April 1999, we issued a Subordinated Promissory Note for an aggregate
principal amount of $2.0 million and a warrant to purchase 684,931 shares of
Series H Preferred Stock at an exercise price of $2.92 per share to Palomar
Ventures L.P.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number
-------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation of the Registrant to
be in effect immediately following the closing of the offering made
under this Registration Statement.
3.2 Amended and Restated Bylaws of the Registrant to be in effect
immediately following the closing of the offering made under this
Registration Statement.
4.1* Specimen Common Stock Certificate.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
10.1 Form of Indemnification Agreement between the Registrant and each of
its directors and officers.
10.2 1999 Stock Plan and form of agreements thereunder.
10.3 1999 Employee Stock Purchase Plan and form of agreements thereunder.
10.4 Investors' Rights Agreement dated July 30, 1993 executed in connection
with the issuance and sale of our Series A Preferred Stock.
10.5 Amendment No. 1 to the Investors' Rights Agreement dated February 9,
1994, executed in connection with the issuance and sale of our Series
B Preferred Stock.
10.6 Amendment No. 2 to the Investors' Rights Agreement dated September 30,
1994, executed in connection with the issuance and sale of our Series
C Preferred Stock.
10.7 Amendment No. 3 to the Investors' Rights Agreement dated September 1,
1995, executed in connection with the issuance and sale of our Series
D Preferred Stock.
10.8 Amendment No. 4 to the Investors' Rights Agreement dated December 31,
1996, executed in connection with the issuance and sale of our Series
E Preferred Stock.
10.9 Amendment No. 5 to the Investors' Rights Agreement dated February 17,
1998, executed in connection with the issuance and sale of our Series
F Preferred Stock.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number
-------
<C> <S>
10.10 Amendment No. 6 to the Investors' Rights Agreement dated June 10,
1998, executed in connection with the issuance and sale of our Series
G Preferred Stock.
10.11 Amendment No. 7 to the Investors' Rights Agreement dated January 11,
1999, executed in connection with the issuance and sale of our Series
H Preferred Stock.
10.12* Geico Building Office Lease dated August 19, 1993 by and between
Government Employees Insurance Company and Efficient.
10.13* Modification of Geico Office Lease dated May 8, 1995 by and between
Government Employees Insurance Company and Efficient.
10.14 Graystone Office Park Lease dated September 8, 1998 by and between
Lanny Houillion and Efficient.
23.1 Consent of Independent Auditors.
23.2 Consent of Counsel (see Exhibit 5.1).
24.1 Power of Attorney (included on page II-4).
27.1 Financial Data Schedules.
</TABLE>
- --------
* To be filed by amendment.
(b) Financial Statement Schedules
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report on Schedule S-1
Schedule II--Valuation and Qualifying Accounts S-2
</TABLE>
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the
Consolidated Financial Statements or notes thereto.
Item 17. Undertakings
The undersigned Registrant hereby undertakes 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 a
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.
The undersigned Registrant hereby undertakes 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-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Dallas,
State of Texas, on the 5th day of May, 1999.
EFFICIENT NETWORKS, INC.
/s/ Mark A. Floyd
By:__________________________________
Mark A. Floyd
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Mark A. Floyd and Jill S. Manning and each of
them severally, as true and lawful attorneys-in-fact and agents with full power
of substitution and resubstitution, for him and in his name, place and stead,
in any and all capacities to sign the Registration Statement filed herewith and
any or all amendments to said Registration Statement (including post-effective
amendments and registration statements filed pursuant to Rule 462 and
otherwise), and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission
granting unto said attorneys-in-fact and agents the full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the foregoing, as to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said attorneys-
in-fact and agents or any of them, or his substitute, 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 below.
<TABLE>
<S> <C> <C>
Signature Title Date
/s/ Mark A. Floyd President, Chief Executive May 5, 1999
- ----------------------------------- Officer and Chairman
Mark A. Floyd of the Board (Principal
Executive Officer)
/s/ Jill S. Manning Vice President and Chief May 5, 1999
- ----------------------------------- Financial Officer
Jill S. Manning (Principal Financial and
Accounting Officer)
/s/ Bruce W. Brown Director May 5, 1999
- -----------------------------------
Bruce W. Brown
/s/ James P. Gauer Director May 5, 1999
- -----------------------------------
James P. Gauer
/s/ Robert A. Hoff Director May 5, 1999
- -----------------------------------
Robert A. Hoff
/s/ William L. Martin III Director May 5, 1999
- -----------------------------------
William L. Martin III
/s/ Thomas H. Peterson Director May 5, 1999
- -----------------------------------
Thomas H. Peterson
Director
- -----------------------------------
Anthony T. Maher
</TABLE>
II-4
<PAGE>
Independent Auditors' Report on Schedule
The Board of Directors
Efficient Networks, Inc.:
Under date of April 26, 1999, we reported on the consolidated balance sheets
of Efficient Networks, Inc. and subsidiary as of June 30, 1997 and 1998 and
March 31, 1999, and the related consolidated statements of operations,
stockholders' equity (deficit), and cash flows for each of the years in the
three-year period ended June 30, 1998 and for the nine months ended March 31,
1999, which are included in the prospectus. In connection with our audits of
the aforementioned consolidated financial statements, we also audited the
related consolidated financial statement schedule included in the registration
statement. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits.
In our opinion, such consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as
a whole, presents fairly, in all material respects, the information set forth
therein.
KPMG LLP
Dallas, Texas
April 26, 1999
S-1
<PAGE>
EFFICIENT NETWORKS, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions Additions
Balance at charged to charged to
beginning costs and other Balance at
Description of period expenses accounts Deductions end of period
- ----------- ---------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
FOR THE NINE MONTHS
ENDED
MARCH 31, 1999
Allowances Deducted
from Assets
Accounts receivable... $ 15 55 -- -- $ 70
Inventories........... 150 130 -- -- 280
---- --- --- --- ----
Total Allowances
Deducted from
Assets.............. $165 185 -- -- $350
==== === === === ====
FOR THE YEAR ENDED JUNE
30, 1998
Allowances Deducted
from Assets
Accounts receivable .. $ 25 11 -- 21 $ 15
Inventories........... 57 124 -- 31 150
---- --- --- --- ----
Total Allowances
Deducted from Assets
.................... $ 82 135 -- 52 $165
==== === === === ====
FOR THE YEAR ENDED JUNE
30, 1997
Allowances Deducted
from Assets
Accounts receivable... $ 23 2 -- -- $ 25
Inventories........... -- 57 -- -- 57
---- --- --- --- ----
Total Allowances
Deducted from
Assets.............. $ 23 59 -- -- $ 82
==== === === === ====
FOR THE YEAR ENDED JUNE
30, 1996
Allowances Deducted
from Assets
Accounts receivable... $-- 26 -- 3 $ 23
Inventories........... -- -- -- -- --
---- --- --- --- ----
Total Allowances
Deducted from
Assets.............. $-- 26 -- 3 $ 23
==== === === === ====
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number
-------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation of the Registrant to
be in effect immediately following the closing of the offering made
under this Registration Statement.
3.2 Amended and Restated Bylaws of the Registrant to be in effect
immediately following the closing of the offering made under this
Registration Statement.
4.1* Specimen Common Stock Certificate.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
10.1 Form of Indemnification Agreement between the Registrant and each of
its directors and officers.
10.2 1999 Stock Plan and form of agreements thereunder.
10.3 1999 Employee Stock Purchase Plan and form of agreements thereunder.
10.4 Investors' Rights Agreement dated July 30, 1993 executed in connection
with the issuance and sale of our Series A Preferred Stock.
10.5 Amendment No. 1 to the Investors' Rights Agreement dated February 9,
1994, executed in connection with the issuance and sale of our Series
B Preferred Stock.
10.6 Amendment No. 2 to the Investors' Rights Agreement dated September 30,
1994, executed in connection with the issuance and sale of our Series
C Preferred Stock.
10.7 Amendment No. 3 to the Investors' Rights Agreement dated September 1,
1995, executed in connection with the issuance and sale of our Series
D Preferred Stock.
10.8 Amendment No. 4 to the Investors' Rights Agreement dated December 31,
1996, executed in connection with the issuance and sale of our Series
E Preferred Stock.
10.9 Amendment No. 5 to the Investors' Rights Agreement dated February 17,
1998, executed in connection with the issuance and sale of our Series
F Preferred Stock.
10.10 Amendment No. 6 to the Investors' Rights Agreement dated June 10,
1998, executed in connection with the issuance and sale of our Series
G Preferred Stock.
10.11 Amendment No. 7 to the Investors' Rights Agreement dated January 11,
1999, executed in connection with the issuance and sale of our Series
H Preferred Stock.
10.12* Geico Building Office Lease dated August 19, 1993 by and between
Government Employees Insurance Company and Efficient.
10.13* Modification of Geico Office Lease dated May 8, 1995 by and between
Government Employees Insurance Company and Efficient.
10.14 Graystone Office Park Lease dated September 8, 1998 by and between
Lanny Houillion and Efficient.
23.1 Consent of Independent Auditors.
23.2 Consent of Counsel (see Exhibit 5.1).
24.1 Power of Attorney (included on page II-4).
27.1 Financial Data Schedules.
</TABLE>
- --------
* To be filed by amendment.
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
EFFICIENT NETWORKS, INC.
(Pursuant to Sections 242 and 245 of the
General Corporation Law of the State of Delaware)
Mark Floyd and Jill Manning each hereby certifies:
(1) They are the President and Secretary, respectively, of Efficient
Networks, Inc., a corporation organized and existing under the General
Corporation Law of the State of Delaware (the "General Corporation Law");
(2) The original Certificate of Incorporation of this corporation,
originally filed on June 10, 1993, is hereby amended and restated in its
entirety to read as follows:
FIRST: The name of this corporation is Efficient Networks, Inc. (the
"Corporation").
SECOND: The address of the Corporation's registered office in the State
of Delaware is 1209 Orange Street, Wilmington, County of New Castle,
Delaware 19801. The name of its registered agent at such address is
Corporation Service Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General
Corporation Law of Delaware.
FOURTH: The Corporation is authorized to issue two classes of stock to be
designated respectively Common Stock and Preferred Stock. The total number
of shares of all classes of stock that the Corporation has authority to
issue is Two Hundred Ten Million (210,000,000), consisting of Two hundred
Million (200,000,000) shares of Common Stock, $0.001 par value (the "Common
Stock"), and Ten Million (10,000,000) shares of Preferred Stock, $0.001 par
value (the "Preferred Stock").
The Preferred Stock may be issued from time to time in one or
more series. The Board of Directors is hereby authorized subject
to limitations prescribed by law, to fix by resolution or
resolutions the designations, powers, preferences and rights, and
the qualifications, limitations or restrictions thereof, of each
such series of Preferred Stock, including without limitation
authority to fix by resolution or resolutions, the dividend
rights, dividend rate, conversion rights, voting rights, rights
and terms of redemption (including sinking fund provisions),
redemption price or prices, and liquidation preferences of any
wholly unissued series of Preferred Stock, and the number of
shares constituting any such series and the designation thereof,
or any of the foregoing.
<PAGE>
The Board of Directors is further authorized to increase (but not
above the total number of authorized shares of the class) or
decrease (but not below the number of shares of any such series
then outstanding) the number of shares of any series, the number
of which was fixed by it, subsequent to the issue of shares of
such series then outstanding, subject to the powers, preferences
and rights, and the qualifications, limitations and restrictions
thereof stated in the resolution of the Board of Directors
originally fixing the number of shares of such series. If the
number of shares of any series is so decreased, then the shares
constituting such decrease shall resume the status which they had
prior to the adoption of the resolution originally fixing the
number of shares of such series.
FIFTH: The Corporation is to have perpetual existence.
SIXTH: The election of directors need not be by written ballot unless
the Bylaws of the Corporation shall so provide.
SEVENTH: The number of directors which constitute the whole Board of
Directors of the Corporation shall be designated in the Bylaws of the
Corporation.
EIGHTH: In furtherance and not in limitation of the powers conferred by
the laws of the State of Delaware, the Board of Directors is expressly
authorized to adopt, alter, amend or repeal the Bylaws of the Corporation.
NINTH: To the fullest extent permitted by the Delaware General
Corporation Law as the same exists or may hereafter be amended, no director
of the Corporation shall be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a
director.
The Corporation may 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
Corporation or any predecessor of the Corporation or serves or
served at any other enterprise as a director, officer or employee
at the request of the Corporation or any predecessor to the
Corporation.
Neither any amendment nor repeal of this Article, nor the
adoption of any provision of this Amended and Restated
Certificate of Incorporation inconsistent with this Article,
shall eliminate or reduce the effect of this Article in respect
of any matter occurring, or any cause of action, suit or claim
that, but for this Article, would accrue or arise, prior to such
amendment, repeal or adoption of an inconsistent provision.
<PAGE>
TENTH: At the election of directors of the Corporation, each holder of
stock of any class or series shall be entitled to one vote for each share
held. No stockholder will be permitted to cumulate votes at any election
of directors.
The number of directors which constitute the whole Board of
Directors of the Corporation shall be fixed exclusively by one or
more resolutions adopted from time to time by the Board of
Directors. The Board of 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 date hereof, 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 date hereof, 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 date hereof, 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.
Vacancies created by newly created directorships, created in
accordance with the Bylaws of this Corporation, 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.
ELEVENTH: Meetings of stockholders may be held within or without the State
of Delaware, as the Bylaws may provide. The books of the Corporation may
be kept (subject to any provision contained in the laws of the State of
Delaware) 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 Corporation.
The stockholders of the Corporation may not take any action by
written consent in lieu of a meeting, and must take any actions
at a duly called annual or special meeting of stockholders and
the power of stockholders to consent in writing without a meeting
is specifically denied.
TWELFTH: 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 Corporation.
<PAGE>
THIRTEENTH: Notwithstanding any other provisions of this Restated Certificate
of Incorporation or any provision of law which might otherwise permit a
lesser vote or no vote, but in addition to any affirmative vote of the
holders of the capital stock required by law or this Restated Certificate
of Incorporation, the affirmative vote of the holders of at least two-
thirds (2/3) of the combined voting power of all of the then-outstanding
shares of the Corporation entitled to vote shall be required to alter,
amend or repeal Articles NINTH, TENTH, ELEVENTH or TWELFTH hereof, or this
Article THIRTEENTH, or any provision hereof or thereof, unless such
amendment shall be approved by a majority of the directors of the
Corporation.
FOURTEENTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by the laws of the
State of Delaware, and all rights conferred herein are granted subject to
this reservation.
(3) This Amended and Restated Certificate of Incorporation has been duly
adopted by the Board of Directors of this Corporation in accordance with
Sections 242 and 245 of the General Corporation Law.
(4) This Amended and Restated Certificate of Incorporation has been duly
approved, in accordance with Section 242 of the General Corporation Law, by vote
of the holders of a majority of the outstanding stock entitled to vote thereon.
IN WITNESS WHEREOF, the undersigned have executed this Amended and Restated
Certificate of Incorporation on this ____ day of April, 1999.
-----------------------------
Mark A. Floyd
President
- -------------------------
Jill Manning
Secretary
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
OF
EFFICIENT NETWORKS, INC.
(a Delaware corporation)
<PAGE>
BYLAWS OF
EFFICIENT NETWORKS, INC.
(a Delaware corporation)
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............................................... 2
2.4 NOTICE OF STOCKHOLDERS' MEETINGS.............................. 3
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE.................. 3
2.6 QUORUM........................................................ 4
2.7 ADJOURNED MEETING; NOTICE..................................... 4
2.8 VOTING........................................................ 4
2.9 STOCKHOLDER ACTION BY WRITTEN CONSENT
WITHOUT A MEETING............................................. 5
2.10 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING.................... 5
2.11 PROXIES....................................................... 5
2.12 ORGANIZATION.................................................. 5
2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE......................... 6
ARTICLE III - DIRECTORS..................................................... 6
3.1 POWERS........................................................ 6
3.2 NUMBER OF DIRECTORS........................................... 6
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS...................... 7
3.4 RESIGNATION AND VACANCIES..................................... 7
3.5 REMOVAL OF DIRECTORS.......................................... 8
3.6 PLACE OF MEETINGS; MEETINGS BY TELEPHONE...................... 8
3.7 FIRST MEETINGS................................................ 8
3.8 REGULAR MEETINGS.............................................. 8
3.9 SPECIAL MEETINGS; NOTICE...................................... 9
3.10 QUORUM........................................................ 9
3.11 WAIVER OF NOTICE.............................................. 9
3.12 ADJOURNMENT................................................... 9
3.13 NOTICE OF ADJOURNMENT.........................................10
3.14 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING.............10
-i-
<PAGE>
TABLE OF CONTENTS
(continued)
Page
----
3.15 FEES AND COMPENSATION OF DIRECTORS............................10
3.16 APPROVAL OF LOANS TO OFFICERS.................................10
3.17 SOLE DIRECTOR PROVIDED BY CERTIFICATE OF INCORPORATION........10
ARTICLE IV - COMMITTEES.....................................................11
4.1 COMMITTEES OF DIRECTORS.......................................11
4.2 MEETINGS AND ACTION OF COMMITTEES.............................11
4.3 COMMITTEE MINUTES.............................................12
ARTICLE V - OFFICERS........................................................12
5.1 OFFICERS......................................................12
5.2 ELECTION OF OFFICERS..........................................12
5.3 SUBORDINATE OFFICERS..........................................12
5.4 REMOVAL AND RESIGNATION OF OFFICERS...........................13
5.5 VACANCIES IN OFFICES..........................................13
5.6 ADMINISTRATIVE OFFICERS.......................................13
5.7 AUTHORITY AND DUTIES OF OFFICERS..............................13
ARTICLE VI - INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES
AND OTHER AGENTS..........................................................14
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS.....................14
6.2 INDEMNIFICATION OF OTHERS.....................................15
6.3 INSURANCE.....................................................15
ARTICLE VII - RECORDS AND REPORTS...........................................15
7.1 MAINTENANCE AND INSPECTION OF RECORDS.........................15
7.2 INSPECTION BY DIRECTORS.......................................16
7.3 ANNUAL STATEMENT TO STOCKHOLDERS..............................16
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS................16
7.5 CERTIFICATION AND INSPECTION OF BYLAWS........................16
ARTICLE VIII - GENERAL MATTERS..............................................17
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING.........17
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS.....................17
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED.............17
8.4 STOCK CERTIFICATES; TRANSFER; PARTLY PAID SHARES..............17
-ii-
<PAGE>
TABLE OF CONTENTS
(continued)
Page
----
8.5 SPECIAL DESIGNATION ON CERTIFICATES...........................18
8.6 LOST CERTIFICATES.............................................19
8.7 TRANSFER AGENTS AND REGISTRARS................................19
8.8 CONSTRUCTION; DEFINITIONS.....................................19
ARTICLE IX - AMENDMENTS.....................................................19
-iii-
<PAGE>
BYLAWS
------
OF
--
EFFICIENT NETWORKS, INC.
------------------------
(a Delaware corporation)
ARTICLE I
CORPORATE OFFICES
-----------------
1.1 REGISTERED OFFICE
-----------------
The registered office of the corporation shall be fixed in the certificate
of incorporation of the corporation.
1.2 OTHER OFFICES
-------------
The board of directors may at any time establish branch or subordinate
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 principal
executive office of the corporation.
2.2 ANNUAL MEETING
--------------
The annual meeting of the stockholders of this corporation 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. Nominations of persons for election to the board of directors of
the corporation and the proposal of business to be considered by the
stockholders may be made at an annual meeting of stockholders only (a) pursuant
to the corporation's notice of meeting, (b) by or at the direction of the board
of directors, or (c) by any stockholder of the corporation who
<PAGE>
was a stockholder of record at the time of giving of notice provided for in
these Bylaws, who is entitled to vote at the meeting and who complies with the
notice procedures set forth in this Bylaw.
For nominations or other business to be properly brought before an annual
meeting by a stockholder pursuant to clause (c) of the preceding sentence, the
stockholder must have given timely notice thereof in writing to the secretary of
the corporation and such other business must otherwise be a proper matter for
stockholder action. To be timely, a stockholder's notice shall be delivered to
the secretary at the principal executive offices of the corporation not later
than the close of business on the 60th day, but not earlier than the close of
business on the 90th day, prior to the meeting; provided, however, that in the
event that less than 65 days notice of the meeting is given to stockholders,
notice by the stockholder to be timely must be so delivered not earlier than the
close of business on the seventh (7th) day following the day on which the notice
of meeting was mailed. In no event shall the public announcement of an
adjournment of an annual meeting commence a new time period for the giving of a
stockholder's notice as described above. Such stockholder's notice shall set
forth (a) as to each person whom the stockholder proposes to nominate for
election or reelection as a director all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors in an election contest, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(or any successor thereto) (the "Exchange Act") and Rule 14a-11 thereunder (or
any successor thereto) (including such person's written consent to being named
in the proxy statement as a nominee and to serving as a director if elected);
(b) as to any other business that the stockholder proposes to bring before the
meeting, a brief description of the business desired to be brought before the
meeting, the reasons for conducting such business at the meeting and any
material interest in such business of such stockholder and the beneficial owner,
if any, on whose behalf the proposal is made; and (c) as to the stockholder
giving the notice and the beneficial owner, if any, on whose behalf the
nomination or proposal is made (i) the name and address of such stockholder, as
they appear on the corporation's books, and of such beneficial owner, and (ii)
the class and number of shares of the corporation that are owned beneficially
and of record by such stockholder and such beneficial owner. Notwithstanding any
provision herein to the contrary, no business shall be conducted at an annual
meeting except in accordance with the procedures set forth in this Section 2.2.
2.3 SPECIAL MEETING
---------------
A special meeting of the stockholders may be called at any time by the
board of directors, or by the chairman of the board or by the president.
If a special meeting is called by any person or persons other than the
board of directors, the request shall be in writing to the secretary of the
corporation, and shall set forth (a) as to each person whom such person or
persons propose to nominate for election or reelection as a director at such
meeting all information relating to such proposed nominee that is required to be
disclosed in solicitations of proxies for election of directors in an election
contest, or is otherwise required, in each case pursuant to Regulation 14A under
the Exchange Act (or any successor thereto) and Rule 14a-11 thereunder (or any
successor thereto) (including such proposed nominee's written consent to being
named in the proxy statement as a nominee and to serving as a director if
elected);
-2-
<PAGE>
(b) as to any other business to be taken at the meeting, a brief description of
such business, the reasons for conducting such business and any material
interest in such business of the person or persons calling such meeting and the
beneficial owners, if any, on whose behalf such meeting is called; and (c) as to
the person or persons calling such meeting and the beneficial owners, if any, on
whose behalf the meeting is called (i) the name and address of such persons, as
they appear on the corporation's books, and of such beneficial owners, and (ii)
the class and number of shares of the corporation that are owned beneficially
and of record by such persons and such beneficial owners. No business may be
transacted at such special meeting otherwise than specified in such notice or by
or at the direction of the corporation's board of directors. The corporation's
secretary 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, that a
meeting will be held at the time reasonably requested by the person or persons
who called the meeting, not less than 60 nor more than 90 days after the receipt
of the request. If the notice is not given within 20 days after the receipt of a
valid request, the person or persons requesting the meeting may give the notice.
Nothing contained in this paragraph 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.
Only such business shall be conducted at a special meeting of stockholders
called by action of the board of directors as shall have been brought before the
meeting pursuant to the corporation's notice of meeting.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
--------------------------------
All notices of meetings of stockholders shall be sent or otherwise given in
accordance with Sections 2.2 and 2.3 of these bylaws not less than ten (10) nor
more than sixty (60) days before the date of the meeting. The notice shall
specify the place, date and hour of the meeting and (i) in the case of a special
meeting, the purpose or purposes for which the meeting is called (no business
other than that specified in the notice may be transacted) or (ii) in the case
of the annual meeting, those matters which the board of directors, at the time
of giving the notice, intends to present for action by the stockholders (but any
proper matter may be presented at the meeting for such action). The notice of
any meeting at which directors are to be elected shall include the name of any
nominee or nominees who, at the time of the notice, the board intends to present
for election.
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
--------------------------------------------
Written notice of any meeting of stockholders shall be given either
personally or by first-class mail or by telegraphic or other written
communication. Notices not personally delivered shall be sent charges prepaid
and shall be addressed to the stockholder at the address of that stockholder
appearing on the books of the corporation or given by the stockholder to the
corporation for the purpose of notice. Notice shall be deemed to have been
given at the time when delivered personally or deposited in the mail or sent by
telegram or other means of written communication.
-3-
<PAGE>
An affidavit of the mailing or other means of giving any notice of any
stockholders' meeting, executed by the secretary, assistant secretary or any
transfer agent of the corporation giving the notice, shall be prima facie
evidence of the giving of such notice.
2.6 QUORUM
------
The holders of a majority in voting power 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 pro vided 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 in accordance
with Section 2.7 of these bylaws.
When a quorum is present 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 provision of the laws of the State of Delaware or
of the certificate of incorporation or these bylaws, a different vote is
required, in which case such express provision shall govern and control the
decision of the question.
If a quorum be initially present, the stockholders may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum, if any action taken is approved by a
majority of the stockholders initially constituting the quorum.
2.7 ADJOURNED MEETING; NOTICE
-------------------------
When a meeting is adjourned to another time and 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 thirty (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.
2.8 VOTING
------
The stockholders entitled to vote at any meeting of stockholders shall be
determined in accordance with the provisions of Section 2.10 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, and to voting trusts and other voting agreements).
Except as may be otherwise provided in the certificate of incorporation or
these bylaws, each stockholder shall be entitled to one vote for each share of
capital stock held by such stockholder.
-4-
<PAGE>
2.9 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
-------------------------------------------------------
The stockholders may not take any action by written consent in lieu of a
meeting, and must take any actions at a duly called annual or special meeting of
stockholders and the power of stockholders to consent in writing is specifically
denied.
2.10 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING
------------------------------------------
For purposes of determining the stockholders entitled to notice of any
meeting or to vote thereat, the board of directors may fix, in advance, a record
date, which shall not precede the date upon which the resolution fixing the
record date is adopted by the board of directors and which shall not be more
than sixty (60) days nor less than ten (10) days before the date of any such
meeting, and in such event only stockholders of record on the date so fixed are
entitled to notice and to vote, notwithstanding any transfer of any shares on
the books of the corporation after the record date.
If the board of directors does not so fix a record date, the record date
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the business day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the business day next preceding the day on which the
meeting is held.
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
unless the board of directors fixes a new record date for the adjourned meeting,
but the board of directors shall fix a new record date if the meeting is
adjourned for more than thirty (30) days from the date set for the original
meeting.
The record date for any other purpose shall be as provided in Section 8.1
of these bylaws.
2.11 PROXIES
-------
Every person entitled to vote for directors, or on any other matter, shall
have the right to do so either in person or by one or more agents authorized by
a written proxy signed by the person and filed with the secretary of the
corporation, but no such proxy shall be voted or acted upon after three (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, telefacsimile 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(e) of the General Corporation Law of
Delaware.
2.12 ORGANIZATION
------------
The president, or in the absence of the president, the chairman of the
board, shall call the meeting of the stockholders to order, and shall act as
chairman of the meeting. In the absence of the president, the chairman of the
board, and all of the vice presidents, the stockholders shall appoint a chairman
for such meeting. The chairman of any meeting of stockholders shall determine
the order
-5-
<PAGE>
of business and the procedures at the meeting, including such matters as the
regulation of the manner of voting and the conduct of business. The secretary of
the corporation shall act as secretary of all meetings of the stockholders, but
in the absence of the secretary at any meeting of the stockholders, the chairman
of the meeting may appoint any person to act as secretary of the meeting.
2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE
-------------------------------------
The officer who has charge of the stock ledger of the corporation shall
prepare and make, at least ten (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 ten (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 list 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.
ARTICLE III
DIRECTORS
---------
3.1 POWERS
------
Subject to the provisions of the General Corporation Law of Delaware and to
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 OF DIRECTORS
-------------------
The board of directors shall consist of seven (7) members. The number of
directors may be changed by an amendment to this bylaw, duly adopted by the
board of directors or by the stockholders, or by a duly adopted amendment to the
certificate of incorporation.
-6-
<PAGE>
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS
----------------------------------------
Except as provided in Section 3.4 of these bylaws or the certificate of
incorporation, directors shall be elected at each annual meeting of stockholders
to hold office until the next annual meeting. Each director, including a
director elected or appointed to fill a vacancy, shall hold office until the
expiration of the term for which elected and until a successor has been elected
and qualified.
Election of directors need not be by written ballot.
3.4 RESIGNATION AND VACANCIES
-------------------------
Any director may resign effective on giving written notice to the chairman
of the board, the president, the secretary or the board of directors, unless the
notice specifies a later time for that resignation to become effective. If the
resignation of a director is effective at a future time, the board of directors
may elect a successor to take office when the resignation becomes effective.
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; provided however, a vacancy created by the removal of a
director by the vote of the stockholders or by court order may be filled only by
the affirmative vote of a majority of the shares represented and voting at a
duly held meeting at which a quorum is present (which shares voting
affirmatively also constitute a majority of the required quorum). Unless
otherwise provided in the certificate of incorporation or these bylaws, each
director so elected shall hold office until the next annual meeting of the
stockholders and until a successor has been elected and qualified..
(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 call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or these bylaws, or 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
-7-
<PAGE>
increase), then the Court of Chancery may, upon application of any stockholder
or stockholders holding at least ten percent (10%) of the total number of the
shares then 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 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, only with cause, by the holders of a majority of the shares then
entitled to vote at an election of directors.
3.6 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
----------------------------------------
Regular meetings of the board of directors may be held at any place within
or outside the State of Delaware that has been designated from time to time by
resolution of the board. In the absence of such a designation, regular meetings
shall be held at the principal executive office of the corporation. Special
meetings of the board may be held at any place within or outside the State of
Delaware that has been designated in the notice of the meeting or, if not stated
in the notice or if there is no notice, at the principal executive office of the
corporation.
Any meeting of the board, regular or special, may be held by conference
telephone or similar communication equipment, so long as all directors
participating in the meeting can hear one another; and all such participating
directors shall be deemed to be present in person at the meeting.
3.7 FIRST MEETINGS
--------------
The first meeting of each newly elected board of directors shall be held at
such time and place as shall be fixed by the vote of the stockholders at the
annual meeting. In the event of the failure of the stockholders to fix the time
or place of such first meeting of the newly elected board of directors, or in
the event such meeting is not held at the time and place so fixed by the
stockholders, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
board of directors, or as shall be specified in a written waiver signed by all
of the directors.
3.8 REGULAR MEETINGS
----------------
Regular meetings of the board of directors may be held without notice at
such time as shall from time to time be determined by the board of directors.
If any regular meeting day shall fall on a legal holiday, then the meeting shall
be held at the same time and place on the next succeeding business day.
-8-
<PAGE>
3.9 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
telecopy, 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 four (4) days before the
time of the holding of the meeting. If the notice is delivered personally or by
telephone or telecopy, it shall be delivered personally or by telephone or to
the telegraph company at least forty-eight (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.
3.10 QUORUM
------
A majority of the authorized number of directors shall constitute a quorum
for the transaction of business, except to adjourn as provided in Section 3.12
of these bylaws. Every act or decision done or made by a majority of the
directors present at a duly held meeting at which a quorum is present shall be
regarded as the act of the board of directors, subject to the provisions of the
certificate of incorporation and applicable law.
A meeting at which a quorum is initially present may continue to transact
business notwithstanding the withdrawal of directors, if any action taken is
approved by at least a majority of the quorum for that meeting.
3.11 WAIVER OF NOTICE
----------------
Notice of a meeting need not be given to any director (i) who signs a
waiver of notice, whether before or after the meeting, or (ii) who attends the
meeting other than for the express purposed of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened. All such waivers shall be filed with the corporate records
or made part of the minutes of the meeting. A waiver of notice need not specify
the purpose of any regular or special meeting of the board of directors.
3.12 ADJOURNMENT
-----------
A majority of the directors present, whether or not constituting a quorum,
may adjourn any meeting of the board to another time and place.
-9-
<PAGE>
3.13 NOTICE OF ADJOURNMENT
---------------------
Notice of the time and place of holding an adjourned meeting of the board
need not be given unless the meeting is adjourned for more than twenty-four (24)
hours. If the meeting is adjourned for more than twenty-four (24) hours, then
notice of the time and place of the adjourned meeting shall be given before the
adjourned meeting takes place, in the manner specified in Section 3.9 of these
bylaws, to the directors who were not present at the time of the adjournment.
3.14 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
-------------------------------------------------
Any action required or permitted to be taken by the board of directors may
be taken without a meeting, provided that all members of the board individually
or collectively consent in writing to that action. Such action by written
consent shall have the same force and effect as a unanimous vote of the board of
directors. Such written consent and any counterparts thereof shall be filed with
the minutes of the proceedings of the board of directors.
3.15 FEES AND COMPENSATION OF DIRECTORS
----------------------------------
Directors and members of committees may receive such compensation, if any,
for their services and such reimbursement of expenses as may be fixed or
determined by resolution of the board of directors. This Section 3.15 shall not
be construed to preclude any director from serving the corporation in any other
capacity as an officer, agent, employee or otherwise and receiving compensation
for those services.
3.16 APPROVAL OF 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 any of its
subsidiaries, including any officer or employee who is a director of the
corporation or any of its subsidiaries, whenever, in the judgment of the
directors, such loan, guaranty or assistance may reasonably be expected to
benefit the corporation. The loan, guaranty 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 contained in this section shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
3.17 SOLE DIRECTOR PROVIDED BY CERTIFICATE OF INCORPORATION
------------------------------------------------------
In the event only one director is required by these bylaws or the
certificate of incorporation, then any reference herein to notices, waivers,
consents, meetings or other actions by a majority or quorum of the directors
shall be deemed to refer to such notice, waiver, etc., by such sole director,
who shall have all the rights and duties and shall be entitled to exercise all
of the powers and shall assume all the responsibilities otherwise herein
described as given to the board of directors.
-10-
<PAGE>
ARTICLE IV
COMMITTEES
----------
4.1 COMMITTEES OF DIRECTORS
-----------------------
The board of directors may, by resolution adopted by a majority of the
authorized number of directors, designate one or more committees, each
consisting of two or more directors, to serve at the pleasure of the board. 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. The appointment of members or alternate members of a committee
requires the vote of a majority of the authorized number of directors. Any
committee, to the extent provided in the resolution of the board, shall have and
may exercise all the powers and authority of the board, 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 the designations and 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 MEETINGS AND ACTION OF COMMITTEES
---------------------------------
Meetings and actions of committees shall be governed by, and held and taken
in accordance with, the following provisions of Article III of these bylaws:
Section 3.6 (place of meetings; meetings by telephone), Section 3.8 (regular
meetings), Section 3.9 (special meetings; notice), Section 3.10 (quorum),
Section 3.11 (waiver of notice), Section 3.12 (adjournment), Section 3.13
(notice of adjournment) and Section 3.14 (board action by written consent
without 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 be determined either by resolution of the board of directors or
by resolution of the committee, that special 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
-11-
<PAGE>
directors may adopt rules for the government of any committee not inconsistent
with the provisions of these bylaws.
4.3 COMMITTEE MINUTES
-----------------
Each committee shall keep regular minutes of its meetings and report the
same to the board of directors when required.
ARTICLE V
OFFICERS
--------
5.1 OFFICERS
--------
The Corporate Officers of the corporation shall be a president, 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, one or more vice presidents
(however denominated), one or more assistant secretaries, one or more assistant
treasurers, and such other officers as may be appointed in accordance with the
provisions of Section 5.3 of these bylaws. Any number of offices may be held by
the same person.
5.2 ELECTION OF OFFICERS
--------------------
The Corporate Officers of the corporation, except such officers as may be
appointed in accordance with the provisions of Section 5.3 or Section 5.5 of
these bylaws, shall be chosen by the board of directors, subject to the rights,
if any, of an officer under any contract of employment, and shall hold their
respective offices for such terms as the board of directors may from time to
time determine.
5.3 SUBORDINATE OFFICERS
--------------------
The board of directors may appoint, or may empower the president to
appoint, such other Corporate Officers as the business of the corporation may
require, each of whom shall hold office for such period, have such power and
authority, and perform such duties as are provided in these bylaws or as the
board of directors may from time to time determine.
The president may from time to time designate and appoint Administrative
Officers of the corporation in accordance with the provisions of Section 5.6 of
these bylaws.
-12-
<PAGE>
5.4 REMOVAL AND RESIGNATION OF OFFICERS
-----------------------------------
Subject to the rights, if any, of a Corporate Officer under any contract of
employment, any Corporate Officer may be removed, either with or without cause,
by the board of directors at any regular or special meeting of the board or,
except in case of a Corporate Officer chosen by the board of directors, by any
Corporate Officer upon whom such power of removal may be conferred by the board
of directors.
Any Corporate 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 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 Corporate
Officer is a party.
Any Administrative Officer designated and appointed by the president may be
removed, either with or without cause, at any time by the president. Any
Administrative Officer may resign at any time by giving written notice to the
president or to the secretary of the corporation.
5.5 VACANCIES IN OFFICES
--------------------
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
these bylaws for regular appointments to that office.
5.6 ADMINISTRATIVE OFFICERS
-----------------------
In addition to the Corporate Officers of the corporation as provided in
Section 5.1 of these bylaws and such subordinate Corporate Officers as may be
appointed in accordance with Section 5.3 of these bylaws, there may also be such
Administrative Officers of the corporation as may be designated and appointed
from time to time by the president of the corporation. Administrative Officers
shall perform such duties and have such powers as from time to time may be
determined by the president or the board of directors in order to assist the
Corporate Officers in the furtherance of their duties. In the performance of
such duties and the exercise of such powers, however, such Administrative
Officers shall have limited authority to act on behalf of the corporation as the
board of directors shall establish, including but not limited to limitations on
the dollar amount and on the scope of agreements or commitments that may be made
by such Administrative Officers on behalf of the corporation, which limitations
may not be exceeded by such individuals or altered by the president without
further approval by the board of directors.
5.7 AUTHORITY AND DUTIES OF OFFICERS
--------------------------------
The officers of the corporation shall respectively have such authority and
powers 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.
-13-
<PAGE>
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES
-------------------------------------------------
AND OTHER AGENTS
----------------
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
-----------------------------------------
The corporation shall, to the maximum extent and in the manner permitted by
the General Corporation Law of Delaware as the same now exists or may hereafter
be amended, indemnify any person against expenses (including attorneys' fees),
judgments, fines, and amounts paid in settlement actually and reasonably
incurred in connection with any threatened, pending or completed action, suit,
or proceeding in which such person was or is a party or is threatened to be made
a party by reason of the fact that such person is or was a director or officer
of the corporation. For purposes of this Section 6.1, a "director" or "officer"
of the corporation shall mean any person (i) who is or was a director or officer
of the corporation, (ii) who is or was serving at the request of the corporation
as a director or officer of another corporation, partnership, joint venture,
trust or other enterprise, or (iii) who was a director or officer of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
The corporation shall be required to indemnify a director or officer in
connection with an action, suit, or proceeding (or part thereof) initiated by
such director or officer only if the initiation of such action, suit, or
proceeding (or part thereof) by the director or officer was authorized by the
board of directors of the corporation.
The corporation shall pay the expenses (including attorney's fees) incurred
by a director or officer of the corporation entitled to indemnification
hereunder in defending any action, suit or proceeding referred to in this
Section 6.1 in advance of its final disposition; provided, however, that payment
of expenses incurred by a director or officer of the corporation in advance of
the final disposition of such action, suit or proceeding shall be made only upon
receipt of an undertaking by the director or officer to repay all amounts
advanced if it should ultimately be determined that the director or officer is
not entitled to be indemnified under this Section 6.1 or otherwise.
If a claim for indemnification or payment of expenses under this Article is
not paid in full within sixty days after a written claim therefor has been
received by the corporation the claimant may file suit to recover the unpaid
amount of such claim and, if successful in whole or in part, shall be entitled
to be paid the expense of prosecuting such claim. In any such action the
corporation shall have the burden of proving that the claimant was not entitled
to the requested indemnification or payment of expenses under applicable law.
The rights conferred on any person by this Article shall not be exclusive
of any other rights which such person may have or hereafter acquire under any
statute, provision of the corporation's Certificate of Incorporation, these
bylaws, agreement, vote of the stockholders or disinterested directors or
otherwise.
-14-
<PAGE>
Any repeal or modification of the foregoing provisions of this Article
shall not adversely affect any right or protection hereunder of any person in
respect of any act or omission occurring prior to the time of such repeal or
modification.
6.2 INDEMNIFICATION OF OTHERS
-------------------------
The corporation shall have the power, to the maximum extent and in the
manner permitted by the General Corporation Law of Delaware as the same now
exists or may hereafter be amended, to indemnify any person (other than
directors and officers) against expenses (including attorneys' fees), judgments,
fines, and amounts paid in settlement actually and reasonably incurred in
connection with any threatened, pending or completed action, suit, or
proceeding, in which such person was or is a party or is threatened to be made a
party by reason of the fact that such person is or was an employee or agent of
the corporation. The corporation's obligation, if any, to indemnify any person
who was or is serving at its request as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust, enterprise or non-
profit entity shall be reduced by any amount such person may collect as
indemnification from such other corporation, partnership, joint venture, trust,
enterprise or non-profit enterprise. For purposes of this Section 6.2, an
"employee" or "agent" of the corporation (other than a director or officer)
shall mean any person (i) who is or was an employee or agent of the corporation,
(ii) who is or was serving at the request of the corporation as an employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, or (iii) who was an employee or agent of a corporation which was a
predecessor corporation of the corporation or of another enterprise at the
request of such predecessor corporation.
6.3 INSURANCE
---------
The corporation may purchase and maintain insurance on behalf of any person
who is or was a director, officer, employee or agent 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 or her and incurred
by him or her in any such capacity, or arising out of his or her status as such,
whether or not the corporation would have the power to indemnify him or her
against such liability under the provisions of the General Corporation Law of
Delaware.
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
-15-
<PAGE>
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 of its
business and properties.
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 business hours 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 or her position as a director.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS
--------------------------------
The board of directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the stockholders,
a full and clear statement of the business and condition of the corporation.
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
----------------------------------------------
The chairman of the board, if any, the president, any vice president, the
chief financial officer, the secretary or any assistant secretary of this
corporation, or any other person authorized by the board of directors or the
president 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 the
stock of any other corporation or corporations standing in the name of this
corporation. The authority herein granted 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.
7.5 CERTIFICATION AND INSPECTION OF BYLAWS
--------------------------------------
The original or a copy of these bylaws, as amended or otherwise altered to
date, certified by the secretary, shall be kept at the corporation's principal
executive office and shall be open to inspection by the stockholders of the
corporation, at all reasonable times during business hours.
-16-
<PAGE>
ARTICLE VIII
GENERAL MATTERS
---------------
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING
-----------------------------------------------------
For purposes of determining the stockholders entitled to receive payment of
any dividend or other distribution or allotment of any rights or the
stockholders 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
precede the date upon which the resolution fixing the record date is adopted and
which shall not be more than sixty (60) days before any such action. In that
case, only stockholders of record at the close of business on the date so fixed
are entitled to receive the dividend, distribution or allotment of rights, or to
exercise such rights, as the case may be, notwithstanding any transfer of any
shares on the books of the corpo ration after the record date so fixed, except
as otherwise provided by law.
If the board of directors does not so fix a record date, then the record
date for determining stockholders for any such purpose shall be at the close of
business on the day on which the board of directors adopts the applicable
resolution.
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS
-----------------------------------------
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.
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED
--------------------------------------------------
The board of directors, except as otherwise provided in these bylaws, may
authorize and empower 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 power and 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.
8.4 STOCK CERTIFICATES; TRANSFER; PARTLY PAID SHARES
------------------------------------------------
The shares of the 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.
-17-
<PAGE>
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 ceased 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 or she were such officer, transfer
agent or registrar at the date of issue.
Certificates for shares shall be of such form and device as the board of
directors may designate and shall state the name of the record holder of the
shares represented thereby; its number; date of issuance; the number of shares
for which it is issued; a summary statement or reference to the powers,
designations, preferences or other special rights of such stock and the
qualifications, limitations or restrictions of such preferences and/or rights,
if any; a statement or summary of liens, if any; a conspicuous notice of
restrictions upon transfer or registration of transfer, if any; a statement as
to any applicable voting trust agreement; if the shares be assessable, or, if
assessments are collectible by personal action, a plain statement of such facts.
Upon surrender to the secretary or transfer agent of the corporation of a
certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment 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 upon its books.
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, or 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 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.
8.5 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
-18-
<PAGE>
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.
8.6 LOST CERTIFICATES
-----------------
Except as provided in this Section 8.6, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and canceled at the same time. The board of
directors may, in case any share certificate or certificate for any other
security is lost, stolen or destroyed, authorize the issuance of replacement
certificates on such terms and conditions as the board may require; the board
may require indemnification of the corporation secured by a bond or other
adequate security sufficient to protect the corporation against any claim that
may be made against it, including any expense or liability, on account of the
alleged loss, theft or destruction of the certificate or the issuance of the
replacement certificate.
8.7 TRANSFER AGENTS AND REGISTRARS
------------------------------
The board of directors may appoint one or more transfer agents or transfer
clerks, and one or more registrars, each of which shall be an incorporated bank
or trust company--either domestic or foreign--who shall be appointed at such
times and places as the requirements of the corporation may necessitate and the
board of directors may designate.
8.8 CONSTRUCTION; DEFINITIONS
-------------------------
Unless the context requires otherwise, the general provisions, rules of
construction and definitions in the General Corporation Law of Delaware shall
govern the construction of these bylaws. Without limiting the generality of
this provision, as used in these bylaws, the singular number includes the
plural, the plural number includes the singular, and the term "person" includes
both an entity and a natural person.
ARTICLE IX
AMENDMENTS
----------
Any of these bylaws may be altered, amended or repealed by the affirmative
vote of a majority of the members of the board of directors or, with respect to
bylaw amendments, excluding amendments relating to Sections 2.2, 2.3, 2.9 or
Article VI, placed before the stockholders for approval and except as otherwise
provided herein or required by law, by the affirmative vote of the holders of a
majority of the shares of the corporation's stock entitled to vote, voting as
one class, and with respect to bylaw amendments relating to Sections 2.2, 2.3,
2.9 or Article VI, placed before the stockholders for approval and except as
otherwise provided herein or required by law, by the
-19-
<PAGE>
affirmative vote of the holders of at least two-thirds of the shares of the
corporation's stock entitled to vote, voting as one class.
Whenever an amendment or new bylaw is adopted, it shall be copied in the
book of bylaws with the original bylaws, in the appropriate place. If any bylaw
is repealed, the fact of repeal with the date of the meeting at which the repeal
was enacted or the filing of the operative written consent(s) shall be stated in
said book.
-20-
<PAGE>
EXHIBIT 10.1
EFFICIENT NETWORKS, INC.
------------------------
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is entered into as of the ___
day of __________, 1999 by and between Efficient Networks, Inc. a Delaware
corporation (the "Company") and ____________________ ("Indemnitee").
RECITALS
--------
A. The Company and Indemnitee recognize the continued difficulty in
obtaining liability insurance for its 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.
B. 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.
C. Indemnitee does not regard the current protection available as adequate
under the present circumstances, and 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.
D. The Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve the Company and, in part, in
order to induce Indemnitee to continue to provide services to the Company,
wishes to provide for the indemnification and advancing of expenses to
Indemnitee to the maximum extent permitted by law.
E. In view of the considerations set forth above, the Company desires that
Indemnitee be indemnified by the Company as set forth herein.
NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:
1. 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 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,
<PAGE>
whether civil, criminal, administrative, investigative or other (hereinafter a
"Claim") by reason of (or arising in part out of) 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 (hereinafter an "Indemnifiable Event")
against 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, be a witness in or participate in, any such 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 such Claim and any federal, state, local or foreign taxes imposed
on Indemnitee as a result of the actual or deemed receipt of any payments under
this Agreement (collectively, hereinafter "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 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 1(a) shall be subject to the condition
that the Reviewing Party (as described in Section 10(e) hereof) shall not have
determined (in a written opinion, in any case in which the Independent Legal
Counsel referred to in Section 1(c) hereof is involved) that Indemnitee would
not be permitted to be indemnified under applicable law, and (ii) the obligation
of the Company to make an advance payment of Expenses to Indemnitee pursuant to
Section 2(a) (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). Indemnitees' 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 (as defined in Section 10(c) hereof), 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 referred to in Section 1(c) hereof. If there has been
no determination by the Reviewing Party or if the
-2-
<PAGE>
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. Any
determination by the Reviewing Party otherwise 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 Indemnitees 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 (as defined in Section 10(d) hereof) 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 fully
indemnify 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.
(d) Mandatory Payment of Expenses. Notwithstanding any other
-----------------------------
provision of this Agreement other than Section 9 hereof, to the extent that
Indemnitee has been successful on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, in defense of any
action, suit, proceeding, inquiry or investigation referred to in Section (1)(a)
hereof or in the defense of any claim, issue or matter therein, Indemnitee shall
be indemnified against all Expenses incurred by Indemnitee in connection
therewith.
2. 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
days after written demand by Indemnitee therefor to the Company.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a
--------------------------------
condition precedent to Indemnitees' 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 Agree-
-3-
<PAGE>
ment (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 Indemnitees'
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. In connection with any determination by the Reviewing
Party or otherwise as to whether Indemnitee is entitled to be indemnified
hereunder, the burden of proof shall be on the Company to establish that
Indemnitee is not so entitled.
(d) Notice to Insurers. If, at the time of the receipt by the Company
------------------
of a notice of a Claim pursuant to Section 2(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 Indemnitee, all amounts payable as a result of such action, suit,
proceeding, inquiry or investigation 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 shall be entitled to
assume the defense of such Claim with counsel approved by Indemnitee, which
approval shall not be unreasonably withheld, upon the delivery to Indemnitee of
written notice of its 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 Indemnitees'
counsel in any such Claim at Indemnitee expense and (ii) if (A) the employment
of counsel by Indemnitee has been previously authorized by the Company, (B)
Indemnitee shall have reasonably concluded that there is 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 counsel shall be at the expense of the
Company. The Company shall have the right to conduct such defense as it sees
fit in its sole discretion, including the right to settle any claim against
Indemnitee without the consent of the Indemnitee.
-4-
<PAGE>
3. Additional Indemnification Rights; Nonexclusivity.
-------------------------------------------------
(a) Scope. The Company hereby agrees to indemnify 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 8(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 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 Indemnitee took or did
not take while serving in an indemnified capacity even though Indemnitee may
have ceased to serve in such capacity.
4. 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, Certificate of Incorporation, Bylaw or otherwise)
of the amounts otherwise indemnifiable hereunder.
5. 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 are entitled.
6. Mutual Acknowledgement. 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.
-5-
<PAGE>
7. 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 accorded 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.
8. Exceptions. Any other provision herein to the contrary
----------
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) Excluded Action or Omissions. To indemnify Indemnitee for
----------------------------
Indemnitee's acts, omissions or transactions from which Indemnitee or the
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 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 Indemnitee in such
proceeding was not made in good faith or was frivolous; or
(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.
9. 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
-6-
<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.
10. Construction of Certain Phrases.
-------------------------------
(a) For purposes of this Agreement, references to the "Company" 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, 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.
(b) For purposes of this Agreement, 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.
(c) For purposes of this Agreement a "Change in Control" shall be
deemed to have occurred if (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 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, (A) who is or becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 10% or more of the
combined voting power of the Company's then outstanding Voting Securities,
increases his beneficial ownership of such securities by 5% or more over the
percentage so owned by such person, or (B) becomes the "beneficial owner" (as
defined in Rule 13d-3 under said Act), directly or indirectly, of securities of
the Company representing more than 20% 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
-7-
<PAGE>
Company's stockholders was approved by a vote of at least two-thirds 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 transactions) all or substantially all of the
Company's assets.
(d) For purposes of this Agreement, "Independent Legal Counsel" shall
mean an attorney or firm of attorneys, selected in accordance with the
provisions of Section 1(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).
(e) For purposes of this Agreement, a "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 are
seeking indemnification, or Independent Legal Counsel.
(f) For purposes of this Agreement, "Voting Securities" shall mean any
securities of the Company that vote generally in the election of directors.
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 and/or assets of the Company, spouses, heirs,
and personal and legal representatives. The Company shall require and cause any
successor (whether direct or indirect by purchase, merger, consolidation or
otherwise) to all, substantially all, or a substantial part, of the business
and/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 with respect to Claims relating to Indemnifiable Events
regardless of whether Indemnitee continues to serve as a director,
-8-
<PAGE>
officer, employee, agent or fiduciary 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 was not made
in good faith or was 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 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 material defenses to such action
was made in bad faith or was frivolous.
14. Notice. All notices and other communications required or permitted
------
hereunder shall be in writing, shall be effective when given, and shall in any
event be deemed to be given (a) five (5) days after deposit with the U.S. Postal
Service or other applicable postal service, if delivered by first class mail,
postage prepaid, (b) upon delivery, if delivered by hand, (c) one business day
after the business day of deposit with Federal Express or similar overnight
courier, freight prepaid, or (d) one day after the business day of delivery by
facsimile transmission, if delivered by facsimile transmission, with copy by
first class mail, postage prepaid, and shall be addressed if to Indemnitee, at
the Indemnitee address as set forth beneath Indemnitee signatures to this
Agreement and if to the Company at the address of its principal corporate
offices (attention: Secretary) or at such other address as such party may
designate by ten days' advance written notice to the other party hereto.
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
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
-9-
<PAGE>
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, without regard to the conflict
of laws principles thereof.
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 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.
-10-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
EFFICIENT NETWORKS, INC.
By:
-------------------------------------------
Title:
----------------------------------------
Address: 4201 Spring Valley Road, Suite 1200
---------------------------------------
Name:
-----------------------------
Address:
--------------------------
-11-
<PAGE>
EXHIBIT 10.2
EFFICIENT NETWORKS, INC.
1999 STOCK PLAN
1. Purposes of the Plan. The purposes of this Stock Plan are (i) to
--------------------
attract and retain the best available personnel for positions of substantial
responsibility, (ii) to provide additional incentive to Employees, Directors and
Consultants, and (iii) 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 Efficient Networks, Inc.
-------
(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.
--------
(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
<PAGE>
reemployment upon expiration of such leave is guaranteed by statute or contract.
If reemployment upon expiration of a leave of absence approved by the Com pany
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 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 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.
(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.
-2-
<PAGE>
(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 1999 Stock Plan.
----
(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. 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 3,500,000 Shares, plus an annual increase to be added on
the first day of the Company's fiscal year beginning in 2000 equal to the lesser
of (i) 1,000,000 shares, (ii) 3% 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,
-------- -------
-3-
<PAGE>
that Shares that h ave 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;
(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;
-4-
<PAGE>
(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. 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
-5-
<PAGE>
be treated as Nonstatutory Stock Options. For purposes of t his 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) On the date grants of Options under the Plan must comply with
Section 162(m) of the Code, 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 250,000 Shares.
(ii) In connection with his or her initial service, a
Service Provider may be granted Options to purchase up to an additional
100,000 Shares that 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 cancelled 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 cancelled 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 for
a term of ten (10) 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 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
-6-
<PAGE>
(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 granted:
(A) prior to the date the Common Stock is listed on a
national securities exchange or a national market system that qualifies under
Section 25100(o) of the Corporations Code of California:
(1) to a Service Provider who, at the time the
Nonstatutory 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.
(2) granted to any other Service Provider the per
Share exercise price shall be no less than 85% of the Fair Market Value per
Share on the date of grant.
(B) on or after the date the Common Stock is listed on a
national securities exchange or a national market system which qualifies under
Section 25100(o) of the Corporations Code of California to any Service Provider,
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; provided, however, that prior to the date the Common
Stock is listed on a national securities exchange or a national market system
which qualifies under Section 25100(o) of the Corporations Code of California,
except in the case of Options granted to Officers, Directors, and Consultants,
Options shall become exercisable at a rate of no less than 20% per year over
five (5) years from the date the Options are granted.
(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:
-7-
<PAGE>
(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 (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.
-8-
<PAGE>
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 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 Optionee's termination. Prior to the date the
Common Stock is listed on a national securities exchange or a national market
system which qualifies under Section 25100(o) of the Corporations Code of
California, such Option must remain exercisable for a period of at least thirty
(30) days after the Optionee ceases to be a Service Provider. 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. Prior to the date the Common Stock is listed on a national
securities exchange or a national market system which qualifies under Section
25100(o) of the Corporations Code of California, such Option must remain
exercisable for a period of at least six (6) months after the Optionee ceases to
be a Service Provider due to Optionee's disability. 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. Prior to the date the Common Stock is listed on a national
securities exchange or a national market system which qualifies under Section
25100(o) of the Corporations Code of California, such Option must remain
exercisable for a period of at least six (6) months after the Optionee ceases to
be a Service Provider. 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
-9-
<PAGE>
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. Prior to the date the Common Stock is
listed on a national securities exchange or a national market system which
qualifies under Section 25100(o) of the Corporations Code of California, the
terms of the offer of Stock Purchase Rights under the Plan shall comply in all
respects with Section 260.140.42 of Title 10 of the California Code of
Regulations.
(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 (provided, however, that such
determination shall occur only on or after the date the Common Stock is listed
on a national securities exchange or a national market system which qualifies
under Section 25100(o) of the Corporations Code of California), 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,
-10-
<PAGE>
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.
(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
-11-
<PAGE>
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.
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
-12-
<PAGE>
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.
17. 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.
18. 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.
19. 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.
20. Information to Optionees and Purchasers. Prior to the date the
---------------------------------------
Common Stock is listed on a national securities exchange or a national market
system which qualifies under Section 25100(o) of the Corporations Code of
California, the Company shall provide to each Optionee and to each individual
who acquires Shares pursuant to the Plan, not less frequently than annually
during the period such Optionee or purchaser has one or more Options or Stock
Purchase Rights outstanding, and, in the case of an individual who acquires
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.
-13-
<PAGE>
EFFICIENT NETWORKS, INC.
1999 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:
----------------
Subject to accelerated vesting as set forth below, 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].
<PAGE>
Termination Period:
------------------
This Option may be exercised for three months after Optionee ceases to be a
Service Provider. Upon the death or Disability of the Optionee, this Option may
be exercised for twelve months 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.
II. AGREEMENT
---------
A. Grant of Option.
----------------
The Plan Administrator of the Company hereby grants to the Optionee
named in the Notice of Grant attached as Part I of this Agreement (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").
B. 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 Secretary 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.
-2-
<PAGE>
C. 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:
1. cash; or
2. check; or
3. consideration received by the Company under a cashless exercise
program implemented by the Company in connection with the Plan; or
4. 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
5. to the extent permitted by the Administrator, 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 proceeds required to pay
the Exercise Price.
D. 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.
E. 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.
F. 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.
G. Exercising the Option.
----------------------
1. 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
-3-
<PAGE>
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.
2. 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 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.
3. Disposition of Shares.
---------------------
(a) 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.
(b) 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.
-4-
<PAGE>
H. 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
Texas.
I. 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.
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 EFFICIENT NETWORKS, INC.
- ----------------------------------- -----------------------------------
Signature By
- ----------------------------------- -----------------------------------
Print Name Title
- -----------------------------------
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.
Dated: _______________, _____
__________________________________________
Signature of Spouse
<PAGE>
EXHIBIT A
---------
EFFICIENT NETWORKS, INC.
1999 STOCK PLAN
EXERCISE NOTICE
Efficient Networks, Inc.
4201 Spring Valley Road, Ste 1200
Dallas, TX 75244-3666
Attention: Secretary
1. Exercise of Option. Effective as of today, ________________, _____,
------------------
the undersigned ("Purchaser") hereby elects to purchase ______________ shares
(the "Shares") of the Common Stock of Efficient Networks, Inc. (the "Company")
under and pursuant to the 1999 Stock Plan (the "Plan") and the Stock Option
Agreement dated, _____ (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
<PAGE>
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 signed by the Company and Purchaser. This
agreement is governed by the internal substantive laws, but not the choice of
law rules, of Texas.
Submitted by: Accepted by:
PURCHASER EFFICIENT NETWORKS, INC.
- ----------------------------------- -----------------------------------
Signature By
- ----------------------------------- -----------------------------------
Print Name Its
Address: Address:
- ------- -------
Efficient Networks, Inc.
- ------------------------------------ 4201 Spring Valley Road Suite 1200
- ------------------------------------ Dallas, TX 75244-3666
- ------------------------------------
-----------------------------------
Date Received
-2-
<PAGE>
EFFICIENT NETWORKS, INC.
1999 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 1999 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: EFFICIENT NETWORKS, INC.
- ----------------------------------- -----------------------------------
Signature By
- ----------------------------------- -----------------------------------
Print Name Title
<PAGE>
EXHIBIT A-1
-----------
EFFICIENT NETWORKS, INC.
1999 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
canceling 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
<PAGE>
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 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 that 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 Texas. 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 EFFICIENT NETWORKS, 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 Efficient
Networks, 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 ______________, _____.
Dated: _______________, _____
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
-------------------------
______________, _____
Corporate Secretary
Efficient Networks, Inc.
4201 Spring Valley Road Suite 1200
Dallas, TX 75244-3666
Dear ___________________:
As Escrow Agent for both Efficient Networks, 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.
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
<PAGE>
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.
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.
-2-
<PAGE>
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: Efficient Networks, Inc.
4201 Spring Valley Road Suite 1200
Dallas TX 75244-3666
PURCHASER: ____________________________________
____________________________________
____________________________________
ESCROW AGENT: Corporate Secretary
Efficient Networks, Inc.
4201 Spring Valley Road Suite 1200
Dallas TX 75244-3666
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,
EFFICIENT NETWORKS, 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 Efficient Networks, 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: ____________________, _____
------------------------------------
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
Efficient Networks, Inc. (the "Company").
3. The date on which the property was transferred is: ___________, ____.
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: _________________, ____ _______________________________________
Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated: _________________, ____ _______________________________________
Spouse of Taxpayer
<PAGE>
EXHIBIT 10.3
EFFICIENT NETWORKS, INC.
1999 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 Efficient Networks, 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 that has been
---------------------
designated 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.
(4) For purposes of the Enrollment Date of the First Offering
Period under the Plan, the Fair Market Value shall be the initial price to
public as set forth in the final prospectus included within the registration
statement in Form S-1 filed with the Securities and Exchange Commission for the
initial public offering of the Company's Common Stock (the "Registration
Statement").
(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 December 1 and terminating on
the last Trading Day in the period ending the following May 31, or commencing on
the first Trading Day on or after June 1 and terminating on the last Trading Day
in the period ending the following November 30; 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 November 30. 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; provided, however, that the Purchase Price
may be adjusted by the Board pursuant to Section 20.
(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.
-2-
<PAGE>
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) 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 June 1 and December 1 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 November 30. 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 ten percent (10%) of the
Compensation which he or she receives on each pay day during the Offering
Period.
-3-
<PAGE>
(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 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 500
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
-4-
<PAGE>
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.
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, 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 Two Hundred Thousand (200,000)
-5-
<PAGE>
shares, plus an annual increase to be added on the first day of the Company's
fiscal year beginning in 2000 equal to the lesser of (i) 100,000 shares, (ii)
1% 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.
(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,
-6-
<PAGE>
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 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
-7-
<PAGE>
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.
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 Offering Period or the Plan
is in the best interests of the Company and its stockholders. Except as provided
in Section 19 and Section 20 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.
(c) In the event the Board determines that the ongoing operation of
the Plan may result in unfavorable financial accounting consequences, the Board
may, in its discretion and, to the extent necessary or desirable, modify or
amend the Plan to reduce or eliminate such accounting consequence including, but
not limited to:
(1) altering the Purchase Price for any Offering Period
including an Offering Period underway at the time of the change in Purchase
Price;
(2) shortening any Offering Period so that Offering Period
ends on a new Exercise Date, including an Offering Period underway at the time
of the Board action; and
(3) allocating shares.
Such modifications or amendments shall not require stockholder
approval or the consent of any Plan participants.
-8-
<PAGE>
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.
-9-
<PAGE>
EXHIBIT A
---------
EFFICIENT NETWORKS, INC.
1999 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
Efficient Networks, Inc. 1999 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 10% 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
EFFICIENT NETWORKS, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the Efficient
Networks, Inc. 1999 Employee Stock Purchase Plan which began on ___________,
______ (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 10.4
Efficient Networks, Inc
INVESTORS' RIGHTS AGREEMENT
July 30, 1993
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
1. Registration Rights 1
1.1 Definitions 1
1.2 Request for Registration 2
1.3 Company Registration 3
1.4 Obligations of the Company 4
1.5 Furnish Information 5
1.6 Expenses of Demand Registration 5
1.7 Expenses of Company Registration 5
1.8 Underwriting Requirements 6
1.9 Delay of Registration 6
1.10 Indemnification 7
1.11 Reports Under Securities Exchange Act of 1934 9
1.12 Form S-3 Registration 10
1.13 Assignment of Registration Rights 11
1.14 Limitations on Subsequent Registration Rights 11
1.15 "Market Stand-Off" Agreement 12
1.16 Termination of Registration Rights 12
2. Covenants of the Company 13
2.1 Delivery of Financial Statements 13
2.2 Inspection 14
2.3 Termination of Information and Inspection Covenants 14
2.4 Right of First Offer 14
2.5 Key-Person Insurance 15
2.6 Management Stock 16
2.7 Election of Directors; Board Meeting Expenses; Indemnities 16
2.8 Use of Proceeds 17
2.9 Salaries of Officers 17
2.10 Payment of Dividends 17
2.11 Termination of Certain Covenants 17
3. Miscellaneous 17
3.1 Successors and Assigns 17
3.2 Governing Law 18
3.3 Counterparts 18
3.4 Titles and Subtitles 18
3.5 Notices 18
3.6 Expenses 18
3.7 Amendments and Waivers 18
3.8 Severability 19
3.9 Aggregation of Stock 19
3.10 Entire Agreement; Amendment; Waiver 19
-i-
<PAGE>
INVESTORS' RIGHTS AGREEMENT
---------------------------
THIS INVESTORS' RIGHTS AGREEMENT is made as of the 30th day of July, 1993,
by and between Efficient Networks, Inc., a Delaware corporation (the "Company"),
and the investors listed on Schedule A hereto, each of which is herein referred
to as an "Investor."
RECITALS
--------
WHEREAS, the Company and the Investors are parties to the Series A
Preferred Stock Purchase Agreement of even date herewith (the "Series A
Agreement");
WHEREAS, in order to induce the Company to enter into the Series A
Agreement and to induce the Investors to invest funds in the Company pursuant to
the Series A Agreement, the Investors and the Company hereby agree that this
Agreement shall govern the rights of the Investor to cause the Company to
register shares of Common Stock issuable to the Investors and certain other
matters as set forth herein;
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Registration Rights. The Company covenants and agrees as follows:
-------------------
1.1 Definitions. For purposes of this Section 1:
-----------
(a) The term "Act" means the Securities Act of 1933, as amended.
(b) The term "register", "registered," and "registration" refer
to a registration effected by preparing and filing a registration statement or
similar document in compliance with the Act, and the declaration or ordering of
effectiveness of such registration statement or document;
(c) The term "Registrable Securities" means (1) the Common Stock
issuable or issued upon conversion of the Series A Preferred Stock, and (2) any
Common Stock of the Company issued as (or issuable upon the conversion or
exercise of any warrant, right or other security which is issued as) a dividend
or other distribution with respect to, or in exchange for or in replacement of,
such Series A Preferred Stock or Common Stock, excluding in all cases, however,
any Registrable Securities sold by a person in a transaction in which his rights
under this Section 1 are not assigned;
(d) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock
outstanding which are, and the number of
<PAGE>
shares of Common Stock issuable pursuant to then exercisable or convertible
securities which are, Registrable Securities.
(e) The term "Holder" means any person owning or having the right
to acquire Registrable Securities or any assignee thereof in accordance with
Section 1.13 hereof; and
(f) The term "Form S-3" means such form under the Act as in
effect on the date hereof or any registration form under the Act subsequently
adopted by the Securities and Exchange Commission ("SEC") which permits
inclusion or incorporation of substantial information by reference to other
documents filed by the Company with the SEC.
1.2 Request for Registration.
------------------------
(a) If the Company shall receive at any time after the earlier of
(i) July 30, 1995, or (ii) one (1) year after the effective date of the first
registration statement for a public offering of securities of the Company (other
than a registration statement relating either to the sale of securities to
employees of the Company pursuant to a stock option, stock purchase or similar
plan or a SEC Rule 145 transaction), a written request from the Holders of at
least fifty percent (50%) of the Registrable Securities then outstanding that
the Company file a registration statement under the Act covering the
registration of at least twenty percent (20%) of the Registrable Securities then
outstanding (or a lesser percent if the aggregate offering price of would exceed
$5,000,000), then the Company shall, within ten (10) days of the receipt
thereof, give written notice of such request to all Holders and shall, subject
to the limitations of subsection 1.2(b), effect as soon as practicable, and in
any event shall use its best efforts to effect within 60 days of the receipt of
such request, the registration under the Act of all Registrable Securities which
the Holders request to be registered within twenty (20) days of the mailing of
such notice by the Company in accordance with paragraph 3.5.
(b) If the Holders initiating the registration request hereunder
("Initiating 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 made pursuant to this Section 1.2 and the Company
shall include such information in the written notice referred to in subsection
1.2(a). The underwriter will be selected by a majority in interest of the
Initiating Holders and shall be reasonably acceptable to the Company. In such
event, the right of any Holder to include his Registrable Securities in such
registration shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed by a majority in interest of the
Initiating Holders and such Holder) to the extent provided herein. All Holders
proposing to distribute their securities
-2-
<PAGE>
through such underwriting shall (together with the Company as provided in
subsection 1.4(e)) enter into an underwriting agreement in customary form with
the underwriter or underwriters selected for such underwriting by a majority in
interest of the Initiating Holders. Notwithstanding any other provision of this
Section 1.2, if the underwriter advises the Initiating Holders in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the Initiating Holders shall so advise all Holders of
Registrable Securities which would otherwise be underwritten pursuant hereto,
and the number of shares of Registrable Securities that may be included in the
underwriting shall be allocated among all Holders thereof, including the
Initiating Holders, in proportion (as nearly as practicable) to the amount of
Registrable Securities of the Company owned by each Holder; provided, however,
that the number of shares of Registrable Securities to be included in such
underwriting shall not be reduced unless all other securities are first entirely
excluded from the underwriting.
(c) The Company is obligated to effect only two (2) such
registrations pursuant to this Section 1.2.
(d) Notwithstanding the foregoing, if the Company shall furnish
to Holders requesting a registration statement pursuant to this Section 1.2, 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 stockholders 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 60 days after receipt of the request of the
Initiating Holders; provided, however, that the Company may not utilize this
right more than once in any twelve month period.
1.3 Company Registration. If (but without any obligation to do so)
--------------------
the Company proposes to register (including for this purpose a registration
effected by the Company for stockholders other than the Holders) any of its
stock or other securities under the Act in connection with the public offering
of such securities solely for cash (other than a registration relating solely to
the sale of securities to participants in a Company stock plan, or a
registration on any form which does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of the Registrable Securities), the Company shall, at such
time, promptly give each Holder written notice of such registration. Upon the
written request of each Holder given within twenty (20) days after mailing of
such notice by the Company in accordance with Section 3.5, the Company shall,
subject to the provisions of Section 1.8, cause to be registered under the Act
all of the Registrable Securities that each such Holder has requested to be
registered.
-3-
<PAGE>
1.4 Obligations of the Company. Whenever required under this
--------------------------
Section 1 to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of a majority of the Registrable Securities registered thereunder, keep such
registration statement effective for up to one hundred twenty (120) days.
(b) Prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may reasonably request
in order to facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
(g) Furnish, at the request of any Holder requesting registration
of Registrable Securities pursuant to this Section 1, on the date that such
Registrable Securities are
-4-
<PAGE>
delivered to the underwriters for sale in connection with a registration
pursuant to this Section 1, if such securities are being sold through
underwriters, or, if such securities are not being sold through underwriters, on
the date that the registration statement with respect to such securities becomes
effective, (i) an opinion, dated such date, of the counsel representing the
Company for the purposes of such registration, in form and substance as is
customarily given to underwriters in an underwritten public offering, addressed
to the underwriters, if any, and to the Holders requesting registration of
Registrable Securities and (ii) a letter dated such date, from the independent
certified public accountants of the Company, in form and substance as is
customarily given by independent certified public accountants to underwriters in
an underwritten public offering, addressed to the underwriters, if any, and to
the Holders requesting registration of Registrable Securities.
1.5 Furnish Information. It shall be a condition precedent to the
-------------------
obligations of the Company to take any action pursuant to this Section 1 with
respect to the Registrable Securities of any selling Holder that such Holder
shall furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such securities
as shall be required to effect the registration of such Holder's Registrable
Securities.
1.6 Expenses of Demand Registration. All expenses other than
-------------------------------
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 1.2, including
(without limitation) all registration, filing and qualification fees, printers'
and accounting fees, fees and disbursements of counsel for the Company, and the
reasonable fees and disbursements of one counsel for the selling Holders shall
be borne by the Company; provided, however, that the Company shall not be
required to pay for any expenses of any registration proceeding begun pursuant
to Section 1.2 if the registration request is subsequently withdrawn at the
request of the Holders of a majority of the Registrable Securities to be
registered (in which case all Participating 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 1.2; provided
further, 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 and have
withdrawn the request with reasonable promptness following disclosure by the
Company of such material adverse change, then the Holders shall not be required
to pay any of such expenses and shall retain their rights pursuant to Section
1.2.
1.7 Expenses of Company Registration. The Company shall bear and pay
--------------------------------
all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities
-5-
<PAGE>
with respect to the registrations pursuant to Section 1.3 for each Holder (which
right may be assigned as provided in Section 1.13), including (without
limitation) all registration, filing, and qualification fees, printers and
accounting fees relating or apportionable thereto and the fees and disbursements
of one counsel for the selling Holders selected by them, but excluding
underwriting discounts and commissions relating to Registrable Securities.
1.8 Underwriting Requirements. In connection with any offering
-------------------------
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under Section 1.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it (or by
other persons entitled to select the underwriters), and then only in such
quantity as the underwriters determine in their sole discretion will not,
jeopardize the success of the offering by the Company. If the total amount of
securities, including Registrable Securities, requested by stockholders to be
included in such offering exceeds the amount of securities sold other than by
the Company that the underwriters determine in their sole discretion is
compatible with the success of the offering, then the Company shall be required
to include in the offering only that number of such securities, including
Registrable Securities, which the underwriters determine in their sole
discretion will not jeopardize the success of the offering (the securities so
included to be apportioned pro rata among the selling stockholders according to
the total amount of securities entitled to be included therein owned by each
selling Stockholder or in such other proportions as shall mutually be agreed to
by such selling stockholders) but in no event shall (i) the amount of securities
of the selling Holders included in the offering be reduced below thirty percent
(30%) of the total amount of securities included in such offering, unless such
offering is the initial public offering of the Company's securities or (ii)
notwithstanding (i) above, any shares being sold by a stockholder exercising a
demand registration right similar to that granted in Section 1.2 be excluded
from such offering. For purposes of the preceding parenthetical concerning
apportionment, for any selling stockholder which is a holder of Registrable
Securities and which is a partnership or corporation, the partners, retired
partners and stockholders of such holder, or the estates and family members of
any such partners and retired partners and any trusts for the benefit of any of
the foregoing persons shall be deemed to be a single "selling stockholder", and
any pro-rata reduction with respect to such "selling stockholder" shall be based
upon the aggregate amount of shares carrying registration rights owned by all
entities and individuals included in such "selling stockholder", as defined in
this sentence.
1.9 Delay of Registration. No Holder shall have any right to obtain
---------------------
or seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy
-6-
<PAGE>
that might arise with respect to the interpretation or implementation of this
Section 1.
1.10 Indemnification. In the event any Registrable Securities are
---------------
included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, any underwriter (as defined in the Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the Act or the Securities Exchange Act of 1934, as amended (the
"1934 Act"), against any losses, claims, damages, or liabilities (joint or
several) to which they may become subject under the Act, the 1934 Act or other
federal or state law, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereof) arise out of or are based upon any of the
following statements, omissions or violations (collectively a "Violation"): (i)
any untrue statement or alleged untrue statement of a material fact contained in
such registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein not misleading, or
(iii) any violation or alleged violation by the Company of the Act, the 1934
Act, any state securities law or any rule or regulation promulgated under the
Act, the 1934 Act or any state securities law; and the Company will pay to each
such Holder, underwriter or controlling person, as incurred, any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided, however,
that the indemnity agreement contained in this subsection 1.10(a) shall not
apply to amounts paid in settlement of any such loss, claim, damage, liability,
or action if such settlement is effected without the consent of the Company
(which consent shall not be unreasonably withheld), nor shall the Company be
liable in any such case for any such loss, claim, damage, liability, or action
to the extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished expressly for
use in connection with such registration by any such Holder, underwriter or
controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Act, any underwriter, any other
Holder selling securities in such registration statement and any controlling
person of any such underwriter or other Holder, against any losses, claims,
damages, or liabilities (joint or several) to which any of the foregoing persons
may become subject, under the Act, the 1934 Act or other federal or state law,
insofar as such losses, claims, damages, or liabilities (or actions in respect
-7-
<PAGE>
thereto) arise out of or are based upon any Violation, in each case to the
extent (and only to the extent) that such Violation occurs in reliance upon and
in conformity with written information furnished by such Holder expressly for
use in connection with such registration; and each such Holder will pay, as
incurred, any legal or other expenses reasonably incurred by any person intended
to be indemnified pursuant to this subsection 1.10(b), in connection with
investigating or defending any such loss, claim, damage, liability, or action;
provided, however, that the indemnity agreement contained in this subsection
1.10(b) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Holder, which consent shall not be unreasonably withheld; provided, that,
in no event shall any indemnity under this subsection 1.10(b) exceed the gross
proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 1.10 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.10, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.10, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 1.10.
(d) If the indemnification provided for in this Section 1.10 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
-8-
<PAGE>
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.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(f) The obligations of the Company and Holders under this Section
1.10 shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 1, and otherwise.
1.11 Reports Under Securities Exchange Act of 1934. With a view to
---------------------------------------------
making available to the Holders the benefits of Rule 144 promulgated under the
Act and any other rule or regulation of the SEC that may at any time permit a
Holder to sell securities of the Company to the public without registration or
pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in SEC Rule 144, at all times after ninety (90) days
after the effective date of the first registration statement filed by the
Company for the offering of its securities to the general public;
(b) take such action, including the voluntary registration of its
Common Stock under Section 12 of the 1934 Act, as is necessary to enable the
Holders to utilize Form S-3 for the sale of their Registrable Securities, such
action to be taken as soon as practicable after the end of the fiscal year in
which the first registration statement filed by the Company for the offering of
its securities to the general public is declared effective;
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
(d) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144 (at
any time after ninety (90) days after the effective date of the first
registration
-9-
<PAGE>
statement filed by the Company), the Act and the 1934 Act (at any time after it
has become subject to such reporting requirements), or that it qualifies as a
registrant whose securities may be resold pursuant to Form S-3 (at any time
after it so qualifies), (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC which permits the
selling of any such securities without registration or pursuant to such form.
1.12 Form S-3 Registration. In case the Company shall receive from any
---------------------
Holder or Holders a written request or requests that the Company effect a
registration on Form S-3 and any related qualification or compliance with
respect to all or a part of the Registrable Securities owned by such Holder or
Holders, the Company will:
(a) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders; and
(b) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Holder's or
Holders' Registrable Securities as are specified in such request, together with
all or such portion of the Registrable Securities of any other Holder or Holders
joining in such request as are specified in a written request given within 15
days after receipt of such written notice from the Company; provided, however,
that the Company shall not be obligated to effect any such registration,
qualification or compliance, pursuant to this section 1.12: (1) if Form S-3 is
not available for such offering by the Holders; (2) if the Holders, together
with the holders of any other securities of the Company entitled to inclusion in
such registration, propose to sell Registrable Securities and such other
securities (if any) at an aggregate price to the public of less than $1,000,000;
(3) if the Company shall furnish to the Holders 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 stockholders for such Form S-3 Registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form S-3
registration statement for a period of not more than 60 days after receipt of
the request of the Holder or Holders under this Section 1.12; provided, however,
that the Company shall not utilize this right more than once in any twelve month
period; (4) if the Company has, within the twelve (12) month period preceding
the date of such request, already effected one registration on Form S-3 for the
Holders pursuant to this Section 1.12; (5) within one hundred eighty days (180)
days of any prior registration statement under the Act; or (6) in any particular
jurisdiction in which the
-10-
<PAGE>
Company would be required to qualify to do business or to execute a general
consent to service of process in effecting such registration, qualification or
compliance.
(c) Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders. All expenses incurred in connection with a
registration requested pursuant to Section 1.12, including (without limitation)
all registration, filing, qualification, printer's and accounting fees and the
reasonable fees and disbursements of one counsel for the selling Holder or
Holders and counsel for the Company, but excluding any underwriters' discounts
or commissions associated with Registrable Securities, shall be borne pro rata
by the Holder or Holders participating in the Form S-3 Registration.
Registrations effected pursuant to this Section 1.12 shall not be counted as
demands for registration or registrations effected pursuant to Sections 1.2 or
1.3, respectively.
1.13 Assignment of Registration Rights. The rights to cause the
---------------------------------
Company to register Registrable Securities pursuant to this Section 1 may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee of such securities who, after such assignment or transfer, holds at
least 500,000 shares of Registrable Securities (subject to appropriate
adjustment for stock splits, stock dividends, combinations and other
recapitalizations), provided the Company is, within a reasonable time after such
transfer, furnished with written notice of the name and address of such
transferee or assignee and the securities with respect to which such
registration rights are being assigned; and provided, further, that such
assignment shall be effective only if immediately following such transfer the
further disposition of such securities by the transferee or assignee is
restricted under the Act. For the purposes of determining the number of shares
of Registrable Securities held by a transferee or assignee, the holdings of
transferees and assignees of a partnership who are partners or retired partners
of such partnership (including spouses and ancestors, lineal descendants and
siblings of such partners or spouses who acquire Registrable Securities by gift,
will or intestate succession) shall be aggregated together and with the
partnership; provided that all assignees and transferees who would not qualify
individually for assignment of registration rights shall have a single
attorney-in-fact for the purpose of exercising any rights, receiving notices or
taking any action under this Section 1.
1.14 Limitations on Subsequent Registration Rights. From and after the
---------------------------------------------
date of this Agreement, the Company shall not, without the prior written consent
of the Holders of a majority of the outstanding Registrable Securities, enter
into any agreement with any holder or prospective holder of any securities of
the Company which would allow such holder or prospective holder (a)
-11-
<PAGE>
to include such securities in any registration filed under Section 1.2 hereof,
unless under the terms of such agreement, such holder or prospective holder may
include such securities in any such registration only to the extent that the
inclusion of his securities will not reduce the amount of the Registrable
Securities of the Holders which is included or (b) to make a demand registration
which could result in such registration statement being declared effective prior
to the earlier of either of the dates set forth in subsection 1.2(a) or within
one hundred eighty (180) days of the effective date of any registration effected
pursuant to Section 1.2.
1.15 "Market Stand-Off" Agreement. Each Investor hereby agrees that,
---------------------------
during the period of duration specified by the Company and an underwriter of
common stock or other securities of the Company, following the effective date of
a registration statement of the Company filed under the Act, it shall not, to
the extent requested by the Company and such underwriter, directly or indirectly
sell, offer to sell, contract to sell (including, without limitation, any short
sale), grant any option to purchase or otherwise transfer or dispose of (other
than to donees who agree to be similarly bound) any securities of the Company
held by it at any time during such period except common stock included in such
registration; provided, however, that:
(a) such agreement shall be applicable only to the first such
registration statement of the Company which covers common stock (or other
securities) to be sold on its behalf to the public in an underwritten offering;
and
(b) all officers and directors of the Company and all other
persons with registration rights (whether or not pursuant to this Agreement)
enter into similar agreements.
In order to enforce the foregoing covenant, the Company may
impose stop-transfer instructions with respect to the Registrable Securities of
each Investor (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
1.16 Termination of Registration Rights. No Holder shall be entitled
----------------------------------
to exercise any right provided for in this Section 1 (i) after six (6) years
following the consummation of the sale of securities pursuant to a registration
statement filed by the Company under the Act in connection with the initial firm
commitment underwritten offering of its securities to the general public; or
(ii) to the extent any individual Holder is eligible to sell all of such
Holder's Registrable Securities pursuant to Rule 144(k).
-12-
<PAGE>
2. Covenants of the Company.
------------------------
2.1 Delivery of Financial Statements. The Company shall deliver to
--------------------------------
each Investor holding at least 750,000 shares of Series A Preferred Stock:
(a) as soon as practicable, but in any event within ninety (90)
days after the end of each fiscal year of the Company, an income statement for
such fiscal year, a balance sheet of the Company and statement of stockholder's
equity as of the end of such year, and a schedule as to the sources and
applications of funds for such year, such year-end financial reports to be in
reasonable detail, prepared in accordance with generally accepted accounting
principles ("gaap"), and audited and certified by independent public accountants
of nationally recognized standing selected by the Company;
(b) as soon as practicable, but in any event within forty-five
(45) days after the end of each of the first three (3) quarters of each fiscal
year of the Company, an unaudited profit or loss statement, schedule as to the
sources and application of funds for such fiscal quarter and an unaudited
balance sheet as of the end of such fiscal quarter.
(c) within thirty (30) days of the end of each month, an
unaudited income statement and schedule as to the sources and application of
funds and balance sheet for and as of the end of such month, in reasonable
detail;
(d) as soon as practicable, but in any event sixty (60) days
prior to the end of each fiscal year, a budget and business plan for the next
fiscal year, prepared on a monthly basis, including balance sheets and sources
and applications of funds statements for such months and, as soon as prepared,
any other budgets or revised budgets prepared by the Company. The Company's
Board of Directors shall endeavor to provide input to management on the budget
submitted such that it is approved by the Company's Board of Directors at least
thirty (30) days prior to the end of the fiscal year prior to the year for which
such budget applies;
(e) with respect to the financial statements called for in
subsections (b) and (c) of this Section 2.1, an instrument executed by the Chief
Financial Officer or President of the Company and certifying that such
financials were prepared in accordance with gaap consistently applied with prior
practice for earlier periods (with the exception of footnotes that may be
required by gaap) and fairly present the financial condition of the Company and
its results of operation for the period specified, subject to year-end audit
adjustment;
(f) such other information relating to the financial condition,
business, prospects or corporate affairs of the Company as the Investor or any
assignee of the Investor may
-13-
<PAGE>
from time to time request, provided, however, that the Company shall not be
obligated under this subsection (f) or any other subsection of Section 2.1 to
provide information which it deems in good faith to be a trade secret or similar
confidential information.
2.2 Inspection. The Company shall permit each Investor, at such
----------
Investor's expense, to visit and inspect the Company's properties, to examine
its books of account and records and to discuss the Company's affairs, finances
and accounts with its officers, all at such reasonable times as may be requested
by the Investor; provided, however, that the Company shall not be obligated
pursuant to this Section 2.2 to provide access to any information which it
reasonably considers to be a trade secret or similar confidential information.
2.3 Termination of Information and Inspection Covenants. The
---------------------------------------------------
covenants set forth in Section 2.1 and Section 2.2 shall terminate as to
Investors and be of no further force or effect when the sale of securities
pursuant to a registration statement filed by the Company under the Act in
connection with the firm commitment underwritten offering of its securities to
the general public is consummated or when the Company first becomes subject to
the periodic reporting requirements of Sections 12(g) or 15(d) of the 1934 Act,
whichever event shall first occur.
2.4 Right of First Offer. Subject to the terms and conditions
--------------------
specified in this paragraph 2.4, the Company hereby grants to each Investor a
right of first offer with respect to future sales by the Company of its Shares
(as hereinafter defined). For purposes of this Section 2.4, Investor includes
any general partners and affiliates of an Investor. An Investor shall be
entitled to apportion the right of first offer hereby granted it among itself
and its partners and affiliates in such proportions as it deems appropriate.
Each time the Company proposes to offer any shares of, or
securities convertible into or exercisable for any shares of, any class of its
capital stock ("Shares"), the Company shall first make an offering of such
Shares to each Investor in accordance with the following provisions:
(a) The Company shall deliver a notice by certified mail
("Notice") to the Investors stating (i) its bona fide intention to offer such
Shares, (ii) the number of such Shares to be offered, and (iii) the price and
terms, if any, upon which it proposes to offer such Shares.
(b) Within 20 calendar days after receipt of the Notice, the
Investor may elect to purchase or obtain, at the price and on the terms
specified in the Notice, up to that portion of such Shares which equals the
proportion that the number of shares of common stock issued and held, or
issuable
-14-
<PAGE>
upon conversion of the Series A Preferred Stock then held, by such Investor
bears to the total number of shares of common stock of the Company then
outstanding (assuming full conversion of all convertible securities). The
Company shall promptly, in writing, inform each Investor which purchases all the
shares available to it ("Fully-Exercising Investor") of any other Investor's
failure to do likewise. During the ten-day period commencing after receipt of
such information each Fully-Exercising Investor shall be entitled to obtain that
portion of the Shares not subscribed for by the Investors which is equal to the
proportion that the number of shares of common stock issued and held, or
issuable upon conversion of Series A Preferred Stock then held, by such Fully-
Exercising Investor bears to the total number of shares of common stock issued
and held, or issuable upon conversion of the Series A Preferred Stock then held,
by all Fully-Exercising Investors who wish to purchase some of the unsubscribed
shares.
(c) If all Shares which Investors are entitled to obtain pursuant
to subsection 2.4(b) are not elected to be obtained as provided in subsection
2.4(b) hereof, the Company may, during the 30-day period following the
expiration of the period provided in subsection 2.4(b) hereof, offer the
remaining unsubscribed portion of such Shares to any person or persons at a
price not less than, and upon terms no more favorable to the offeree than those
specified in the Notice. If the Company does not enter into an agreement for the
sale of the Shares within such period, or if such agreement is not consummated
within 30 days of the execution thereof, the right provided hereunder shall be
deemed to be revived and such Shares shall not be offered unless first reoffered
to the Investors in accordance herewith.
(d) The right of first offer in this paragraph 2.4 shall not be
applicable (i) to the issuance or sale of shares of common stock (or options
therefor) to employees, consultants, directors or officers for the primary
purpose of soliciting or retaining their employment or service when the total
number of shares of Common Stock so issued (and not repurchased at cost by the
Company in connection with the termination of employment or service), does not
exceed 4,000,000 (subject to appropriate adjustment for stock splits, stock
dividends, combinations or other recapitalizations) since the date of the
Company's incorporation, or (ii) to or after consummation of a bona fide, firmly
underwritten public offering of shares of common stock, registered under the Act
pursuant to a registration statement on Form S-1, (iii) the issuance of
securities pursuant to the conversion or exercise of convertible or exercisable
securities, or (iv) the issuance of securities in connection with a bona fide
business acquisition of or by the Company, whether by merger, consolidation,
sale of assets, sale or exchange of stock or otherwise.
2.5 Key-Person Insurance. The Company shall obtain and maintain in
--------------------
full force and effect from the date of Closing until all of the shares of Series
A Preferred Stock have been
-15-
<PAGE>
redeemed by the Company or have been converted into shares of Common Stock of
the Company, term life insurance in the amount of $1,000,000 on the life of Mark
Floyd and $3,000,000 on the life of Chase Bailey, with proceeds payable to the
Company.
2.6 Management Stock.
----------------
(a) Employee Reserve. An initial pool of 4,000,000 shares of the
----------------
Company's Common Stock (taking into account the issuance of all shares of Common
Stock or options therefor since the date of the Company's incorporation) shall
be reserved for purchase or incentive grants to employees, consultants,
directors or officers under those stock purchase or stock option plans or other
arrangements as determined in the discretion of the Company's Chief Executive
Officer and Chief Technical Officer, subject to approval by the Board of
Directors ("Employee Reserve").
(b) Vesting. The shares or options issued from the employee
-------
reserve provided for in Section 2.6 shall generally vest in equal monthly
installments over the forty-eight (48) months following the grant or issuance of
such shares or options, subject to a one year cliff period. Shares initially
issued to Mark Floyd and Chase Bailey shall not be subject to the one year cliff
period, but shall be subject to the forty-eight month vesting schedule.
(c) Right of First Refusal and Co-Sale Agreement. The Company
--------------------------------------------
shall require, all common stockholders and option holders as of the Closing of
the issuance of Series A Preferred Stock under the Series A Agreement to enter
into a Right of First Refusal and Co-Sale Agreement as a condition to such
issuance or grant, and the Company shall require future common stockholders and
option holders as determined by the Company's Board of Directors to enter into a
Right of First Refusal and Co-Sale Agreement.
2.7 Election of Directors; Board Meeting Expenses; Indemnities.
----------------------------------------------------------
(a) The Company agrees to take all reasonable actions required to
ensure that any person who is nominated for the directorships to which directors
are to be elected by the holders of Common Stock and the holders of Series A
Preferred Stock voting together will first be approved for such nomination by
both the board representatives of the Series A Preferred Stock and the board
representatives of the Common Stock. The Company will not avoid or seek to avoid
the observance or performance of any of the terms to be performed by the Company
under this paragraph, and will at all times in good faith assist in the carrying
out of all of the provisions.
(b) The out-of-pocket expenses incurred by the Company's outside
directors in attending Board meetings
-16-
<PAGE>
(including, without limitation, airfare, hotel, rental car, and meals) shall be
reimbursed by the Company.
(c) The Company shall take all actions necessary to indemnify its
directors to the maximum extent permitted by applicable law, including, without
limitation, amending the Company's Certificate of Incorporation and Bylaws and
entering into contracts with the directors to provide such indemnification;
provided, however, that the Company shall not be required to obtain directors
and officers insurance unless authorized by the Board of Directors.
(d) The Bylaws of the Company shall provide that the Board of
Directors of the Company shall consist of five (5) persons which number shall
not be changed by an Amendment to the Certificate of Incorporation or the Bylaws
without the consent of at least four out of the five directors of the Company's
Board of Directors.
2.8 Use of Proceeds. Proceeds received at the Closing shall be used
---------------
exclusively to fund the working capital requirements of the Company.
2.9 Salaries of Officers. The position, title and salary of the
--------------------
Company's officers shall be subject to the approval by the Board of Directors.
2.10 Payment of Dividends. The Company shall declare dividends on the
--------------------
Series A Preferred Stock in the full preferential amount each year in which the
Company makes a profit sharing payment to its management or employees. The
compensation committee of the Board of Directors may approve bonuses for
management or employees which are outside any existing or future profit sharing
plan, and such bonus payments shall not constitute a profit sharing payment
which triggers a dividend on the Series A Preferred Stock. Notwithstanding the
foregoing, the Company's Board of Directors may in its discretion declare and
pay dividends on the Series A Preferred Stock in accordance with applicable law.
2.11 Termination of Certain Covenants. The covenants set forth in
--------------------------------
Section 2.4 shall terminate and be of no further force or effect upon the
consummation of the sale of securities pursuant to a registration statement
filed by the Company under the Act in connection with the firm commitment
underwritten offering of its securities to the general public.
3. Miscellaneous.
-------------
3.1 Successors and Assigns. Except as otherwise provided herein, the
----------------------
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of any shares of Registrable Securities). Nothing in this
-17-
<PAGE>
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
3.2 Governing Law. This Agreement shall be governed by and construed under
-------------
the laws of the State of California as applied to agreements among California
residents entered into and to be performed entirely within California.
3.3 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. It is expressly
contemplated by the parties to this Agreement that purchaser(s) of shares of the
Company's Series A Preferred Stock pursuant to the Series A Agreement in
closings subsequent to the date of this Agreement shall execute and deliver
counterparts to this Agreement and shall automatically become a party to this
Agreement and shall be included in the definition of "Investor" for purposes of
this Agreement.
3.4 Titles and Subtitles. The titles and subtitles used in this Agreement
--------------------
are used for convenience only and are not to be considered in construing or
interpreting this Agreement.
3.5 Notices. Unless otherwise provided, any notice required or permitted
-------
under this Agreement shall be given in writing and shall be deemed effectively
given upon personal delivery to the party to be notified or upon deposit with
the United States Post Office, by registered or certified mail, postage prepaid
and addressed to the party to be notified at the address indicated for such
party on the signature page hereof, or at such other address as such party may
designate by ten (10) days' advance written notice to the other parties.
3.6 Expenses. If any action at law or in equity is necessary to enforce or
--------
interpret the terms of this Agreement, the prevailing party shall be entitled to
reasonable attorneys' fees, costs and necessary disbursements in addition to any
other relief to which such party may be entitled.
3.7 Amendments and Waivers. Any term of this Agreement may be amended and
----------------------
the observance of any term of this Agreement may be waived (either generally or
in a particular instance and either retroactively or prospectively), only with
the written consent of the Company and the holders of a majority of the
Registrable Securities then outstanding. Any amendment or waiver effected in
accordance with this paragraph shall be binding upon each holder of any
Registrable Securities then outstanding, each future holder of all such
Registrable Securities, and the Company.
-18-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
EFFICIENT NETWORKS, INC., a
Delaware corporation
By: /s/ M. A. Floyd
---------------
----------------
Address: 717 N Haguard #1400
Dallas, TX 75201
INVESTORS:
CROSSPOINT VENTURE PARTNERS 1993
By: /s/ Signature Illegible
-------------------------
General Partner
Address: 18552 MacArthur Blvd.
Suite 400
Irvine, California 92715
CROSSPOINT 1993 ENTERPRENEURS FUND
By: /s/ Signature Illegible
-----------------------
General Partner
Address: 18552 MacArthur Blvd.
Suite 400
Irvine, CA 92715
ENTERPRISE PARTNERS II, L.P.
By: Enterprise Management Partners
II, L.P., Its General Partner
By: /s/ Signature Illegible
-----------------------
General Partner
Address: 12011 San Vicente Blvd.
Suite 330
Los Angeles, CA 90049
-19-
<PAGE>
ENTERPRISE PARTNERS II ASSOCIATES,
L.P.
By: Enterprise Management Partners
II, L.P., Its General Partner
By: /s/ Signature Illegible
-----------------------
General Partner
Address: 12011 San Vicente Blvd.
Suite 330
Los Angeles, CA 90049
OCEAN PARK VENTURES, L.P.
By: /s/ Signature Illegible
-----------------------
General Partner
Address: 12011 San Vicente Blvd.
Suite 330
Los Angeles, CA 90049
EL DORADO VENTURES III, L.P.
By: El Dorado Venture Partners
III, Its General Partner
By: /s/ Signature Illegible
-----------------------
General Partner
Address: 800 East Colorado Blvd.,
Suite 530
Pasadena, CA 91101
[SIGNATURE PAGE TO INVESTOR'S RIGHTS AGREEMENT]
<PAGE>
EL DORADO C & L FUND, L.P.
By: El Dorado Venture Partners
III, Its General Partner
By: /s/ Signature Illegible
-----------------------
General Partner
Address: 800 East Colorado Blvd.,
Suite 530
Pasadena, CA 91101
EL DORADO TECHNOLOGY IV, L.P.,
a California Limited Partnership
By: El Dorado Venture Partners
III, Its General Partner
By: /s/ Signature Illegible
-----------------------
General Partner
Address: 800 East Colorado Blvd.,
Suite 530
Pasadena, CA 91101
[SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT]
-22-
<PAGE>
SCHEDULE A
SCHEDULE OF INVESTORS
Crosspoint Venture Partners 1993
18551 MacArthur Blvd., Ste 400
Irvine, CA 92715
Crosspoint 1993 Entrepreneurs Fund
18551 MacArthur Blvd., Ste 400
Irvine, CA 92715
Enterprise Partners II, L.P.
12011 San Vicente Blvd., Suite 330
Los Angeles, CA 90049
Enterprise Partners II Associates, L.P.
12011 San Vicente Blvd., Suite 330
Los Angeles, CA 90049
Ocean Park Ventures, L.P.
12011 San Vicente Blvd., Suite 330
Los Angeles, CA 90049
El Dorado Ventures III, L.P.
800 East Colorado Blvd., Suite 530
Pasadena, CA 91101
El Dorado C&L Fund, L.P.
800 East Colorado Blvd., Suite 530
Pasadena, CA 91101
El Dorado Technology IV, L.P.
800 East Colorado Blvd., Suite 530
Pasadena, CA 91101
A-1
<PAGE>
EXHIBIT 10.5
EFFICIENT NETWORKS, INC.
AMENDMENT NO. 1 TO THE INVESTORS' RIGHTS AGREEMENT
This Amendment No. 1 ("Amendment") to the Investors' Rights Agreement dated
as of July 30, 1993 (the "Agreement") is made as of this 9th day of February,
1994 by and among Efficient Networks, Inc., a Delaware corporation (the
"Company"), each of the individuals and entities listed on Schedule A to the
Agreement (the "Existing Investors") and Adaptec, Inc., a California corporation
(the "Series B Investor"). Capitalized terms used herein which are not defined
herein shall have the definition ascribed to them in the Agreement.
RECITALS
--------
A. The Company desires to sell and issue to the Series B Investor, and
the Series B Investor desires to purchase from the Company, 522,848 shares of
the Company's Series B Preferred Stock pursuant to the Series B Preferred Stock
Purchase Agreement dated of even date herewith (the "Series B Agreement").
B. The Existing Investors desire for the Series B Investor to invest in
the Company and, as a condition thereof and to induce such investment, the
Existing Investors are willing to enter into this Amendment to permit the Series
B Investor to become a party to the Agreement, as amended.
In consideration of the foregoing and the promises and covenants contained
herein and other good and valuable consideration the receipt of which is hereby
acknowledged, the parties hereto agree as follows:
1. ADDITIONAL PARTY TO THE AGREEMENT.
----------------------------------
The Series B Investor hereby enters into and becomes a party to the
Agreement. Schedule A to the Agreement is amended to include the Series B
----------
Investor.
2. AMENDMENTS TO AGREEMENT.
------------------------
2.1 The Series B Investor and the Existing Investors are collectively
referred to as "Investors" for the purposes of the Agreement, as amended.
2.2 Sections 1.1(c) of the Agreement is amended in its entirety to read as
follows:
"(c) The term "Registrable Securities" means (1) the Common Stock
issuable or issued upon conversion of the Series A Preferred Stock and
Series B Preferred Stock, and (2) any Common Stock of the Company issued as
(or issuable upon the conversion or exercise of any warrant, right or other
security
<PAGE>
which is issued as) a dividend or other distribution with respect to, or in
exchange for or in replacement of, such Series A Preferred Stock, Series B
Preferred Stock or Common Stock, excluding in all cases, however, any
Registrable Securities sold by a person in a transaction in which his rights
under this Section 1 are not assigned;"
2.3 The first sentence of Section 2.1 of the Agreement is amended in its
entirety to read as follows:
"2.1 Delivery of Financial Statements. The Company shall deliver to
each Investor holding at least 750,000 shares of Series A Preferred Stock or
375,000 shares of Series B Preferred Stock:"
2.4 All references to "Series A Preferred Stock" in Sections 2.4, 2.7 and
2.10 shall be deemed to include and make reference to the Series B Preferred
Stock sold to the Series B Investor pursuant to the Series B Agreement.
2.5 Section 3.7 of the Agreement is amended in its entirety to read as
follows:
"3.7 Amendment and Waivers. Any term of the Agreement, as amended, may
be amended or waived (either generally or in a particular instance and
either retroactively or prospectively), only with the written consent of
the Company, and the holders of a majority of Registrable Securities then
outstanding; provided, that the effect of such amendment or waiver will be
that all Investors and permitted transferees will be treated equally.
Subject to the foregoing, any amendment or waiver effected in accordance
with this paragraph shall be binding upon each holder of any Registrable
Securities then outstanding, each future holder of all such Registrable
Securities, and the Company.
3. WAIVER AND CONSENT.
------------------
Each Existing Investor, pursuant to any rights such Existing Investor may
have under the Agreement, hereby, on behalf of himself and the other Investors
under the Agreement, (a) waives all rights under, and any notice required by,
Section 3 of the Agreement relating to any rights to purchase or rights of first
refusal with respect to the sale of the shares of Series B Preferred Stock, (b)
consents to adding as a party to the Agreement the Series B Investor, (b)
consents to the amendment to the Agreement set forth in this Amendment and (c)
consents to the registration rights hereby provided the Series B Investor, which
consent is given pursuant to Section 1.14 of the Agreement.
-2-
<PAGE>
4. EFFECT OF AMENDMENT.
--------------------
Except as amended as set forth above, the Agreement shall continue in full
force and effect.
5. COUNTERPARTS.
-------------
This Amendment may be executed in any number of counterparts, all of which
together shall constitute one instrument, and each of which may be executed by
less than all of the Investors, each of which shall be enforceable against the
Company and all Investors once this Agreement has been executed by the Company,
Existing Investors holding a majority of the shares listed on Schedule A to the
Agreement and the Series B Investor.
6. SEVERABILITY.
-------------
If one or more provisions of this Amendment are held to be unenforceable
under applicable law, such provision shall be excluded from this Amendment and
the balance of the Amendment shall be interpreted as if such provision were so
excluded and shall be enforceable in accordance with its terms.
7. ENTIRE AGREEMENT.
-----------------
This Amendment, together with the Agreement, constitutes the full and
entire understanding and agreement between the parties with regard to the
subjects hereof and thereof.
8. GOVERNING LAW.
-------------
This Amendment shall be governed by and construed under the laws of the
State of California as applied to agreements among California residents entered
into and to be performed entirely within California.
This Amendment is hereby executed as of the date first above written.
EFFICIENT NETWORKS, INC.,
a Delaware corporation
By: /s/ Mark A. Floyd
----------------------
Title: President
---------
Address: 4201 Spring Valley Rd.,
Suite 1200
Dallas, Texas 75244 - 3666
-3-
<PAGE>
EXHIBIT 10.6
EFFICIENT NETWORKS, INC.
AMENDMENT NO. 2 TO THE INVESTORS' RIGHTS AGREEMENT
This Amendment No. 2 ("Amendment") to the Investors' Rights Agreement dated
as of July 30, 1993, as previously amended by Amendment No. 1 thereto dated
February 9, 1994 (together the "Agreement") is made as of this 30th day of
September, 1994 by and among Efficient Networks, Inc., a Delaware corporation
(the "Company"), each of the individuals and entities listed on Schedule A to
the Agreement, as amended (the Existing Investors") and the investors listed on
Schedule A hereto (the "Series C Investors"). Capitalized terms used herein
which are not defined herein shall have the definition ascribed to them in the
Agreement.
RECITALS
--------
A. The Company desires to sell and issue to the Series C Investors, and
the Series C Investors desire to purchase from the Company, 5,858,332 shares of
the Company's Series C Preferred Stock pursuant to the Series C Preferred Stock
Purchase Agreement dated of even date herewith (the "Series C Agreement").
B. The Existing Investors desire for the Series C Investors to invest in
the Company and, as a condition thereof and to induce such investment, the
Existing Investors are willing to enter into this Amendment to permit the Series
C Investors to become parties to the Agreement, as amended.
In consideration of the foregoing and the promises and covenants contained
herein and other good and valuable consideration the receipt of which is hereby
acknowledged, the parties hereto agree as follows:
1. ADDITIONAL PARTIES TO THE AGREEMENT.
-----------------------------------
The Series C Investors hereby enter into and become parties to the
Agreement. Schedule A to the Agreement is amended to include the Series C
Investors.
2. AMENDMENTS TO AGREEMENT.
-----------------------
2.1 The Series C Investors and the Existing Investors are collectively
referred to as "Investors" for the purposes of the Agreement, as amended.
2.2 Section 1.1(c) of the Agreement is amended in its entirety to read as
follows:
"(c) The term "Registrable Securities" means (1) the Common Stock
issuable or issued upon conversion of the
<PAGE>
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock and (2) any Common Stock of the Company issued as (or issuable upon
the conversion or exercise of any warrant, right or other security which is
issued as) a dividend or other distribution with respect to, or in exchange
for or in replacement of, such Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock or Common Stock, excluding in all cases,
however, any Registrable Securities sold by a person in a transaction in
which his rights under this Section 1 are not assigned;"
2.3 The first sentence of Section 2.1 of the Agreement is amended in its
entirety to read as follows:
"2.1 Delivery of Financial Statements. The Company shall deliver to
each Investor holding at least 750,000 shares of Series A Preferred Stock
or 375,000 shares of Series B Preferred Stock or 250,000 shares of Series C
Preferred Stock:"
2.4 All references to "Series A Preferred Stock" in Sections 2.4, 2.7 and
2.10 shall be deemed to include and make reference to the Series B Preferred
Stock and to the Series C Preferred Stock sold to the Series C Investors
pursuant to the Series C Agreement.
3. WAIVER AND CONSENT.
------------------
Each Existing Investor, pursuant to any rights such Existing Investor
may have under the Agreement, hereby, on behalf of himself and the other
Investors under the Agreement, (a) waives all rights under, and any notice
required by, Section 3 of the Agreement relating to any rights to purchase or
rights of first refusal with respect to the sale of the shares of Series C
Preferred Stock, (b) consents to adding as parties to the Agreement the Series C
Investors, and (c) consents to the registration rights hereby provided the
Series C Investors, which consent is given pursuant to Section 1.14 of the
Agreement.
4. EFFECT OF AMENDMENT.
-------------------
Except as amended and set forth above, the Agreement shall continue in full
force and effect.
5. COUNTERPARTS.
------------
This Amendment may be executed in any number of counterparts, each which
will be deemed an original, and all of which together shall constitute one
instrument.
-2-
<PAGE>
6. SEVERABILITY.
------------
If one or more provisions of this Amendment are held to be unenforceable
under applicable law, such provisions shall be excluded from this Amendment and
the balance of the Amendment shall be interpreted as if such provision were so
excluded and shall be enforceable in accordance with its terms.
7. ENTIRE AGREEMENT.
----------------
This Amendment, together with the Agreement, constitutes the full and
entire understanding and agreement between the parties with regard to the
subjects hereof and thereof.
8. GOVERNING LAW.
-------------
This Amendment shall be governed by and construed under the laws of the
State of California as applied to agreements among California residents entered
into and to be performed entirely within California.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-3-
<PAGE>
This Amendment is hereby executed as of the date first above written.
EFFICIENT NETWORKS, INC., a Delaware
corporation
By: /s/ M. A. Floyd
-------------------------------
Title:
-------------------------
Address: 4201 Spring Valley Road
Suite 1200
Dallas, TX 75244
EXISTING INVESTORS: CROSSPOINT VENTURE PARTNERS 1993
- ------------------
By: /s/ Robert Hoff
-------------------------------
General Partner
Address: 18552 MacArthur Blvd., Suite 400
Irvine, CA 92715
CROSSPOINT 1993 ENTREPRENEURS
FUND
By: /s/ Robert Hoff
--------------------------------
General Partner
Address: 18552 MacArthur Blvd., Suite 400
Irvine, CA 92715
[SIGNATURE PAGE TO AMENDMENT NO. 2 TO THE
INVESTORS' RIGHTS AGREEMENT]
<PAGE>
ENTERPRISE PARTNERS II L.P.
By: Enterprise Management Partners II,
L.P., Its General Partner
By: /s/ Jim Gauer
-----------------------------
General Partner
Address: 12011 San Vicente Blvd.,
Suite 330
Los Angeles, CA 90049
ENTERPRISE PARTNERS II ASSOCIATES,
L.P.
By: Enterprise Management Partners II,
L.P., Its General Partner
By: /s/ Jim Gauer
-----------------------------
General Partner
Address: 12011 San Vicente Blvd.,
Suite 330
Los Angeles, CA 90049
OCEAN PARK VENTURES, L.P.
By: /s/ Jim Gauer
-----------------------------
General Partner
Address: 12011 San Vicente Blvd.,
Suite 330
Los Angeles, CA 90049
[SIGNATURE PAGE TO AMENDMENT NO. 2 TO THE
INVESTORS' RIGHTS AGREEMENT]
<PAGE>
EL DORADO VENTURES III, L.P.
By: El Dorado Venture Partners III,
Its General Partner
By: /s/ Thomas H. Peterson
------------------------------
General Partner
Address: 800 East Colorado Blvd.,
Suite 530
Pasadena, CA 91101
EL DORADO C & L FUND, L.P.
By: El Dorado Venture Partners III,
Its General Partner
By: /s/ Thomas H. Peterson
------------------------------
General Partner
Address: 800 East Colorado Blvd.,
Suite 530
Pasadena, CA 91101
EL DORADO TECHNOLOGY IV, L.P., a
California Limited Partnership
By: El Dorado Venture Partners III,
Its General Partner
By: /s/ Thomas H. Peterson
------------------------------
General Partner
Address: 800 East Colorado Blvd.,
Suite 530
Pasadena, CA 91101
[SIGNATURE PAGE TO AMENDMENT NO. 2 TO THE
INVESTORS' RIGHTS AGREEMENT]
<PAGE>
ADAPTEC, INC., a California corporation
By: /s/ Signature Illegible
-----------------------
Title: Vice President & Treasurer
Address: 691 S. Milpitas Boulevard
Milpitas, CA 95035
SERIES C INVESTORS: CROSSPOINT VENTURE PARTNERS 1993
- ------------------
By: /s/ Robert Hoff
-----------------------
General Partner
Address: 18552 MacArthur Blvd., Suite 400
Irvine, CA 92715
CROSSPOINT 1993 ENTREPRENEURS
FUND
By: /s/ Robert Hoff
----------------------------
General Partner
Address: 18552 MacArthur Blvd., Suite 400
Irvine, CA 92715
ENTERPRISE PARTNERS II L.P.
By: Enterprise Management Partners II,
L.P., Its General Partner
By: /s/ Jim Gauer
------------------------
General Partner
Address: 12011 San Vicente Blvd.,
Suite 330
Los Angeles, CA 90049
[SIGNATURE PAGE TO AMENDMENT NO. 2 TO THE
INVESTORS' RIGHTS AGREEMENT]
-7-
<PAGE>
ENTERPRISE PARTNERS II ASSOCIATES,
L.P.
By: Enterprise Management Partners II,
L.P., Its General Partner
By: /s/ Jim Gauer
-----------------------
General Partner
Address: 12011 San Vicente Blvd.,
Suite 330
Los Angeles, CA 90049
OCEAN PARK VENTURES, L.P.
By: /s/ Jim Gauer
----------------------------
General Partner
Address: 12011 San Vicente Blvd.,
Suite 330
Los Angeles, CA 90049
EL DORADO VENTURES III, L.P.
By: El Dorado Venture Partners III,
Its General Partner
By: /s/ Thomas H. Peterson
-----------------------
General Partner
Address: 800 East Colorado Blvd.,
Suite 530
Pasadena, CA 91101
[SIGNATURE PAGE TO AMENDMENT NO. 2 TO THE
INVESTORS' RIGHTS AGREEMENT]
<PAGE>
EL DORADO C & L FUND, L.P.
By: El Dorado Venture Partners III,
Its General Partner
By: /s/ Thomas H. Peterson
-----------------------
General Partner
Address: 800 East Colorado Blvd.,
Suite 530
Pasadena, CA 91101
EL DORADO TECHNOLOGY IV, L.P., a
California Limited Partnership
By: El Dorado Venture Partners III,
Its General Partner
By: /s/ Thomas H. Peterson
-----------------------
General Partner
Address: 800 East Colorado Blvd.,
Suite 530
Pasadena, CA 91101
MENLO VENTURES VI, L.P.
By: MV Management VI, L.P.
By: /s/ Signature Illegible
-----------------------
General Partner
Address: 3000 Sand Hill Road
Bldg. 4, Suite 100
Menlo Park, CA 94025
[SIGNATURE PAGE TO AMENDMENT NO. 2 TO THE
INVESTORS' RIGHTS AGREEMENT]
<PAGE>
MENLO ENTREPRENEURS FUND VI, L.P.
By: MV Management VI, L.P.
its General Partner
By: /s/ Signature Illegible
-----------------------
General Partner
Address: 3000 Sand Hill Road
Bldg. 4, Suite 100
Menlo Park, CA 94025
[SIGNATURE PAGE TO AMENDMENT NO. 2 TO THE
INVESTORS' RIGHTS AGREEMENT]
<PAGE>
SCHEDULE A
SCHEDULE OF INVESTORS
Name and Address
----------------
Crosspoint Venture Partners 1993
18551 MacArthur Blvd., Suite 400
Irvine, CA 92715
Crosspoint 1993 Entrepreneurs Fund
18552 MacArthur Blvd., Ste. 400
Irvine, CA 92715
Enterprise Partners II, L.P.
12011 San Vicente Blvd., Suite 330
Los Angeles, CA 90049
Enterprise Partners II Associates, L.P.
12011 San Vicente Blvd., Suit 330
Los Angeles, CA 90049
Ocean Park Ventures, L.P.
12011 San Vicente Blvd., Suite 330
Los Angeles, CA 90049
El Dorado Ventures III, L.P.
800 East Colorado Blvd., Suite 530
Pasadena, CA 91101
El Dorado C & L Fund, L.P.
800 East Colorado Blvd., Suite 530
Pasadena, CA 91101
El Dorado Technology IV, L.P.
800 East Colorado Blvd., Suite 530
Pasadena, CA 91101
Menlo Ventures VI, L.P.
3000 Sand Hill Road
Bldg. 4, Suite 400
Menlo Park, CA 94025
Menlo Entrepreneurs Fund VI, L.P.
3000 Sand Hill Road
Bldg. 4, Suite 400
Menlo Park, CA 94025
<PAGE>
EXHIBIT 10.7
EFFICIENT NETWORKS, INC.
AMENDMENT NO. 3 TO THE INVESTORS' RIGHTS AGREEMENT
This Amendment No. 3 ("Amendment") to the Investors' Rights Agreement dated
as of July 30, 1993, as previously amended by Amendments No. 1 and 2 thereto
dated February 9, 1994 and September 30, 1994, respectively (together the
"Agreement"), is made as of this 1st day of September, 1995 by and among
Efficient Networks, Inc., a Delaware corporation (the "Company"), each of the
individuals and entities listed on Schedule A hereto (the "Existing Investors")
----------
and Texas Instruments Incorporated (the "Series D Investor"). Capitalized terms
used herein which are not defined herein shall have the definition ascribed to
them in the Agreement.
RECITALS
--------
A. The Company desires to sell and issue to the Series D Investor, and the
Series D Investor desires to purchase from the Company, 2,473,644 shares of the
Company's Series D Preferred Stock pursuant to the Series D Preferred Stock
Purchase Agreement dated of even date herewith (the "Series D Agreement").
B. The Existing Investors desire for the Series D Investor to invest in
the Company and, as a condition thereof and to induce such investment, the
Existing Investors are willing to enter into this Amendment to permit the Series
D Investor to become a party to the Agreement, as amended.
In consideration of the foregoing and the promises and covenants contained
herein and other good and valuable consideration the receipt of which is hereby
acknowledged, the parties hereto agree as follows:
1. ADDITIONAL PARTY TO THE AGREEMENT.
---------------------------------
The Series D Investor hereby enters into and becomes a party to the
Agreement. Schedule A to the Agreement is amended to include the Series D
----------
Investor.
2. AMENDMENTS TO AGREEMENT.
-----------------------
2.1 The Series D Investor and the Existing Investors are collectively
referred to as "Investors" for the purposes of the Agreement, as amended.
2.2 Section 1.1(c) of the Agreement is amended in its entirety to read as
follows:
"(c) The term "Registrable Securities" means (1) the Common Stock
<PAGE>
issuable or issued upon conversion of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock and (2)
any Common Stock of the Company issued as (or issuable upon the conversion or
exercise of any warrant, right or other security which is issued as) a dividend
or other distribution with respect to, or in exchange for or in replacement of,
such Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock or Common Stock, excluding in all cases,
however, any Registrable Securities sold by a person in a transaction in which
his rights under this Section 1 are not assigned;"
2.3 The first sentence of Section 2.1 of the Agreement is amended in its
entirety to read as follows:
"2.1 Delivery of Financial Statements. The Company shall deliver to
--------------------------------
each Investor holding at least 750,000 shares of Series A Preferred Stock,
375,000 shares of Series B Preferred Stock, 250,000 shares of Series C
Preferred Stock or 250,000 shares of Series D Preferred Stock;"
2.4 Section 2.7 of the Agreement is amended by adding subsections (e), (f)
and (g) thereto to read as follows:
"(e) The Series D Investor shall be entitled to designate one
representative to attend meetings of the Company's board of directors as an
observer (the "Observer"). The Company will send notice of each board
meeting to the Observer at such times as notice is sent to the members of
the board of directors. The Observer will be entitled to participate in
discussions by the board of directors on technical, business, strategic and
other matters, and to receive copies of all minutes of such board of
directors meetings. Notwithstanding the foregoing, the Company may exclude
such designee from any and all meetings (or portions thereof) during which
proprietary information of the Company is being discussed, the disclosure
of which to potential customers or competitors would be materially adverse
to the Company. The minutes of any such board of directors meeting
provided to the Observer may be edited to delete such excluded subject
matter. The Observer designated hereunder shall be acting in the interest
of the Series D Investor and shall not have a fiduciary duty to the Company
or its stockholders, shall not be entitled to be compensated by the Company
and shall not have the right to vote on any matters determined by the
Company's board of directors. The Series D Investor may at any time, by
notice to the Company, change its designee to serve as the Observer
hereunder.
(f) Whether or not the Series D Investor has designated an Observer
pursuant to the provisions of subsection (e) above, the Series D
2
<PAGE>
Investor shall be entitled to written notice of any proposals for a merger
or other change of control of the Company or a sale of a material portion
of the assets of the Company.
(g) In the event the Company enters into any agreement providing for
the acquisition of the Company by merger, sale of assets or otherwise in a
negotiated transaction approved by the Board of Directors of the Company
and the holders of a majority of the Common Stock issued or issuable upon
the conversion of the Preferred Stock at such time, then if such agreement
provides, as a condition to closing, that the transaction shall be
accounted for as a pooling of interests under generally accepted accounting
principles, all holders of Preferred Stock shall refrain from exercising
any rights of appraisal or taking any other action (except as to voting)
which would jeopardize such accounting treatment. This subsection (g) shall
terminate and be of no further force or effect immediately upon the
consummation of the Company's sale of its Common Stock in a bona fide, firm
commitment underwriting pursuant to a registration statement on Form S-1
under the Securities Act of 1933 which results in aggregate gross cash
proceeds to the Company in excess of $10.0 million and the initial public
offering price of which is not less than $5.00 per share (adjusted to
reflect subsequent stock dividends, stock splits or recapitalizations),
other than a registration statement relating either to the sale of
securities to employees of the Company pursuant to a stock option, stock
purchase or similar plan or a transaction governed by Rule 145 promulgated
under the Securities Act of 1933."
2.5 All references to "Series A Preferred Stock" in Sections 2.4, 2.7 and
2.10 shall be deemed to include and make reference to the Series B Preferred
Stock, Series C Preferred Stock and Series D Preferred Stock.
3. WAIVER AND CONSENT.
------------------
Each Existing Investor, pursuant to any rights such Existing Investor may
have under the Agreement, hereby, on behalf of himself and the other Investors
under the Agreement, (a) waives all rights under, and any notice required by,
Section 3 of the Agreement relating to any rights to purchase or rights of first
refusal with respect to the sale of the shares of Series D Preferred Stock, (b)
consents to adding as a party to the Agreement the Series D Investor, and (c)
consents to the registration rights hereby provided the Series D Investor, which
consent is given pursuant to Section 1.14 of the Agreement.
4. EFFECT OF AMENDMENT.
-------------------
Except as amended and set forth above, the Agreement shall continue in full
force and effect.
3
<PAGE>
5. COUNTERPARTS.
------------
This Amendment may be executed in any number of counterparts, each which
will be deemed an original, and all of which together shall constitute one
instrument.
6. SEVERABILITY.
------------
If one or more provisions of this Amendment are held to be unenforceable
under applicable law, such provision shall be excluded from this Amendment and
the balance of the Amendment shall be interpreted as if such provision were so
excluded and shall be enforceable in accordance with its terms.
7. ENTIRE AGREEMENT.
----------------
This Amendment, together with the Agreement, constitutes the full and
entire understanding and agreement between the parties with regard to the
subjects hereof and thereof.
[signatures on following page]
4
<PAGE>
8. GOVERNING LAW.
-------------
This Amendment shall be governed by and construed under the laws of the
State of Texas.
This Amendment is hereby executed as of the date first above written.
EFFICIENT NETWORKS, INC., a Delaware corporation
By:
-----------------------------------------------
Mark A. Floyd, President
Address: 4201 Spring Valley Road
Suite 1200
Dallas, Texas 75244
EXISTING INVESTORS: CROSSPOINT VENTURE PARTNERS 1993
- ------------------
By:
-----------------------------------------------
General Partner
Address: 18552 MacArthur Blvd., Ste. 400
Irvine, California 92715
CROSSPOINT 1993 ENTREPRENEURS FUND
By:
-----------------------------------------------
General Partner
Address: 18552 MacArthur Blvd., Ste. 400
Irvine, California 92715
5
<PAGE>
ENTERPRISE PARTNERS II L.P.
By: Enterprise Management Partners II, L.P.,
Its General Partner
By:
-----------------------------------------
General Partner
Address: 12011 San Vicente Boulevard
Suite 330
Los Angeles, California 90049
ENTERPRISE PARTNERS II ASSOCIATES, L.P.
By: Enterprise Management Partners II, L.P., Its
General Partner
By:
-----------------------------------------
General Partner
Address: 12011 San Vicente Boulevard
Suite 330
Los Angeles, California 90049
OCEAN PARK VENTURES, L.P.
By:
-----------------------------------------
General Partner
Address: 12011 San Vicente Boulevard
Suite 330
Los Angeles, California 90049
6
<PAGE>
EL DORADO VENTURES III, L.P.
By: El Dorado Venture Partners III, Its General
Partner
By:
-----------------------------------------
General Partner
Address: 800 East Colorado Boulevard
Suite 530
Pasadena, California 91101
EL DORADO C & L FUND, L.P.
By: El Dorado Venture Partners III, Its General
Partner
By:
-----------------------------------------
General Partner
Address: 800 East Colorado Boulevard
Suite 530
Pasadena, California 91101
EL DORADO TECHNOLOGY IV, L.P., a California
Limited Partnership
By: El Dorado Venture Partners III, Its General
Partner
By:
-----------------------------------------
General Partner
Address: 800 East Colorado Boulevard
Suite 530
Pasadena, California 91101
MENLO VENTURES VI, L.P.
7
<PAGE>
By: MV Management VI, L.P.
By:
-----------------------------------------
General Partner
Address: 3000 Sand Hill Road
Building 4, Suite 100
Menlo Park, California 94025
MENLO ENTREPRENEURS FUND VI, L.P.
By: MV Management VI, L.P., Its General
Partner
By:
-----------------------------------------
General Partner
Address: 3000 Sand Hill Road
Building 4, Suite 100
Menlo Park, California 94025
C.D. TECHNICOM S.A.
By:
-----------------------------------------------
General Partner
Address: Avenue Destenay, 13
4000 LIEGE Belgium
APERTURE ASSOCIATES, L.P.
By:
-----------------------------------------------
General Partner
Address: 500 Montgomery Street
San Francisco, California 94111
SERIES D INVESTOR: TEXAS INSTRUMENTS INCORPORATED
- -----------------
8
<PAGE>
By:
-----------------------------------------------
Address: 7839 Churchill Way
Attn: Corp. Development
Mail Stop 3995
Dallas, Texas 75251
9
<PAGE>
SCHEDULE A
SCHEDULE OF INVESTORS
Name and Address
--------------------------------------
Crosspoint Venture Partners 1993
18551 MacArthur Blvd., Suite 400
Irvine, CA 92715
Crosspoint 1993 Entrepreneurs Fund
18551 MacArthur Blvd., Suite 400
Irvine, CA 92715
Enterprise Partners II, L.P.
12011 San Vicente Blvd., Suite 330
Los Angeles, CA 90049
Enterprise Partners II Associates, L.P.
12011 San Vicente Blvd., Suite 330
Los Angeles, CA 90049
Ocean Park Ventures, L.P.
12011 San Vicente Blvd., Suite 330
Los Angeles, CA 90049
El Dorado Ventures III, L.P.
800 East Colorado Blvd., Suite 530
Pasadena, CA 91101
El Dorado C & L Fund, L.P.
800 East Colorado Blvd., Suite 530
Pasadena, CA 91101
El Dorado Technology IV, L.P.
800 East Colorado Blvd., Suite 530
Pasadena, CA 91101
Menlo Ventures VI, L.P.
3000 Sand Hill Road
Bldg. 4, Suite 100
Menlo Park, CA 94025
Menlo Entrepreneurs Fund VI, L.P.
3000 Sand Hill Road
Bldg. 4, Suite 100
Menlo Park, CA 94025
C.D. Technicom S.A.
Avenue Destenay, 13
4000 LIEGE, Belgium
Aperture Associates, L.P.
500 Montgomery Street
San Francisco, CA 94111
10
<PAGE>
EXHIBIT 10.8
EFFICIENT NETWORKS, INC.
AMENDMENT NO. 4 TO THE INVESTORS' RIGHTS AGREEMENT
This Amendment No. 4 ("Amendment") to the Investors' Rights Agreement dated
as of July 30, 1993, as previously amended by Amendments No. 1, 2 and 3 thereto
dated February 9, 1994, September 30, 1994 and September 1, 1995, respectively
(together the "Agreement"), is made as of this 31st day of December, 1996 by and
among Efficient Networks, Inc., a Delaware corporation (the "Company"), each of
the entities listed on Schedule I hereto (the "Existing Investors") and each of
----------
the individuals and entities listed on Schedule II hereto (the "Series E
------------
Investors"). Capitalized terms used herein which are not defined herein shall
have the definition ascribed to them in the Agreement.
RECITALS
--------
A. The Company desires to sell and issue to the Series E Investors, and
the Series E Investors desire to purchase from the Company, 3,091,430 shares of
the Company's Series E Preferred Stock pursuant to the Series E Preferred Stock
Purchase Agreement dated of even date herewith (the "Series E Agreement").
B. The Existing Investors desire for the Series E Investors to invest in
the Company and, as a condition thereof and to induce such investment, the
Existing Investors are willing to enter into this Amendment to permit the Series
E Investors to become a party to the Agreement, as amended.
In consideration of the foregoing and the promises and covenants contained
herein and other good and valuable consideration the receipt of which is hereby
acknowledged, the parties hereto agree as follows:
1. ADDITIONAL PARTY TO THE AGREEMENT.
---------------------------------
The Series E Investors hereby enter into and become parties to the
Agreement. Schedule A to the Agreement is amended to include the Series E
----------
Investors.
2. AMENDMENTS TO AGREEMENT.
-----------------------
2.1 The Series E Investors and the Existing Investors are collectively
referred to as "Investors" for the purposes of the Agreement, as amended.
2.2 Section 1.1(c) of the Agreement is amended in its entirety to read as
follows:
<PAGE>
"(c) The term "Registrable Securities" means (1) the Common Stock
issuable or issued upon conversion of the Series A Preferred Stock, Series
B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and
Series E Preferred Stock and (2) any Common Stock of the Company issued as
(or issuable upon the conversion or exercise of any warrant, right or other
security which is issued as) a dividend or other distribution with respect
to, or in exchange for or in replacement of, such Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, Series E Preferred Stock or Common Stock, excluding in all cases,
however, any Registrable Securities sold by a person in a transaction in
which his rights under this Section 1 are not assigned;"
2.3 The first sentence of Section 2.1 of the Agreement is amended in its
entirety to read as follows:
"2.1 Delivery of Financial Statements. The Company shall deliver to
--------------------------------
each Investor holding at least 750,000 shares of Series A Preferred Stock,
375,000 shares of Series B Preferred Stock, 250,000 shares of Series C
Preferred Stock, 250,000 shares of Series D Preferred Stock or 200,000
shares of Series E Preferred Stock;"
2.4 All references to "Series A Preferred Stock" in Sections 2.4, 2.7 and
2.10 shall be deemed to include and make reference to the Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred
Stock.
3. WAIVER AND CONSENT.
------------------
Each Existing Investor, pursuant to any rights such Existing Investor may
have under the Agreement, hereby, on behalf of himself and the other Investors
under the Agreement, (a) waives all rights under, and any notice required by,
Section 3 of the Agreement relating to any rights to purchase or rights of first
refusal with respect to the sale of the shares of Series E Preferred Stock, (b)
consents to adding as a party to the Agreement the Series E Investor, and (c)
consents to the registration rights hereby provided the Series E Investor, which
consent is given pursuant to Section 1.14 of the Agreement.
4. EFFECT OF AMENDMENT.
-------------------
Except as amended and set forth above, the Agreement shall continue in full
force and effect.
<PAGE>
5. COUNTERPARTS.
------------
This Amendment may be executed in any number of counterparts, each which
will be deemed an original, and all of which together shall constitute one
instrument.
6. SEVERABILITY.
------------
If one or more provisions of this Amendment are held to be unenforceable
under applicable law, such provision shall be excluded from this Amendment and
the balance of the Amendment shall be interpreted as if such provision were so
excluded and shall be enforceable in accordance with its terms.
7. ENTIRE AGREEMENT.
----------------
This Amendment, together with the Agreement, constitutes the full and
entire understanding and agreement between the parties with regard to the
subjects hereof and thereof.
8. GOVERNING LAW.
-------------
This Amendment shall be governed by and construed under the laws of the
State of Texas.
[signatures on following page]
3
<PAGE>
This Amendment is hereby executed as of the date first above written.
EFFICIENT NETWORKS, INC., a Delaware corporation
By:_______________________________________
Mark A. Floyd, President
Address: 4201 Spring Valley Road
Suite 1200
Dallas, Texas 75244
EXISTING INVESTORS: CROSSPOINT VENTURE PARTNERS 1993
- ------------------
By:_______________________________________
General Partner
Address: 18552 MacArthur Blvd., Ste. 400
Irvine, California 92715
CROSSPOINT 1993 ENTREPRENEURS FUND
By:_______________________________________
General Partner
Address: 18552 MacArthur Blvd., Ste. 400
Irvine, California 92715
4
<PAGE>
ENTERPRISE PARTNERS II L.P.
By: Enterprise Management Partners II,
L.P., Its General Partner
By:_________________________________
General Partner
Address: 12011 San Vicente Boulevard
Suite 330
Los Angeles, California 90049
ENTERPRISE PARTNERS II ASSOCIATES, L.P.
By: Enterprise Management Partners II,
L.P., Its General Partner
By:_________________________________
General Partner
Address: 12011 San Vicente Boulevard
Suite 330
Los Angeles, California 90049
OCEAN PARK VENTURES, L.P.
By:_______________________________________
General Partner
Address: 12011 San Vicente Boulevard
Suite 330
Los Angeles, California 90049
5
<PAGE>
EL DORADO VENTURES III, L.P.
By: El Dorado Venture Partners III, Its
General Partner
By:_________________________________
General Partner
Address: 20300 Stevens Creek Blvd.
Suite 395
Cupertino, California 95014
EL DORADO C & L FUND, L.P.
By: El Dorado Venture Partners III, Its General
Partner
By:_________________________________
General Partner
Address: 20300 Stevens Creek Blvd.
Suite 395
Cupertino, California 95014
EL DORADO TECHNOLOGY IV, L.P., a California
Limited Partnership
By: El Dorado Venture Partners III, Its
General Partner
By:_________________________________
General Partner
Address: 20300 Stevens Creek Blvd.
Suite 395
Cupertino, California 95014
MENLO VENTURES VI, L.P.
6
<PAGE>
By: MV Management VI, L.P.
By:_________________________________
General Partner
Address: 3000 Sand Hill Road
Building 4, Suite 100
Menlo Park, California 94025
MENLO ENTREPRENEURS FUND VI, L.P.
By: MV Management VI, L.P., Its General
Partner
By:_________________________________
General Partner
Address: 3000 Sand Hill Road
Building 4, Suite 100
Menlo Park, California 94025
APERTURE ASSOCIATES, L.P.
By:_______________________________________
General Partner
Address: 505 Montgomery Street
San Francisco, California 94111
TEXAS INSTRUMENTS INCORPORATED
By:_______________________________________
Address: 7839 Churchill Way
Attn: Corp. Development
Mail Stop 3995
Dallas, Texas 75251
7
<PAGE>
SERIES E INVESTORS: CROSSPOINT VENTURE PARTNERS 1993
- ------------------
By:_______________________________________
General Partner
Address: 18552 MacArthur Blvd., Ste. 400
Irvine, California 92715
CROSSPOINT 1993 ENTREPRENEURS FUND
By:_______________________________________
General Partner
Address: 18552 MacArthur Blvd., Ste. 400
Irvine, California 92715
ENTERPRISE PARTNERS II L.P.
By: Enterprise Management Partners II,
L.P., Its General Partner
By:_________________________________
General Partner
Address: 12011 San Vicente Boulevard
Suite 330
Los Angeles, California 90049
ENTERPRISE PARTNERS II ASSOCIATES, L.P.
By: Enterprise Management Partners II,
L.P., Its General Partner
By:_________________________________
General Partner
8
<PAGE>
Address: 12011 San Vicente Boulevard
Suite 330
Los Angeles, California 90049
OCEAN PARK VENTURES, L.P.
By:_______________________________________
General Partner
Address: 12011 San Vicente Boulevard
Suite 330
Los Angeles, California 90049
EL DORADO VENTURES III, L.P.
By: El Dorado Venture Partners III, Its
General Partner
By:_________________________________
General Partner
Address: 20300 Stevens Creek Blvd.
Suite 395
Cupertino, California 95014
9
<PAGE>
EL DORADO C & L FUND, L.P.
By: El Dorado Venture Partners III, Its
General Partner
By:_________________________________
General Partner
Address: 20300 Stevens Creek Blvd.
Suite 395
Cupertino, California 95014
EL DORADO TECHNOLOGY IV, L.P., a
California Limited Partnership
By: El Dorado Venture Partners III, Its
General Partner
By:_________________________________
General Partner
Address: 20300 Stevens Creek Blvd.
Suite 395
Cupertino, California 95014
MENLO VENTURES VI, L.P.
By: MV Management VI, L.P.
By:_________________________________
General Partner
Address: 3000 Sand Hill Road
Building 4, Suite 100
Menlo Park, California 94025
10
<PAGE>
MENLO ENTREPRENEURS FUND VI, L.P.
By: MV Management VI, L.P., Its General
Partner
By:_________________________________
General Partner
Address: 3000 Sand Hill Road
Building 4, Suite 100
Menlo Park, California 94025
APERTURE ASSOCIATES, L.P.
By:_______________________________________
General Partner
Address: 505 Montgomery Street
San Francisco, California 94111
ADC TELECOMMUNICATIONS, INC.
By:_______________________________________
Address: 4900 West 78th Street
Minneapolis, Minnesota 55435
11
<PAGE>
SCHEDULE I
SCHEDULE OF INVESTORS
Name and Address
-------------------------------------
Crosspoint Venture Partners 1993
18551 MacArthur Blvd., Suite 400
Irvine, CA 92715
Crosspoint 1993 Entrepreneurs Fund
18551 MacArthur Blvd., Suite 400
Irvine, CA 92715
Enterprise Partners II, L.P.
12011 San Vicente Blvd., Suite 330
Los Angeles, CA 90049
Enterprise Partners II Associates, L.P.
12011 San Vicente Blvd., Suite 330
Los Angeles, CA 90049
Ocean Park Ventures, L.P.
12011 San Vicente Blvd., Suite 330
Los Angeles, CA 90049
El Dorado Ventures III, L.P.
20300 Stevens Creek Blvd., Suite 395
Cupertino, California 95014
El Dorado C & L Fund, L.P.
20300 Stevens Creek Blvd., Suite 395
Cupertino, California 95014
El Dorado Technology IV, L.P.
20300 Stevens Creek Blvd., Suite 395
Cupertino, California 95014
Menlo Ventures VI, L.P.
3000 Sand Hill Road
Bldg. 4, Suite 100
Menlo Park, CA 94025
Menlo Entrepreneurs Fund VI, L.P.
3000 Sand Hill Road
Bldg. 4, Suite 100
Menlo Park, CA 94025
C.D. Technicom S.A.
Avenue Destenay, 13
4000 LIEGE, Belgium
Aperture Associates, L.P.
505 Montgomery Street
San Francisco, CA 94111
Texas Instruments Incorporated
7839 Churchill Way
12
<PAGE>
Mail Stop 39951
Dallas, Texas 75251
13
<PAGE>
SCHEDULE II
SCHEDULE OF INVESTORS
Name and Address
-------------------------------------
Crosspoint Venture Partners 1993
18551 MacArthur Blvd., Suite 400
Irvine, CA 92715
Crosspoint 1993 Entrepreneurs Fund
18551 MacArthur Blvd., Suite 400
Irvine, CA 92715
Enterprise Partners II, L.P.
12011 San Vicente Blvd., Suite 330
Los Angeles, CA 90049
Enterprise Partners II Associates, L.P.
12011 San Vicente Blvd., Suite 330
Los Angeles, CA 90049
Ocean Park Ventures, L.P.
12011 San Vicente Blvd., Suite 330
Los Angeles, CA 90049
El Dorado Ventures III, L.P.
20300 Stevens Creek Blvd., Suite 395
Cupertino, California 95014
El Dorado C & L Fund, L.P.
20300 Stevens Creek Blvd., Suite 395
Cupertino, California 95014
El Dorado Technology IV, L.P.
20300 Stevens Creek Blvd., Suite 395
Cupertino, California 95014
Menlo Ventures VI, L.P.
3000 Sand Hill Road
Bldg. 4, Suite 100
Menlo Park, CA 94025
Menlo Entrepreneurs Fund VI, L.P.
3000 Sand Hill Road
Bldg. 4, Suite 100
Menlo Park, CA 94025
Aperture Associates, L.P.
505 Montgomery Street
San Francisco, CA 94111
ADC Telecommunications, Inc.
4900 West 78th Street
Minneapolis, Minnesota 55435
14
<PAGE>
EXHIBIT 10.9
EFFICIENT NETWORKS, INC.
AMENDMENT NO. 5 TO THE INVESTORS' RIGHTS AGREEMENT
This Amendment No. 5 ("Amendment") to the Investors' Rights Agreement dated
as of July 30, 1993, as previously amended by Amendments No. 1, 2, 3 and 4
thereto dated February 9, 1994, September 30, 1994, September 1, 1995 and
December 31, 1996, respectively (together the "Agreement"), is made as of this
17th day of February, 1998, by and among Efficient Networks, Inc., a Delaware
corporation (the "Company"), each of the entities listed on Schedule I hereto
----------
(the "Existing Investors") and each of the individuals and entities listed on
Schedule II hereto (the "Series F Investors"). Capitalized terms used herein
- -----------
which are not defined herein shall have the definition ascribed to them in the
Agreement.
RECITALS
--------
A. The Company desires to sell and issue to the Series F Investors, and
the Series F Investors desire to purchase from the Company, a certain number of
shares of the Company's Series F Preferred Stock pursuant to Series F Preferred
Stock Purchase Agreements by and between the Company and such purchasers,
respectively (any such agreement shall be referred to herein as the "Series F
Agreement").
B. The Existing Investors desire for the Series F Investors to invest in
the Company and, as a condition thereof and to induce such investment, the
Existing Investors are willing to enter into this Amendment to permit the Series
F Investors to become a party to the Agreement, as amended.
In consideration of the foregoing and the promises and covenants contained
herein and other good and valuable consideration the receipt of which is hereby
acknowledged, the parties hereto agree as follows:
1. ADDITIONAL PARTIES TO THE AGREEMENT.
-----------------------------------
The Series F Investors hereby enter into and become parties to the
Agreement. Schedule A to the Agreement is amended to include the Series F
----------
Investors.
2. AMENDMENTS TO AGREEMENT.
-----------------------
2.1 The Series F Investors and the Existing Investors are collectively
referred to as "Investors" for the purposes of the Agreement, as amended.
2.2 Section 1.1(c) of the Agreement is amended in its entirety to read as
follows:
<PAGE>
"(c) The term "Registrable Securities" means (1) the Common Stock
issuable or issued upon conversion of the Series A Preferred Stock, Series
B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series E Preferred Stock and Series F Preferred Stock and (2) any Common
Stock of the Company issued as (or issuable upon the conversion or exercise
of any warrant, right or other security which is issued as) a dividend or
other distribution with respect to, or in exchange for or in replacement
of, such Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series
F Preferred Stock or Common Stock, excluding in all cases, however, any
Registrable Securities sold by a person in a transaction in which his
rights under this Section 1 are not assigned;"
2.3 The first sentence of Section 2.1 of the Agreement is amended in its
entirety to read as follows:
"2.1 Delivery of Financial Statements. The Company shall deliver to each
--------------------------------
Investor holding at least 750,000 shares of Series A Preferred Stock,
375,000 shares of Series B Preferred Stock, 250,000 shares of Series C
Preferred Stock, 250,000 shares of Series D Preferred Stock, 200,000
shares of Series E Preferred Stock or 1,000,000 shares of Series F
Preferred Stock;"
2.4 All references to "Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred
Stock" in Sections 2.4, 2.7 and 2.10 shall be deemed to include and make
additional reference to the Series F Preferred Stock.
2.5 Section 2.5 of the Agreement is amended in its entirety to read as
follows:
"2.5 Key-Person Insurance. The Company shall obtain and maintain in
--------------------
full force and effect from the date of the Closing until all of the shares
of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, Series E Preferred Stock and Series F
Preferred Stock have been redeemed by the Company or have been converted
into shares of Common Stock of the Company, term life insurance in the
amount of $1,000,000 on the life of Mark Floyd, with proceeds payable to
the Company."
3. WAIVER AND CONSENT.
------------------
Each Existing Investor, pursuant to any rights such Existing Investor may
have under the Agreement, hereby, on behalf of himself and the other Investors
under the Agreement, (a) waives all rights under, and any notice required by,
Section 3 of the Agreement relating to any rights to purchase or rights of first
2
<PAGE>
refusal with respect to the sale of the shares of Series F Preferred Stock, (b)
consents to adding as a party to the Agreement the Series F Investors, and (c)
consents to the registration rights hereby provided the Series F Investors,
which consent is given pursuant to Section 1.14 of the Agreement.
4. EFFECT OF AMENDMENT.
-------------------
Except as amended and set forth above, the Agreement shall continue in full
force and effect.
5. COUNTERPARTS.
------------
This Amendment may be executed in any number of counterparts, each which
will be deemed an original, and all of which together shall constitute one
instrument.
6. SEVERABILITY.
------------
If one or more provisions of this Amendment are held to be unenforceable
under applicable law, such provision shall be excluded from this Amendment and
the balance of the Amendment shall be interpreted as if such provision were so
excluded and shall be enforceable in accordance with its terms.
7. ENTIRE AGREEMENT.
----------------
This Amendment, together with the Agreement, constitutes the full and
entire understanding and agreement between the parties with regard to the
subjects hereof and thereof.
8. GOVERNING LAW.
-------------
This Amendment shall be governed by and construed under the laws of the
State of Texas.
[signatures on following page]
3
<PAGE>
This Amendment is hereby executed as of the date first above written.
EFFICIENT NETWORKS, INC., a Delaware corporation
By:_______________________________________
Mark A. Floyd, President
Address: 4201 Spring Valley Road
Suite 1200
Dallas, Texas 75244
EXISTING INVESTORS: CROSSPOINT VENTURE PARTNERS 1993
- ------------------
By:_______________________________________
General Partner
Address: 18552 MacArthur Blvd., Ste. 400
Irvine, California 92715
CROSSPOINT 1993 ENTREPRENEURS FUND
By:_______________________________________
General Partner
Address: 18552 MacArthur Blvd., Ste. 400
Irvine, California 92715
4
<PAGE>
ENTERPRISE PARTNERS II L.P.
By: Enterprise Management Partners II,
L.P., Its General Partner
By:_________________________________
General Partner
Address: 12011 San Vicente Boulevard
Suite 330
Los Angeles, California 90049
ENTERPRISE PARTNERS II ASSOCIATES, L.P.
By: Enterprise Management Partners II,
L.P., Its General Partner
By:_________________________________
General Partner
Address: 12011 San Vicente Boulevard
Suite 330
Los Angeles, California 90049
OCEAN PARK VENTURES, L.P.
By:_______________________________________
General Partner
Address: 12011 San Vicente Boulevard
Suite 330
Los Angeles, California 90049
5
<PAGE>
EL DORADO VENTURES III, L.P.
By: El Dorado Venture Partners III, Its
General Partner
By:_________________________________
General Partner
Address: 2400 Sand Hill Road
Suite 100
Menlo Park, California 94025
EL DORADO C & L FUND, L.P.
By: El Dorado Venture Partners III, Its
General Partner
By:_________________________________
General Partner
Address: 2400 Sand Hill Road
Suite 100
Menlo Park, California 94025
EL DORADO TECHNOLOGY IV, L.P., a
California Limited Partnership
By: El Dorado Venture Partners III,
Its General Partner
By:_________________________________
General Partner
Address: 2400 Sand Hill Road
Suite 100
Menlo Park, California 94025
MENLO VENTURES VI, L.P.
6
<PAGE>
By: MV Management VI, L.P.
By:_________________________________
General Partner
Address: 3000 Sand Hill Road
Building 4, Suite 100
Menlo Park, California 94025
MENLO ENTREPRENEURS FUND VI, L.P.
By: MV Management VI, L.P., Its General
Partner
By:_________________________________
General Partner
Address: 3000 Sand Hill Road
Building 4, Suite 100
Menlo Park, California 94025
APERTURE ASSOCIATES, L.P.
By:_______________________________________
General Partner
Address: 505 Montgomery Street
San Francisco, California 94111
TEXAS INSTRUMENTS INCORPORATED
By:_______________________________________
Address: 7839 Churchill Way
Attn: Corp. Development
Mail Stop 3995
Dallas, Texas 75251
7
<PAGE>
ADC TELECOMMUNICATIONS, INC.
By:_______________________________________
Address: 4900 West 78th Street
Minneapolis, Minnesota 55435
8
<PAGE>
SCHEDULE I Page 1 of 2
SCHEDULE OF INVESTORS
Name and Address
---------------------------------------
Crosspoint Venture Partners 1993
18552 MacArthur Blvd., Suite 400
Irvine, CA 92715
Crosspoint 1993 Entrepreneurs Fund
18552 MacArthur Blvd., Suite 400
Irvine, CA 92715
Enterprise Partners II, L.P.
12011 San Vicente Blvd., Suite 330
Los Angeles, CA 90049
Enterprise Partners II Associates, L.P.
12011 San Vicente Blvd., Suite 330
Los Angeles, CA 90049
Ocean Park Ventures, L.P.
12011 San Vicente Blvd., Suite 330
Los Angeles, CA 90049
El Dorado Ventures III, L.P.
2400 Sand Hill Road
Suite 100
Menlo Park, California 94025
El Dorado C & L Fund, L.P.
2400 Sand Hill Road
Suite 100
Menlo Park, California 94025
El Dorado Technology IV, L.P.
2400 Sand Hill Road
Suite 100
Menlo Park, California 94025
Menlo Ventures VI, L.P.
3000 Sand Hill Road
Bldg. 4, Suite 100
Menlo Park, CA 94025
Menlo Entrepreneurs Fund VI, L.P.
3000 Sand Hill Road
Bldg. 4, Suite 100
Menlo Park, CA 94025
C.D. Technicom S.A.
Avenue Destenay, 13
4000 LIEGE, Belgium
Aperture Associates, L.P.
505 Montgomery Street
San Francisco, CA 94111
9
<PAGE>
Texas Instruments Incorporated
7839 Churchill Way
Mail Stop 39951
Dallas, Texas 75251
SCHEDULE I Page 2 of 2
SCHEDULE OF INVESTORS
Name and Address
---------------------------------------
ADC Telecommunications, Inc.
4900 West 78th Street
Minneapolis, Minnesota 55435
10
<PAGE>
SCHEDULE II
SCHEDULE OF SERIES F INVESTORS
Name and Address
---------------------------------------
Texas Instruments Incorporated
7839 Churchill Way
Mail Stop 39951
Dallas, Texas 75251
Crosspoint Venture Partners 1993
18552 MacArthur Blvd., Suite 400
Irvine, CA 92715
Crosspoint 1993 Entrepreneurs Fund
18552 MacArthur Blvd., Suite 400
Irvine, CA 92715
Enterprise Partners II, L.P.
12011 San Vicente Blvd., Suite 330
Los Angeles, CA 90049
Enterprise Partners II Associates, L.P.
12011 San Vicente Blvd., Suite 330
Los Angeles, CA 90049
Ocean Park Ventures, L.P.
12011 San Vicente Blvd., Suite 330
Los Angeles, CA 90049
El Dorado Ventures III, L.P.
2400 Sand Hill Road
Suite 100
Menlo Park, California 94025
El Dorado C & L Fund, L.P.
2400 Sand Hill Road
Suite 100
Menlo Park, California 94025
El Dorado Technology IV, L.P.
2400 Sand Hill Road
Suite 100
Menlo Park, California 94025
Menlo Ventures VI, L.P.
3000 Sand Hill Road
Bldg. 4, Suite 100
Menlo Park, CA 94025
Menlo Entrepreneurs Fund VI, L.P.
3000 Sand Hill Road
Bldg. 4, Suite 100
Menlo Park, CA 94025
ADC Telecommunications, Inc.
4900 West 78th Street
Minneapolis, Minnesota 55435
11
<PAGE>
EXHIBIT 10.10
EFFICIENT NETWORKS, INC.
AMENDMENT NO. 6 TO THE INVESTORS' RIGHTS AGREEMENT
This Amendment No. 6 ("Amendment") to the Investors' Rights Agreement dated
as of July 30, 1993, as previously amended by Amendments No. 1, 2, 3, 4 and 5
thereto dated February 9, 1994, September 30, 1994, September 1, 1995, December
31, 1996 and February 17, 1998, respectively (together the "Agreement"), is made
as of this ____ day of June, 1998, by and among Efficient Networks, Inc., a
Delaware corporation (the "Company"), each of the entities listed on Schedule I
----------
hereto (the "Existing Investors") and Siemens Aktiengesellschaft (the "Series G
Investor"). Capitalized terms used herein which are not defined herein shall
have the definition ascribed to them in the Agreement.
RECITALS
--------
A. The Company desires to sell and issue to the Series G Investor, and the
Series G Investor desires to purchase from the Company, a certain number of
shares of the Company's Series G Preferred Stock pursuant to the Series G
Preferred Stock Purchase Agreement, dated as of the date hereof (the "Series G
Agreement").
B. The Existing Investors desire for the Series G Investor to invest in
the Company and, as a condition thereof and to induce such investment, the
Existing Investors are willing to enter into this Amendment to permit the Series
G Investor to become a party to the Agreement, as amended.
In consideration of the foregoing and the promises and covenants contained
herein and other good and valuable consideration the receipt of which is hereby
acknowledged, the parties hereto agree as follows:
1. ADDITIONAL PARTIES TO THE AGREEMENT.
-----------------------------------
The Series G Investor hereby enters into and becomes a party to the
Agreement. Schedule A to the Agreement is amended to include the Series G
----------
Investor.
2. AMENDMENTS TO AGREEMENT.
-----------------------
2.1 The Series G Investor and the Existing Investors are collectively
referred to as "Investors" for the purposes of the Agreement, as amended.
2.2 Section 1.1(c) of the Agreement is amended in its entirety to read as
follows:
<PAGE>
"(c) The term "Registrable Securities" means (1) the Common Stock
issuable or issued upon conversion of the Series A Preferred Stock, Series
B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series E Preferred Stock, Series F Preferred Stock and Series G Preferred
Stock and (2) any Common Stock of the Company issued as (or issuable upon
the conversion or exercise of any warrant, right or other security which is
issued as) a dividend or other distribution with respect to, or in exchange
for or in replacement of, such Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock, Series F Preferred Stock, Series G Preferred Stock or
Common Stock, excluding in all cases, however, any Registrable Securities
sold by a person in a transaction in which his rights under this Section 1
are not assigned;"
2.3 Section 2.1(a) of the Agreement is amended in its entirety to read as
follows:
"2.1 Delivery of Financial Statements. The Company shall deliver to
--------------------------------
each Investor holding at least 750,000 shares of Series A Preferred Stock,
375,000 shares of Series B Preferred Stock, 250,000 shares of Series C
Preferred Stock, 250,000 shares of Series D Preferred Stock, 200,000 shares
of Series E Preferred Stock, 1,000,000 shares of Series F Preferred Stock
or 1,000,000 shares of Series G Preferred Stock:
(a) as soon as practicable, but in any event within 90 days
after the end of each fiscal year of the Company, an income statement
for such fiscal year, a balance sheet of the Company and statements of
cash flows and stockholders' equity for such year, prepared in
accordance with generally accepted accounting principles ("gaap") and
accompanied by the audit report of independent public accountants of
nationally recognized standing selected by the Company;"
2.4 All references to "Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and
Series F Preferred Stock" in Sections 2.4, 2.7 and 2.10 shall be deemed to
include and make additional reference to the Series G Preferred Stock.
2.5 Section 2.4(d) is amended to read in its entirety as follows:
"(d) The right of first offer in this paragraph 2.4 shall not be
applicable (i) to the issuance or sale of shares of Common Stock (or
options or warrants therefor) to employees, consultants, directors or
officers for the primary purpose of soliciting or retaining their
employment or service when the total number of shares of Common Stock so
issued (and not repurchased at cost by the Company in connection with the
termination of employment or service) does not exceed 7,500,000 (subject to
appropriate adjustment for stock splits, stock dividends, combinations or
other recapitalizations) since
<PAGE>
the date of the Company's incorporation, (ii) to or after consummation of a
bona fide, firmly underwritten public offering of shares of Common Stock,
registered under the Act pursuant to a registration statement on Form S-1
(or successor form), (iii) the issuance of securities pursuant to the
conversion or exercise of convertible or exercisable securities outstanding
on the date hereof, (iv) the issuance of securities in connection with a
bona fide business acquisition of or by the Company, whether by merger,
consolidation, sale of assets, sale or exchange of stock or otherwise, (v)
the issuance of all shares of preferred stock of the Company since the date
of incorporation through the date hereof or (vi) the issuance after the
date hereof of Series G Preferred Stock, or Common Stock in lieu of such
issuance, to the Series G Investor (but only to the extent that such
issuance does not exceed 6% of the then outstanding capital stock of the
Company on a fully diluted basis) at a price of at least $2.92 per share
(subject to appropriate adjustment for stock splits, stock dividends,
combinations or other recapitalizations)."
2.6 Section 3.2 is amended to read in its entirety as follows:
"3.2 Governing Law. This Agreement shall be governed by and
-------------
construed under the laws of the State of Delaware."
2.7 Section 3 of the Agreement is amended to add new Sections 3.11, 3.12
and 3.13 to read as follows:
"3.11 Waiver of Jury Trial. Each of the parties hereto waives any
--------------------
right it may have to trial by jury in respect of any litigation based on,
or arising out of, under or in connection with this Agreement or any other
document contemplated hereby or any course of conduct of conduct, course of
dealing, verbal or written statement or action of any party hereto. This
provision is a material inducement to each party entering into this
Agreement.
3.12 Limitation of Liability. In no event shall any party hereto be
-----------------------
liable for claims, actions, damages or liabilities arising under or in
connection with this Agreement which are consequential, incidental or
punitive damages.
3.13 Arbitration. Any controversy or dispute among the parties
-----------
arising in connection with this Agreement shall be submitted to a panel of
three arbitrators and finally settled by arbitration in accordance with the
commercial arbitration rules of the American Arbitration Association. Each
of the disputing parties shall appoint one arbitrator, and these two
arbitrators shall independently select a third arbitrator. Arbitration
shall take place in Wilmington, Delaware or such other location as the
arbitrators may select. The prevailing party in such arbitration shall be
entitled to the award of all costs and attorneys' fees in connection with
such action but, in such action
3
<PAGE>
or otherwise in respect to any claim or liabilities, shall in no event be
entitled to the receipt of any consequential or punitive damages. Any award
for monetary damages resulting from nonpayment of sums due hereunder shall
bear interest from the date on which such sums were originally due and
payable. Judgment upon the award rendered may be entered in any court
having jurisdiction or application may be made to such court for judicial
acceptance of the award and an order of enforcement, as the case may be."
3. WAIVER AND CONSENT.
------------------
Each Existing Investor, pursuant to any rights such Existing Investor may
have under the Agreement, hereby, on behalf of himself and the other Investors
under the Agreement, (a) waives all rights under, and any notice required by,
Section 3 of the Agreement relating to any rights to purchase or rights of first
refusal with respect to the sale of the shares of Series G Preferred Stock, (b)
consents to adding as a party to the Agreement the Series G Investor, and (c)
consents to the registration rights hereby provided the Series G Investor, which
consent is given pursuant to Section 1.14 of the Agreement.
4. EFFECT OF AMENDMENT.
-------------------
Except as amended and set forth above, the Agreement shall continue in full
force and effect.
5. COUNTERPARTS.
------------
This Amendment may be executed in any number of counterparts, each which
will be deemed an original, and all of which together shall constitute one
instrument.
6. SEVERABILITY.
------------
If one or more provisions of this Amendment are held to be unenforceable
under applicable law, such provision shall be excluded from this Amendment and
the balance of the Amendment shall be interpreted as if such provision were so
excluded and shall be enforceable in accordance with its terms.
7. ENTIRE AGREEMENT.
----------------
This Amendment, together with the Agreement, constitutes the full and
entire understanding and agreement between the parties with regard to the
subjects hereof and thereof.
4
<PAGE>
8. GOVERNING LAW.
-------------
This Amendment shall be governed by and construed under the laws of the
State of Delaware.
This Amendment is hereby executed as of the date first above written.
EFFICIENT NETWORKS, INC., a Delaware corporation
By:_______________________________________
Mark A. Floyd, President
Address: 4201 Spring Valley Road
Suite 1200
Dallas, Texas 75244
EXISTING INVESTORS: CROSSPOINT VENTURE PARTNERS 1993
- ------------------
By:_______________________________________
General Partner
Address: 18552 MacArthur Blvd., Ste. 400
Irvine, California 92715
CROSSPOINT 1993 ENTREPRENEURS FUND
By:_______________________________________
General Partner
Address: 18552 MacArthur Blvd., Ste. 400
Irvine, California 92715
5
<PAGE>
ENTERPRISE PARTNERS II L.P.
By: Enterprise Management Partners II, L.P., Its
General Partner
By:_________________________________
General Partner
Address: 12011 San Vicente Boulevard
Suite 330
Los Angeles, California 90049
ENTERPRISE PARTNERS II ASSOCIATES, L.P.
By: Enterprise Management Partners II, L.P., Its
General Partner
By:_________________________________
General Partner
Address: 12011 San Vicente Boulevard
Suite 330
Los Angeles, California 90049
OCEAN PARK VENTURES, L.P.
By:_______________________________________
General Partner
Address: 12011 San Vicente Boulevard
Suite 330
Los Angeles, California 90049
6
<PAGE>
EL DORADO VENTURES III, L.P.
By: El Dorado Venture Partners III, Its General
Partner
By:_________________________________
General Partner
Address: 2400 Sand Hill Road
Suite 100
Menlo Park, California 94025
EL DORADO C & L FUND, L.P.
By: El Dorado Venture Partners III, Its General
Partner
By:_________________________________
General Partner
Address: 2400 Sand Hill Road
Suite 100
Menlo Park, California 94025
EL DORADO TECHNOLOGY IV, L.P., a California
Limited Partnership
By: El Dorado Venture Partners III, Its General
Partner
By:_________________________________
General Partner
Address: 2400 Sand Hill Road
Suite 100
Menlo Park, California 94025
MENLO VENTURES VI, L.P.
By: MV Management VI, L.P.
7
<PAGE>
By:_________________________________
General Partner
Address: 3000 Sand Hill Road
Building 4, Suite 100
Menlo Park, California 94025
MENLO ENTREPRENEURS FUND VI, L.P.
By: MV Management VI, L.P., Its General
Partner
By:_________________________________
General Partner
Address: 3000 Sand Hill Road
Building 4, Suite 100
Menlo Park, California 94025
APERTURE ASSOCIATES, L.P.
By:_______________________________________
General Partner
Address: 505 Montgomery Street
San Francisco, California 94111
TEXAS INSTRUMENTS INCORPORATED
By:_______________________________________
Address: 7839 Churchill Way
Attn: Corp. Development
Mail Stop 3995
Dallas, Texas 75251
8
<PAGE>
ADC TELECOMMUNICATIONS, INC.
By:_______________________________________
Address: 4900 West 78th Street
Minneapolis, Minnesota 55435
C.D. TECHNICOM S.A.
By:_______________________________________
Address: Avenue Destenay, 13
4000 LIEGE Belgium
SERIES G INVESTOR:
- -----------------
SIEMENS AKTIENGESELLSCHAFT
By:_______________________________________
Address: Hofmannstrasse 51
81359 Munich
Germany
9
<PAGE>
SCHEDULE I
SCHEDULE OF INVESTORS
Name and Address
-------------------------------------
Crosspoint Venture Partners 1993
18551 MacArthur Blvd., Suite 400
Irvine, CA 92715
Crosspoint 1993 Entrepreneurs Fund
18551 MacArthur Blvd., Suite 400
Irvine, CA 92715
Enterprise Partners II, L.P.
5000 Birch Street, Suite 6200
Newport Beach, CA 92660
Enterprise Partners II Associates, L.P.
5000 Birch Street, Suite 6200
Newport Beach, CA 92660049
Ocean Park Ventures, L.P.
12011 San Vicente Blvd., Suite 330
Los Angeles, CA 90049
El Dorado Ventures III, L.P.
2400 Sand Hill Road, Suite 100
Menlo Park, California 94025
El Dorado C & L Fund, L.P.
2400 Sand Hill Road, Suite 100
Menlo Park, California 94025
El Dorado Technology IV, L.P.
2400 Sand Hill Road, Suite 100
Menlo Park, California 94025
Menlo Ventures VI, L.P.
3000 Sand Hill Road
Bldg. 4, Suite 100
Menlo Park, CA 94025
Menlo Entrepreneurs Fund VI, L.P.
3000 Sand Hill Road
Bldg. 4, Suite 100
Menlo Park, CA 94025
C.D. Technicom S.A.
Avenue Destenay, 13
4000 LIEGE, Belgium
Aperture Associates, L.P.
505 Montgomery Street
San Francisco, CA 94111
Texas Instruments Incorporated
7839 Churchill Way
Mail Stop 39951
Dallas, Texas 75251
10
<PAGE>
ADC Telecommunications, Inc.
4900 West 78th Street
Minneapolis, Minnesota 55435
11
<PAGE>
EXHIBIT 10.11
EFFICIENT NETWORKS, INC.
AMENDMENT NO. 7 TO THE INVESTORS' RIGHTS AGREEMENT
This Amendment No. 7 ("Amendment") to the Investors' Rights Agreement dated
as of July 30, 1993, as previously amended by Amendments No. 1 through 6 thereof
(together the "Agreement"), is made as of this 11th day of January, 1999, by and
among Efficient Networks, Inc., a Delaware corporation (the "Company"), each of
the entities listed on Schedule I hereto (the "Existing Investors") and
----------
Crosspoint Ventures LS 1997, L.P. (the "Series H Investor"). Capitalized terms
used herein which are not defined herein shall have the definition ascribed to
them in the Agreement.
RECITALS
--------
A. The Company desires to sell and issue to the Series H Investor, and the
Series H Investor desires to purchase from the Company, warrants (the
"Warrants") to purchase shares of the Company's Series H Preferred Stock
pursuant to the Securities Purchase Agreement, dated as of the date hereof.
B. The Existing Investors desire for the Series H Investor to invest in
the Company and, as a condition thereof and to induce such investment, the
Existing Investors are willing to enter into this Amendment to permit the Series
H Investor to become a party to the Agreement, as amended.
In consideration of the foregoing and the promises and covenants contained
herein and other good and valuable consideration the receipt of which is hereby
acknowledged, the parties hereto agree as follows:
1. ADDITIONAL PARTIES TO THE AGREEMENT.
-----------------------------------
The Series H Investor hereby enters into and becomes a party to the
Agreement. Schedule A to the Agreement is amended to include the Series H
----------
Investor.
2. AMENDMENTS TO AGREEMENT.
-----------------------
2.1 The Series H Investor and the Existing Investors are collectively
referred to as "Investors" for the purposes of the Agreement, as amended.
2.2 Section 1.1(c) of the Agreement is amended in its entirety to read as
follows:
<PAGE>
"(c) The term "Registrable Securities" means (1) the Common Stock
issuable or issued upon conversion of the Series A Preferred Stock, Series
B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series E Preferred Stock, Series F Preferred Stock, Series G Preferred
Stock and Series H Preferred Stock and (2) any Common Stock of the Company
issued as (or issuable upon the conversion or exercise of any warrant,
right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of, such
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, Series E Preferred Stock, Series F
Preferred Stock, Series G Preferred Stock, Series H Preferred Stock or
Common Stock, excluding in all cases, however, any Registrable Securities
sold by a person in a transaction in which his rights under this Section 1
are not assigned;"
2.3 Section 2.1(a) of the Agreement is amended in its entirety to read as
follows:
"2.1 Delivery of Financial Statements. The Company shall deliver to
--------------------------------
each Investor holding at least 750,000 shares of Series A Preferred Stock,
375,000 shares of Series B Preferred Stock, 250,000 shares of Series C
Preferred Stock, 250,000 shares of Series D Preferred Stock, 200,000 shares
of Series E Preferred Stock, 1,000,000 shares of Series F Preferred Stock,
1,000,000 shares of Series G Preferred Stock or 250,000 shares of Series H
Preferred Stock:
(a) as soon as practicable, but in any event within 90 days
after the end of each fiscal year of the Company, an income statement
for such fiscal year, a balance sheet of the Company and statements of
cash flows and stockholders' equity for such year, prepared in
accordance with generally accepted accounting principles ("gaap") and
accompanied by the audit report of independent public accountants of
nationally recognized standing selected by the Company;"
2.4 All references to "Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock,
Series F Preferred Stock and Series G Preferred Stock" in Sections 2.4, 2.7 and
2.10 shall be deemed to include and make additional reference to the Series H
Preferred Stock.
2.5 Section 2.4(d) is amended to read in its entirety as follows:
"(d) The right of first offer in this paragraph 2.4 shall not be
applicable (i) to the issuance or sale of shares of Common Stock (or
options or warrants therefor) to employees, consultants, directors or
officers for the primary purpose of soliciting or retaining their
employment or service when the total number of shares of Common Stock so
issued (and not repurchased
<PAGE>
at cost by the Company in connection with the termination of employment or
service) does not exceed 10,000,000 (subject to appropriate adjustment for
stock splits, stock dividends, combinations or other recapitalizations)
since the date of the Company's incorporation, (ii) to or after
consummation of a bona fide, firmly underwritten public offering of shares
of Common Stock, registered under the Act pursuant to a registration
statement on Form S-1 (or successor form), (iii) the issuance of securities
pursuant to the conversion or exercise of convertible or exercisable
securities outstanding on the date hereof, (iv) the issuance of securities
in connection with a bona fide business acquisition of or by the Company,
whether by merger, consolidation, sale of assets, sale or exchange of stock
or otherwise, (v) the issuance of all shares of preferred stock of the
Company since the date of incorporation through the date hereof or (vi) the
issuance after the date hereof of Series G Preferred Stock, or Common Stock
in lieu of such issuance, to the Series G Investor (but only to the extent
that such issuance does not exceed 6% of the then outstanding capital stock
of the Company on a fully diluted basis) at a price of at least $2.92 per
share (subject to appropriate adjustment for stock splits, stock dividends,
combinations or other recapitalizations)."
3. WAIVER AND CONSENT.
------------------
Each Existing Investor, pursuant to any rights such Existing Investor may
have under the Agreement, hereby, on behalf of himself and the other Investors
under the Agreement, (a) waives all rights under, and any notice required by,
Section 3 of the Agreement relating to any rights to purchase or rights of first
refusal with respect to the sale of the shares of the Warrants, or the issuance
of shares of capital stock upon the exercise thereof, (b) consents to adding as
a party to the Agreement the Series H Investor, and (c) consents to the
registration rights hereby provided the Series H Investor, which consent is
given pursuant to Section 1.14 of the Agreement.
4. EFFECT OF AMENDMENT.
-------------------
Except as amended and set forth above, the Agreement shall continue in full
force and effect.
5. COUNTERPARTS.
------------
This Amendment may be executed in any number of counterparts, each which
will be deemed an original, and all of which together shall constitute one
instrument.
6. SEVERABILITY.
------------
If one or more provisions of this Amendment are held to be unenforceable
under applicable law, such provision shall be excluded from this Amendment and
3
<PAGE>
the balance of the Amendment shall be interpreted as if such provision were so
excluded and shall be enforceable in accordance with its terms.
7. ENTIRE AGREEMENT.
----------------
This Amendment, together with the Agreement, constitutes the full and
entire understanding and agreement between the parties with regard to the
subjects hereof and thereof.
8. GOVERNING LAW.
-------------
This Amendment shall be governed by and construed under the laws of the
State of Delaware.
This Amendment is hereby executed as of the date first above written.
EFFICIENT NETWORKS, INC., a Delaware corporation
By:_______________________________________
Mark A. Floyd, President
Address: 4201 Spring Valley Road
Suite 1200
Dallas, Texas 75244
EXISTING INVESTORS: CROSSPOINT VENTURE PARTNERS 1993
- ------------------
By:_______________________________________
General Partner
Address: 18552 MacArthur Blvd., Ste. 400
Irvine, California 92715
CROSSPOINT 1993 ENTREPRENEURS FUND
By:_______________________________________
General Partner
4
<PAGE>
Address: 18552 MacArthur Blvd., Ste. 400
Irvine, California 92715
ENTERPRISE PARTNERS II L.P.
By: Enterprise Management Partners II, L.P., Its
General Partner
By:_________________________________
General Partner
Address: 12011 San Vicente Boulevard
Suite 330
Los Angeles, California 90049
ENTERPRISE PARTNERS II ASSOCIATES, L.P.
By: Enterprise Management Partners II, L.P., Its
General Partner
By:_________________________________
General Partner
Address: 12011 San Vicente Boulevard
Suite 330
Los Angeles, California 90049
OCEAN PARK VENTURES, L.P.
By:_______________________________________
General Partner
Address: 12011 San Vicente Boulevard
Suite 330
Los Angeles, California 90049
5
<PAGE>
EL DORADO VENTURES III, L.P.
By: El Dorado Venture Partners III, Its General
Partner
By:_________________________________
General Partner
Address: 2400 Sand Hill Road
Suite 100
Menlo Park, California 94025
EL DORADO C & L FUND, L.P.
By: El Dorado Venture Partners III, Its General
Partner
By:_________________________________
General Partner
Address: 2400 Sand Hill Road
Suite 100
Menlo Park, California 94025
EL DORADO TECHNOLOGY IV, L.P., a California
Limited Partnership
By: El Dorado Venture Partners III, Its General
Partner
By:_________________________________
General Partner
Address: 2400 Sand Hill Road
Suite 100
Menlo Park, California 94025
6
<PAGE>
MENLO VENTURES VI, L.P.
By: MV Management VI, L.P.
By:_________________________________
General Partner
Address: 3000 Sand Hill Road
Building 4, Suite 100
Menlo Park, California 94025
MENLO ENTREPRENEURS FUND VI, L.P.
By: MV Management VI, L.P., Its General
Partner
By:_________________________________
General Partner
Address: 3000 Sand Hill Road
Building 4, Suite 100
Menlo Park, California 94025
APERTURE ASSOCIATES, L.P.
By:__________________________________
General Partner
Address: 505 Montgomery Street
San Francisco, California 94111
7
<PAGE>
TEXAS INSTRUMENTS INCORPORATED
By:_______________________________________
Address: 7839 Churchill Way
Attn: Corp. Development
Mail Stop 3995
Dallas, Texas 75251
ADC TELECOMMUNICATIONS, INC.
By:_______________________________________
Address: 4900 West 78th Street
Minneapolis, Minnesota 55435
SIEMENS AKTIENGESELLSCHAFT
By:_______________________________________
Address: Hofmannstrasse 51
81359 Munich
Germany
Series H Investor:
- -----------------
CROSSPOINT VENTURES LS 1997, L.P.
By:_______________________________________
Address: 18552 MacArthur Blvd., Ste. 400
Irvine, California 92715
8
<PAGE>
SCHEDULE I
SCHEDULE OF INVESTORS
Name and Address
-------------------------------------
Crosspoint Venture Partners 1993
18551 MacArthur Blvd., Suite 400
Irvine, CA 92715
Crosspoint 1993 Entrepreneurs Fund
18551 MacArthur Blvd., Suite 400
Irvine, CA 92715
Enterprise Partners II, L.P.
5000 Birch Street, Suite 6200
Newport Beach, CA 92660
Enterprise Partners II Associates, L.P.
5000 Birch Street, Suite 6200
Newport Beach, CA 92660
Ocean Park Ventures, L.P.
12011 San Vicente Blvd., Suite 330
Los Angeles, CA 90049
El Dorado Ventures III, L.P.
2400 Sand Hill Road, Suite 100
Menlo Park, California 94025
El Dorado C & L Fund, L.P.
2400 Sand Hill Road, Suite 100
Menlo Park, California 94025
El Dorado Technology IV, L.P.
2400 Sand Hill Road, Suite 100
Menlo Park, California 94025
Menlo Ventures VI, L.P.
3000 Sand Hill Road
Bldg. 4, Suite 100
Menlo Park, CA 94025
Menlo Entrepreneurs Fund VI, L.P.
3000 Sand Hill Road
Bldg. 4, Suite 100
Menlo Park, CA 94025
Texas Instruments Incorporated
7839 Churchill Way
Mail Stop 39951
Dallas, Texas 75251
ADC Telecommunications, Inc.
4900 West 78th Street
Minneapolis, Minnesota 55435
Siemens Aktiengesellschaft
Hofmannstrasse 51
81359 Munich Germany
9
<PAGE>
EXHIBIT 10.14
NORTH TEXAS COMMERCIAL ASSOCIATION OF REALTORS(R)
COMMERCIAL LEASE AGREEMENT
<TABLE>
<S> <C> <C>
TABLE OF CONTENTS EXHIBITS AND ADDENDA. Any exhibit or addendum
Article Page attached to this Lease is incorporated as a part of this Lease for all
1. Defined Terms 1 purposes. Any term not specifically defined in the Addenda shall
2. Lease and Lease Term 2 have the same meaning given to it in the body of this Lease. To
3. Rent and Security Deposit 2 the extent any provisions in the body of this Lease conflict with
4. Taxes 2 the Addenda, the Addenda shall control.
5. Insurance and Indemnity 3
6. Use of Demised Premises 3 [Check all boxes which apply. Boxes not checked do not apply.]
7. Property Condition, Maintenance, Repairs and 4 [x] Exhibit A Floor Plan or Site Plan
Alterations
8. Damage or Destruction 5 [x] Exhibit B Survey and/or Legal Description of the Property
9. Condemnation 5
10. Assignment and Subletting 5 [x] Addendum A Expense Reimbursement
11. Default and Remedies 5 [ ] Addendum B Renewal Options
12. Landlord's Contractual Lien 6 [ ] Addendum C Right of First Refusal for Additional Space
13. Protection of Lenders 7 [ ] Addendum D Percentage Rental/Gross Sales Reports
14. Environmental Representations and Indemnity 7 [ ] Addendum E Guarantee
15. Professional Service Fees 8 [ ] Addendum F Construction of Improvements
16. Miscellaneous 8 [x] Addendum G Rules and Regulations
17. Additional Provisions 9 [x] Addendum H Other ______________________________
</TABLE>
IN CONSIDERATION of the agreements set forth in this Lease, the parties agree as
follows:
ARTICLE ONE: DEFINED TERMS. As used in this Commercial Lease Agreement (the
"Lease"), the terms set forth in this Article One have the following respective
meanings:
1.01. Effective Date: The last date set forth by the signatures of Landlord
and Tenant on page 9 below.
1.02. Landlord: Lanny Houillion
---------------
Address: 5414 N Dentwood
---------------
Dallas, Tx 75220 Telephone: 214 893-5414 Fax: 214 696-0289
---------------- ------------ ------------
1.03. Tenant: Efficient Networks, Inc.
------------------------
Address: 4201 Spring Valley Suite 1200
-----------------------------
Dallas, Tx. 75244-3666 Telephone: 972 991-3884 Fax: 972 991-3887
---------------------- ------------ ------------
1.04. Demised Premises: Graystone Office Park
---------------------
A. Street address: 3310 Keller Springs
-------------------
Carrollton, Tx. 75006 in Dallas County, Texas.
--------------------- ------
B. Floor Plan or Site Plan: Being a floor area of approximately
11,340 square feet and being approximately feet by
------ ------------------
feet (measured to the exterior of outside walls and to
-----------------
the center of the interior walls) and being more particularly shown in
outline form on Exhibit A, FLOOR PLAN OR SITE PLAN.
C. Legal description: The property on which the Demised Premises is
situated (the "Property") is more particularly described as:
-----------------------------------------------------------------------
or is described in Exhibit B,
------------------------------------------
SURVEY AND/OR LEGAL DESCRIPTION.
D. Tenant's pro rata share of the Property is 11.9%. [See Addendum
<PAGE>
-----
A, if applicable]
1.05. Lease Term: 3 years and 0 months beginning on 11/1/98 (the "Commencement
--- ---
Date") and ending on 10/31/01 (the "Expiration Date").
--------
1.06. Base Rent: $ 374,220 total Base Rent for the Lease Term payable in
-------
monthly installments of $ 10,395 per month in advance. (The total amount
-------
of Rent is defined in Section 3.01.)
1.07. Percentage Rental Rate: ____________ %. [See Addendum D if applicable]
1.08. Security Deposit: $ 10,395 (due upon execution of this Lease). [See
------
Section 3.04]
1.09. Permitted Use: Office, Production, Storage
---------------------------
___________________________________________________________. [See Section 6.01]
1.10. Party to whom Tenant is to deliver payments under this Lease [check one]:
[x] Landlord [ ] Principal Broker
[ ] Other
________________________________________________________________________
Landlord may designate in writing the party authorized to act on behalf
of Landlord to enforce this Lease. Any such authorization will remain in
effect until it is revoked by Landlord in writing.
1.11. Principal Broker: The Worth Company, acting as agent for [check one]: [ ]
the Landlord exclusively, [x] the Tenant exclusively, [ ] both Landlord
and Tenant as dual agent. Principal Broker's Address: 5950 Berkshire Ln.
LB 37, Suite 800 Dallas, Tx. 75225
---------------------------------------------------
_____________________ Telephone: 214 696 9242 Fax: 214 696 9246
------------ ------------
1.12. Cooperating Broker: N/A, acting as agent for [check one]: [ ] the
----
Landlord exclusively.
[ ] the Tenant exclusively, [ ] both Landlord and Tenant as dual agent.
Cooperating Broker's Address:
_________________________________________________________________________
____________________________________ Telephone: ________________ Fax:
___________________________
1.13. The Fee: The Professional Service Fee as set forth in Commission
Agreement Attached as Exhibit C
A. __________________ percent ( _____ %).
B. The percentage applicable in Section 15.04 in the event of a sale
shall be ___________ percent ( _____ %).
1.14. [Section deleted]
Page 1
<PAGE>
ARTICLE TWO: LEASE AND LEASE TERM
2.01. Lease of Demised Premises for Lease Term. Landlord leases the Demised
Premises to Tenant and Tenant leases the Demised Premises from Landlord for the
Lease Term stated in Section 1.05. The Commencement Date is the date specified
in Section 1.05, unless advanced or delayed under any provision of this Lease.
2.02. Delay in Commencement. Landlord shall not be liable to Tenant if Landlord
does not deliver possession of the Demised Premises to Tenant on the
Commencement Date specified in Section 1.05 above. Landlord's non-delivery of
possession of the Demised Premises to Tenant on the Commencement Date will not
affect this Lease or the obligations of Tenant under this Lease. However, the
Commencement Date shall be delayed until possession of the Demised Premises is
delivered to Tenant. The Lease Term shall be extended for a period equal to the
delay in delivery of possession of the Demised Premises to Tenant, plus the
number of days necessary for the Lease Term to expire on the last day of a
month. If Landlord does not deliver possession of the Demised Premises to Tenant
within sixty (60) days after the Commencement Date specified in Section 1.05,
Tenant may cancel this Lease by giving written notice to Landlord within ten
(10) days after the 60-day period ends. If Tenant gives such notice, this Lease
shall be canceled effective as of the date of its execution, and no party shall
have any obligations under this Lease. If Tenant does not give such notice
within the time specified, Tenant shall have no right to cancel this Lease, and
the Lease Term shall commence upon the delivery of possession of the Demised
Premises to Tenant. If delivery of possession of the Demised Premises to Tenant
is delayed, Landlord and Tenant shall, upon such delivery, execute an amendment
to this Lease setting forth the revised Commencement Date and Expiration Date of
the Lease Term.
2.03. Early Occupancy. If Tenant occupies the Demised Premises prior to the
Commencement Date, Tenant's occupancy of the Demised Premises shall be subject
to all of the provisions of this Lease. Early occupancy of the Demised Premises
shall not advance the Expiration Date. Unless otherwise provided herein, Tenant
shall pay Base Rent and all other charges specified in this Lease for the period
of occupancy.
2.04. Holding Over. Tenant shall vacate the Demised Premises immediately upon
the expiration of the Lease Term or earlier termination of this Lease. Tenant
shall reimburse Landlord for and indemnify Landlord against all damages incurred
by Landlord as a result of any delay by Tenant in vacating the Demised Premises.
If Tenant does not vacate the Demised Premises upon the expiration of the Lease
Term or earlier termination of this Lease, Tenant's occupancy of the Demised
Premises shall be a day-to-day tenancy, subject to all of the terms of this
Lease, except that the Base Rent during the holdover period shall be increased
to an amount which is one-and-one-half (1 1/2) times the Base Rent in effect on
the expiration or termination of this Lease, computed on a daily basis for each
day of the holdover period, plus all additional sums due under this Lease. This
paragraph shall not be construed as Landlord's consent for Tenant to hold over
or to extend this Lease.
ARTICLE THREE: RENT AND SECURITY DEPOSIT
3.01. Manner of Payment. All sums payable under this Lease by Tenant (the
"Rent") shall be made to the Landlord at the address designated in Section 1.02,
unless another person is designated in Section 1.10, or to any other party or
address as Landlord may designate in writing. Any and all payments made to a
designated third party for the account of the Landlord shall be deemed made to
Landlord when received by the designated third party. All sums payable by Tenant
under this Lease, whether or not expressly denominated as rent, shall constitute
rent for the purposes of Section 502(b)(6) of the Bankruptcy Code and for all
other purposes. The Base Rent is the minimum rent for the Demised Premises and
is subject to the terms and conditions contained in this Lease, together with
the attached Addenda, if any.
3.02. Time of Payment. Upon execution of this Lease, Tenant shall pay the
installment of Base Rent for the first month of the Lease Term. On or before the
first day of the second month of the Lease Term and of each month thereafter,
the installment of Base Rent and other sums due under this Lease shall be due
and payable, in advance, without off-set, deduction or prior demand. If the
Lease Term commences or ends on a day other than the first or last day of a
calendar month, the rent for any fractional calendar month following the
Commencement Date or preceding the end of the Lease Term shall be prorated by
days.
3.03. Late Charges. Tenant's failure to promptly pay sums due under this Lease
may cause Landlord to incur unanticipated costs. The exact amount of those costs
is impractical or extremely difficult to ascertain. The costs may include, but
are not limited to, processing and accounting charges and late charges which may
be imposed on Landlord by any ground lease or deed of trust encumbering the
Demised Premises. Payments due to Landlord under this Lease are not an extension
of credit. Therefore, Landlord may, at Landlord's option and to the extent
allowed by applicable law, impose a Late Charge on any payments which are
<PAGE>
not received by Landlord on or before the due date in an amount equal to one-
half of one percent (0.5%) of the amount of the past due payments (the "Late
Charge") per day for each day after the due date, until the past due amount in
Good Funds is received by Landlord, up to a maximum of ten percent (10%) of the
past due amount. A Late Charge may be imposed only once on each past due
payment. Any Late Charge will be in addition to Landlord's other remedies for
nonpayment of rent. If any check tendered to Landlord by Tenant under this Lease
is dishonored for any reason, Tenant shall pay to the party receiving payments
under this Lease a fee of twenty-five dollars ($25.00), plus (at Landlord's
option) a Late Charge as provided above until good funds are received by
Landlord. The parties agree that any Late Charge and dishonored check fee
represent a fair and reasonable estimate of the costs Landlord will incur by
reason of the late payment or dishonored check. Payments received from Tenant
shall be applied first to any Late Charges, second to Base Rent, and last to
other unpaid charges or reimbursements due to Landlord. Notwithstanding the
foregoing, Landlord will not impose a Late Charge as to the first late payment
in any calendar year, unless Tenant fails to pay the late payment to Landlord
within three (3) business days after the delivery of a written notice from
Landlord to Tenant demanding the late payment be paid. However, Landlord may
impose a Late Charge without advance notice to Tenant on any subsequent late
payment in the same calendar year.
3.04. Security Deposit. Upon execution of this Lease, Tenant shall deposit with
Landlord a cash Security Deposit in the amount stated in Section 1.08. Landlord
may apply all or part of the Security Deposit to any unpaid Rent or other
charges due from Tenant or to cure any other defaults of Tenant. If Landlord
uses any part of the Security Deposit, Tenant shall restore the Security Deposit
to its full amount within ten (10) days after Landlord's written demand.
Tenant's failure to restore the full amount of the Security Deposit within the
time specified shall be a default under this Lease. No interest will be paid on
the Security Deposit. Landlord will not be required to keep the Security Deposit
separate from its other accounts and no trust relationship is created with
respect to the Security Deposit. Upon any termination of this Lease not
resulting from Tenant's default, and after Tenant has vacated the Property and
cleaned and restored the Demised Premises in the manner required by this Lease,
Landlord shall refund the unused portion of the Security Deposit to Tenant
within thirty days after the Termination Date or thirty days after Tenant fully
complies with the conditions of termination as required in Section 7.05,
whichever is later.
3.05. Good Funds Payments. If, for any reason whatsoever, any two or more
payments by check from Tenant to Landlord for Rent are dishonored and returned
unpaid, thereafter Landlord may, at Landlord's sole option, upon written notice
to Tenant, require that all future payments of Rent for the remaining term of
the Lease must be made by cash, certified check, cashier's check, or money order
("Good Funds") and that the delivery of Tenant's personal or corporate check
will no longer constitute payment of Rent under this Lease. Any acceptance by
Landlord of a payment for Rent by Tenant's personal or corporate check
thereafter shall not be construed as a waiver of Landlord's right to insist upon
payment by Good Funds as set forth herein.
ARTICLE FOUR: TAXES
4.01. Payment by Landlord. Landlord shall pay the real estate taxes on the
Demised Premises during the Lease Term.
4.02. Improvements by Tenant. If the real estate taxes levied against the
Demised Premises for the real estate tax year in which the Lease Term commences
are increased as a result of any alterations, additions or improvements made by
Tenant or by Landlord at the request of Tenant, Tenant shall pay to Landlord
upon demand the amount of the increase and continue to pay the increase during
the Lease Term. Landlord shall use reasonable efforts to obtain from the tax
assessor or assessors a written statement of the total amount of the increase.
4.03. Joint Assessment. If the real estate taxes are assessed against the
Demised Premises jointly with other property not constituting a part of the
Demised Premises, the real estate taxes applicable to the Demised Premises shall
be equal to the amount bearing the same proportion to the aggregate assessment
that the total square feet of building area in the Demised Premises bears to the
total square feet of building area included in the joint assessment.
4.04. Personal Property Taxes. Tenant shall pay all taxes assessed against
trade fixtures, furnishings, equipment, inventory, products, or any other
personal property belonging to Tenant. Tenant shall use reasonable efforts to
have Tenant's personal property taxed separately from the Demised Premises. If
any of Tenant's personal property is taxed with the Demised Premises, Tenant
shall pay the taxes for the personal property to Landlord within fifteen (15)
days after Tenant receives a written statement from Landlord for the personal
property taxes.
<PAGE>
ARTICLE FIVE: INSURANCE AND INDEMNITY
5.01. Casualty Insurance. During the Lease Term, Landlord shall maintain
policies of insurance covering loss of or damage to the Demised Premises in an
amount or percentage of replacement value as Landlord deems reasonable in
relation to the age, location, type of construction and physical condition of
the Demised Premises and the availability of insurance at reasonable rates. The
policies shall provide protection against all perils included within the
classification of fire and extended coverage and any other perils which Landlord
deems necessary Landlord may, at Landlord's option, obtain insurance coverage
for Tenant's fixtures, equipment or building improvements installed by Tenant in
or on the Demised Premises. Tenant shall, at Tenant's expense, maintain
insurance on its fixtures, equipment and building improvements as Tenant deems
necessary to protect Tenant's interest. Tenant shall not do or permit to be done
anything which invalidates any insurance policies. Any casualty insurance
carried by Landlord or Tenant shall be for the sole benefit of the party
carrying the insurance and under its sole control.
5.02. Increase in Premiums. Tenant shall not permit any operation or activity
to be conducted, or storage or use of any volatile or any other materials, on or
about the Demised Premises that would cause suspension or cancellation of any
fire and extended coverage insurance policy carried by Landlord, or increase the
premiums therefor, without the prior written consent of Landlord. If Tenant's
use and occupancy of the Demised Premises causes an increase in the premiums for
any fire and extended coverage insurance policy carried by Landlord, Tenant
shall pay to Landlord, as additional rental, the amount of the increase within
ten days after demand and presentation by Landlord of written evidence of the
increase.
5.03. Liability Insurance. During the Lease Term, Tenant shall maintain a
commercial general liability policy of insurance, at Tenant's expense, insuring
Landlord against liability arising out of the ownership, use, occupancy, or
maintenance of the Demised Premises. The initial amounts of the insurance must
be at least: $1,000,000 for Each Occurrence, $2,000,000 General Aggregate per
policy year, $100,000 Property Damage for the Demised Premises, and $10,000
Medical Expense; plus a $5,000,000 commercial general liability umbrella; and
shall be subject to periodic increases based upon economic factors as Landlord
may determine, in Landlord's discretion, exercised in good faith. However, the
amounts of the insurance shall not limit Tenant's liability nor relieve Tenant
of any obligation under this Lease. The policies must contain cross-liability
endorsements, if applicable, and must insure Tenant's performance of the
indemnity provisions of Section 5.04. The policies must contain a provision
which prohibits cancellation or modification of the policy except upon thirty
(30) days' prior written notice to Landlord. Tenant may discharge Tenant's
obligations under this Section by naming Landlord as an additional insured under
a comprehensive policy of commercial general liability insurance maintained by
Tenant and containing the coverage and provisions described in this Section.
Tenant shall deliver a copy of the policy or certificate (or a renewal) to
Landlord prior to the Commencement Date and prior to the expiration of the
policy during the Lease Term. If Tenant fails to maintain the policy, Landlord
may elect to maintain the insurance at Tenant's expense. Tenant may, at Tenant's
expense, maintain other liability insurance as Tenant deems necessary to protect
Tenant
5.04. Indemnity. Landlord shall not be liable to Tenant or to Tenant's
employees, agents, invitees or visitors, or to any other person, for any injury
to persons or damage to property on or about the Demised Premises or any
adjacent area owned by Landlord caused by the negligence or misconduct of
Tenant, Tenant's employees, subtenants, agents, licensees or concessionaires or
any other person entering the Demised Premises under express or implied
invitation of Tenant, or arising out of the use of the Demised Premises by
Tenant and the conduct of Tenant's business, or arising out of any breach or
default by Tenant in the performance of Tenant's obligations under this Lease,
and Tenant hereby agrees to indemnify and hold Landlord harmless from any loss,
expense or claims arising out of such damage or injury Tenant shall not be
liable for any injury or damage caused by the negligence or misconduct of
Landlord, or Landlord's employees or agents, and Landlord agrees to indemnify
and hold Tenant harmless from any loss, expense or damage arising out of such
damage or injury.
5.05. Comparative Negligence. Tenant and Landlord hereby unconditionally and
irrevocably agree to indemnify, defend and hold each other and their officers,
agents, directors, subsidiaries, partners, employees, licensees and counsel
harmless, to the extent of each party's comparative negligence, if any, from and
against any and all loss, liability, demand, damage, judgment, suit, claim,
deficiency, interest, fee, charge, cost or expense (including, without
limitation, interest, court costs and penalties, reasonable attorney's fees and
disbursements and amounts paid in settlement, or liabilities resulting from any
change in federal, state or local law or regulation or interpretation of this
Lease) of whatever nature, on a comparative negligence basis, even when caused
in part by Landlord's or Tenant's negligence or the joint or concurring
negligence of Landlord, Tenant, and any
<PAGE>
other person or entity, which may result or to which Landlord or Tenant and/or
any of their officers, agents, directors, employees, subsidiaries, partners,
licensees and counsel may sustain, suffer, incur or become subject to in
connection with or arising in any way whatsoever out of the leasing, operation,
promotion, management, maintenance, repair, use or occupation of the Demised
Premises, or any other activity of whatever nature in connection therewith, or
arising out of or by reason of any investigation, litigation or other
proceedings brought or threatened, arising out of or based upon the leasing,
operation, promotion, management, maintenance, repair, use or occupancy of the
Demised Premises, or any other activity on the Demised Premises. This provision
shall survive the expiration or termination of this Lease.
5.06. Waiver of Subrogation. Each party to this Lease waives any and every
claim which arises or may arise in its favor against the other party during the
term of this Lease or any renewal or extension of this Lease for any and all
loss of, or damage to, any of its property located within or upon, or
constituting a part of, the Demised Premises, which loss or damage is covered by
valid and collectible fire and extended coverage insurance policies, to the
extent that such loss or damage is recoverable under such insurance policies.
These mutual waivers shall be in addition to, and not in limitation or
derogation of, any other waiver or release contained in this Lease with respect
to any loss of, or damage to, property of the parties. Inasmuch as these mutual
waivers will preclude the assignment of any aforesaid claim by way of
subrogation or otherwise to an insurance company (or any other person), each
party hereby agrees to give immediately to each insurance company (which has
issued to such party policies of fire and extended coverage insurance) written
notice of the terms of such mutual waivers, and to cause such insurance policies
to be properly endorsed to prevent the invalidation of the insurance coverage by
reason of these waivers
ARTICLE SIX: USE OF DEMISED PREMISES
6.01. Permitted Use. Tenant may use the Demised Premises only for the Permitted
Use stated in Section 1.09. The parties to this Lease knowledge that the current
use of the Demised Premises or the improvements located on the Demised Premises,
or both, may or may not conform to the city zoning ordinance with respect to the
permitted use, height, setback requirements, minimum parking requirements,
coverage ratio of improvements to total area of land, and other matters which
may have a significant economic impact upon the Tenant's intended use of the
Demised Premises. Tenant acknowledges that Tenant has or will independently
investigate and verify to Tenant's satisfaction the extent of any limitations or
non-conforming uses of the Demised Premises. Tenant further acknowledges that
Tenant is not relying upon any warranties or representations of Landlord or the
Brokers who are participating in the negotiation of this Lease concerning the
Permitted Use of the Demised Premises, or with respect to any uses of the
improvements located on the Demised Premises
6.02. Compliance with Law. Tenant shall comply with all governmental laws,
ordinances and regulations applicable to the use of the Demised Premises, and
shall promptly comply with all governmental orders and directives for the
correction, prevention and abatement of nuisances and other activities in or
upon, or connected with the Demised Premises, all at Tenant's sole expense,
including any expense or cost resulting from the construction or installation of
fixtures and improvements or other accommodations for handicapped or disabled
persons required for compliance with governmental laws and regulations,
including but not limited to the Texas Architectural Barriers Act (Article 9102
and any successor statute) and the Americans with Disabilities Act (the "ADA").
To the extent any alterations to the Demised Premises are required by the ADA or
other applicable laws or regulations, Tenant shall bear the expense of the
alterations. To the extent any alterations to areas of the Property outside the
Demised Premises are required by Title III of the ADA or other applicable laws
or regulations (for "path of travel" requirements or otherwise), Landlord shall
bear the expense of the alterations
6.03. Certificate of Occupancy. If required, Tenant shall obtain a Certificate
of Occupancy from the municipality in which the Property is located prior to
occupancy of the Demised Premises. Tenant may apply for a Certificate of
Occupancy prior to the Commencement Date and, if Tenant is unable to obtain a
Certificate of Occupancy, Tenant shall have the right to terminate this Lease by
written notice to Landlord if Landlord or Tenant is unwilling or unable to cure
the defects which prevented the issuance of the Certificate of Occupancy
Landlord may, but has no obligation to, cure any such defects, including any
repairs, installations, or replacements of any items which are not presently
existing on the Demised Premises, or which have not been expressly agreed upon
by Landlord in writing.
<PAGE>
6.04. Signs. Without the prior written consent of Landlord, Tenant may not
place any signs, ornaments or other objects upon the Demised Premises or on the
Property, including but not limited to the roof or exterior of the building or
other improvements on the Property, or paint or otherwise decorate or deface the
exterior of the building. Any signs installed by Tenant must conform with
applicable laws, deed restrictions on the Property, and other applicable
requirements. Tenant must remove all signs, decorations and ornaments at the
expiration or termination of this Lease and must repair any damage and close any
holes caused by the removal.
6.05. Utility Services. Tenant shall pay the cost of all utility services,
including but not limited to initial connection charges, all charges for gas,
water, sewerage, storm water disposal, communications and electricity used on
the Demised Premises, and for replacing all electric lights, lamps and tubes.
6.06. Landlord's Access. Landlord and Landlord's agents shall have the right
to, during normal business hours and upon reasonable advance notice, and without
unreasonably interfering with Tenant's business, enter the Demised Premises: (a)
to inspect the general condition and state of repair of the Demised Premises,
(b) to make repairs required or permitted under this Lease, (c) to show the
Demised Premises or the Property to any prospective tenant or purchaser, and (d)
for any other reasonable purpose. If Tenant changes the locks on the Demised
Premises, Tenant must provide Landlord with a copy of each separate key. During
the final one hundred fifty (150) days of the Lease Term, Landlord and
Landlord's agents may erect and maintain on or about the Demised Premises signs
advertising the Demised Premises for lease or for sale.
6.07. Possession. If Tenant pays the rent, properly maintains the Demised
Premises, and complies with all other terms of this Lease, Tenant may occupy and
enjoy the Demised Premises for the full Lease Term, subject to the provisions of
this Lease
6.08. Exemptions from Liability. Landlord shall not be liable for any damage or
injury to the persons, business (or any loss of income), goods, inventory,
furnishings, fixtures, equipment, merchandise or other property of Tenant,
Tenant's employees, invitees, customers or any other person in or about the
Demised Premises, whether the damage or injury is caused by or results from. (a)
fire, steam, electricity, water, gas or wind; (b) the breakage, leakage,
obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing,
air conditioning or lighting fixtures or any other cause; (c) conditions arising
on or about the Demised Premises or upon other portions of any building of which
the Demised Premises is a part, or from other sources or places; or (d) any act
or omission of any other tenant of any building on the Property. Landlord shall
not be liable for any damage or injury even though the cause of or the means of
repairing the damage or injury are not accessible to Tenant. The provisions of
this Section 6.08 shall not, however, exempt Landlord from liability for
Landlord's gross negligence or willful misconduct.
ARTICLE SEVEN: PROPERTY CONDITION, MAINTENANCE, REPAIRS AND ALTERATIONS
7.01. Property Condition. Except as disclosed in writing by Landlord to Tenant
contemporaneously with the execution of this Lease, to the best of Landlord's
actual knowledge the Demised Premises has no known latent structural defects,
construction defects of a material nature, and to the best of Landlord's actual
knowledge none of the improvements has been constructed with materials known to
be a potential health hazard to occupants of the Demised Premises. Tenant
acknowledges that neither the Principal Broker nor any Cooperating Broker has
made any warranty or representation to Tenant with respect to the condition of
the Demised Premises, and that Tenant is relying exclusively upon Tenant's own
investigations and the representations of Landlord, if any, with respect to the
condition of the Demised Premises. Landlord and Tenant agree to hold the Brokers
harmless of and from any and all damages, claims, costs and expenses of every
kind and character resulting from or related to Landlord's furnishing to the
Brokers any false, incorrect or inaccurate information with respect to the
Demised Premises, or Landlord's concealing any material information with respect
to the condition of the Demised Premises. Other than as expressly set forth in
this Lease, Landlord represents that on the Commencement Date (and for a period
of thirty (30) days thereafter) the building fixtures and equipment, plumbing
and plumbing fixtures, electrical and lighting system, any fire protection
sprinkler system, ventilating equipment, heating system, air conditioning
equipment, roof, skylights, doors, overhead doors, windows, dock levelers,
elevators, and the interior of the Demised Premises in general are in good
operating condition Tenant shall have a period of thirty (30) days following the
Commencement Date in which to inspect the Demised Premises and to notify
Landlord in writing of any defects and maintenance, repairs or replacements
required to the above named equipment, fixtures, systems and interior. Within a
reasonable period of time after the timely receipt of any such written notice
from Tenant, Landlord shall, at Landlord's expense, correct the defects and
perform the maintenance, repairs and replacements.
<PAGE>
7.02. Acceptance of Demised Premises. Subject to the provisions in Section
7.01, Tenant acknowledges that: (a) a full and complete inspection of the
Demised Premises and adjacent common areas has been made and Landlord has fully
and adequately disclosed the existence of any defects which would interfere with
Tenant's use of the Demised Premises for their intended commercial purpose, and
(b) as a result of such inspection and disclosure, Tenant has taken possession
of the Demised Premises and accepts the Demised Premises in its "As Is"
condition.
7.03. Maintenance and Repair. Except as otherwise provided in this Lease,
Landlord shall be under no obligation to perform any repair, maintenance or
management service in the Demised Premises or adjacent common areas. Tenant
shall be fully responsible, at its expense, for all repair, maintenance and
management services other than those which are expressly assumed by Landlord.
A. Landlord's Obligation.
(1) Subject to the provisions of Article Eight (Damage or
Destruction) and Article Nine (Condemnation) and except for damage caused by any
act or omission of Tenant, Landlord shall keep the roof, skylights, foundation,
structural components and the structural portions of exterior walls of the
Demised Premises in good order, condition and repair. Landlord shall not be
obligated to maintain or repair windows, doors, overhead doors, plate glass or
the surfaces of walls. In addition, Landlord shall not be obligated to make any
repairs under this Section until a reasonable time after receipt of written
notice from Tenant of the need for repairs. If any repairs are required to be
made by Landlord, Tenant shall, at Tenant's sole cost and expense, promptly
remove Tenant's furnishings, fixtures, inventory, equipment and other property,
to the extent required to enable Landlord to make repairs. Landlord's liability
under this Section shall be limited to the cost of those repairs or corrections.
Tenant waives the benefit of any present or future law which might give Tenant
the right to repair the Demised Premises at Landlord's expense or to terminate
the Lease because of the condition.
(2) All repair, maintenance, management and other services to be
performed by Landlord or Landlord's agents involve the exercise of professional
judgment by service providers, and Tenant expressly waives any claims for breach
of warranty arising from the performance of those services.
B. Tenant's Obligation.
(1) Subject to the provisions of Section 7.01, Section 7.03.A,
Article Eight (Damage or Destruction) and Article Nine (Condemnation), Tenant
shall, at all times, keep all other portions of the Demised Premises in good
order, condition and repair, ordinary wear and tear excepted, including but not
limited to maintenance, repairs and all necessary replacements of the windows,
plate glass, doors, overhead doors, heating system, ventilating equipment, air
conditioning equipment, electrical and lighting systems, fire protection
sprinkler system, dock levelers, elevators, interior and exterior plumbing, the
interior of the Demised Premises in general, pest control and extermination,
downspouts, gutters, paving railroad siding, care of landscaping and regular
mowing of grass, and including the exterior of the Demised Premises. In
addition, Tenant shall, at Tenant's expense, repair any damage to any portion of
the Property, including the roof, skylights, foundation, or structural
components and exterior walls of the Demised Premises, caused by Tenant's acts
or omissions. If Tenant fails to maintain and repair the Property as required by
this Section, Landlord may, on ten (10) days' prior written notice, enter the
Demised Premises and perform the maintenance or repair on behalf of Tenant,
except that no notice is required in case of emergency, and Tenant shall
reimburse Landlord immediately upon demand for all costs incurred in performing
the maintenance or repair, plus a reasonable service charge.
(2) HVAC Service. Tenant shall, at Tenant's own cost and expense,
enter into a regularly scheduled preventative maintenance and service contract
for all refrigeration, heating, ventilating, and air conditioning systems and
equipment within the Demised Premises during the Lease Term. If Tenant fails to
enter into such a service contract acceptable to Landlord, Landlord may do so on
Tenant's behalf and Tenant agrees to pay Landlord the cost and expense thereof,
plus a reasonable service charge, regularly upon demand
Page 4
<PAGE>
7.04. Alterations, Additions and Improvements. Tenant shall not create any
openings in the roof or exterior walls, or make any alterations, additions or
improvements to the Demised Premises without the prior written consent of
Landlord. Consent for non-structural alterations, additions or improvements
shall not be unreasonably withheld by Landlord. Tenant may erect or install
trade fixtures, shelves, bins, machinery, heating, ventilating and air
conditioning equipment and, provided that Tenant complies with all applicable
governmental laws, ordinances, codes, and regulations. At the expiration or
termination of this Lease, Tenant shall, subject to the restrictions of Section
7.05 below, have the right to remove items installed by Tenant, provided Tenant
is not in default at the time of the removal and provided further that Tenant
shall, at the time of removal of the items, repair in a good and workmanlike
manner any damage caused by the installation or removal Tenant shall pay for all
costs incurred or arising out of alterations, additions or improvements in or to
the Demised Premises and shall not permit any mechanic's or materialman's lien
to be filed against the Demised Premises or the Property. Upon request by
Landlord, Tenant shall deliver to Landlord proof of payment reasonably
satisfactory to Landlord of all costs incurred or arising out of any
alterations, additions or improvements.
7.05. Condition upon Termination. Upon the expiration or termination of this
Lease, Tenant shall surrender the Demised Premises to Landlord broom clean and
in the same condition as received, except for ordinary wear and tear which
Tenant is not otherwise obligated to remedy under any provision of this Lease.
Tenant shall not be obligated to repair any damage which Landlord is required to
repair under Article Seven (Property Condition) or Article Eight (Damage or
Destruction). In addition, Landlord may require Tenant to remove any
alterations, additions or improvements (whether or not made with Landlord's
consent) prior to the expiration or termination of this Lease and to restore the
Demised Premises to its prior condition, all at Tenant's expense. All
alterations, additions and improvements which Landlord has not required Tenant
to remove shall become Landlord's property and shall be surrendered to Landlord
upon the expiration or termination of this Lease. In no event, however, shall
Tenant remove any of the following materials or equipment without Landlord's
prior written consent: (i) any electrical wiring or power panels; (ii) lighting
or lighting fixtures; (iii) wall coverings, drapes, blinds or other window
coverings; (iv) carpets or other floor coverings; (v) heating, ventilating, or
air conditioning equipment; (vi) fencing or security gates; or (vii) any other
fixtures, equipment or items which, if removed, would affect the operation or
the exterior appearance of the Property.
ARTICLE EIGHT: DAMAGE OR DESTRUCTION
8.01. Notice. If any buildings or other improvements situated on the Property
are damaged or destroyed by fire, flood, windstorm, tornado or other casualty,
Tenant shall immediately give written notice of the damage or destruction to
Landlord.
8.02. Partial Damage. If the building or other improvements situated on the
Demised Premises are damaged by fire, tornado, or other casualty but not to such
an extent that rebuilding or repairs cannot reasonably be completed within one
hundred twenty (120) days from the date Landlord receives written notification
by Tenant of the occurrence of the damage, this Lease shall not terminate, but
Landlord shall proceed with reasonable diligence to rebuild or repair the
building and other improvements on the Demised Premises (other than leasehold
improvements made by Tenant or any assignee, subtenant or other occupant of the
Demised Premises) to substantially the condition in which they existed prior to
the damage. If the casualty occurs during the final eighteen (18) months of the
Lease Term, Landlord shall not be required to rebuild or repair the damage
unless Tenant exercises Tenant's renewal option (if any) within fifteen (15)
days after the date of receipt by Landlord of the notification of the occurrence
of the damage. If Tenant does not exercise its renewal option, or if there is no
renewal option contained in this Lease, Landlord may, at Landlord's option,
terminate this Lease by promptly delivering a written termination notice to
Tenant, in which event the Rent shall be abated for the unexpired portion of the
Lease Term, effective from the date of receipt by Landlord of the written
notification of the damage. To the extent the Demised Premises cannot be
occupied (in whole or in part) following the casualty, the Rent payable under
this Lease during the period in which the Demised Premises cannot be fully
occupied shall be adjusted equitably.
8.03. Substantial or Total Destruction. If the building or other improvements
situated on the Demised Premises are substantially or totally destroyed by fire,
tornado, or other casualty, or so damaged that rebuilding or repairs cannot
reasonably be completed within one hundred twenty (120) days from the date
Landlord receives written notification by Tenant of the occurrence of the
damage, either Landlord or Tenant may terminate this Lease by promptly
delivering a written termination notice to the other party, in which event the
monthly installments of Rent shall be abated for the unexpired portion of the
Lease Term, effective from the date of the damage or destruction. If neither
party promptly terminates this Lease, Landlord shall proceed with reasonable
diligence to rebuild and repair the building and other improvements (except that
Tenant shall rebuild and repair Tenant's fixtures and improvements in the
Demised Premises). To the extent the Demised Premises
<PAGE>
cannot be occupied (in whole or in part) following the casualty, the Rent
payable under this Lease during the period in which the Demised Premises cannot
be fully occupied shall be adjusted equitably.
ARTICLE NINE: CONDEMNATION
If, during the Lease Term or any extension thereof, all or a substantial part of
the Demised Premises are taken for any public or quasi-public use under any
governmental law, ordinance or regulation or by right of eminent domain, or are
conveyed to the condemning authority under threat of condemnation, this Lease
shall terminate and the monthly installments of Rent shall be abated during the
unexpired portion of the Lease Term, effective from the date of the taking. If
less than a substantial part of the Demised Premises is taken for public or
quasi-public use under any governmental law, ordinance or regulation, or by
right of eminent domain, or is conveyed to the condemning authority under threat
of condemnation, Landlord, at its option, may by written notice terminate this
Lease. If Landlord does not terminate this Lease, Landlord shall promptly, at
Landlord's expense, restore and reconstruct the buildings and improvements
(other than leasehold improvements made by Tenant or any assignee, subtenant or
other occupant of the Demised Premises) situated on the Demised Premises in
order to make the same reasonably tenantable and suitable for the use for which
the Demised Premises is leased as defined in Section 6.01. The monthly
installments of Rent payable under this Lease during the unexpired portion of
the Lease Term shall be adjusted equitably. Landlord and Tenant shall each be
entitled to receive and retain such separate awards and portions of lump sum
awards as may be allocated to their respective interests in any condemnation
proceeding. The termination of this Lease shall not affect the rights of the
parties to such awards.
ARTICLE TEN: ASSIGNMENT AND SUBLETTING
Tenant shall not, without the prior written consent of Landlord, assign this
Lease or sublet the Demised Premises or any portion thereof. Any assignment or
subletting shall be expressly subject to all terms and provisions of this Lease,
including the provisions of Section 6.01 pertaining to the use of the Demised
Premises. In the event of any assignment or subletting, Tenant shall remain
fully liable for the full performance of all Tenant's obligations under this
Lease. Tenant shall not assign its rights under this Lease or sublet the Demised
Premises without first obtaining a written agreement from the assignee or
sublessee whereby the assignee or sublessee agrees to assume the obligations of
Tenant under this Lease and to be bound by the terms of this Lease. If an event
of default occurs while the Demised Premises is assigned or sublet, Landlord
may, at Landlord's option, in addition to any other remedies provided in this
Lease or by law, collect directly from the assignee or subtenant all rents
becoming due under the terms of the assignment or subletting and apply the rent
against any sums due to Landlord under this Lease. No direct collection by
Landlord from any assignee or subtenant will release Tenant from Tenant's
obligations under this Lease.
ARTICLE ELEVEN: DEFAULT AND REMEDIES
11.01. Default. Each of the following events is an event of default under this
Lease:
A. Failure of Tenant to pay any installment of the Rent or other sum
payable to Landlord under this Lease on the date that it is due and the
continuance of that failure for a period of five (5) days after Landlord
delivers written notice of the failure to Tenant. This clause shall not be
construed to permit or allow a delay in paying Rent beyond the due date and
shall not affect Landlord's right to impose a Late Charge as permitted in
Section 3.03.
B. Failure of Tenant to comply with any term, condition or covenant of
this Lease, other than the payment of Rent or other sum of money, and the
continuance of that failure for a period of thirty (30) days after Landlord
delivers written notice of the failure to Tenant;
C. Failure of Tenant or any guarantor of Tenant's obligations under this
Lease to pay its debts as they become due or an admission in writing of
inability to pay its debts, or the making of a general assignment for the
benefit of creditors;
Page 5
<PAGE>
D. The commencement by Tenant or any guarantor of Tenant's obligations
under this Lease of any case, proceeding or other action seeking reorganization,
arrangement, adjustment, liquidation, dissolution or composition of it or its
debts under any law relating to bankruptcy, insolvency, reorganization or relief
of debtors, or seeking appointment of a receiver, trustee, custodian or other
similar official for it or for all or any substantial part of its property;
E. The commencement of any case, proceeding or other action against
Tenant or any guarantor of Tenant's obligations under this Lease seeking to have
an order for relief entered against it as debtor, or seeking reorganization,
arrangement, adjustment, liquidation, dissolution or composition of it or its
debts under any law relating to bankruptcy, insolvency, reorganization or relief
of debtors, or seeking appointment of a receiver, trustee, custodian or other
similar official for it or for all or any substantial part of its property, and
Tenant or any guarantor: (i) fails to obtain a dismissal of such case,
proceeding, or other action within sixty (60) days of its commencement; or (ii)
converts the case from one chapter of the Federal Bankruptcy Code to another
chapter, or (iii) is the subject of an order of relief which is not fully stayed
within seven (7) business days after the entry thereof; and
F. Vacancy or abandonment by Tenant of any substantial portion of the
Demised Premises or cessation of the use of the Demised Premises for the purpose
leased.
11.02. Remedies. Upon the occurrence of any of the events of default listed in
Section 11.01, Landlord shall have the option to pursue any one or more of the
following remedies without any prior notice or demand.
A. Terminate this Lease, in which event Tenant shall immediately
surrender the Demised Premises to Landlord. If Tenant fails to so surrender the
Demised Premises, Landlord may, without prejudice to any other remedy which it
may have for possession of the Demised Premises or Rent in arrears, enter upon
and take possession of the Demised Premises and expel or remove Tenant and any
other person who may be occupying the Demised Premises or any part thereof, by
force if necessary, without being liable for prosecution or any claim for
damages. Tenant shall pay to Landlord on demand the amount of all loss and
damage which Landlord may suffer by reason of the termination, whether through
inability to relet the Demised Premises on satisfactory terms or otherwise.
B. Enter upon and take possession of the Demised Premises, by force if
necessary, without terminating this Lease and without being liable for
prosecution or for any claim for damages, and expel or remove Tenant and any
other person who may be occupying the Demised Premises or any part thereof.
Landlord may relet the Demised Premises and receive the rent therefor. Tenant
agrees to pay to Landlord monthly or on demand from time to time any deficiency
that may arise by reason of any such reletting. In determining the amount of the
deficiency, the professional service fees, attorneys' fees, court costs,
remodeling expenses and other costs of reletting shall be subtracted from the
amount of rent received under the reletting.
C. Enter upon the Demised Premises, by force if necessary, without
terminating this Lease and without being liable for prosecution or for any claim
for damages, and do whatever Tenant is obligated to do under the terms of this
Lease. Tenant agrees to pay Landlord on demand for expenses which Landlord may
incur in thus effecting compliance with Tenant's obligations under this Lease,
together with interest thereon at the rate of twelve percent (12%) per annum
from the date expended until paid. Landlord shall not be liable for any damages
resulting to Tenant from such action, whether caused by negligence of Landlord
or otherwise.
D. Accelerate and declare the Rent for the entire Lease Term, and all
other amounts due under this Lease, at once due and payable, and proceed by
attachment, suit or otherwise, to collect all amounts in the same manner as if
all such amounts due or to become due during the entire Lease Term were payable
in advance by the terms of this Lease, and neither the enforcement or collection
by Landlord of such amounts nor the payment by Tenant of such amounts shall
constitute a waiver by Landlord of any breach, existing or in the future, of any
of the terms or provisions of this Lease by Tenant or a waiver of any rights or
remedies which the Landlord may have with respect to any such breach
E. In addition to the foregoing remedies, Landlord shall have the right
to change or modify the locks on the Demised Premises in the event Tenant fails
to pay the monthly installment of Rent when due. Landlord shall not be obligated
to provide another key to Tenant or allow Tenant to regain entry to the Demises
Premises unless and until Tenant pays Landlord all Rent which is delinquent.
Tenant agrees that Landlord shall not be liable for any damages resulting to the
Tenant from the lockout. At such time that Landlord changes or modifies the
lock, Landlord shall post a "Notice of Change of Locks" on the front of the
Demised Premises. Such Notice shall state that:
<PAGE>
(1) Tenant's monthly installment of Rent is delinquent, and
therefore, under authority of Section 11.02 E of Tenant's Lease, the Landlord
has exercised its contractual right to change or modify Tenant's door locks;
(2) The Notice has been posted on the Tenant's front door by a
representative of Landlord and Tenant should make arrangements with the
representative to pay the delinquent installments of Rent when Tenant picks up
the key; and
(3) The failure of Tenant to comply with the provisions of the Lease
and the Notice and/or tampering with or changing the door lock(s) by Tenant may
subject Tenant to legal liability.
F. No re-entry or taking possession of the Demised Premises by Landlord
shall be construed as an election to terminate this Lease, unless a written
notice of that intention is given to Tenant. Notwithstanding any such reletting
or re-entry or taking possession, Landlord may, at any time thereafter, elect to
terminate this Lease for a previous default. Pursuit of any of the foregoing
remedies shall not preclude pursuit of any other remedies provided by law, nor
shall pursuit of any remedy provided in this Lease constitute a forfeiture or
waiver of any monthly installment of Rent due to Landlord under this Lease or of
any damages accruing to Landlord by reason of the violation of any of the terms,
provisions and covenants contained in this Lease. Failure of Landlord to declare
any default immediately upon its occurrence, or failure to enforce one or more
of Landlord's remedies, or forbearance by Landlord to enforce one or more of
Landlord's remedies upon an event of default shall not be deemed or construed to
constitute a waiver of default or waiver of any violation or breach of the terms
of this Lease. Pursuit of any one of the above remedies shall not preclude
pursuit by Landlord of any of the other remedies provided in this Lease. The
loss or damage that Landlord may suffer by reason of termination of this Lease
or the deficiency from any reletting as provided for above shall include the
expense of repossession and any repairs or remodeling undertaken by Landlord
following possession. If Landlord terminates this Lease at any time for any
default, in addition to other remedies Landlord may have, Landlord may recover
from Tenant all damages Landlord may incur by reason of the default, including
the cost of recovering the Demised Premises and the cost of the Rent then
remaining unpaid.
11.03. Notice of Default. Tenant shall give written notice of any failure by
Landlord to perform any of Landlord's obligations under this Lease to Landlord
and to any ground lessor, mortgagee or beneficiary under any deed of trust
encumbering the Demised Premises whose name and address have been furnished to
Tenant in writing. Landlord shall not be in default under this Lease unless
Landlord (or such ground lessor, mortgagee or beneficiary) fails to cure the
nonperformance within thirty (30) days after receipt of Tenant's notice.
However, if the nonperformance reasonably requires more than thirty (30) days to
cure, Landlord shall not be in default if the cure is commenced within the 30-
day period and is thereafter diligently pursued to completion.
11.04. Limitation of Landlord's Liability. As used in this Lease, the term
"Landlord" means only the current owner or owners of the fee title to the
Demised Premises or the leasehold estate under a ground lease of the Demised
Premises at the time in question. Each Landlord is obligated to perform the
obligations of Landlord under this Lease only during the time such Landlord owns
such interest or title. Any Landlord who transfers its title or interest is
relieved of all liability with respect to the obligations of Landlord under this
Lease accruing on or after the date of transfer, and Tenant agrees to recognize
the transferee as Landlord under this Lease. However, each Landlord shall
deliver to its transferee the Security Deposit held by Landlord if such Security
Deposit has not then been applied under the terms of this Lease
ARTICLE TWELVE: LANDLORD'S CONTRACTUAL LIEN
[Article deleted]
Page 6
<PAGE>
ARTICLE THIRTEEN: PROTECTION OF LENDERS
13.01. Subordination and Attornment. Landlord shall have the right to
subordinate this Lease to any future ground Lease, deed of trust or mortgage
encumbering the Demised Premises, and advances made on the security thereof and
any renewals, modifications, consolidations, replacements or extensions thereof,
whenever made or recorded. Landlord's right to obtain such a subordination is
subject to Landlord's providing Tenant with a written Subordination,
Nondisturbance and Attornment Agreement from the ground lessor, beneficiary or
mortgagee wherein Tenant's right to peaceable possession of the Demised Premises
during the Lease Term shall not be disturbed if Tenant pays the Rent and
performs all of Tenant's obligations under this Lease and is not otherwise in
default, in which case Tenant shall attorn to the transferee of or successor to
Landlord's interest in the Demised Premises and recognize the transferee or
successor as Landlord under this Lease. If any ground lessor, beneficiary or
mortgagee elects to have this Lease superior to the lien of its ground lease,
deed of trust or mortgage and gives Tenant written notice thereof, this Lease
shall be deemed superior to the ground lease, deed of trust or mortgage whether
this Lease is dated prior or subsequent to the date of the ground lease, deed of
trust or mortgage or the date of recording thereof. Tenant's rights under this
Lease, unless specifically modified at the time this Lease is executed, are
subordinated to any existing ground lease, deed of trust or mortgage encumbering
the Demised Premises.
13.02. Signing of Documents. Tenant shall sign and deliver any instruments or
documents necessary or appropriate to evidence any attornment or subordination
or any agreement to attorn or subordinate. If Tenant fails to do so within ten
(10) days after written request, Tenant hereby makes, constitutes and
irrevocably appoints Landlord, or any transferee or successor of Landlord, the
attorney-in-fact of Tenant to execute and deliver the attornment or
subordination document or agreement.
13.03. Estoppel Certificates.
A. Upon Landlord's written request, Tenant shall execute, acknowledge and
deliver to Landlord a written statement certifying. (i) that none of the terms
or provisions of this Lease have been changed (or if they have been changed,
stating how they have been changed), (ii) that this Lease has not been canceled
or terminated; (iii) the last date of payment of the Base Rent and other charges
and the time period covered by that payment; and (iv) that Landlord is not in
default under this Lease (or, if Landlord is claimed to be in default, stating
why). Tenant shall deliver the statement to Landlord within ten (10) days after
Landlord's request. Landlord may forward any such statement to any prospective
purchaser or lender of the Demised Premises. The purchaser or lender may rely
conclusively upon the statement as true and correct
B. If Tenant does not deliver the written statement to Landlord within
the 10-day period, Landlord, and any prospective purchaser of lender, may
conclusively presume and rely upon the following facts: (i) that the terms and
provisions of this Lease have not been changed except as otherwise represented
by Landlord; (ii) that this Lease has not been canceled or terminated except as
otherwise represented by Landlord; (iii) that not more than one monthly
installment of Base Rent or other charges have been paid in advance, and (iv)
that Landlord is not in default under this Lease. In such event, Tenant shall be
estopped from denying the truth of the presumed facts.
13.04. Tenant's Financial Condition. Within ten (10) days after written request
from Landlord, Tenant shall deliver to Landlord financial statements as are
reasonably required by Landlord to verify the net worth of Tenant, or any
assignee, subtenant, or guarantor of Tenant. In addition, Tenant shall deliver
to any lender designated by Landlord any financial statements required by the
lender to facilitate the financing or refinancing of the Demised Premises.
Tenant represents and warrants to Landlord that each financial statement is a
true, complete, and accurate statement as of the date of the statement. All
financial statements shall be confidential and shall be used only for the
purposes set forth in this Lease.
ARTICLE FOURTEEN: ENVIRONMENTAL REPRESENTATIONS AND INDEMNITY
14.01. Tenant's Compliance with Environmental Laws. Tenant, at Tenant's
expense, shall comply with all laws, rules, orders, ordinances, directions,
regulations and requirements of Federal, State, county and municipal authorities
pertaining to Tenant's use of the Property and with the recorded covenants,
conditions and restrictions, regardless of when they become effective,
including, without limitation, all applicable Federal, State and local laws,
regulations or ordinances pertaining to air and water quality, Hazardous
Materials (as defined in Section 14.05), waste disposal, air emissions and other
environmental matters, all zoning and other land use matters, and with any
direction of any public officer or officers, pursuant to law, which impose any
duty upon Landlord or Tenant with respect to the use or occupancy of the
Property.
<PAGE>
14.02. Tenant's Indemnification. Tenant shall not cause or permit any
Hazardous Materials to be brought upon, kept or used in or about the Property by
Tenant, its agents, employees, contractors or invitees without the prior written
consent of Landlord. If Tenant breaches the obligations stated in the preceding
Section or sentence, or if the presence of Hazardous Materials on the Property
caused or permitted by Tenant results in contamination of the Property or any
other property, or if contamination of the Property or any other property by
Hazardous Materials otherwise occurs for which Tenant is legally liable to
Landlord for damage resulting therefrom, then Tenant shall indemnify, defend and
hold Landlord harmless from any and all claims, judgments, damages, penalties,
fines, costs, liabilities or losses (including, without limitation, diminution
in value of the Property, damages for the loss or restriction on use of rentable
or unusable space or of any amenity or appurtenance of the Property, damages
arising from any adverse impact on marketing of building space or land area,
sums paid in settlement of claims, reasonable attorneys' fees, court costs,
consultant fees and expert fees) which arise during or after the Lease Term as a
result of the contamination. This indemnification of Landlord by Tenant
includes, without limitation, costs incurred in connection with any
investigation of site conditions or any clean-up, remedial work, removal or
restoration work required by any Federal, State or local government agency
because of Hazardous Materials present in the soil or ground water on or under
the Property. Without limiting the foregoing, if the presence of any Hazardous
Materials on the Property (or any other property) caused or permitted by Tenant
results in any contamination of the Property, Tenant shall promptly take all
actions at Tenant's sole expense as are necessary to return the Property to the
condition existing prior to the introduction of any such Hazardous Materials,
provided that Landlord's approval of such actions is first obtained. The
foregoing indemnity shall survive the expiration or termination of this Lease.
14.03. Landlord's Representations and Warranties. Landlord represents and
warrants, to the best of Landlord's actual knowledge, that: (i) any handling,
transportation, storage, treatment or usage of Hazardous Materials that has
occurred on the Property to date has been in compliance with all applicable
Federal, State, and local laws, regulations and ordinances, and (ii) no leak,
spill, release, discharge, emission or disposal of Hazardous Materials has
occurred on the Property to date and that the soil or groundwater on or under
the Property is free of Hazardous Materials as of the Commencement Date, unless
expressly disclosed by Landlord to Tenant in writing.
Page 7
<PAGE>
14.04. Landlord's Indemnification. Landlord hereby indemnifies, defends and
holds Tenant harmless from any claims, judgments, damages, penalties, fines,
costs, liabilities, (including sums paid in settlements of claims) or loss,
including, without limitation, attorneys fees, court costs, consultant fees, and
expert fees, which arise during or after the term of this Lease from or in
connection with the presence of suspected presence of Hazardous Materials in the
soil or groundwater on or under the Property, unless the Hazardous Material is
released by Tenant or is present solely as a result of the negligence or willful
conduct of Tenant. Without limiting the generality of the foregoing, the
indemnification provided by this Section 14.04 shall specifically cover costs
incurred in connection with any investigation of site conditions or any clean-
up, remedial work, removal or restoration work required by any Federal, State or
local governmental authority.
14.05. Definition. For purposes of this Lease, the term "Hazardous Materials"
means any one or more pollutant, toxic substance, hazardous waste, hazardous
material, hazardous substance, solvent or oil as defined in or pursuant to the
Resource Conservation and Recovery Act, as amended, the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, the Federal
Clean Water Act, as amended, or any other Federal, State or local environmental
law, regulation, ordinance, or rule, whether existing as of the date of this
Lease or subsequently enacted.
14.06. Survival. The representations and indemnities contained in this
Article 14 shall survive the expiration or termination of this Lease
ARTICLE FIFTEEN: PROFESSIONAL SERVICE FEES
ARTICLE SIXTEEN: MISCELLANEOUS
16.01. Disclosure. Landlord and Tenant understand that a real estate broker
is qualified to advise on matters concerning real estate and is not expert in
matters of law, tax, financing, surveying, hazardous materials, engineering,
construction, safety, zoning, land planning, architecture or the ADA. The
Brokers hereby advise Tenant to seek expert assistance on such matters. Brokers
do not investigate a property's compliance with building codes, governmental
ordinances, statutes and laws that relate to the use or condition of a property
and its construction, or that relate to its acquisition. If Brokers provide
names of consultants or sources for advice or assistance, Tenant acknowledges
that the Brokers do not warrant the services of the advisors or their products
and cannot warrant the suitability of property to be acquired or leased.
Furthermore, the Brokers do not warrant that the Landlord will disclose any or
all property defects, although the Brokers will disclose to Tenant any actual
knowledge possessed by Brokers regarding defects of the Demised Premises and the
Property. In this regard, Tenant agrees to make all necessary and appropriate
inquiries and to use diligence in investigating the Demised Premises and the
Property before consummating this Lease. Landlord and Tenant hereby agree to
indemnify, defend, and hold the Brokers harmless of and from any and all
liabilities, claims, debts, damages, costs, or expenses, including but not
limited to reasonable attorneys' fees and court costs, related to or arising out
of or in any way connected to representations concerning matters properly the
subject of advice by experts. In addition, to the extent permitted by applicable
law, the Brokers' liability for errors or omissions, negligence, or otherwise,
is limited to the return of the Fee, if any, paid to the Brokers pursuant to
this Lease
Page 8
<PAGE>
16.02. Force Majeure. If performance by Landlord of any term, condition or
covenant in this Lease is delayed or prevented by any Act of God, strike,
lockout, shortage of material or labor, restriction by any governmental
authority, civil riot, flood, or any other cause not within the control of
Landlord, the period for performance of the term, condition or covenant shall be
extended for a period equal to the period Landlord is so delayed or prevented.
16.03. Interpretation. The captions of the Articles or Sections of this Lease
are to assist the parties in reading this Lease and are not a par part of the
terms or provisions of this Lease. Tenant shall be responsible for the conduct,
acts and omissions of Tenant's agents, employees, customers, contractors,
invitees, agents, successors or others using the Demised Premises with Tenant's
expressed or implied permission. Whenever required by the context of this Lease,
the singular shall include the plural and the plural shall include the singular,
and the masculine, feminine and neuter genders shall each include the other.
16.04. Waivers. All waivers to provisions of this Lease must be in writing and
signed by the waiving party. Landlord's delay or failure to enforce any
provisions of this Lease or its acceptance of late installments of Rent shall
not be a waiver and shall not prevent Landlord from enforcing that provision or
any other provision of this Lease in the future. No statement on a payment check
from Tenant or in a letter accompanying a payment check shall be binding on
Landlord. Landlord may, with or without notice to Tenant, negotiate, cash, or
endorse the check without being bound to the conditions of any such statement.
16.05. Severability. A determination by a court of competent jurisdiction that
any provision of this Lease is invalid or unenforceable shall not cancel or
invalidate the remainder of that provision or this Lease, which shall remain in
full force and effect.
16.06. Joint and Several Liability. All parties signing this Lease as Tenant
shall be jointly and severally liable for all obligations of Tenant.
16.07. Amendments or Modifications. This Lease is the only agreement between
the parties pertaining to the lease of the Demised Premises and no other
agreements are effective unless made a part of this Lease. All amendments to
this Lease must be in writing and signed by all parties. Any other attempted
amendment shall be void.
16.08. Notices. All notices and other communications required or permitted
under this Lease must be in writing and shall be deemed delivered, whether
actually received or not, on the earlier of: (i) actual receipt if delivered in
person or by messenger with evidence of delivery; or (ii) receipt of an
electronic facsimile transmission ("Fax"); or (iii) upon deposit in the United
States Mail as required below. Notices may be transmitted by Fax to the Fax
telephone numbers specified in Article One on the first page of this Lease, if
any. Notices delivered by mail must be deposited in the U.S. Postal Service,
first class postage prepaid, and properly addressed to the intended recipient as
set forth in Article One After possession of the Demised Premises by Tenant,
Tenant's address for notice purposes will be the address of the Demised Premises
unless Tenant notifies Landlord in writing of a different address to be used for
that purpose. Any party may change its address for notice by delivering written
notice of its new address to all other parties in the manner set forth above.
Copies of all notices should also be delivered to the Principal Broker, but
failure to notify the Principal Broker will not cause an otherwise properly
delivered notice to be ineffective.
16.09. Attorneys' Fees. If on account of any breach or default by any party to
this Lease in its obligations to any other party to this Lease including but not
limited to the Principal Broker), it becomes necessary for a party to employ an
attorney to enforce or defend any of its rights or remedies under this Lease,
the non-prevailing party agrees to pay the prevailing party its reasonable
attorneys' fees and court costs, if any, whether or not suit is instituted in
connection with the enforcement or defense.
16.10. Venue. All obligations under this Lease, including but not limited to
the payment of Fees to the Principal Broker, shall be performable and payable in
the county in which the Property is located. The laws of the State of Texas
shall govern this Lease.
16.11. Survival. All obligations of any party to this Lease which are not
fulfilled at the expiration or the termination of this Lease shall survive such
expiration or termination as continuing obligations of the party.
16.12. Binding Effect. This Lease shall inure to the benefit of, and be
binding upon, each of the parties to this Lease and their respective heirs,
representatives, successors and assigns. However, Landlord shall not have any
obligation to Tenant's successors or assigns unless the rights or interests of
the successors or assigns are acquired in accordance with the terms of this
Lease.
<PAGE>
16.13. Consult an Attorney. This Lease is an enforceable, legally binding
agreement. Read it carefully. The brokers involved in the negotiation of this
Lease cannot give you legal advice. The parties to this Lease acknowledge that
they have been advised by the Brokers to have this Lease reviewed by competent
legal counsel of their choice before signing this Lease. By executing this
Lease, Landlord and Tenant each agree to the provisions, terms, covenants and
conditions contained in this Lease.
16.14. Offer: The execution of this Lease by the first party to do so
constitutes an offer to lease the Demised Premises. Unless within the number of
days stated in Section 1.14 above after the date of its execution by the first
party to do so, this Lease is signed by the other party and a fully executed
copy is delivered to the first party, such offer to lease shall be automatically
withdrawn and terminated.
ARTICLE SEVENTEEN: ADDITIONAL PROVISIONS [Additional provisions as directed by
the parties may be set forth below.]
1. Tenant finish out will be completed and paid for as described
in Exhibit D.
2. Not withstanding anything contained herein to the contrary,
Addendum H is attached with certain additional conditions, which
if there is any conflict with the Lease document, Addendum H will
be superior as to rights and conditions for the Lease Term.
LANDLORD TENANT
Lanny Houillion Efficient Networks, Inc.
- ---------------- -----------------------
By [Signature]: /s/ Lanny Houillion By [Signature]: /s/ Jill Manning
--------------------- --------------------
Name: _______________________________ Name: JILL MANNING
Title: ______________________________ Title: CFO
Date of Execution: __________________ Date of Execution: 9/8/98
PRINCIPAL BROKER COOPERATING BROKER
The Worth Company
- -----------------
By [Signature]: /s/ Bruce B. Worth By [Signature]: N/A
--------------------- --------------------
Name: Bruce B. Worth Name: _____________________________
Title: SVP Title: ___________________________
Copyright Notice: This form is provided for the use of members of the North
Texas Commercial Association of Realtors, Inc. Permission is hereby granted to
make limited copies of this form for use in a particular Texas real estate
transaction. Contact the NTCAR office to confirm that you are using the current
version of this form
Page 9
<PAGE>
EXHIBIT A
GRAYSTONE OFFICE PARK
3310 Keller Springs
Suite 120 11340
[map omitted]
<PAGE>
EXHIBIT C
REGISTRATION LETTER AND COMMISSION AGREEMENT THE WORTH COMPANY
REGISTRATION
- ------------
This agreement, when signed by the Agent and Landlord will serve as a
Registration Agreement between The Worth Company (hereinafter known as "Agent")
and Lanny Houillion (hereinafter known as "Landlord") for Graystone Office Park
--------------- ---------------------
(the "Building"), located at 3310 Keller Springs, of which a legal description
-------------------
of the location has been attached. Agent has satisfied the Registration
Requirements of Landlord, and has represented to Landlord that Agent is the
exclusive broker of Efficient Networks, Inc. (hereinafter referred to as
-----------------------
("Tenant"). Landlord agrees to recognize Tenant as Agent's Tenant for space
within the Building and agrees to pay a commission to Agent if a lease ("Lease")
is consummated between Tenant and Landlord.
COMMISSION
- ----------
Agent's commission for the Lease shall be calculated at the rate of four and
one-half percent (4 1/2%) of the gross rental consideration to be paid by Tenant
to Landlord, as set forth in the Lease, regardless of any cancellation option.
Such commission shall be paid in two (2) installments as follows: (i) one-half
(1/2) of such commission following the complete execution of the lease, and (ii)
the balance on the earlier to occur of (a) the first day that Tenant occupies
all or any portion of the space covered by the lease, or (b) commencement of the
term under the Lease, but no later than three (3) months after the date of
execution and delivery of the Lease. Agent's right to the second installment of
such commission shall rest upon such occupancy by Tenant provided, however, that
if Tenant never occupies the leased premises as a result of a breach or other
failure by Landlord to perform in accordance with the terms of the Lease
Agreement, then the remaining balance of the commission will nevertheless be due
and payable on the date on which the Tenant would have occupied leased premises
had such breach or other failure not occurred.
If Tenant's space is expanded or if the Lease is renewed, the commission in
relation to such renewal or expansion will be due and payable in full at the
time an addendum or new Lease covering the expansion or renewal is executed by
Landlord and Tenant, provided Agent actively participates in the new
negotiations for any such renewal and/or expansions on behalf of the Tenant, and
has received the Tenant's exclusive authorization to represent Tenant in those
new negotiations. Expansion options, including Rights of First Offer or Refusal,
exercised by Tenant under terms and conditions prenegotiated within the primary
lease document shall not require Agent involvement for payment of commissions.
Commissions for Lease renewals and expansions shall be computed in the same
manner as described above calculated at four and one-half percent (4 1/2%).
Agent is to be named in the lease document and the rights and obligations to pay
and receive any of the commissions described above are to inure to the benefit
or obligation of the heirs, successors and/or assigns of Agent. In the event of
a sale, assignment, or other conveyance or disposition of the Tenant's demised
premises, Landlord shall secure from the purchaser or assignee a written
recordable agreement by the purchaser or assignee assuming payment to Agent of
all commission payable hereunder. The terms "Landlord" and "Tenant" shall be
deemed to include any subsidiaries, affiliates, successors and nominees of the
same.
This registration of the Tenant with the Landlord shall remain in effect for one
hundred eighty (180) days after the date the Commission Agreement is signed by
the Landlord. Any extensions shall be by written agreement between Landlord and
Agent and shall be automatic, provided active negotiations and/or proposals are
evidenced and Agent is authorized to represent Tenant as its exclusive Agent.
ACKNOWLEDGED AND ACCEPTED BY:
AGENT: LANDLORD:
THE WORTH COMPANY Lanny Houillion
- ----------------- -----------------
5950 Berkshire Lane, Suite 800, LB 37
<PAGE>
Dallas, Texas 75225 BY: /s/ Lanny Houillion 8/10/98
----------------------------
214-696-9242 Date
ITS: _____________________________
BY: /s/ Bruce B. Worth 8-20-98 TITLE:____________________________
------------------------------
Bruce B. Worth Date
Principal
<PAGE>
EXHIBIT D
LANNY HOUILLION
5414 N. DENTWOOD DR.
DALLAS, TX. 75220
(214) 203-5414
FAX (214) 696-0289
August 12, 1998
Bruce Worth
The Worth Company
5950 Berkshire Ln, Suite 800
LB 37
Dallas, TX. 75225 VIA FAX (214) 696-9246
----------------------
Re: Efficient Networks, Inc.
-----------------------------
This provides the Basis for a lease with Efficient Networks, Inc.
Location Graystone Office Park
--------
3310 Roller Spring, Suite 120
Carrollton, TX. 75006
Size - 11,320 sq. ft.
----
Term - 11/1/98 - 10/31/2001
----
Base Rate - $11.00 sq.ft. industrial gross
----------
Base Year for Expenses 1998
----------------------
Finish Out Repair and replace as necessary ceiling tiles light fixtures,
existing heating and air conditioning, plumbing fixtures, and
doors throughout lease space at Landlord's expense. Demise
space from Suite 105 at Landlord's expense. Repair wall damage.
Touch up and/or repaint as necessary entire lease space at
Landlord's expense. Construct vestibule around overhead door
and install drop ceiling at 9 feet in warehouse area at
Landlord's expense. Install new carpet in office areas,
excluding front executive area, at Landlord's expense. Install
anti-static tile in manufacturing areas (approximately 3,475
sq.ft.). Landlord will absorb $1.50 per sq.ft. of this cost.
Any incremental cost will be amortized over the term of the
lease at 5% interest rate and added to the base rental rate.
Any incremental heating and air conditioning required will be
amortized over the term of the lease at 5% interest rate and
added to the base rental
<PAGE>
rate. For perspective, new heating and air conditioning cost is
roughly $1,200 per ton and my preliminary estimate is no more
than 7 1/2 tons will be required.
Occupancy - Front, executive area 11/1/98 with balance of space no later
than 11/15/98.
Non-Binding Acceptance- Please have Efficient Networks, Inc. sign below
their non-binding acceptance of the terms and
conditions above. Upon acceptance I will draft a
lease document for signing.
Sincerely,
Lanny Houillion
/s/ Jill Manning
Efficient Network, Inc.
Date: 8/31/98
<PAGE>
NORTH TEXAS COMMERCIAL ASSOCIATION OF REALTORS(R)
ADDENDUM A TO LEASE
EXPENSE REIMBURSEMENT
Demised Premises and Address: 3310 Keller Springs Ste. 120 Carrollton, Tx. 75006
--------------------------------------------------
[Check all boxes which apply. Boxes not checked do not apply to this Lease.]
1. Expense Reimbursement. Tenant shall pay the Landlord as additional Rent a
portion of the following expenses (collectively called "Reimbursement") which
are incurred by or assessed against the Demised Premises [check all that are to
apply]:
[X] Ad Valorem Taxes;
[X] Insurance Premiums;
[X] Common Area Maintenance (CAM) Expenses;
[X] Operating Expenses;
[X] Roof and Structural Maintenance Expenses;
2. Expense Reimbursement Limitations. The amount of Tenant's Reimbursement
shall be determined by one of the following methods as described in Section 4
below [check only one]:
[X] Base Year/Expense Stop Adjustment;
[ ] Pro Rata Adjustment;
[ ] Fixed Amount Adjustment;
[ ] Net Lease Provisions.
3. Expense Reimbursement Payments. Tenant agrees to pay any end-of-year lump
sum Reimbursement within thirty (30) days after receiving an invoice from
Landlord. Any time during the Lease Term (or any renewals or extensions)
Landlord may direct Tenant to pay monthly an estimated portion of the projected
future Reimbursement amount. Any such payment directed by Landlord shall be due
and payable monthly on the same day that the Base Rent is due. Any Reimbursement
relating to partial calendar years shall be prorated accordingly Tenant's Pro
Rata Share of such Reimbursements shall be based on the square footage of
useable area contained in the Demised Premises in proportion to the square
footage of useable building area of the Property. Tenant may audit or examine
those items of expense in Landlord's records which relate to Tenant's
obligations under this Lease. Landlord shall promptly refund to Tenant any
overpayment which is established by an audit or examination. If the audit or
examination reveals an error of more than five percent (5%) over the figures
billed to Tenant, Landlord shall pay the reasonable cost of the audit or
examination.
4. Definitions.
A. Ad Valorem Taxes. All general real estate taxes, general and special
assessments, parking surcharges, rent taxes, and other similar governmental
charges levied against the Property for each calendar year.
B. Insurance Premiums. All Landlord's insurance premiums attributable to
the Property, including but not limited to insurance for fire, casualty, general
liability, property damage, medical expenses, and extended coverage, and loss of
rents coverage for six months' Rent
C. Common Area Maintenance Charges. Common area maintenance expenses
("CAM") means all costs of maintenance, inspection and repairs of the common
areas of the Property, including but not limited to those costs for security,
lighting, painting, cleaning, decorations and fixtures, utilities, ice and snow
removal, trash disposal, project signs, minor roof defects, pest control,
project promotional expenses, property owners' association dues, wages and
salary costs of maintenance personnel, and other expenses benefiting all the
Property which may be incurred by Landlord, in its discretion, including sales
taxes and a reasonable service charge for the administration thereof. The
"common area" is defined as that part of the Property intended for the
collective use of all tenants including, but not limited to, the parking areas,
driveways, loading areas, landscaping, gutters and downspouts, plumbing,
electrical systems, roof, exterior walls, sidewalks, malls, promenades (enclosed
or otherwise), meeting rooms, doors, windows, corridors and public rest rooms.
CAM does not include depreciation on Landlord's original investment, cost of
tenant improvements, real estate brokers' fees, Landlord's management office and
overhead expenses, or interest or depreciation on capital investments.
<PAGE>
D. Operating Expenses. All costs of ownership, building management,
maintenance, repairs and operation of the Property, including but not limited to
taxes, insurance, CAM, reasonable management fees, wages and salary costs of
building management personnel, overhead and operational costs of a management
office, janitorial, utilities, and professional services such as accounting and
legal fees. Operating Expenses do not include the capital cost of management
office equipment and furnishings, depreciation on Landlord's original
investment, roof and structural maintenance, the cost of tenant improvements,
real estate brokers' fees, advertising, or interest or depreciation on capital
investments.
E. Roof and Structural Maintenance Expenses. All costs of maintenance,
repair and replacement of the roof, roof deck, flashings, skylights, foundation,
floor slabs, structural components and the structural soundness of the building
in general.
F. Base Year/Expense Stop Adjustment. Tenant shall pay to Landlord as
additional rent Tenant's Pro Rata Share of increases in Landlord's Ad Valorem
Taxes, Insurance Premiums, CAM Expenses, Operating Expenses, and/or Roof and
Structural Maintenance Expenses, whichever are applicable, for the Property for
any calendar year during the Lease Term or during any extension of this Lease,
over [check only one]:
[X] (1) Such amounts paid by Landlord for the Base Year 1998, or
[ ] (2) $ __________________________ per square foot per year.
G. Pro Rata Adjustment. Tenant shall pay to Landlord as additional Rent
Tenant's Pro Rata Share of the total amount of Landlord's Ad Valorem Taxes,
Insurance Premiums, CAM, Operating Expenses, and/or Roof and Structural
Maintenance Expenses, whichever are applicable, for every calendar year during
the Lease Term and during any extension of this Lease.
H. Fixed Amount Adjustment. Tenant shall pay to Landlord as additional
Rent the following monthly amounts as Tenant's Reimbursement to Landlord for the
applicable expenses which are incurred by or assessed against the Property:
Ad Valorem Taxes $ ______________ per month.
Insurance Premiums $ ______________ per month.
CAM Expenses $ ______________ per month.
Operating Expenses $ ______________ per month.
Roof and Structural Maintenance Expenses $ ______________ per month.
I. Net Lease Provisions. Notwithstanding anything contained in this Lease
to the contrary in Article Seven or otherwise, Tenant shall be responsible for
paying Tenant's Pro Rata Share of all costs of ownership, maintenance, repairs,
replacements, and operation of the Demised Premises and the Property, including
but not limited to all costs of Ad Valorem Taxes, Insurance Premiums, CAM
Expenses, Operating Expenses, and Roof and Structural Maintenance Expenses.
5. [ ] Gross-Up Provisions. [Check this only if applicable.] If the Property
is a multi-tenant building and is not fully occupied during the Base Year or any
portion of the Lease Term, an adjustment shall be made in computing the variable
costs for each applicable calendar year. Variable costs shall include only those
items of expense that vary directly proportionately to the occupancy of the
Property. Variable costs which are included in the CAM and Operating Expenses
shall be increased proportionately to the amounts that, in Landlord's reasonable
judgment, would have been incurred had ninety percent (90%) of the useable area
of the Property been occupied during those years
Initials: Landlord ________________ Tenant _____________
<PAGE>
NORTH TEXAS COMMERCIAL ASSOCIATION OF REALTORS(R)
ADDENDUM G TO LEASE
RULES AND REGULATIONS
Demised Premises and Address: 3310 Keller Springs Ste. 120 Carrollton, Tx. 75006
--------------------------------------------------
1. Application. The following standards shall affect and shall be observed by
Tenant, Tenant's employees and invitees, for the mutual safety, cleanliness,
care, protection, comfort and convenience of all tenants and occupants of the
Property, and shall be applicable to the building(s), to the parking garages, if
any, to the common areas, driveways, parking lots, and to the Demised Premises,
including the land situated beneath and any appurtenances thereto.
2. Consent Required. Any exception to these Rules and Regulations must first
be approved in writing by Landlord. For purposes of these Rules and Regulations,
the term "Landlord" includes the building manager, the building manager's
employees, and any other agent or designee authorized by Landlord to manage or
operate the Property.
3. Rules and Regulations:
A. Tenant may not conduct any auction, "flea market" or "garage sale" on
the Demised Premises nor store any goods or merchandise on the Property except
for Tenant's own business use. Food may not be prepared in the Demised Premises
except in small amounts for consumption by Tenant. Vending machines or
dispensing machines may not be placed in the Demised Premises without Landlord's
written approval. The Demised Premises may not be used or occupied as sleeping
quarters or for lodging purposes. Animals may not be kept in or about the
Property.
B. Tenant shall not obstruct sidewalks, driveways, loading areas, parking
areas, corridors, hallways, vestibules, stairs and other similar areas
designated for the collective use of tenants, or use such areas for Tenant's
storage, temporary or otherwise, or for any purpose other than ingress and
egress to and from the Demised Premises. Tenant shall comply with parking rules
and guidelines as may be posted on the Property from time to time.
C. Tenant shall not make any loud noises, unusual vibrations, unpleasant
odors, objectionable or illegal activities on the Property Tenant shall not
permit the operation of any equipment in the Demised Premises that could annoy
other occupants of the Property Tenant shall not interfere with the possession
of other tenants of the Property.
D. Tenant may not bring any flammable, explosive, toxic, noxious,
dangerous or hazardous materials onto the Property.
E. Installation of security systems, telephone, television and other
communication cables, fixtures and equipment must comply with Section 7.04 of
the Lease, except that routine installation and construction of normal
communication devices which do not require any holes in the roof or exterior
walls of the Property do not require the written approval of Landlord.
F. Movement into or out of the building through public entrances, lobbies
or corridors which requires use of a hand truck, dolly or pallet jack to carry
freight, furniture, office equipment, supplies and other large or heavy
material, must be limited to the service entrances and freight elevators only
and must be done at times and in a manner so as not to unduly inconvenience
other occupants of the Property. All wheels for such use must have rubber tires
and edge guards to prevent damage to the building. Tenant shall be responsible
for and shall pay all costs to repair damages to the building caused by the
movement of materials by Tenant.
G. Requests by Tenant for building services, maintenance and repair must
be made in writing to the office of the building manager designated by Landlord
and must be dated. Tenant shall give prompt written notice to Landlord of any
significant damage to or defects in the Demised Premises or the Property,
especially including plumbing, electrical and mechanical systems, heating,
ventilating and air conditioning systems, roofs, windows, doors, foundation and
structural components, regardless of whose responsibility it is to repair such
damage.
H. Tenant shall not change locks or install additional locks on doors
without the prior written consent of Landlord. If Tenant changes locks or
installs additional locks on the Property, Tenant shall within five days
thereafter provide Landlord with a copy of each
<PAGE>
separate key to each lock. Upon termination of Tenant's occupancy of the Demised
Premises, Tenant must surrender all keys to the Demised Premises and to the
Property to Landlord.
I. Harmful liquids, toxic wastes, bulky objects, insoluble substances and
other materials which may cause clogging, stains or damage to plumbing fixtures
or systems must not be placed in the lavatories, water closets, sinks, or
drains. Tenant must pay the costs to repair and replace drains, plumbing
fixtures and piping which is required because of damage caused by Tenant.
J. Tenant shall cooperate with Landlord and other occupants of the
Property in keeping the Property and the Demised Premises neat and clean.
Nothing may be swept, thrown or left in the corridors, stairways, elevator
shafts, lobbies, loading areas, parking lots or any other common areas on the
Property. All trash and debris must be properly placed in receptacles provided
therefor.
K. Landlord has the power and authority to regulate the weight and
position of heavy furnishings and equipment on the floor of the Demised
Premises, including safes, groups of filing cabinets, machines, and any other
item which may overload the floor. Tenant shall notify the Landlord when heavy
items are to be taken into or out of the building, and the placement and
transportation of heavy items may be done only with the prior written approval
of Landlord.
L. No window screens, blinds, draperies, awnings, solar screen films,
window ventilators or other materials visible from the exterior of the Demised
Premises may be placed in the Demised Premises without Landlord's approval.
Landlord is entitled to control all lighting that may be visible from the
exterior of the building.
M. No advertisement, sign, notice, handbill, poster or banner may be
exhibited, distributed, painted or affixed upon the Property. No directory of
tenants is allowed on the Property other than that provided by Landlord.
N. Tenant agrees to cooperate with and assist Landlord in the prevention
of peddling, canvassing and soliciting on the Property.
O. Tenant accepts any and all liability for damages and injuries to
persons and property resulting from the serving and sales of alcoholic beverages
on or from the Property.
P. Any person entering and leaving the building before and after normal
working hours, or building hours if posted by Landlord, whichever applies, may
be required to identify himself to security personnel by signing a list and
giving the time of day and destination or location of the applicable Demised
Premises. Normal building business hours are established by Landlord from time
to time.
4. Revisions. Landlord reserves the right to revise and/or rescind any of
these Rules and Regulations and to make additional rules which Landlord may
determine are necessary from time to time for the safety, care, cleanliness,
protection, comfort and convenience of the tenants and occupants of the Property
and for the care, protection and cleanliness of the building. Revisions and
additions will be binding upon the Tenant as if they had been originally
prescribed herein when furnished in writing by Landlord to Tenant, provided the
additions and revisions apply equally to all tenants occupying the Property.
5. Enforcement. Any failure or delay by Landlord in enforcing these Rules and
Regulations will not prevent Landlord from enforcing these Rules and Regulations
in the future. If any of these Rules and Regulations is determined to be
unenforceable, it shall be severed from this Lease without affecting the
remainder of these Rules and Regulations.
Initials: Landlord ___________ Tenant _______________
<PAGE>
Addendum H
1. Tenant to have the right to verify the square footage of the space with a
mutually agreed upon architect between Landlord and Tenant. If space is
greater or lesser than stated in the Lease of at least five-percent (5%) of
the stated total, the Base Rent will be adjusted accordingly. The Landlord
will pay the cost of the architect if the space is greater by five percent
(5%) of the amount stated in Article 1.04 B.
2. Article 1.14 is stricken from Lease.
3. Landlord grants consent to Tenant to affix a mutually approved sign on the
building, with approval given, subject to mutually agreed size, content and
location on the Demised Premises.
4. Quiet Enjoyment. Provided Tenant has performed all of the terms, covenants,
agreements and conditions of this Lease, including the payment of rent, to
be performed by Tenant, Tenant shall peaceably and quietly hold and enjoy
the Demised Premises for the term hereof, without hindrance from Landlord,
subject to the terms and conditions of this Lease
5. Landlord to be limited to the last twelve months of the Lease to show
prospective tenants through the Demised Premises.
6. Tenant to have one hundred and eighty (180) days to inspect the Demised
Premises for any Intent defects. Landlord at Landlord's expense shall
correct the defects and perform the repairs and/or replacements.
7. Landlord at Landlord's expense shall be responsible for all air
conditioning equipment, including but not limited to compressors, blowers,
and fans, inside the Demised Premises and on the roof for one hundred and
eighty (180) days after occupancy of the Demised Premises.
8. Article 12: Landlord's Contractual Lien to be stricken in its entirety.
9. Tenant to have the right to assign or sublease to subsidiary or affiliate
company without Landlord approval. Landlord shall not unreasonably withhold
prior written consent on any other assignment or sublease.
10. Upon request of Landlord, Tenant to provide only annually prepared audited
financial statements, with the frequency of only the beginning of the Lease
term and every twelve months thereafter.
/s/ Lanny Houillion 9/12/98
Landlord Date
/s/ Jill Manning 9/11/98
Tenant Date
<PAGE>
EXHIBIT 23.1
Consent of Independent Auditors
The Board of Directors
Efficient Networks, Inc.
We consent to the use of our reports included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
KPMG LLP
Dallas, Texas
May 4, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS YEAR
<FISCAL-YEAR-END> JUN-30-1999 JUN-30-1998
<PERIOD-START> JUL-01-1998 JUL-01-1997
<PERIOD-END> MAR-31-1999 JUN-30-1998
<CASH> 4,596 7,607
<SECURITIES> 0 0
<RECEIVABLES> 6,569 476
<ALLOWANCES> (70) (15)
<INVENTORY> 3,917 898
<CURRENT-ASSETS> 15,060 9,168
<PP&E> 4,285 2,980
<DEPRECIATION> (2,155) (1,576)
<TOTAL-ASSETS> 17,234 10,667
<CURRENT-LIABILITIES> 5,587 1,298
<BONDS> 0 0
40,408 34,743
0 0
<COMMON> 4 4
<OTHER-SE> (33,040) (25,378)
<TOTAL-LIABILITY-AND-EQUITY> 17,234 10,667
<SALES> 7,139 3,370
<TOTAL-REVENUES> 7,139 3,370
<CGS> 6,699 2,160
<TOTAL-COSTS> 11,456 9,280
<OTHER-EXPENSES> (4) (6)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (2,130) (10)
<INCOME-PRETAX> (12,996) (7,940)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (12,996) (7,940)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (12,996) (7,940)
<EPS-PRIMARY> (3.48) (2.44)
<EPS-DILUTED> (3.48) (2.44)
</TABLE>
