<PAGE>
As filed with the Securities and Exchange Commission on August 11, 1999
Registration Statement No. 333-81071
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------------
INTERSPEED, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
Delaware 3661 04-3333365
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
----------------------------------------
39 High Street
North Andover, Massachusetts 01845
(978) 688-6164
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive office)
---------------------------------------------
Stephen A. Ide
PRESIDENT
Interspeed, Inc.
39 High Street
North Andover, Massachusetts 01845
(978) 688-6164
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
---------------------------------------------
COPIES TO:
<TABLE>
<S> <C>
Thomas P. Storer, P.C. Mitchell S. Bloom, Esq.
Goodwin, Procter & Hoar LLP Testa, Hurwitz & Thibeault, LLP
Exchange Place 125 High Street
Boston, Massachusetts 02109-2881 Boston, Massachusetts 02110
(617) 570-1000 (617) 248-7000
</TABLE>
----------------------------------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
----------------------------------------
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,
please check the following box. / /
---------------------------------------------
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the SEC, acting pursuant to Section 8(a), may
determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Subject to completion, dated August 11, 1999
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE SECURITIES AND EXCHANGE COMMISSION DECLARES
OUR REGISTRATION STATEMENT EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL
THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY
STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
3,500,000 Shares
INTERSPEED, INC. [LOGO]
Common Stock
$ per share
- ----------------------------------------------------------------------
- - Interspeed, Inc. is offering 2,000,000 shares
and Brooktrout, Inc., the selling stockholder,
is offering 1,500,000 shares.
- - We anticipate that the initial public offering price will be between $10 and
$12 per share.
- - Proposed trading symbol: Nasdaq National Market -- ISPD.
------------------------------------
This investment involves risk. You should carefully consider the "Risk Factors"
beginning on page 4.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Per Share Total
----------- --------------
<S> <C> <C>
Public Offering Price................................................................. $ $
Underwriting Discounts and Commissions................................................ $ $
Proceeds, before expenses, to Interspeed.............................................. $ $
Proceeds to Brooktrout................................................................ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE UNDERWRITERS HAVE A 30-DAY OPTION TO PURCHASE UP TO 525,000 ADDITIONAL
SHARES OF COMMON STOCK FROM BROOKTROUT TO COVER OVER-ALLOTMENTS, IF ANY.
Neither the Securities and Exchange Commission nor any state securities
commission has approved of anyone's investment in these securities or determined
if this prospectus is truthful or complete. Any representation to the contrary
is a criminal offense.
U.S. Bancorp Piper Jaffray
Warburg Dillon Read LLC
Tucker Anthony Cleary Gull
DLJDIRECT Inc.
The date of this prospectus is , 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Summary................................................................................ 1
Risk Factors........................................................................... 4
Forward Looking Statements............................................................. 12
Use of Proceeds........................................................................ 12
Dividend Policy........................................................................ 12
Capitalization......................................................................... 13
Dilution............................................................................... 14
Selected Financial Data................................................................ 15
Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................................ 16
Business............................................................................... 24
Management............................................................................. 33
Principal and Selling Stockholders..................................................... 42
Certain Transactions with Related Parties.............................................. 43
Description of Capital Stock........................................................... 45
Shares Eligible for Future Sale........................................................ 48
Underwriting........................................................................... 50
Legal Matters.......................................................................... 52
Experts................................................................................ 52
Where You Can Find More Information.................................................... 52
Index to Financial Statements.......................................................... F-1
</TABLE>
------------------------------------
You should rely only on the information contained in this prospectus. We have
not, and the underwriters have not, authorized any other person to provide you
with different information. This prospectus is not an offer to sell, nor is it
seeking an offer to buy, these securities in any state where the offer or sale
is not permitted. The information in this prospectus is complete and accurate as
of the date on the front cover, but the information may have changed since that
date.
The name Interspeed-Registered Trademark-, a registered trademark, SpeedView and
our logo are names and marks which belong to us. This prospectus also contains
the trademarks and trade names of other entities which are the property of their
respective owners.
Unless otherwise stated in this prospectus, the information contained in this
prospectus assumes that the underwriters' over-allotment option is not
exercised.
<PAGE>
SUMMARY
THE ITEMS IN THE FOLLOWING SUMMARY ARE DESCRIBED IN MORE DETAIL LATER IN THIS
PROSPECTUS. THIS SUMMARY PROVIDES AN OVERVIEW OF SELECTED INFORMATION AND DOES
NOT CONTAIN ALL THE INFORMATION YOU SHOULD CONSIDER. THEREFORE, YOU SHOULD ALSO
READ THE MORE DETAILED INFORMATION SET OUT IN THIS PROSPECTUS AND THE FINANCIAL
STATEMENTS.
Interspeed
We were incorporated in Massachusetts in 1996 as a wholly owned subsidiary of
Brooktrout, Inc. and commenced operation in March 1997. We reincorporated as a
Delaware corporation in June 1999. Since our inception, we have yet to incur a
profit.
Interspeed designs, develops and markets advanced high speed data communications
equipment based on digital subscriber line technology. Our products enable data
communication service providers, such as competitive local exchange carriers,
Internet service providers and owners of multi-tenant units to utilize the
existing copper wire infrastructure to deliver high speed data access to their
customers. We believe we offer the only single platform system that integrates
the principal components required to offer digital subscriber line service,
including signal concentration, routing, switching and network management.
Unlike traditional digital subscriber line products, our products offer our
customers a highly scalable and flexible solution at a lower total cost of
ownership than our competitors' products.
The proliferation of Internet usage, electronic commerce and business use of
electronic communication has resulted in a large increase in data transmission
by electronic means. We have designed our digital subscriber line based products
to alleviate the bottleneck that has occurred due to increased communications
traffic over the existing copper wire infrastructure. While there are a number
of alternatives that provide connectivity from the service provider central
office to the end user, often called the last mile, we believe only digital
subscriber line technology simultaneously satisfies the demand for high speed
performance, cost effectiveness, broad geographic coverage and reliable
security.
Service providers increasingly demand cost effective digital subscriber line
access solutions that enable them to provide high speed data access to small and
medium sized business users, multi-tenant units and other organizations at a low
total cost of ownership. We designed the Interspeed 1000 and 500 digital
subscriber line access routers specifically to meet this demand. The benefits of
our products include:
- a high performance solution;
- a single integrated system;
- a lower total cost of ownership than competitors' products; and
- a flexible system architecture.
Our objective is to be the leading provider of high speed data access solutions
to service providers who focus on small to medium sized businesses, multi-tenant
units and other organizations. In order to achieve this objective, we intend to
leverage our technological leadership by expanding the functionality and
increasing the performance of our integrated platform. We emphasize the
provision of a high level of continuing service and support which is critical in
developing and maintaining long term customer relationships. We sell our
products through a direct sales force and have formed strategic customer
relationships with Cabletron and Log On America. We intend to continue to
develop market channels through strategic relationships with other original
equipment manufacturers, value added resellers and system integrators. To take
advantage of the significant international market opportunity, we designed our
products in compliance with international as well as U.S. regulatory standards,
thereby allowing worldwide marketing of our digital subscriber line access
router.
<PAGE>
Our principal executive offices are located at 39 High Street, North Andover,
Massachusetts 01845. Our telephone number is (978) 688-6164.
The Offering
<TABLE>
<S> <C>
Common stock offered:
By Interspeed.............................. 2,000,000 shares
By Brooktrout.............................. 1,500,000 shares
Total.................................... 3,500,000 shares
Common stock outstanding after the 10,380,358 shares(1)
offering...................................
Use of proceeds.............................. General corporate purposes, including working
capital, research and development and
expansion of sales and marketing activities.
Proposed Nasdaq National Market Symbol....... ISPD
</TABLE>
- ------------------------------------
(1) Based on the number of shares outstanding as of July 21, 1999. Excludes
1,696,774 shares issuable upon exercise of stock options outstanding as of
July 21, 1999 at a weighted average exercise price of $.96 per share.
2
<PAGE>
Summary Financial Data
(in thousands, except per share data)
The following tables set forth our summary financial data. The information set
forth for the nine months ended June 30, 1998 has been derived from unaudited
financial statements. You should read the following information together with
our Financial Statements and the Notes thereto beginning on page F-1 of this
prospectus, the information under "Selected Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations." See
Note 1 of the Notes to our Financial Statements for an explanation of the shares
used in computing net loss per share--basic and diluted.
<TABLE>
<CAPTION>
Period from Nine Months Ended
October 23, 1996 June 30,
(inception) to Year Ended --------------------
September 30, 1997 September 30, 1998 1998 1999
------------------ ------------------ --------- ---------
<S> <C> <C> <C> <C>
Statements of Operations Data:
Revenue............................................. $ -- $ -- $ -- $ 1,341
Gross profit........................................ -- -- -- 515
Loss before income taxes............................ (1,043) (4,313) (3,253) (7,074)
Net loss............................................ (1,043) (4,313) (3,253) (7,074)
Net loss per share.................................. (0.24) (0.54) (0.41) (0.88)
Shares used to compute net loss per share-- basic
and diluted....................................... 4,364 8,000 8,000 8,001
</TABLE>
<TABLE>
<CAPTION>
June 30, 1999
----------------------------------------
<S> <C> <C> <C>
Pro forma
as
Actual Pro forma(1) adjusted(2)
----------- ------------ -------------
Balance Sheet:
Cash.................................................................... $ 136 $ 136 $ 19,625
Working capital......................................................... 150 150 19,639
Total assets............................................................ 3,697 3,697 23,186
Long term note payable--due Brooktrout.................................. 10,887 -- --
Total stockholders' equity (deficit).................................... (9,464) 1,423 20,912
</TABLE>
- ------------------------------------
(1) Pro forma to reflect the contribution by Brooktrout of the long term note
payable to capital of Interspeed upon the effective date of this offering.
(2) Pro forma as adjusted to give effect to the sale of 2,000,000 shares by
Interspeed in this offering, assuming an initial public offering price of
$11.00 per share, resulting in net proceeds to Interspeed of approximately
$19.5 million.
3
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS BEFORE YOU DECIDE TO
BUY OUR COMMON STOCK. YOU SHOULD ALSO CONSIDER THE OTHER INFORMATION IN THIS
PROSPECTUS. OUR BUSINESS, FINANCIAL CONDITION OR RESULTS OF OPERATIONS COULD BE
HARMED BY ANY OF THE FOLLOWING RISKS. THE TRADING PRICE OF OUR COMMON STOCK
COULD DECLINE DUE TO ANY OF THE FOLLOWING RISKS, AND YOU MIGHT LOSE ALL OR PART
OF YOUR INVESTMENT.
We have a history of losses and anticipate future losses
We have accumulated losses of approximately $12.4 million since inception in
October 1996 through June 30, 1999 and expect to incur net losses in the future.
Losses were approximately $1.0 million for the period through September 30,
1997, approximately $4.3 million for the fiscal year ended September 30, 1998
and approximately $7.1 million for the nine months ended June 30, 1999. We
anticipate continuing to incur significant sales and marketing, research and
development and general and administrative expenses and, as a result, we will
need to generate higher revenues to achieve and sustain profitability. We cannot
be certain we will realize sufficient revenues to achieve profitability.
Because of our limited operating history it is difficult for us to predict
future results of operations
We commenced operations in March 1997 and our first product became generally
available in February 1999. Due to our limited operating history, it is
difficult for us to predict future results of operations. You should consider
our business and prospects in light of the risks typically encountered by
companies in their early stages of development, particularly those in rapidly
evolving markets such as the data communications equipment market. We cannot be
certain that we will successfully address these risks.
Our operating results are likely to fluctuate significantly and cause our stock
price to be volatile which could cause the value of your investment in our
company to decline
Our quarterly or annual operating results are likely to fluctuate significantly
in the future due to a variety of factors, many of which are outside of our
control. If our operating results do not meet the expectations of securities
analysts, the trading price of our common stock could significantly decline
which may cause the value of your investment in our company to decline. In
addition, the value of your investment could be impacted by investor perception
of the Internet and emerging data communications sectors generally, independent
of the operating performance of our company or other similar companies. Some of
the factors that could affect our quarterly or annual operating results or
impact the market price of our common stock include:
- our ability to develop, manufacture, market and support our
products and product enhancements;
- the timing and amount of, or cancellation or rescheduling of,
orders for our products, particularly large orders from key
customers;
- our ability to retain key management, sales and marketing and
engineering personnel;
- announcements, new product introductions and price reductions in
products offered by our competitors;
- our ability to obtain sufficient supplies of sole or limited source
components for our products;
- a decrease in the average selling prices of our products;
- changes in costs of components which we include in our products;
and
4
<PAGE>
- the mix of products that we sell and the mix of distribution
channels through which they are sold.
Due to these and other factors, quarterly or annual revenues, expenses and
results of operations could vary significantly in the future, and
period-to-period comparisons should not be relied upon as indications of future
performance.
The loss of any significant customer could cause our revenue to decline
The loss of any of our significant customers could cause our revenue to decline
and thus have a material adverse effect on our business, financial condition and
results of operations. Our products became generally available in February 1999
and to date we have only sold products to a limited number of customers. Unless
and until we diversify and expand our customer base, our future success will
significantly depend upon a limited number of customers.
Failure to adequately develop our sales channels could cause our revenue to
decline
We sell our products directly through our sales force and indirectly through
original equipment manufacturers, value added resellers and system integrators.
Our failure to adequately develop these sales channels may cause our revenue to
decline and thus have a material adverse effect on our business, financial
condition and results of operations. We are currently in the early stages of
developing these sales channels and expect to expend significant resources in
this area. As of July 21, 1999 we had a total of 12 employees in direct sales,
marketing and sales engineering in the United States. In addition, we have only
recently entered into our first reseller agreements. To the extent we are able
to enter into agreements with additional original equipment manufacturers, value
added resellers or systems integrators, the amount and timing of resources which
they devote to the sale of our products may not be within our control, and they
may not perform their obligations as expected.
If we are unable to develop and operate an effective customer support
organization, sales of our products may be reduced
Purchasers of data communications equipment assign significant weight in their
purchasing decisions to a vendor's capabilities and reputation in supporting its
products. We will be required to expend significant resources and management
attention on developing and operating a customer support organization. If our
level of customer support does not satisfy customer expectations, our reputation
and future sales could be adversely affected. Accordingly, we have emphasized
customer support in our business strategy and marketing. Because our products
were recently introduced for sale, we have limited experience in operating a
customer support program.
If our target customers do not accept DSL technology, we may be unable to
sustain or grow our business
Our future success is substantially dependent upon whether DSL technology gains
widespread market acceptance by data communications service providers and the
small to medium sized business users to whom they market their services. In the
event that our customers or potential customers adopt technologies other than
DSL, we may be unable to sustain or grow our business. Our business strategy and
current products are focused on DSL technology. Various alternative
technologies, including T-1, cable and broadband wireless, are currently
available to deliver high speed data communications, and each of the
alternatives has comparative advantages and disadvantages. Data communications
service providers continually evaluate alternative high speed data access
technologies and may at any time adopt technologies other than DSL.
5
<PAGE>
If our products are not accepted by the market, our revenues may decline
We have recently introduced our products to the market. Market acceptance of our
products is critical to our future success. Factors that may affect the market
acceptance of our products include:
- market acceptance of DSL technology;
- the features, performance, price and total cost of ownership of our
products;
- the availability of competing products and technologies;
- the success and development of our direct sales force and
distribution channels;
- the quality of our customer service and support of our products;
and
- the breadth and depth of our product offerings.
Failure of our existing or future products to achieve and maintain meaningful
levels of market acceptance would materially adversely affect our business,
financial condition and results of operations.
Because we currently depend on a single family of products, any decline in
demand for those products may harm our operating results
We expect to derive substantially all of our revenues from our DSLAR product
family and related modules for the foreseeable future. The market may not
continue to demand our current products, and we may not be successful in
marketing any new or enhanced products. Any reduction in the demand for our
current products or our failure to successfully develop or market and introduce
new or enhanced products could materially adversely affect our business,
financial condition and results of operations.
Unless we are able to keep pace with the evolution of the data communications
equipment market we will not be able to grow or sustain our business
The data communications equipment market is characterized by:
- rapid technological advances;
- evolving industry standards;
- changes in end-user requirements;
- frequent new product introductions; and
- evolving offerings by data communications service providers.
We believe our future success will depend, in part, on our ability to anticipate
or adapt to such changes and to offer, on a timely basis, products that meet
customer demands. We intend to continue to invest significantly in product and
technology development. The development of new or enhanced products is a complex
and uncertain process requiring the anticipation of technological and market
trends. We may experience design, manufacturing, marketing and other
difficulties that could delay or prevent our development, introduction or
marketing of new products and enhancements and result in unexpected expenses.
The introduction of new or enhanced products also requires that we manage the
transition from older products in order to minimize disruption in customer
ordering patterns and ensure that adequate supplies of new products can be
delivered to meet anticipated customer demand. Our inability to develop on a
timely basis new products or enhancements to existing products, or the failure
of such new products or enhancements to achieve market acceptance, could
materially adversely affect our business, financial condition and results of
operations.
6
<PAGE>
If we lose key personnel, we may be unable to successfully operate our business
Our success depends to a significant degree upon the continued contributions of
our principal management, engineering and sales personnel, many of whom perform
important management functions and would be difficult to replace. Specifically,
we believe that our future success is highly dependent on our President, Stephen
A. Ide; our Senior Vice President-Research and Development, Rajeev Agarwal; our
Chief Financial Officer and Senior Vice President-Finance, William J. Burke; and
our Vice President-Sales and Marketing, Christopher P. Whalen. We do not have
employment contracts with our key personnel. The loss of the services of any key
personnel could materially adversely affect our business, financial condition
and results of operations.
If we are unable to attract and retain additional qualified personnel, we may be
unable to satisfy customer demands which may cause our revenues to decline
Our business strategy will require us to attract and retain additional
engineering, sales, customer support and administrative personnel. We have at
times experienced, and continue to experience, difficulty in recruiting
qualified personnel. Recruiting qualified personnel is an intensely competitive
and time consuming process. We may not be able to attract and retain the
necessary personnel to accomplish our business objectives, and we may experience
constraints that will adversely affect our ability to satisfy customer demand in
a timely fashion or to support our customers and operations. In addition,
companies in the data communications industry whose employees accept positions
with competitors frequently claim that such competitors have engaged in unfair
hiring practices. We could incur substantial costs in defending ourselves
against any such litigation, regardless of the merits or outcome of such
litigation.
Failure to manage our growth effectively may prevent us from maximizing our
earnings
We have expanded and plan to continue to expand our operations, including our
sales and marketing activities, our accounting, billing and human resource
departments and the establishment of additional sales offices. This expansion
may place significant strains on our ability to manage our growth, including our
ability to monitor operations, bill customers, control costs and maintain
effective quality controls. Since we commenced operations, we have relied upon
Brooktrout, our parent company, to provide us with administrative and support
services, including accounting, human resources and computer systems. While we
will enter into the transition services agreement with Brooktrout to continue to
provide these services during a transition period ending December 31, 1999, at
the end of this period we will need to have implemented systems that provide the
functions and services currently provided by Brooktrout. If we fail to manage
our growth effectively, it could have a material adverse effect on our business,
financial condition and results.
Intense competition in the market for high speed data access equipment could
prevent us from achieving or sustaining profitability
The market for data communications equipment is highly competitive, particularly
in the emerging DSL equipment market. If we are unable to compete effectively in
the market for high speed data access equipment, our results of operations could
be materially adversely affected. We compete directly with Ascend
Communications, Inc., which was recently acquired by Lucent Technologies Inc.;
Copper Mountain Networks, Inc.; Diamond Lane, which was recently acquired by
Nokia, Inc.; Paradyne Networks, Inc.; and Tut Systems, Inc. Many of our current
and potential competitors have significantly greater selling and marketing,
technical, manufacturing, financial, and other resources. Moreover, our
competitors may foresee the course of market developments more accurately than
we do and could in the future develop new technologies that compete with our
products. The strength and capabilities of our competitors may be increased as a
result of the trend toward consolidation in the data communications market.
Capitalizing on and maintaining our technological advantage will require a
continued high level of investment in research and development, marketing and
customer service and support. Due to the rapidly
7
<PAGE>
evolving markets in which we compete, additional competitors with significant
market presence and financial resources may enter those markets, thereby further
intensifying competition. We may not have sufficient resources to continue to
make the investments or achieve the technological advances necessary to compete
successfully with existing competitors or new competitors.
If we are unable to develop international markets for our products, we may be
unable to grow as planned
Our strategy emphasizes the development of international markets for our
products. We may be unsuccessful in marketing, selling and distributing our
products in foreign markets. Conducting business outside of the United States is
subject to risks, including:
- longer accounts receivable collection cycles;
- possible foreign currency exchange and conversion issues;
- difficulties in managing operations across disparate geographic
areas;
- difficulties associated with enforcing agreements and collecting
receivables through foreign legal systems;
- changes in a specific country's or region's political or economic
conditions;
- trade protection measures;
- import or export licensing requirements;
- potential adverse tax consequences;
- unexpected changes in regulatory requirements; and
- reduced or limited protection of our intellectual property rights
in some countries.
We cannot be certain that one or more of such factors will not have a material
adverse effect on our future international operations, and consequently, our
business, financial condition and results of operations.
Our dependence on sole and single source suppliers and independent manufacturers
exposes us to supply interruptions that could result in product delivery delays
Although we generally use standard parts and components for our products, some
key components are purchased from sole or single source vendors for which
alternative sources are not currently available. Our inability to obtain
sufficient quantities of these components may result in future delays or
reductions in product shipments which could materially adversely affect our
business, financial condition and results of operations. We currently purchase
proprietary components from Conexant and Motorola for which there are no direct
substitutes. These components could be replaced with alternatives from other
suppliers, but that would involve redesign of our products. Such redesign would
involve considerable time and expense. We currently enter into purchase orders
with our suppliers for materials based on forecasts, but have no guaranteed
supply arrangements with these suppliers.
In addition, we currently use a small number of independent manufacturers to
manufacture printed circuit boards, chassis and subassemblies to our design. Our
reliance on independent manufacturers involves a number of risks, including the
potential for inadequate capacity, unavailability of, or interruptions in access
to, process technologies, and reduced control over delivery schedules,
manufacturing yields and costs. If our manufacturers are unable or unwilling to
continue manufacturing our components in required volumes, we will have to
transfer manufacturing to acceptable alternative manufacturers
8
<PAGE>
whom we have identified, which could result in significant interruption of
supply. Moreover, the manufacture of these components is extremely complex, and
our reliance on the suppliers of these components exposes us to potential
production difficulties and quality variations, which could negatively impact
cost and timely delivery of our products. We currently enter into purchase
orders with independent manufacturers of materials based on forecasts, but have
no guaranteed arrangements with these manufacturers. Any significant
interruption in the supply, or degradation in the quality, of any component
would have a material adverse effect on our business, financial condition and
results of operations.
Our limited ability to protect our intellectual property may prevent us from
retaining our competitive advantage
Our success and our ability to compete are dependent in part upon our
proprietary technology. Taken as a whole, we believe our intellectual property
rights are significant and any failure to adequately protect our proprietary
rights could result in our competitors offering similar products, potentially
resulting in loss of a competitive advantage and decreased revenues. In
addition, the laws of many foreign countries do not protect our intellectual
property to the same extent as the laws of the United States. Also, it may be
possible for unauthorized third parties to copy or reverse engineer aspects of
our products, develop similar technology independently or otherwise obtain and
use information that we regard as proprietary. Furthermore, policing the
unauthorized use of our products is difficult. Litigation may be necessary in
the future to enforce our intellectual property rights, to protect our trade
secrets or patents that we may obtain, or to determine the validity and scope of
the proprietary rights of others. Such litigation could result in substantial
costs and diversion of resources and could have a material adverse effect on our
future operating results.
Intellectual property claims against us can be costly and restrict our business
The data communications industry is characterized by the existence of a large
number of patents and frequent litigation based on allegations of patent
infringement. As the number of entrants in our market increases and the
functionality of our products is enhanced and overlaps with the products of
other companies, we may become subject to claims of infringement or
misappropriation of the intellectual property rights of others. Any claims
asserting that our products infringe or may infringe proprietary rights of third
parties, if determined adversely to us, could have a material adverse effect on
our business, financial condition or results of operations. Any claims, with or
without merit, could be time-consuming, result in costly litigation, divert the
efforts of our technical and management personnel, cause product shipment delays
or require us to enter into royalty or licensing agreements, any of which could
have a material adverse effect upon our operating results. Legal action claiming
patent infringement may be commenced against us. We cannot assure you that we
would prevail in such litigation given the complex technical issues and inherent
uncertainties in patent litigation. In the event a claim against us was
successful, and we could not obtain a license to the relevant technology on
acceptable terms or license a substitute technology or redesign to avoid
infringement, could have a material adverse effect on our business, financial
condition and results of operations.
Changes to regulations affecting the telecommunications industry could reduce
demand for our products
Any changes to legal requirements relating to the telecommunications industry,
including the adoption of new regulations by federal or state regulatory
authorities under current laws or any legal challenges to existing laws or
regulations relating to the telecommunications industry, could have a material
adverse effect upon the market for our products. Moreover, our distributors or
customers may require, or we may otherwise deem it necessary or advisable, that
we modify our products to address actual or anticipated changes in the
regulatory environment. Our inability to modify our products or address any
9
<PAGE>
regulatory changes could have a material adverse effect on our business,
financial condition or results of operations.
Year 2000 problems could disrupt our business
During the next year, many software programs may not recognize calendar dates
beginning in the Year 2000. This problem could cause computers or machines which
utilize date dependent software to either shut down or provide incorrect
information. If we, or any of our key suppliers, customers or service providers,
fail to mitigate internal and external Year 2000 risks, we may temporarily be
unable to provide products or engage in other business activities, including
billing, which could have a material adverse effect on our business.
Control by Brooktrout may limit your ability to influence the outcome of matters
requiring stockholder approval
Upon completion of this offering, Brooktrout will own approximately 65% of the
outstanding shares of common stock, or 60% if the underwriters' over-allotment
option is exercised in full. Accordingly, Brooktrout will be able to control or
significantly influence matters requiring approval by our stockholders,
including the election of directors and the approval of mergers or other
business combination transactions. This concentration of ownership could have
the effect of delaying or preventing a change in our control or otherwise
discouraging a potential acquiror from attempting to obtain control of us, which
in turn could have a material adverse effect on the market price of the common
stock or prevent our stockholders from realizing a premium over the market
prices for their shares of common stock.
Substantial future sales of our common stock in the public market could cause
our stock price to fall
Sales of a large number of shares of our common stock in the public market after
this offering could adversely affect the market price of our common stock. Upon
completion of this offering, we will have approximately 10,380,358 shares of
common stock outstanding, of which approximately 3,500,000 shares, or
approximately 4,025,000 shares if the underwriters' over-allotment option is
exercised in full, will be freely transferable without restriction or
registration under the Securities Act of 1933, unless such shares are held by
our affiliates. The remaining 6,880,358 shares of common stock held by existing
stockholders and 420,959 shares subject to outstanding options vested on July
21, 1999 will be restricted securities and may only be sold in the public market
if registered or if they qualify for an exemption from registration under the
Securities Act. All of our officers and directors and Brooktrout have agreed
with U.S. Bancorp Piper Jaffray not to sell or otherwise dispose of any of their
shares for 180 days after the date of this prospectus. Beginning 180 days after
the offering, under specified circumstances and subject to customary conditions,
Brooktrout will have rights with respect to 6,500,000 shares of common stock, to
require us to register their shares of common stock under the Securities Act,
and Brooktrout will have rights to participate in any future registrations of
securities by us.
Provisions in our corporate charter and bylaws may discourage takeover attempts
and thus depress the market price of our common stock
Provisions in our amended and restated Certificate of Incorporation, may have
the effect of delaying or preventing a change of control or changes in our
management. These provisions include:
- the right of the Board of Directors, without stockholder approval,
to issue shares of preferred stock and to establish the voting
rights, preferences, and other terms thereof;
- the right of the Board of Directors to elect a director to fill a
vacancy created by the expansion of the Board of Directors;
10
<PAGE>
- the ability of the Board of Directors to alter our bylaws without
prior stockholder approval;
- the election of three classes of directors to each serve three year
staggered terms;
- the elimination of stockholder voting by consent;
- the removal of directors only for cause;
- the vesting of exclusive authority in the Board of Directors
(except as otherwise required by law) to call special meetings of
stockholders; and
- certain advance notice requirements for stockholder proposals and
nominations for election to the Board of Directors.
These provisions discourage potential takeover attempts and could adversely
affect the market price of our common stock.
Because we have no specific plan for any significant portion of the net proceeds
of this offering, our management will have the discretion to allocate the net
proceeds of this offering to uses the stockholders may not deem desirable
Although we expect to use the net proceeds of this offering for general
corporate purposes such as working capital, product development and sales and
marketing, we currently have no specific plan for any significant portion of the
net proceeds of this offering. As a consequence, our management will have the
discretion to allocate the net proceeds of this offering to uses the
stockholders may not deem desirable. We may not be able to invest these net
proceeds to yield a significant return. Substantially all of the net proceeds of
this offering will be invested in short-term, interest-bearing, investment grade
securities or guaranteed obligations of the U.S. government for an indefinite
period of time.
This offering will cause immediate and substantial dilution in the value of your
investment
You will experience an immediate and substantial dilution of $8.91 per share in
the net tangible book value per share of common stock from the initial public
offering price. Assuming an initial public offering price of $11.00 per share of
common stock, our pro forma net tangible book value as of June 30, 1999, after
giving effect to this offering, would be $2.09 per share.
We do not intend to pay dividends
To date, we have never declared nor paid any cash dividends on shares of our
common stock. We currently intend to retain our earnings for future growth and
development of our business and, therefore, do not anticipate declaring or
paying any dividends in the foreseeable future.
11
<PAGE>
FORWARD-LOOKING STATEMENTS
Certain statements under the captions "Summary," "Risk Factors," "Use of
Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business," and elsewhere in this prospectus are
"forward-looking statements." These forward-looking statements include, but are
not limited to, statements about our plans, objectives, expectations and
intentions and other statements contained in the prospectus that are not
historical facts. When used in this prospectus, the words "expects,"
"anticipates," "intends," "plans," "believes," "seeks," "estimates" and similar
expressions are generally intended to identify forward-looking statements.
Because these forward-looking statements involve risk and uncertainties, there
are important factors, including the factors discussed under "Risk Factors,"
that could cause actual results to differ materially from those expressed or
implied by these forward-looking statements.
USE OF PROCEEDS
The net proceeds to Interspeed from the sale of common stock in this offering,
assuming a public offering price of $11.00 per share, are estimated to be $19.5
million, after deducting underwriting discounts and commissions and estimated
offering expenses of $2.5 million.
We expect to use substantially all of the net proceeds for general corporate
purposes, including working capital, research and development and expansion of
sales and marketing activities. The amounts we actually expend for such working
capital and other purposes may vary significantly and will depend on a number of
factors, including the amount of our future revenues and other factors described
under "Risk Factors." Accordingly, our management will retain broad discretion
in the allocation of the net proceeds of this offering. A portion of the net
proceeds may also be used to acquire or invest in complementary businesses,
technologies, product lines or products. We have no current plans, agreements or
commitments with respect to any such transaction, and we are not currently
engaged in any negotiations with respect to any such transaction. Pending such
uses, the net proceeds of this offering will be invested in short-term,
interest-bearing, investment grade securities or guaranteed obligations of the
U.S. government.
DIVIDEND POLICY
We have never declared nor paid any cash dividends on our capital stock. We
currently intend to retain any future earnings to finance the growth and
development of our business and, therefore, do not anticipate declaring or
paying any cash dividends in the foreseeable future. Any future determination to
pay cash dividends will be at the discretion of the Board of Directors and will
be dependent upon our financial condition, results of operations, capital
requirements, general business condition and such other factors as the Board of
Directors may deem relevant.
12
<PAGE>
CAPITALIZATION
The following table sets forth our cash and capitalization as of June 30, 1999
(a) on an actual basis, (b) pro forma to reflect the contribution by Brooktrout
of the long term note payable to capital of Interspeed upon the effective date
of this offering and (c) pro forma as adjusted to give effect to the sale of
2,000,000 shares by Interspeed in this offering, assuming an initial public
offering price of $11.00 per share, resulting in net proceeds to Interspeed of
approximately $19.5 million, after deducting underwriting discounts and
commissions and estimated offering expenses of $2.5 million. This table should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our financial statements of the Company
and the notes to those statements included elsewhere in this prospectus.
The table below excludes:
- 2,044,000 shares of common stock issuable upon exercise of
outstanding stock options at a weighted average exercise price of
$0.65 per share as of June 30, 1999;
- 362,226 shares of common stock that were issued subsequent to June
30, 1999 upon exercise of previously granted options; and
- 24,000 shares relating to options that were granted subsequent to
June 30, 1999.
<TABLE>
<CAPTION>
June 30, 1999
-----------------------------------
<S> <C> <C> <C>
Pro forma
Actual Pro forma As Adjusted
--------- ----------- -----------
<CAPTION>
(in thousands, except per share
data)
<S> <C> <C> <C>
Cash......................................................................... $ 136 $ 136 $ 19,625
--------- ----------- -----------
--------- ----------- -----------
Long-term note payable--due Brooktrout....................................... $ 10,887 $ -- $ --
Stockholders' equity:
Preferred Stock, $0.01 par value per share; 1,000,000 shares authorized, no
shares issued or outstanding on an actual, pro forma and pro forma as
adjusted basis........................................................... -- -- --
Common stock, $0.01 par value per share; 30,000,000 shares authorized,
8,018,132 shares issued and outstanding on an actual and pro forma basis;
30,000,000 shares authorized, 10,018,132 shares issued and outstanding on
a pro forma as adjusted basis............................................ 80 80 100
Additional paid-in capital................................................. 7,394 18,281 37,750
Accumulated deficit........................................................ (12,430) (12,430) (12,430)
Deferred compensation...................................................... (4,508) (4,508) (4,508)
--------- ----------- -----------
Total stockholders' equity (deficit)......................................... (9,464) 1,423 20,912
--------- ----------- -----------
Total capitalization......................................................... $ 3,697 $ 1,423 $ 20,912
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
13
<PAGE>
DILUTION
Purchasers of the common stock in this offering will experience immediate and
substantial dilution in the net tangible book value of the common stock from the
initial public offering price.
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. At June 30, 1999, we had a pro forma net tangible book value of
$1,373,000 or $0.17 per share of common stock after giving effect to
contribution to capital of the long term note payable-due Brooktrout. After
giving effect to the sale of 2,000,000 shares of common stock offered by us at
an assumed initial public offering price of $11.00 per share and after the
deduction of underwriting discounts and commissions and estimated offering
expenses payable by us, our pro forma net tangible book value would have been
approximately $20.9 million or $2.09 per share. This represents an immediate
increase in such net tangible book value of $1.92 per share to existing
shareholders and an immediate and substantial dilution of $8.91 per share to new
investors purchasing common stock in this offering. The following table
illustrates this per share dilution:
<TABLE>
<S> <C>
Assumed initial public offering price............................................... $ 11.00
Pro forma net tangible book value before the offering............................. 0.17
Increase in pro forma net tangible book value per share attributable to new
investors....................................................................... 1.92
Pro forma net tangible book value after the offering................................ 2.09
Dilution to new investors........................................................... $ 8.91
---------
---------
</TABLE>
The following table summarizes, as of June 30, 1999, the difference between
existing stockholders and the new investors with respect to the number of shares
of common stock purchased, the total consideration paid and the average price
per share paid (before the deduction of underwriting discounts and commissions
and estimated offering expenses payable by Interspeed, and after giving effect
to Brooktrout's contribution of the long term note payable to the capital of
Interspeed):
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
--------------------- ------------------------ Average Price
Number Percent Amount Percent Per Share
---------- --------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.................. 8,018,132 80% $ 11,890,000 35% $ 1.48
New investors.......................... 2,000,000 20% 22,000,000 65% 11.00
---------- --------- ------------- --------- ------
Total.............................. 10,018,132 100.0% $ 33,890,000 100.0% 3.38
---------- --------- ------------- --------- ------
---------- --------- ------------- --------- ------
</TABLE>
The foregoing table excludes:
- 2,044,000 shares of common stock subject to outstanding options at
June 30, 1999 at a weighted average exercise price of $0.65 per
share; and
- an aggregate of 913,868 shares available for future grant under our
1999 Stock Option and Grant Plan.
To the extent these options are exercised and the underlying shares are granted,
there will be further dilution to new investors.
14
<PAGE>
SELECTED FINANCIAL DATA
(in thousands, except per share data and selected operating data)
The selected financial data as of September 30, 1997 and 1998 and June 30, 1999
and for the period October 23, 1996 (inception) to September 30, 1997, the year
ended September 30, 1998 and for the nine months ended June 30, 1999 has been
derived from the audited financial statements and the notes to those statements
included elsewhere in this prospectus. The selected financial data for the nine
month period ended June 30, 1998 has been derived from the unaudited financial
information included elsewhere in this prospectus, which in our opinion include
all adjustments, consisting of only normal recurring adjustments, necessary for
a fair presentation of the results for such periods. The selected financial data
should be read in conjunction with, and is qualified in its entirety by
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the Financial Statements of Interspeed and the Notes to those
statements and the other financial data included elsewhere in this prospectus.
<TABLE>
<CAPTION>
For the period
October 23, 1996 For the year For the nine months
(inception) to ended ended June 30,
September 30, September 30, --------------------
1997 1998 1998 1999
---------------- ----------------- --------- ---------
<S> <C> <C> <C> <C>
Statements of Operations Data:
Revenue................................................ $ -- $ -- $ -- $ 1,341
Cost of revenue........................................ -- -- -- 826
------- ------- --------- ---------
Gross profit........................................... -- -- -- 515
Operating expenses
Research and development............................. 878 3,204 2,429 3,747
Sales and marketing.................................. -- 401 331 796
General and administrative........................... 165 689 491 1,102
Stock compensation................................... -- 19 2 1,944
------- ------- --------- ---------
Total operating expenses............................... 1,043 4,313 3,253 7,589
------- ------- --------- ---------
Loss before income taxes............................... (1,043) (4,313) (3,253) (7,074)
Income tax expense..................................... -- -- -- --
------- ------- --------- ---------
Net loss............................................... $ (1,043) $ (4,313) $ (3,253) $ (7,074)
------- ------- --------- ---------
------- ------- --------- ---------
Net loss per share--basic and diluted.................. $ (0.24) $ (0.54) $ (0.41) $ (0.88)
------- ------- --------- ---------
------- ------- --------- ---------
Shares used to compute net loss per share--basic and
diluted.............................................. 4,364 8,000 8,000 8,001
</TABLE>
<TABLE>
<CAPTION>
September 30, September 30, June 30, June 30,
1997 1998 1999 1999
--------------- ------------- ----------- ---------------
<S> <C> <C> <C> <C>
(pro forma)(1)
Balance Sheet:
Cash.................................................... $ 21 $ 132 $ 136 $ 136
Working capital......................................... (155) 213 150 150
Total assets............................................ 348 1,227 3,697 3,697
Long term note payable--due Brooktrout.................. 206 5,038 10,887 --
Total stockholders' equity (deficit).................... (42) (4,336) (9,464) 1,423
</TABLE>
- ------------------------------------
(1) The unaudited pro forma selected balance sheet data as of June 30, 1999
reflects the contribution by Brooktrout of the long term note payable to the
capital of Interspeed upon the effective date of this offering.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS OF OUR FINANCIAL CONDITION AND RESULTS OF
OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND THE
NOTES TO THOSE STATEMENTS INCLUDED ELSEWHERE IN THIS PROSPECTUS. THIS DISCUSSION
CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE CONTAINED IN THE
FORWARD-LOOKING STATEMENTS. FACTORS THAT MAY CAUSE SUCH DIFFERENCES INCLUDE, BUT
ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS" AND ELSEWHERE IN THIS
PROSPECTUS.
Overview
We design, develop, and market advanced high-speed data communication solutions
based on digital subscriber line, or DSL, technology. Our products enable data
communication service providers such as competitive local exchange carriers,
Internet service providers, and owners of multi-tenant units, to utilize the
existing copper wire infrastructure to deliver high speed data access to their
customers. We believe we offer the only single platform system that integrates
the principal components required to offer DSL service, including signal
concentration, routing, switching and network management. Unlike traditional DSL
products, our DSLAR offers a highly scalable and flexible solution to our
customers, at a lower total cost of ownership.
Since we commenced operations in March 1997, we have focused our efforts and
resources on research and development and the formation of a corporate
infrastructure. We announced general availability of our Interspeed 1000 and
Interspeed 500 DSL Access Routers in February 1999.
REVENUE. Our revenue is generated primarily from sales of our products and
related maintenance services to data communications service providers and their
customers. Revenue from product sales is recognized upon shipment of the
product. No revenue is recognized on products shipped on a trial basis. Our
products generally carry a one year warranty from the date of purchase. We
estimate sales returns and warranty costs at the time the product revenue is
recognized and an accrual is recorded. Customers may contract for support
services over and above that provided by our warranty policy. Revenue from such
contracts and from the extended warranty contracts is recognized ratably over
the service period. We do not recognize revenue on beta units until beta testing
on such units is completed.
COST OF REVENUE. Cost of revenue consists of direct product costs such as
standard parts and components for our products, salaries and employee benefits
for manufacturing personnel and overhead such as equipment and facility costs.
GROSS PROFIT. We expect our gross profit to be effected by many factors
including pricing, product mix, cost factors such as component prices, internal
and external manufacturing costs as well as manufacturing efficiencies due to
higher volume of product shipments which we believe will result in the
improvement of overhead absorption.
RESEARCH AND DEVELOPMENT. Research and development expenses consist primarily
of salaries and employee benefits for engineering personnel and costs relating
to prototypes including components, non-recurring engineering charges and tools.
Product enhancements and new features are key objectives. We expect research and
development expenses to increase in absolute dollars in the future.
SALES AND MARKETING. Sales and marketing expenses consist primarily of
salaries, employee benefits, trade shows, public relations, marketing materials,
travel and other marketing expenses. Future sales and marketing activities will
involve additional costs related to the expansion of the sales and sales
engineering organization, product branding, advertising and public relations
costs. We expect sales and marketing expenses to increase in absolute dollars in
the future.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist of
personnel costs for executive officers, administrative and support activities
including payroll administration, worker's compensation and general liability
insurance, accounting and finance, legal, tax and human resources. To date, we
16
<PAGE>
have relied on Brooktrout to provide the majority of these services. Upon the
effective date of this offering, we will enter into a transition services
agreement with Brooktrout, pursuant to which Brooktrout will continue to provide
us with certain services during a transitional period. The agreement calls for
fees to be paid in connection with the continuation of current administrative
and support services, with such services being phased out over a period
beginning October 1999 to December 1999. As we phase out these services from
Brooktrout in the October 1999 to December 1999 time period, we expect to
recruit and staff for finance, human resources, administrative and information
services employees. We will incur other corporate expenses such as legal, audit,
and insurance expenses.
The cost for the services provided by Brooktrout, included in General and
Administrative Expenses, amounted to $165,000 for the period October 23, 1996
(inception) to September 30, 1997, $668,000 for the year ended September 30,
1998, $470,000 for the nine month period ended June 30, 1998 and $749,000 for
the nine month period ended June 30, 1999. These costs have been allocated to us
using methodologies primarily based on headcount and specific services rendered.
Although we believe the allocations are reasonable, the costs we incurred for
these services may not be indicative of the costs that would have been incurred
if we had been a stand-alone entity.
STOCK COMPENSATION. Stock options have been granted with exercise prices which
were less than the estimated fair value of Interspeed's common stock.
Compensation cost associated with these options, determined as the difference
between the fair value of the stock and the exercise price, totalled
approximately $6.5 million through June 30, 1999. This cost was recorded as
deferred compensation and is being charged to expense over the vesting period.
Compensation cost was $19,000 and $1,944,000 for the year ended September 30,
1998 and the nine months ended June 30, 1999. In connection with these grants,
we expect to record a charge of approximately $405,000 in the quarter ended
September 30, 1999. Similar charges are expected for future periods.
INCOME TAX EXPENSE. Through June 30, 1999, we have incurred net losses
totalling approximately $12.4 million. To date, we have been included in
Brooktrout's consolidated income tax filings and these losses have been used to
reduce the group's taxes payable. Brooktrout has not and does not intend to
reimburse us for the value of the net losses used to reduce Brooktrout's
consolidated taxable income. Accordingly, we have not recorded any benefit
related to these losses. Following the effective date of the offering, we will
no longer be included in Brooktrout's consolidated income tax filings; we do not
anticipate recognizing any benefits from losses generated in the short term due
to our limited operating history. We expect to continually evaluate the
recoverability of net loss carryforwards.
17
<PAGE>
Quarterly Operating Results
The following table sets forth unaudited quarterly operating results for each of
our last six quarters. This information has been prepared by us on a basis
consistent with our audited financial statements and includes all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the data. These quarterly results are not necessarily indicative
of results of operations for any future period. We have experienced in the past
and expect to experience in the future, fluctuations in quarterly operating
results. Factors that may cause such fluctuations include, but are not limited
to, those discussed in "Risk Factors" and elsewhere in this prospectus.
<TABLE>
<CAPTION>
Quarter Ended
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
March 31, June 30, September 30, December 31, March 31, June 30,
1998 1998 1998 1998 1999 1999
----------- --------- ------------- ------------- ----------- ---------
<CAPTION>
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenue........................................ $ -- $ -- $ -- $ 64 $ 327 $ 950
Cost of revenue................................ -- -- -- 36 276 514
----------- --------- ------------- ------------- ----------- ---------
Gross profit................................... -- -- -- 28 51 436
Operating expenses:............................
Research and development..................... 937 922 731 1,273 1,139 1,335
Sales and marketing.......................... 80 251 70 136 220 440
General and administrative................... 175 212 202 210 356 536
Stock compensation -- 2 14 32 62 1,850
----------- --------- ------------- ------------- ----------- ---------
Total operating expenses................. 1,192 1,387 1,017 1,651 1,777 4,161
----------- --------- ------------- ------------- ----------- ---------
Loss before income taxes....................... (1,192) (1,387) (1,017) (1,623) (1,726) (3,725)
Income tax expense............................. -- -- -- -- -- --
----------- --------- ------------- ------------- ----------- ---------
Net loss....................................... $ (1,192) $ (1,387) $ (1,017) $ (1,623) $ (1,726) $ (3,725)
----------- --------- ------------- ------------- ----------- ---------
----------- --------- ------------- ------------- ----------- ---------
Net loss per share-basic and diluted........... $ (.15) $ (.17) $ (.13) $ (.20) $ (.22) $ (.47)
Shares used to compute net loss per share-basic
and diluted.................................. 8,000 8,000 8,000 8,000 8,000 8,001
</TABLE>
Six Quarters Ended June 30, 1999
REVENUE. Our revenue in the quarter ended December 31, 1998 was $64,000 and
represented the first sale of our product under the beta test program. Our first
product became generally available in February 1999. Revenue in the quarter
ended March 31, 1999 was $327,000 and represented an increase of $263,000 or
411% from the quarter ended December 31, 1998. Revenue in the quarter ended June
30, 1999 was $950,000, an increase of $623,000 or 191% from the quarter ended
March 31, 1999.
COST OF REVENUE. Cost of revenue for the quarter ended December 31, 1998 was
$36,000 and was $276,000 for the quarter ended March 31, 1999, an increase of
$240,000 or 667%. Cost of revenue in the quarter ended June 30, 1999 was
$514,000, an increase of $238,000 from the quarter ended March 31, 1999. This
increase was primarily due to material costs related to increased product
shipments. The increase in costs is primarily due to payroll costs related to
the dedication of personnel to manufacturing coinciding with the general
availability of our first product.
GROSS PROFIT. Gross profit as a percentage of revenue was 44% for the quarter
ended December 31, 1998, 16% for the quarter ended March 31, 1999 and was 46%
for the quarter ended June 30, 1999. Gross profit as a percentage of revenue
declined for the quarter ended March 31, 1999 as a result of increased costs
associated with expansion of manufacturing operations. We expect our gross
profit to be effected by many factors including product mix, cost factors such
as component prices, internal and external manufacturing costs as well as
manufacturing efficiencies due to higher product shipment volume.
18
<PAGE>
RESEARCH AND DEVELOPMENT. Since its inception, Interspeed has allocated
substantial funding to its research and development efforts. The decrease in
research and development expense in the quarter ended September 30, 1998 was due
to the decreased usage of prototype materials in research and development
projects. Research and development expense increased by 74% to $1,273,000 for
the quarter ended December 31, 1998 from the quarter ended September 30, 1998
due primarily to increases in headcount, increased purchases of prototype
materials and consulting. Research and development expense decreased by 11% to
$1,139,000 for the quarter ended March 31, 1999 from the quarter ended December
31, 1998 primarily due to transferring personnel to the administration area from
development. Research and development expense increased by 17% to $1,335,000 for
the quarter ended June 30, 1999 from the quarter ended March 31, 1999 due
primarily to increases in headcount, related recruiting costs and consulting
expenses.
SALES AND MARKETING. Sales and marketing expenses fluctuated from quarter to
quarter as a result of expenses related primarily to one major trade show in the
quarter ended June 30, 1998. During the quarter ended June 30, 1998
approximately $156,000 of the $251,000 was related to a trade show, public
relations, and marketing materials. The decrease of $10,000 from the quarter
ended March 31, 1998 to the quarter ended September 30, 1998 was primarily due
to a decrease in payroll taxes resulting from various employees exceeding FICA
tax limits. Sales and marketing expenses in the quarter ended June 30, 1999 were
$440,000, a 100% increase from the prior quarter primarily due to an increase in
headcount from 4 to 10.
GENERAL AND ADMINISTRATIVE. General and administrative expenses decreased
$10,000 from the quarter ended June 30, 1998 to the quarter ended September 30,
1998. This decrease was directly related to the decrease in salary and benefit
costs associated with the loss of personnel. General and administrative expenses
increased from $210,000 for the quarter ended December 31, 1998 to $356,000 for
the quarter ended March 31, 1999, an increase of 70%. General and administrative
expenses increased as a result of allocations made to Interspeed based on
Interspeed headcount. Total Interspeed headcount for the period increased from
26 to 35. General and administrative expense increased by 51% to $536,000 for
the quarter ended June 30, 1999 from the quarter ended March 31, 1999 due
primarily to increases in allocations as total Interspeed headcount increased
from 35 to 49.
19
<PAGE>
Results of Operations
The following table sets forth certain statements of operations for the years
ended September 30, 1997 and 1998 and the nine months ended June 30, 1998 and
1999. This information should be read with our financial statements and notes
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Period from
October 23,
1996
(inception) Year Ended
to September September Nine Months
30, 30, Ended June 30,
------------- ----------- --------------------
(In thousands except per share data) 1997 1998 1998 1999
- ----------------------------------------------- ------------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Revenue........................................ $ -- $ -- $ -- $ 1,341
Cost of revenue................................ -- -- -- 826
------------- ----------- --------- ---------
Gross profit................................... -- -- -- 515
------------- ----------- --------- ---------
Operating expenses:............................
Research and development..................... 878 3,204 2,429 3,747
Sales and marketing.......................... -- 401 331 796
General and administrative................... 165 689 491 1,102
Stock compensation........................... -- 19 2 1,944
------------- ----------- --------- ---------
Total operating expenses................. 1,043 4,313 3,253 7,589
------------- ----------- --------- ---------
Loss before income taxes....................... (1,043) (4,313) (3,253) (7,074)
Income tax expense............................. -- -- -- --
------------- ----------- --------- ---------
Net loss....................................... $ (1,043) $ (4,313) $ (3,253) $ (7,074)
------------- ----------- --------- ---------
------------- ----------- --------- ---------
Net loss per share-basic and diluted........... $ (0.24) $ (0.54) $ (0.41) $ (0.88)
------------- ----------- --------- ---------
------------- ----------- --------- ---------
Shares used to compute net loss per share-basic
and diluted.................................. 4,364 8,000 8,000 8,001
</TABLE>
Nine Months Ended June 30, 1999 and 1998
In the quarter ended December 31, 1998, we completed initial product development
and released our first product for beta test. General release of our product for
sale occurred in February 1999.
REVENUE. During the nine months ended June 30, 1999, total revenues from
product sales totalled $1,341,000 with the majority of these revenues
concentrated in the months of March and June 1999.
COST OF REVENUE. During the nine months ended June 30, 1999, cost of revenue
totalled $826,000, the majority of which is related to revenue recognized in
March and June of 1999.
GROSS PROFIT. During the nine months ended June 30, 1999, gross profit as a
percentage of revenue was 38%, due primarily to the early stages of our
production build-up. As we achieve higher selling volumes, gross profit as a
percentage of revenue is expected to improve as manufacturing efficiencies are
achieved and fixed manufacturing costs are spread among higher product shipment
volume.
RESEARCH AND DEVELOPMENT. In the nine months ended June 30, 1999, research and
development expenses increased by 54% to $3.7 million from $2.4 million during
the first nine months of 1998, directly associated with the increase in salary
and benefit costs related to the hiring of 13 additional development
professionals and costs incurred in building the first prototypes of our product
for testing. We expect that research and development expenses in future periods
will continue to increase in absolute dollar terms.
SALES AND MARKETING. In the nine months ended June 30, 1999, sales and
marketing expenses increased by 140% to $796,000 from $331,000 in the first nine
months of 1998, mostly related to the increase in salary and benefit costs
associated with additional staffing of 7 sales and marketing professionals which
occurred in 1999, and increased activity due to the release of our product to
the market and the consummation of sales to customers. We expect that sales and
marketing expenses in future periods will continue to increase in absolute
dollar terms.
20
<PAGE>
GENERAL AND ADMINISTRATIVE. In the nine months ended June 30, 1999, general and
administrative expenses increased by 124% to $1,102,000 compared to $491,000 in
the nine months ended June 30, 1998. The cost for the services provided by
Brooktrout, included in General and Administrative Expenses, amounted to
$469,000 for the nine month period ended June 30, 1998, and $749,000 for the
nine month period ended June 30, 1999. Because of the allocation method used,
these costs increased as our total headcount increased by 37 people from October
1, 1997 to June 30, 1999.
STOCK COMPENSATION. In the nine months ended June 30, 1999, compensation cost
amortization was $1,944,000.
Years Ended September 30, 1998 and 1997
REVENUE, COST OF REVENUE AND GROSS PROFIT. During the years ended September 30,
1997 and 1998, we were still in the development stage and no products were
available for shipment to customers.
RESEARCH AND DEVELOPMENT. Research and development expense increased
approximately 265% in 1998 to $3.2 million for the period ended September 30,
1998 compared to $878,000 in the same period for the prior year. This increase
is directly related to the addition of seven development professionals and costs
incurred in building the first prototypes of our product for testing.
SALES AND MARKETING. In the years ended September 30, 1997 and 1998, expenses
increased from $0 to $401,000. This increase was primarily due to personnel
dedicated to our marketing effort and activities related to tradeshows and other
marketing processes.
GENERAL AND ADMINISTRATIVE. In the years ended September 30, 1997 and 1998,
general and administrative expenses increased by 318% to $689,000 in 1998
compared to $165,000 in 1997. Because of the allocation method used, these costs
increased as our total headcount increased by 13 people during the period.
STOCK COMPENSATION. In the year ended September 30, 1998, compensation cost was
$19,000.
Liquidity and Capital Resources
Since inception, our operations have been funded through contributions of
capital and loans from Brooktrout of approximately $1.2 million, $4.8 million
and $5.8 million for the period October 23, 1996 (inception) to September 30,
1997, the year ended September 30, 1998 and the nine months ended June 30, 1999,
respectively. At June 30, 1999, we had long term notes payable to Brooktrout in
the amount of $10.9 million. The notes are non-interest bearing. In connection
with this offering, Brooktrout has agreed to contribute the outstanding note
balance on the effective date of the offering to the capital of Interspeed.
Until the consummation of the offering, Brooktrout has agreed to continue to
fund our operations.
For the period October 23, 1996 (inception) to September 30, 1997, the year
ended September 30, 1998 and the nine months ended June 30, 1998 and 1999, we
purchased approximately $371,000, $369,000, $326,000 and $588,000, respectively,
of equipment. We currently have no material commitments for additional capital
expenditures.
We believe that the net proceeds from this offering will be sufficient to meet
our anticipated cash needs for working capital and capital expenditures for at
least 12 months following this offering. Thereafter, if cash generated from
operations is insufficient to satisfy our liquidity requirements, we might need
to raise additional funds through public or private financing, strategic
relationships or other arrangements. There can be no assurance that such
additional funding, if needed, will be available on terms which we believe are
attractive, or at all. If we fail to raise capital when needed, it could harm
our business, operating results and financial condition. If we raise additional
funds through the issuance of equity securities, the percentage ownership of our
stockholders would be reduced.
21
<PAGE>
We do not believe that inflation has had a significant effect on its operations
to date.
Year 2000 Readiness Disclosure
The Year 2000 issue relates to potential problems arising from the way in which
computer software processes functions that are date dependent. These problems
arise from hardware and software unable to distinguish dates in the "2000s" from
dates in the "1900s" and from other sources such as the use of special codes and
conventions in software that use a date field. These problems could result in a
system failure with miscalculations causing disruptions of operations, including
among other things, a temporary inability to process transactions, send invoices
or engage in other normal business activities. The Year 2000 issue may pose
additional problems due to the fact the Year 2000 is a leap year and some
computers and programs may fail to recognize the extra day.
GENERAL READINESS ASSESSMENT. As a wholly owned subsidiary of Brooktrout, we
have relied on Brooktrout's Year 2000 Plan except with respect to our products
and suppliers where we have instituted our independent compliance program. By
December 31, 1999, we plan to no longer rely on any Brooktrout systems. We have
begun a formal systems selection process and have retained a systems consultant
to assist us in determining our systems requirements and assist us in purchasing
Year 2000 compliant business systems to satisfy our present and future needs as
a rapidly expanding and changing business. However, no assurance can be given
that we or third parties with whom we have a business relationship will
successfully address our or their Year 2000 issues. To date, we have not
experienced any problems with Year 2000 issues with either third party or our
internal systems. Our Year 2000 readiness program is supervised by our Year 2000
compliance committee which is headed by Rajeev Agarwal, and we review our Year
2000 program on a monthly basis.
Our overall non-Brooktrout related Year 2000 readiness program has consisted of
the following steps:
- purchasing internal systems that are Year 2000 compliant;
- developing a complete inventory of our products' hardware and
software and assessing whether each specific piece of equipment or
software is Year 2000 compliant;
- contacting most of our major equipment vendors to ensure that the
equipment or software purchased has been tested and verified as
Year 2000 compliant; and
- developing contingency plans to address potential Year 2000
problems which are not directly in our control.
Specific areas in our Year 2000 program which have been completed:
- ensuring our products' hardware and software are Year 2000
compliant;
- contacting most of our major equipment providers and receiving
disclosure statements that all of the equipment or software
purchased from these vendors is Year 2000 compliant; and
- implementing contingency plans ensuring that we have alternative
suppliers for our products' components.
ASSESSMENT OF INTERNAL INFRASTRUCTURE. With respect to our internal systems, we
have relied on Brooktrout's Year 2000 Plan which consists of three
phases--assessment, testing and implementation. Brooktrout is currently in the
implementation phase and anticipates completing this phase during the third
calendar quarter of 1999. By December 31, 1999, with the assistance of our
systems consultant, we plan to have our own internal systems in place. All of
the systems we purchase will be Year 2000 compliant.
ASSESSMENT OF INTERSPEED'S SOFTWARE AND PRODUCTS. We have gathered, tested and
produced information about our products impacted by the Year 2000 transition. We
believe that all of our products are in or will be in Year 2000 compliance.
22
<PAGE>
SUPPLIERS All organizations dealing with the Year 2000 must address the effect
this issue will have on their significant business relationships with key third
parties. Our significant business relationships which may be adversely impacted
by the Year 2000 issue include certain contractual relationships with key
suppliers of components for our products and service providers for our internal
systems. We continue to work with third parties to understand their ability to
continue to provide services and products. If any significant Year 2000 problems
are identified with third parties, contingency plans will be developed.
COSTS TO ADDRESS YEAR 2000 ISSUES. To date, the primary costs of achieving Year
2000 compliance have been incorporated into the fees Brooktrout has charged
Interspeed for managing Interspeed's system requirements. The historical costs
to assess our Year 2000 readiness have been negligible. The primary future costs
will be our consultant's fee and the Year 2000 compliant systems we purchase. We
are not currently able to estimate the final aggregate cost of addressing the
Year 2000 issue because funds may be required as a result of future findings. We
do not expect these costs to be material nor to have an adverse effect on our
business and financial results.
CONTINGENCY PLAN. While all the internal systems that we will have in place by
December 31, 1999 will be purchased with the expectation that they will be Year
2000 compliant, we are keeping careful manual records in the event such systems
fail. In addition, with respect to our suppliers, we have successfully
identified at least one alternative supplier for each of our products'
components.
CONSEQUENCES OF YEAR 2000 PROBLEMS. We are still in the process of evaluating
potential disruptions or complications that might result from Year 2000 related
problems. Presently, however, we believe that the most likely worst case
scenario related to the Year 2000 issue is associated with third party vendors.
A significant Year 2000 related disruption of the services provided to us by
third party vendors could prevent us from timely delivering our products to
customers, which in turn could materially and adversely affect our results of
operations, liquidity and financial condition. We are not presently aware of any
vendor related Year 2000 issue that is likely to result in such a disruption.
We anticipate that litigation may be brought against vendors of all component
products of systems that are unable to properly manage data related to the Year
2000. We have not received any threats of such litigation. Although we believe
our products are Year 2000 compliant, no assurance can be given that such
litigation may not be threatened or brought in the future. Our failure or
failure of our key suppliers and/or customers to be Year 2000 compliant may also
result in litigation being brought against us in addition to making it more
difficult and/or costly for us to manufacture and sell our products. Any such
claims, with or without merit, or our failure or the failure of our suppliers or
customers to be Year 2000 compliant could result in a material adverse affect on
our business, financial condition and results of operations, including increased
warranty costs, customer satisfaction issues and potential lawsuits.
Although there is inherent uncertainty in the Year 2000 issue, we expect that as
we progress with our Year 2000 readiness plan, the level of uncertainty about
the impact of the Year 2000 issue on us will be reduced and we should be better
positioned to identify the nature and extent of any material risk to us as a
result of any Year 2000 disruptions. This section contains certain statements
that are forward-looking statements. Our Year 2000 compliance, and the eventual
affects of the Year 2000 on us may be materially different than currently
projected. This may be due to, among other things, delays in the implementation
of our Year 2000 Plan and the failure of key third parties with whom we have a
significant business relationship to achieve Year 2000 compliance.
23
<PAGE>
BUSINESS
Overview
Interspeed designs, develops and markets advanced high-speed data communication
solutions based on digital subscriber line, or DSL, technology. Our products
enable data communication service providers such as competitive local exchange
carriers, or CLECs, Internet service providers, or ISPs, and owners of
multi-tenant units, or MTUs, to utilize existing copper wire infrastructure to
deliver high speed data access to their customers. We believe we offer the only
single platform system that integrates the principal components required to
offer DSL service, including signal concentration, routing, switching and
network management. Unlike traditional DSL products, our DSL Access Router, or
DSLAR, offers our customers a highly scalable and flexible solution at a lower
total cost of ownership.
Interspeed incorporated in Massachusetts in 1996 as a wholly owned subsidiary of
Brooktrout, Inc. and commenced operations in March 1997. We reincorporated as a
Delaware corporation in June 1999. Our parent company, Brooktrout, is a
worldwide supplier of electronic communications products whose mission is to
provide high performance quality products that enable businesses and consumers
to exchange information electronically. Brooktrout has decided that it is in its
stockholders best interest to sell approximately 20-25% of its original
ownership of Interspeed to the public and have Interspeed operate as an
independent public company so that Brooktrout can realize some immediate return
on its investment in Interspeed and provide Brooktrout's stockholders with
greater potential long term value recognition on Brooktrout's investment in
Interspeed.
Industry Overview
The data traffic generated by computer users accessing the Internet and business
networks has increased significantly over the last few years and is expected to
increase in the years to come. Several key factors driving this growth include
electronic commerce, business usage of the Internet, remote access for
teleworkers and distributed computing applications such as e-mail. According to
International Data Corporation, or IDC, the number of Internet users worldwide
reached approximately 150 million in March 1999 and is forecasted to grow to
approximately 500 million by 2003. Forrester Research, Inc. predicts that
business to business electronic commerce will grow from $43 billion in 1998 to
$1.3 trillion in 2003. In addition, the number of small to medium sized
businesses using computers is growing. According to Access Partners, an industry
research consultant, there are 9.2 million small to medium sized businesses in
the United States of which approximately 67% are using personal computers.
To address this growth and to take advantage of the new competitive
opportunities created by passage of the Telecom Act, service providers such as
ISPs, CLECs, incumbent local exchange carriers, or ILECs, and the regional bell
operating companies, or RBOCs are looking for carrier class solutions which
allow them to utilize the installed base of copper wire to offer increased data
transmission speeds to their customers.
CURRENT DATA COMMUNICATIONS INFRASTRUCTURE--THE LAST MILE BOTTLENECK
End users are increasingly demanding high data speeds to meet their evolving
needs. While network backbones can support data speeds up to 10 gigabits,
communication speeds over the last mile connection between the service
providers' central office and the end user are often limited because data must
travel over existing copper wire infrastructure equipment which was built to
handle analog voice rather than bandwidth intensive data. This last mile
connection often results in significant bottlenecks that limit high speed data
transmission. Over 140 million copper lines are installed in businesses and
homes in the United States and over 700 million copper lines are installed
worldwide. Service providers are looking for ways to leverage this significant
investment and offer increased transmission speeds over the last mile.
24
<PAGE>
HIGH SPEED DATA ACCESS ALTERNATIVES
A number of options are used to provide last mile connectivity including
analog modems and ISDN, cable modems and T-1. However, each of these
alternatives suffer from significant drawbacks, particularly for small to medium
sized businesses and MTUs. Analog modems and ISDN operate at speeds of 56Kbps
and 128Kbps, respectively, which are inadequate for most business users. Cable,
operating at an average speed of 1Mbps, offers sufficient speed but is not
generally available to business users. In addition, cable is inherently
susceptible to security breaches. T-1 service, operating at 1.5Mbps, offers
adequate speed and security but requires expensive infrastructure modification
resulting in high monthly charges.
DSL TECHNOLOGY AS THE LAST MILE SOLUTION
DSL technology, which was specifically developed to take advantage of
existing copper infrastructure, offers an effective solution to the last mile
bottleneck by providing dedicated high speed data access up to 2.3 Mbps at a
competitive cost to end users. IDC estimates that worldwide DSL lines will grow
from 58,000 in 1998 to 8.4 million in 2002, an annual growth rate of 247%.
Additionally, IDC estimates that worldwide DSL network equipment revenue will
grow from $16 million in 1998 to $612 million in 2002. The two dominant forms of
DSL technology are asymmetric DSL, or ADSL, and symmetric DSL, or SDSL. ADSL
transmits data at high speeds only downstream to the subscriber and is best
suited for the residential market where consumers typically download large
quantities of data but send limited data upstream. In contrast, SDSL supports
the two way exchange of data at high speeds, satisfying the requirements of
businesses.
DSL TECHNOLOGY--IMPORTANT BENEFITS AND LIMITATIONS
- HIGH SPEED. DSL technology offers high speed data access at speeds
ranging from 150 Kbps to several million bits per second at
distances up to 23,000 feet, or approximately 4.3 miles, dependent
upon several line characteristics.
- LOW COST. Because DSL takes advantage of the widely available
existing copper wire infrastructure, it is relatively inexpensive
to deploy.
- SECURE DEDICATED CONNECTIONS. Since DSL connections are dedicated
to each individual user, service providers can maintain high levels
of performance and security even as new subscribers are added to
the system.
While DSL technology has numerous benefits, there are limitations to the
technology. DSL technology can only be used to provide service to users within
approximately a 4 mile radius of the service provider's facility such as a
telephone company central office or within a campus environment. In addition,
the realized operational speed of DSL is dependent on the relative distance of
end users to the service providers. Subscribers that are further from the
facility may realize performance degradation. The following chart illustrates
the average operational speed of DSL at varying distances of end users from
their service providers:
<TABLE>
<CAPTION>
Distance of End
User Average
from Service Operational
Provider Speed
- ------------------- ----------------
<S> <C>
8,000 ft 2,320 Kbps
11,300 ft 1,536 Kbps
12,800 ft 1,168 Kbps
13,800 ft 768 Kbps
15,200 ft 512 Kbps
16,200 ft 384 Kbps
20,000 ft 192 Kbps
</TABLE>
25
<PAGE>
DSL TECHNOLOGY--IMPLEMENTATION
Implementation of DSL involves the installation of specialized equipment at
the point where the copper wire interfaces with the data communications
backbone. This point may be at the service provider central office or another
communications hub such as the equipment room of a building or a campus. This
specialized equipment performs several important functions, including:
- SIGNAL CONCENTRATION. The concentrator receives the data signals
from many DSL lines and consolidates them into a single higher
bandwidth signal for uplink over high speed transmission lines.
- ROUTING. Routers are required to process the data signals from the
concentrator and direct them to their appropriate destinations.
Routers or other equipment may also support additional functions
such as authentication, encryption and firewall.
- SYSTEM MANAGEMENT. Typically, each piece of equipment contains a
software controlled management system enabling the user to manage
system functionality and coordinate with other network equipment.
Historically, this has been accomplished by purchasing, installing and managing
individual equipment components, including concentrators, routers and switches.
This configuration can have some significant drawbacks, including additional
capital and operating costs, space requirements and interoperability issues.
A typical configuration for a DSL system is illustrated below:
[Diagram depicting CPE, concentrator, router, switch, backbone router and
Internet]
Currently data communications service providers are seeking solutions which
reduce the total cost of ownership of operating their networks. To achieve these
objectives, the service providers demand a solution that effectively utilizes
existing copper infrastructure to provide high speed data access to their
customers. In addition, this solution must provide:
- high density to optimize limited central office space;
- scalability and modularity to extend product life; and
- ease of installation to eliminate deployment delays.
In a typical configuration based on current technology, DSL central office
products are essentially concentrators called DSL access multiplexors, or
DSLAMs, combined with a separate but compatible router and/or switch to provide
security and authentication functions and to process the data and forward it to
its destination. A DSLAM is a device that aggregates data from multiple sources
into a single signal for output. This multiple product configuration is not only
expensive to install, but also must undergo complicated interoperability testing
to ensure that all combinations and configurations work. The necessary
maintenance and training associated with this multiple product configuration can
be costly and time consuming, thus increasing the service providers' total cost
of ownership.
26
<PAGE>
The Interspeed Solution
We offer a single platform carrier class DSL solution that enables data
communications service providers to utilize existing copper infrastructure to
deliver cost effective, high speed data access to small and medium sized
businesses, MTUs and other organizations. 'Carrier class' refers to equipment
that conforms to rigorous standards of reliability, performance and safety that
are required by 'carriers' or telephone companies for equipment that is
qualified for deployment in a central office. Our products, referred to as DSL
Access Routers or DSLARs, provide a reliable, highly scalable solution that
integrates several important functions into one product. We believe this product
represents a new category of DSL access equipment. Our DSLARs offer the
following key benefits:
- HIGH PERFORMANCE SOLUTION. Our DSLARs provide reliable DSL
connections at speeds up to 2.3 Mbps.
- SINGLE SYSTEM. Our DSLARs combine a concentrator and switch/router
in a single product, in contrast to other DSL equipment vendors
whose products require separate concentrators, routers and/or
switches. We believe our products reduce the customer's total cost
of ownership because they:
- are available at a lower initial cost than that associated
with purchasing individual components;
- have a smaller footprint and use less power;
- offer ease of installation and configuration;
- provide integrated system management; and
- allow simpler training of customer personnel.
Our single system architecture enables a simpler configuration of DSL equipment
in the central office, as illustrated below:
[Diagram depicting the DSLAR replacing signal concentrator, router and switch
connecting
to a backbone router on the Internet]
- FLEXIBLE SYSTEM ARCHITECTURE. Our DSLARs are designed with a
flexible system architecture that allows a variety of our
functional modules to be easily installed into the standard
chassis. In addition, the product has been designed so that
performance will not degrade as subscribers are added. This offers
several significant advantages:
- SCALABILITY AND DENSITY. Service providers can purchase our
DSLARs with only the minimum number and type of modules that
they initially require, yet have the ability to add modules
as necessary to accommodate system expansion and changing
functional needs. The Interspeed 1000 product, for example,
currently offers scalability from 16 ports to 192 ports
within a single chassis.
27
<PAGE>
- FLEXIBILITY. Our product architecture permits different
modules to be combined in a single system. This allows
customers to define a configuration with, for example,
different transmission speeds or different communication
protocols, on different ports.
- EASE OF UPGRADE. Our products are designed with a clear
upgrade path. Hardware upgrades are achieved simply by
removing and replacing the modules, without reconfiguring
the system. In-service software upgrades can be implemented
either on site or remotely, through an Internet connection
and a commercially available web browser.
- SUPPORT FOR VIRTUAL PRIVATE NETWORKS. Our DSLAR products enable a
service provider to configure multiple virtual private networks, or
VPNs, within the same DSLAR system. A VPN may consist of any group
of ports where the data received on one port will only be delivered
to other ports within the same VPN, providing security of
transmitted data.
- ADVANCED NETWORK MANAGEMENT. Our DSLARs include our proprietary
SpeedView network management software which permits the network
administrator to review network status and performance and
reconfigure the DSLAR through an easy to use graphical user
interface. Network managers can securely access the SpeedView
management system from a remote location using a commercially
available web browser. In addition, our DSLARs support standardized
Simple Network Management Protocol, or SNMP, as well as command
line interface for network management.
Strategy
Our mission is to become the leading provider of high speed data communications
solutions to service providers who utilize the existing copper wire
infrastructure to deliver high speed data access to small to medium sized
businesses, MTUs and other organizations. The principal elements of our strategy
are to:
- PROVIDE AN INTEGRATED SOLUTION. In contrast to our competitors'
products which require purchasing multiple discrete components, our
DSLAR products provide an integrated system which reduces the total
cost of ownership.
- ACHIEVE BROAD MARKET PENETRATION. We intend to increase our market
penetration through expanding our direct sales channel and
establishing indirect sales channels to market our products. We
intend to develop strategic relationships with OEMs and VARs to
expand our ability to further penetrate our selected target
markets.
- DEVELOP LONG TERM CUSTOMER RELATIONSHIPS. Our sales and support
strategy is to partner with our customers to meet their long-term
needs. To achieve this, our teams of experienced sales
professionals, sales engineers and technical support staff will
work closely with our customers to provide pre- and post-sale
service, including joint sales presentations and cooperative trade
show activities. In addition, we intend to implement formal
training programs for our sales and technical support staff to
ensure a high level of customer satisfaction.
- ESTABLISH AN INTERNATIONAL PRESENCE. The international markets,
particularly Europe and the Pacific Rim, offer a significant
opportunity for our products. We intend to take a number of steps
to expand internationally. We have and will continue to design our
products to comply with regulatory standards of international
markets. Additionally, we are currently exploring international
partnerships in Europe and the Pacific Rim to establish direct
sales and original equipment manufacturer and value added reseller
relationships.
28
<PAGE>
- MAINTAIN TECHNOLOGICAL AND PRODUCT LEADERSHIP. Our products enable
service providers to offer high speed data access to their
customers, especially small and medium sized businesses, MTUs and
other organizations. We expect these markets to grow rapidly and
their specific requirements to evolve over time. We believe our
single, integrated DSLAR products provides us with a significant
technological leadership position in the high speed data access
market. We intend to maintain and leverage this technological
leadership by continuing to add functionality to and increase the
performance of our products. In addition, we intend to monitor the
evolving requirements of service providers and their customers to
incorporate their needs into our product development process.
Products
INTERSPEED 1000 AND INTERSPEED 500 DSL ACCESS ROUTER
Our DSLARs represent a new generation of carrier class remote access
equipment. The Interspeed 1000/500 DSLARs combine all the functionality required
to provide high speed data access service on a single platform. Our DSLARs
include the line interfaces or modems, data aggregation and statistical
multiplexing and Layer 2 and 3 switching and routing, as well as a packet- or
cell-based backbone interface. The Interspeed 1000/500 DSLARs can operate as a
fully functional router supporting industry standard protocols. The entire
system is enhanced by our full featured administration and management software,
SpeedView, that incorporates a web server to provide a browser based interface.
SCALABILITY AND DENSITY
The Interspeed 1000/500 provides a scalable and flexible architecture that
incorporates a backplane capable of handling several billion bits per second.
The backplane is the component that allows the distinct modules of the system to
be inter-connected and operate as a single system. The Interspeed 1000 is NEBS
compliant. NEBS, or Network Equipment Building Specifications, is a set of
standards to which all equipment to be deployed in telephone company central
offices must conform. The Interspeed 1000 is a 14 slot chassis housing 12 line
modules capable of supporting a total of 192 DSL ports. Each DSL port supports
symmetrical data rates of up to 2.32 Mbps using a single copper wire pair. The
chassis accepts two switch modules to provide a fully redundant switching and
routing system. Each switch module provides five Ethernet ports. The Interspeed
500 is identical to the Interspeed 1000 except it offers a four slot chassis
that accepts three line modules and one switch module to support a total of 48
DSL ports.
CURRENTLY AVAILABLE HARDWARE MODULES
- LM02. This is our second generation line module that replaces the
first generation LM01 module. This module supports a total of 16
ports of SDSL. Each port can be individually configured to operate
at one of several speeds ranging from 192 Kbps to 2.3 Mbps.
- SM01. This is our Ethernet based switch/router module. The SM01 has
five Ethernet ports. This module operates as a full featured IP
router and supports industry standard protocols including RIP/RIP2
and OSPF. Alternatively, it can be configured to operate as a Layer
2 switch.
- SM02. This module is identical to SM01 except it has one fiber
optic Ethernet port.
- MM. The Media Module provides enhanced serviceability by allowing
customers to replace line modules without disturbing the DSL
wiring.
29
<PAGE>
VIRTUAL PRIVATE NETWORKS
The Interspeed 1000/500 DSLARs are designed to support VPNs. This allows the
service provider to configure multiple secure networks within the same chassis.
Each system supports up to 32 VPNs where a VPN may consist of any group of
physical ports or logical ports such as a virtual channel on an ATM port. The
data received on one port will only be delivered to other ports within the same
VPN. Each of the VPNs may implement a different routing or switching mode.
Administrative security can be applied such that a user looking for network
information can only view information pertinent to the VPN of which the user is
a part.
DEVICE MANAGEMENT/SPEEDVIEW
The Interspeed 1000/500 provides a powerful set of administration and
management functions. Three different methods are available to manage the
system. Interspeed conforms to the SNMP to support dedicated network management
software platforms. SpeedView is a management interface using a web server,
which enables complete system management and configuration from a commercially
available browser.
A complete DSLAR contains at a minimum one Interspeed 1000 or 500 chassis, one
SM01 or SM02 switch/router module, one LM02 line module and one Media Module. An
example of our DSLAR is set forth below.
[Diagram indicating internal layout of our DSLAR architecture.]
Interspeed DSLAR Architecture
Customers
Our customers consist of original equipment manufacturers and value added
resellers and system integrators. Aggregate sales to our two largest customers
accounted for approximately 86% of our total revenues for the nine months ended
June 30, 1999. Of these, Cabletron Systems, Inc. accounted for approximately 67%
of total sales and Log on America accounted for approximately 19% of our total
sales.
Sales and Marketing
We have a direct sales force headquartered in North Andover, Massachusetts, with
senior regional sales managers covering the West, Midwest, South and East
regions of the United States. Each sales region is supported by sales engineers
that provide technical support to our sales force and customers. As of July 21,
1999, we had a total of 12 employees in direct sales, marketing and sales
engineering in the United States, and are in the process of recruiting
additional sales personnel. The direct sales force is responsible for
establishing relationships with key accounts within each territory. Key accounts
are generally classified as data service providers, such as the RBOCs/ILECs,
CLECs, ISPs, or as original equipment manufacturers, value added resellers and
system integrators.
We have also initiated marketing activities in Europe and the Pacific Rim. These
efforts include the signing of Nexcomm as our Korean distributor, commissioning
market studies in Europe and in Japan in order to generate leads and contacts,
and actively recruiting regional sales managers to cover international markets.
In addition to our customer specific efforts, our marketing activities include
attendance at industry trade shows and conferences, advertising of our products
in industry trade journals, operating a web site, and ongoing communications
with potential customers, industry analysts and the trade press.
Customer Service and Support
We employ teams of experienced sales professionals, sales engineers and
technical support staff that provide pre- and post-sales support including
installation and technical assistance. Our sales and support
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staff also participate in and provide support for joint sales presentations and
cooperative trade show activities with our customers. Our support services are
available to our customers both on site and by telephone and remote access seven
days a week on a 24-hour a day basis. In order to achieve current and long term
customer satisfaction, our sales and support staff provide customer feedback to
our product design engineers to ensure that we satisfy our customers' evolving
requirements.
Warranties on our products extend for 12 months. We have a variety of hardware
maintenance and support programs tailored to our customers' specific
requirements which are available for products no longer under warranty. These
programs vary from agreements to provide service on a time and materials basis
to annual service contracts based on a percentage of the cost of the product. To
date, revenues attributable to customer service and support services have been
immaterial.
Research and Development
As of July 21, 1999 our research and development team included 35 qualified
engineers with data communication industry experience. Our research and
development team transitioned the Interspeed 1000/500 products from the product
definition stage to final beta testing in only 18 months and continues to
develop enhancements to, and extensions of, that product family. During the
fiscal years ended September 30, 1997 and 1998 and the nine months ended June
30, 1999, we spent approximately $878,000, $3.2 million, and $3.7 million
respectively, on research and development.
Competition
The DSL equipment market is in its early stage of development and no market
participant has yet achieved a competitively significant installed base or
market following.
Our competitors are generally divided into two segments. One segment focuses on
selling equipment to data communication service providers that target the
business user end market. The other segment focuses on selling equipment to data
communication service providers that target the MTU market. Generally, customers
must purchase and interconnect individual equipment components from numerous
suppliers to achieve the functionality of our DSLAR products. We compete
directly with Ascend Communications, Inc., which was recently acquired by Lucent
Technologies Inc., Copper Mountain Networks, Inc.; Diamond Lane, which was
recently acquired by Nokia, Inc.; Paradyne Networks, Inc.; and Tut Systems, Inc.
The principal competitive factors in our market include:
- system reliability, performance and features;
- technical support and customer service;
- ease of installation and use;
- total cost of ownership;
- size and stability of operations; and
- brand recognition.
Manufacturing
We currently outsource the majority of our manufacturing to contract
manufacturers. We currently perform final test, assembly and packaging of our
products at our facility in North Andover, Massachusetts. We use a small number
of independent manufacturers to manufacture printed circuit boards, chassis and
subassemblies for our products. In addition, we use a combination of standard
parts and components in our products, which are generally available from more
than one vendor. Some components are obtained from a sole or single source and,
should supply of these components cease, would require redesign of our products.
While we work closely with some well established vendors, we have no supply
commitments from our vendors and we generally purchase components on a purchase
order basis, rather than entering into long term agreements with our vendors. To
date, we have generally been able
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to obtain adequate supplies in a timely manner from our current suppliers. We
have identified alternate vendors should current vendors be unable to fulfill
our needs. However, a reduction or interruption in supply or a significant
increase in the price of components would materially and adversely affect our
business, financial condition and results of operations.
Our manufacturing floor follows industry standard electro-static discharge
procedures and we use a materials resource system to control product flow. Our
product is built to meet or exceed current Institute for Interconnecting and
Packaging Electronic Circuits, or IPC, standards. We have designed our
manufacturing processes and business practices to conform to ISO 9000 standards
and we intend to apply for ISO 9000 certification.
Quality control and quality assurance are carefully monitored. Key metrics which
we measure include supplier on-time delivery, inventory level, order to delivery
time and customer installation failure rate. All metrics are measured, tracked
and improved through root cause failure analysis, containment and corrective
action implementation.
Intellectual Property
We rely on a combination of copyright, trademark, trade secret and other
intellectual property laws, nondisclosure agreements with our employees and
third parties and other protective measures to protect our proprietary rights.
We have filed a patent application covering aspects of the design of our single
platform DSL hardware solution. We do not yet have any issued patents, and it is
unclear whether any patents will be issued in the future. Although we employ a
variety of intellectual property assets in the development and manufacturing of
our products, we believe that none of such intellectual property is individually
critical to our current operations. Although we are not aware that our products
infringe on the proprietary rights of third parties, there can be no assurance
that others will not assert claims of infringement in the future or that, if
made, such claims will not be successful. Litigation to determine the validity
of any claims, whether or not such litigation is determined in favor of us,
could result in significant expense and divert our efforts from daily
operations. In the event of any adverse ruling, we may be required to pay
substantial damages, discontinue the sale of infringing products, expend
significant resources to develop non-infringing technology or obtain licenses to
use infringing or substituted technology. 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 our products effectively. There can be no assurance that any
necessary licenses will be available on commercially reasonable terms.
Employees
As of July 21, 1999, we had 56 full time employees. We are not a party to any
collective bargaining agreements covering any of our employees, have never
experienced any material labor disruption and are unaware of any current efforts
or plans to organize our employees. We consider our relationships with our
employees to be good.
Facilities
We are headquartered in a facility consisting of approximately 36,000 square
feet in North Andover, Massachusetts, under a lease expiring in 2004. We have an
engineering office in Richardson, Texas, where we lease 3,208 square feet under
a lease expiring in January 2001. We anticipate opening additional regional
sales offices in the future as we increase the size of our sales force and
expand our sales and marketing initiatives.
Legal Proceedings
We are not currently involved in any pending legal proceedings that are expected
to have a material adverse effect on our business.
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MANAGEMENT
Executive Officers, Key Employees and Directors
Our executive officers, key employees and directors, their ages and their
positions as of July 21, 1999, are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ----------------------------------------- --- ------------------------------------------------------
<S> <C> <C>
Stephen A. Ide........................... 56 President and Director
William J. Burke......................... 54 Chief Financial Officer, Senior Vice President-Finance
and Treasurer
Rajeev Agarwal........................... 39 Chief Technology Officer and Senior Vice
President-Research and Development and Director
Christopher P. Whalen.................... 37 Vice President--Sales and Marketing
Eric R. Giler (1)(2)..................... 43 Director
Robert G. Barrett (1)(2)................. 54 Director
Paul J. Severino (1)(2).................. 52 Director
</TABLE>
- ------------------------------------
(1) Member of the compensation committee.
(2) Member of the audit committee.
STEPHEN A. IDE has served as our President since January 1997. Mr. Ide has
served as a director since October 1996. From January 1993 to December 1996, Mr.
Ide was Senior Vice President of Sales and Marketing for Brooktrout and was Vice
President of Sales and Marketing from 1987 to December 1992. Prior to joining
Brooktrout, Mr. Ide was co-founder and President of Computer Telephone Corp.,
currently CTC Communications, Inc., a publicly traded CLEC. Mr. Ide also served
as Vice President of Operations for Rolm of New England Corporation.
WILLIAM J. BURKE has served as our Chief Financial Officer, Senior Vice
President-Finance and Treasurer since May 1999. Prior to joining Interspeed from
August 1998 to May 1999, Mr. Burke was the Vice President of Finance and
Administration and Chief Financial Officer of Teloquent Communications
Corporation, a privately held company and provider of software, hardware and
services for network-independent virtual call centers. From 1996 to 1998, Mr.
Burke was the Director of Telecommunications Banking at Tucker Anthony Cleary
Gull. From 1988 to 1996, Mr. Burke was at Boston Technology, a worldwide
provider of voice messaging and telecommunications equipment for enhanced
service and network based providers. He was Boston Technology's first Vice
President of Finance and Chief Financial Officer and helped manage its global
expansion and 1990 public offering. Mr. Burke is a member of the Board of
Directors and the Executive Committee of the Massachusetts Telecommunications
Council.
RAJEEV AGARWAL has served as our Chief Technology Officer and Senior Vice
President--Research and Development since 1997. Mr. Agarwal has served as a
director since March 1997. Prior to co-founding Interspeed, Mr. Agarwal worked
at Cabletron Systems from July 1987 to March 1997 where he established several
research and development programs to deliver new products including cable modems
and products incorporating 10BaseT, FDDI and ATM technologies.
CHRISTOPHER P. WHALEN has served as our Vice President--Sales and Marketing
since January 1999. He had previously been National Sales Manager since January
1998. Prior to joining Interspeed, Mr. Whalen worked in numerous sales and sales
management positions at Brooktrout from 1990 to 1998, including Western Regional
Sales Manager from 1995 to 1997 and Major Account Sales Manager from 1992 to
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1995. Mr. Whalen worked for Dictaphone Corporation from 1986 to 1990 as Sales
Manager and in other sales capacities.
ERIC R. GILER has served as a director since October 1996. Mr. Giler co-founded
Brooktrout in 1984 and has served as President and a director of Brooktrout
since Brooktrout's inception. Mr. Giler is Chairman of the Massachusetts
Telecommunications Council. Mr. Giler also serves as a director of Netegrity,
Inc. and of various privately-held technology companies.
ROBERT G. BARRETT has served as a director since June 1999. Mr. Barrett has been
a general partner of Battery Ventures, L.P. since 1984. Mr. Barrett currently
serves as a director of Brooktrout and Peerless Systems Corp. Mr. Barrett also
serves as a director of various privately held technology companies.
PAUL J. SEVERINO has served as a director since June 1999. Mr. Severino has been
Chairman of the Board of NetCentric Corp. since 1998. From 1994 to 1998, Mr.
Severino was Chairman of the Board of Bay Networks. From 1986 to 1994, Mr.
Severino was President and Chief Executive Officer of Wellfleet Communications.
Mr. Severino also serves as a director of Media 100, Inc. and SilverStream, Inc.
Each officer serves at the discretion of the board of directors and holds office
until his or her successor is elected and qualified or until his or her earlier
resignation or removal. There are no family relationships among any of our
directors or executive officers.
Staggered Board
The number of directors is currently fixed at five. The board of directors is
divided into three classes, each of whose members will serve for a staggered
three-year term. The board of directors consists of two Class I directors, Eric
R. Giler and Rajeev Agarwal, whose term will expire at the annual meeting held
in 2000, two Class II directors, Robert G. Barrett and Stephen A. Ide, whose
terms will expire at the annual meeting held in 2001, and one Class III
director, Paul J. Severino, whose term will expire at the annual meeting held in
2002.
Committees of the Board of Directors
AUDIT COMMITTEE. The audit committee is responsible for recommending to the
board of directors the engagement of our outside auditors and reviewing our
accounting controls and the results and scope of audits and other services
provided by our auditors. The members of the audit committee are Robert G.
Barrett, Eric R. Giler and Paul J. Severino.
COMPENSATION COMMITTEE. The compensation committee is responsible for reviewing
and approving the amount and type of consideration to be paid to senior
management. The members of the compensation committee are Robert G. Barrett,
Eric R. Giler and Paul J. Severino. The compensation committee also serves as
the option committee under the 1999 Stock Option and Grant Plan.
OTHER COMMITTEES. The board of directors may establish, from time to time,
other committees to facilitate the management of our business.
Director Compensation
On the fifth day following their election to the board, Robert G. Barrett
received a non-qualified option under the 1999 Stock Option and Grant Plan for
30,000 shares, of which 22,500 vested upon grant and 7,500 will vest quarterly
over the final two quarters of his two year term, and Paul J. Severino received
a non-qualified option under the 1999 Stock Option and Grant Plan for 45,000
shares, of which 22,500 shares vested upon grant and 22,500 will vest quarterly
over the final six quarters of his three year term. In the future, each
director, who is neither an employee of Interspeed nor Brooktrout, will receive,
upon
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<PAGE>
election to the board, an option under the 1999 Stock Option and Grant Plan for
45,000 shares that will vest quarterly during each director's three year term.
Compensation Committee Interlocks and Insider Participation
Before June 1999, we did not have a compensation committee or similar committee
of the board of directors, and the then directors Messrs. Giler, Ide and Agarwal
each participated in deliberation of our board of directors concerning executive
officer compensation. In June 1999, the compensation committee of the board of
directors consisting of Robert G. Barrett, Eric R. Giler and Paul J. Severino,
was established. The Compensation Committee reviews and makes recommendations to
the board of directors regarding the compensation for senior management and key
employees of Interspeed.
Executive Compensation
The following table sets forth in summary form the compensation that was paid to
our President and the other most highly compensated executive officers whose
aggregate compensation exceeded $100,000 in the fiscal year ended September 30,
1998.
Summary Compensation Table
<TABLE>
<CAPTION>
1998
Fiscal Year Long-Term
Compensation Compensation
---------------------- -------------
<S> <C> <C> <C> <C>
Securities
Underlying All
Options/ Other
Salary Bonus SARs Compensation
---------- ---------- ------------- ---------------
Stephen A. Ide............................................ $ 167,500 $ 112,979 -- $ 2,323(1)
President
Rajeev Agarwal............................................ $ 110,000 $ 32,500 20,000 $ 2,400(1)
Chief Technology Officer and Senior Vice
President-Research and Development
Christopher P. Whalen..................................... $ 112,500 -- 40,000 $ 2,400(1)
Vice President-Sales and Marketing
</TABLE>
- ------------------------------------
(1) Includes a matching contribution under our 401(k) plan.
Option Grants in Last Fiscal Year.
The following table sets forth information regarding stock options granted
during fiscal year 1998 to our President and the other most highly compensated
executive officers. The exercise price per share of each option is equal to the
fair market value of the common stock as of the grant date.
The amounts shown as potential realizable value illustrate what might be
realized upon exercise immediately prior to expiration of the option term using
the 5% and 10% appreciation rates, compounded annually, as mandated by the SEC.
The potential realizable value is not intended to predict future appreciation of
the price of our common stock. The values shown do not consider
nontransferability, vesting or termination of the options upon termination of an
employee's employment relationship with us.
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<PAGE>
Option Grants In Last Fiscal Year
<TABLE>
<CAPTION>
Potential Realizable
Individual Grants Value
------------------------------------------------------- at Assumed Annual
Number of Percent of Total Rates of Stock
Securities Options Exercise Price Appreciation
Underlying Granted to or Base for Option Term
Options Employees in Price Expiration ---------------------
Name Granted(#) Fiscal Year(1) ($/Sh) Date 5%($) 10%($)
- ---------------------------------------------- ----------- ----------------- ----------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Stephen A. Ide................................ -- -- -- -- -- --
Rajeev Agarwal................................ 20,000 5.2% $ .13 07/01/08 358,357 570,623
Christopher P. Whalen......................... 40,000 10.5% $ .13 02/19/08 716,714 1,141,247
</TABLE>
- ------------------------------------
(1) Based on total of 381,600 options granted in fiscal 1998.
Option Exercises and Fiscal Year-End Option Holdings and Values.
The following table sets forth information concerning the number and value of
unexercised options to purchase common stock held by our President and the other
most highly compensated executive officers. The President and the named
executive officers did not exercise any stock options during fiscal year 1998.
There was no public trading market for our common stock as of September 30,
1998.
Aggregate Option Exercises and Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money Options
Options at September 30, at September 30, 1998 ($)
1998 (1)
-------------------------- ---------------------------
<S> <C> <C> <C> <C>
Name Exercisable Unexercisable Exercisable Unexercisable
- --------------------------------------------------- ----------- ------------- ------------ -------------
Stephen A. Ide(2).................................. -- -- -- --
Rajeev Agarwal(3).................................. 120,667 299,332 $ 1,327,337 $ 3,292,652
Christopher P. Whalen(4)........................... 5,333 34,667 $ 58,663 $ 381,337
</TABLE>
- ------------------------------------
(1) The value of the unexercised in-the-money options was calculated using the
$11 midpoint of the range for the initial public offering price.
(2) Mr. Ide was granted 300,000 options on May 15, 1999 at an exercise price of
$.13 per share. On July 9, 1999, Mr. Ide exercised 120,000 options, which
represented all of his exercisable options. As of July 21, 1999, using the
$11 midpoint of the range for the initial public offering price, the value
of Mr. Ide's 180,000 unexercisable shares was $1,980,000.
(3) Mr. Agarwal was granted 20,000 options on October 1, 1998 and on December
30, 1998, with all 40,000 options at an exercise price of $.13 per share,
and 20,000 options on March 31, 1999 at an exercise price of $.67 per share.
On July 19, 1999, Mr. Agarwal exercised 188,600 options at an exercise price
of $.13 per share. As of July 21, 1999, using the $11 midpoint of the range
for the initial public offering price, the value of Mr. Agarwal's 1,400
exercisable options was $15,400 and the value of his 290,000 unexercisable
options was $3,190,000.
(4) Mr. Whalen was granted 40,000 options on December 30, 1998 at an exercise
price of $.13 per share. As of July 21, 1999, using the $11 midpoint of the
range for the initial public offering price, the value of Mr. Whalen's
13,000 exercisable options was $143,000 and the value of his 67,000
unexercisable options was $737,000.
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<PAGE>
Stock Plans
1999 STOCK OPTION AND GRANT PLAN
Our 1999 Stock Option and Grant Plan (the "1999 Stock Plan") was initially
adopted by our board of directors and approved by our stockholders in June 1999.
The 1999 Stock Plan permits us to make grants of:
- incentive stock options;
- non-qualified stock options;
- stock appreciation rights;
- restricted stock;
- deferred stock awards;
- unrestricted stock;
- performance share awards; and
- dividend equivalent rights.
The 1999 Stock Plan provides for the issuance of up to 1,012,868 shares of
common stock, of which 913,868 shares of common stock are available for future
grants.
To ensure that certain awards granted to the top five named executive officers
under the 1999 Stock Plan qualify as "performance-based compensation" under
Section 162(m) of the Internal Revenue Code of 1986, or the Code, the 1999 Stock
Plan provides that a committee of not less than two independent directors may
require that the vesting of such awards be conditioned on the satisfaction of
performance criteria which may include any or all of the following: (i) our
return on equity, assets, capital or investment; (ii) pre-tax or after-tax
profit levels of us or any subsidiary, division, operating unit or business
segment thereof, or any combination of the foregoing; (iii) cash flow, funds
from operations or similar measures; (iv) total stockholder return; (v) changes
in the market price of our common stock; (vi) sales or market share; or (vii)
earnings per share. The committee will select the particular performance
criteria within 90 days following the commencement of a performance cycle. To
satisfy the requirements of Section 162(m) of the Code, stock options and stock
appreciation rights with respect to no more than 250,000 shares of common stock
(subject to adjustment for stock splits and similar events) may be granted to
any one individual during any one calendar year period. In addition, the maximum
award of restricted stock, performance shares or deferred stock (or combination
thereof) for any one individual that is intended to qualify as
"performance-based compensation" under Section 162(m) of the Code will not
exceed 250,000 shares of common stock (subject to adjustment for stock splits
and similar events) for any performance cycle.
1999 STOCK PLAN ADMINISTRATION. The 1999 Stock Plan provides for administration
by a committee of not fewer than two non-employee directors, as appointed by the
board of directors from time to time (the "Option Committee"). Our compensation
committee serves as our Option Committee.
The Option Committee has full power to select, from among the employees eligible
for awards, the individuals to whom awards will be granted, to make any
combination of awards to participants, and to determine the specific terms and
conditions of each award, subject to the provisions of the 1999 Stock Plan. The
Option Committee may not reprice outstanding options, other than to
appropriately reflect changes in our capital structure. The Option Committee may
permit common stock, and other amounts payable pursuant to an award, to be
deferred. In such instances, the Option Committee may permit interest, dividend
or deemed dividends to be credited to the amount of deferrals.
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<PAGE>
ELIGIBILITY AND LIMITATIONS ON GRANTS. All officers, employees, directors and
key persons (including consultants and prospective employees) of Interspeed are
eligible to participate in the 1999 Stock Plan, subject to the discretion of the
Option Committee. In no event may any one participant receive options to
purchase more than 250,000 shares of common stock (subject to adjustment for
stock splits and similar events) during any one calendar year period, as stated
above. In addition, as stated above, the maximum award for any one individual
that is intended to qualify as "performance-based compensation" under Section
162(m) of the Code will not exceed 250,000 shares of common stock (subject to
adjustment for stock splits and similar events) for any performance cycle.
STOCK OPTIONS. Options granted under the 1999 Stock Plan may be either
Incentive Stock Options ("Incentive Options") within the definition of Section
422 of the Code or Non-Qualified Stock Options ("Non-Qualified Options").
Options granted under the 1999 Stock Plan will be Non-Qualified Options if they
(i) fail to meet the definition of Incentive Options, (ii) are granted to a
person not eligible to receive Incentive Options under the Code, or (iii)
otherwise so provide. Incentive Options may be granted only to officers or other
employees of the Company. Non-Qualified Options may be granted to persons
eligible to receive Incentive Options and to non-employee directors and other
key persons.
OTHER OPTION TERMS. The Option Committee has authority to determine the terms
of options granted under the 1999 Stock Plan. Generally, Incentive Options and
Non-Qualified Options are granted with an exercise price that is not less than
the fair market value of the shares of common stock on the date of the option
grant. However, Non-Qualified Options which are granted in lieu of a
participant's cash bonus, at the participant's election with the consent of the
Committee, will have an exercise price that is not less than 85 percent of the
fair market value of the shares of common stock on the date of the option grant.
The exercise price of an option may not be reduced after the date of the option
grant, other than to appropriately reflect changes in our capital structure.
The term of each option will be fixed by the Option Committee and may not exceed
ten years from date of grant. The Option Committee will determine at what time
or times each option may be exercised and, subject to the provisions of the 1999
Stock Plan, the period of time, if any, after retirement, death, disability or
termination of employment during which options may be exercised. Options may be
made exercisable in installments, and the exercisability of options may be
accelerated by the Option Committee. In general, unless otherwise permitted by
the Option Committee, no option granted under the 1999 Stock Plan is
transferable by the optionee other than by will or by the laws of descent and
distribution, and options may be exercised during the optionee's lifetime only
by the optionee, or by the optionee's legal representative or guardian in the
case of the optionee's incapacity.
Options granted under the 1999 Stock Plan may be exercised for cash or, if
permitted by the Option Committee, by transfer to us, of shares of common stock
which are not then subject to restrictions under any of our stock plans, which
have been held by the optionee for at least six months or were purchased on the
open market, and which have a fair market value equivalent to the option
exercise price of the shares being purchased, or by compliance with certain
provisions pursuant to which a securities broker delivers the purchase price for
the shares to us.
At the discretion of the Option Committee, stock options granted under the 1999
Stock Plan may include a "re-load" feature pursuant to which an optionee
exercising an option by the delivery of shares of common stock would
automatically be granted an additional stock option (with an exercise price
equal to the fair market value of the common stock on the date the additional
stock option is granted) to purchase that number of shares of common stock equal
to the number delivered to exercise the original stock option. The purpose of
this feature is to enable participants to maintain their equity interest without
dilution.
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<PAGE>
To qualify as Incentive Options, options must meet additional Federal tax
requirements, including a $100,000 limit on the value of shares subject to
Incentive Options which first become exercisable in any one calendar year, and a
shorter term and higher minimum exercise price in the case of large
stockholders.
TAX WITHHOLDING. Participants under the 1999 Stock Plan are responsible for the
payment of any federal, state or local taxes which we are required by law to
withhold upon any option exercise or vesting of other awards. Participants may
elect to have such tax withholding obligations satisfied either by authorizing
us to withhold shares of common stock to be issued pursuant to an option
exercise or other award, or by transferring to us shares of common stock having
a value equal to the amount of such taxes.
STOCK APPRECIATION RIGHTS. The Option Committee may award a stock appreciation
right ("SAR") either as a freestanding award or in tandem with a stock option.
Upon exercise of the SAR, the holder will be entitled to receive an amount equal
to the excess of the fair market value on the date of exercise of one share of
common stock over the exercise price per share specified in the related stock
option or, in the case of a freestanding SAR, the price per share specified in
such right, which price may not be less than the fair market value of the common
stock on the date of grant, multiplied by the number of shares of common stock
with respect to which the SAR is exercised. If the SAR is granted in tandem with
a stock option, exercise of the SAR cancels the related option to the extent of
such exercise.
RESTRICTED STOCK AWARDS. The Option Committee may grant shares, at par value or
for a higher purchase price determined by the Committee, of common stock to any
participant subject to such conditions and restrictions as the Option Committee
may determine. These conditions and restrictions may include the achievement of
pre-established performance goals and/or continued employment with us through a
specified vesting period. The vesting period shall be determined by the Option
Committee. The purchase price, if any, of shares of restricted stock will be
determined by the Option Committee. If the applicable performance goals and
other restrictions are not attained, the participant will forfeit his or her
award of restricted stock.
DEFERRED STOCK AWARDS. The Option Committee may also award phantom stock units
as deferred stock awards to participants. The deferred stock awards are
ultimately payable in the form of shares of common stock and may be subject to
such conditions and restrictions as the Option Committee may determine. These
conditions and restrictions may include the achievement of certain performance
goals and/or continued employment with us through a specified vesting period.
During the deferral period, subject to the terms and conditions imposed by the
Option Committee, the deferred stock awards may be credited with dividend
equivalent rights. Subject to the consent of the Option Committee, a participant
may make an advance election to receive a portion of his or her compensation or
restricted stock award otherwise due in the form of a deferred stock award.
UNRESTRICTED STOCK AWARDS. The Option Committee may also grant shares, at par
value or for a higher purchase price determined by the Option Committee, of
common stock which are free from any restrictions under the 1999 Stock Plan.
Unrestricted stock may be granted to any participant in recognition of past
services or other valid consideration, and may be issued in lieu of cash
compensation due to such participant.
DIVIDEND EQUIVALENT RIGHTS. The Committee may grant dividend equivalent rights
which entitle the recipient to receive credits for dividends that would be paid
if the recipient had held specified shares of common stock. Dividend equivalent
rights may be granted as a component of another award or as a freestanding
award. Dividend equivalent rights credited under the 1999 Stock Plan may be paid
currently or be deemed to be reinvested in additional shares of common stock,
which may thereafter accrue additional dividend equivalent rights at fair market
value at the time of deemed reinvestment or on the terms then governing the
reinvestment of dividends under a dividend reinvestment plan, if any. Dividend
equivalent rights may be settled in cash, shares of common stock or a
combination thereof, in a single
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<PAGE>
installment or installments, as specified in the award. Awards under the 1999
Stock Plan that are payable in cash on a deferred basis may provide for
crediting and payment of interest equivalents.
PERFORMANCE SHARE AWARDS. The Option Committee may grant performance share
awards to any participant which entitle the recipient to receive shares of
common stock upon the achievement of individual or company performance goals and
such other conditions as the Option Committee shall determine.
ADJUSTMENTS FOR STOCK DIVIDENDS, MERGERS, ETC. The 1999 Stock Plan authorizes
the Option Committee to make appropriate adjustments to the number of shares of
common stock that are subject to the 1999 Stock Plan and to any outstanding
stock options to reflect stock dividends, stock splits and similar events. In
the event of certain transactions, such as a merger, consolidation, dissolution
or liquidation, the Option Committee in its discretion may provide for
appropriate substitutions or adjustments of outstanding stock options or SARs;
alternatively, outstanding stock options and SARs will terminate and the holder
will receive a cash payment equal to the excess of the fair market value per
share over the applicable exercise price, multiplied by the number of shares of
common stock covered by the stock option or SAR.
ACCELERATION UPON A MERGER, SALE OR CHANGE OF CONTROL OF INTERSPEED. Upon a
merger, sale or change of control of the Company, all outstanding awards to
executive officers and directors will immediately become exercisable.
AMENDMENTS AND TERMINATION. The board of directors may at any time amend or
discontinue the 1999 Stock Plan and the Option Committee may at any time amend
or cancel any outstanding award for the purpose of satisfying changes in law or
for any other lawful purpose, but no such action shall adversely affect the
rights under any outstanding awards without the holder's consent. To the extent
required by the Code to ensure that options granted under the 1999 Stock Plan
qualify as Incentive Options, 1999 Stock Plan amendments shall be subject to
approval by our stockholders.
1999 EMPLOYEE STOCK PURCHASE PLAN
Our 1999 Employee Stock Purchase Plan (the "Purchase Plan") was adopted by our
board of directors in May 1999 and was subsequently approved by our
stockholders. Up to 200,000 shares of common stock may be issued under the
Purchase Plan. The Purchase Plan is administered by the compensation committee
of the board of directors.
The first offering under the Purchase Plan will begin on the effective date of
Interspeed's first underwritten public offering and end on March 31, 2000.
Subsequent offerings will commence on each October 1 and April 1 thereafter and
will have a duration of six months. Generally, all employees who are customarily
employed for more than 20 hours per week as of the first day of the applicable
offering period will be eligible to participate in the Purchase Plan. An
employee who owns or is deemed to own shares of stock representing in excess of
5% of the combined voting power of all classes of our stock will not be able to
participate in the Purchase Plan.
During each offering, an employee may purchase shares under the Purchase Plan by
authorizing payroll deductions of up to 10% of his or her cash compensation
during the offering period. The maximum number of shares which may be purchased
by any participating employee during any offering period is limited to the
number of whole shares which is less than or equal to $12,500 divided by the
closing price (offering price to the public with respect to the initial offering
period) per share on the first day of the applicable offering period. Unless the
employee has previously withdrawn from the offering, his or her accumulated
payroll deductions will be used to purchase common stock on the last business
day of the period at a price equal to 85% of the fair market value of the common
stock on the first or last day of the offering period, whichever is lower. For
purposes of the initial offering period, the fair market value of common stock
on the first day of the offering period shall be the offering price to the
public. Under
40
<PAGE>
applicable tax rules, an employee may purchase no more than $25,000 worth of
common stock in any calendar year. No common stock has been issued to date under
the Purchase Plan.
Limitations on Directors' and Executive Officers' Liability and Indemnification
Our Certificate of Incorporation provides for the indemnification of directors
to the maximum extent permitted by Delaware law. 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.
Our bylaws provide that we shall indemnify our directors, officers, 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 the 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 permit such indemnification.
At present, we have no pending litigation or proceeding involving a director or
officer of Interspeed in which indemnification is required or permitted, and we
are not aware of any threatened litigation or proceeding that may result in a
claim for such indemnification.
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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information regarding the beneficial ownership of
common stock as of July 21, 1999 and as adjusted to reflect the sale of the
common stock offered hereby of:
- the President and each of our directors and most highly compensated
executive officers who were serving as executive officers at the
end of the last completed fiscal year;
- all directors and executive officers as a group; and
- each person who is known by us to own beneficially more than 5% or
more of the outstanding shares of the common stock, including
Brooktrout, Inc., the selling stockholder.
Unless otherwise indicated, each of the stockholders has sole voting and
investment power with respect to the shares of common stock beneficially owned
by such stockholder. The address of Brooktrout, Inc. is 410 First Avenue,
Needham, MA 02494.
The number of shares beneficially owned by each stockholder is determined under
rules issued by the Securities and Exchange Commission. The information is not
necessarily indicative of beneficial ownership for any other purpose. Under
these rules, beneficial ownership includes any shares as to which the individual
or entity has sole or shared voting power or investment power and any shares as
to which the individual or entity has the right to acquire beneficial ownership
within 60 days after July 21, 1999 through the exercise of any stock option or
other right.
<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially
Owned Owned
Prior to the Offering After the Offering(1)
----------------------- Shares ---------------------
Name Number Percent(2) Offered Number Percent
- ------------------------------------------------------ ---------- ----------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Brooktrout, Inc....................................... 8,000,000 95.46% 1,500,000 6,500,000 62.62%
Rajeev Agarwal(3)..................................... 213,332 2.53% 213,332 2.05%
Stephen A. Ide........................................ 120,000 1.43% 120,000 1.16%
Paul J. Severino(4)................................... 82,500 * 82,500 *
Robert G. Barrett(5).................................. 42,500 * 42,500 *
Christopher P. Whalen(6).............................. 19,334 * 19,334 *
Eric R. Giler......................................... -- --
All directors and executive officers as a group
(7 persons)......................................... 483,916 5.66% 483,916 4.58%
</TABLE>
- ------------------------------------
* Less than 1%
(1) Assumes the underwriters do not elect to exercise the over-allotment option
to purchase an additional 525,000 shares of common stock.
(2) Percentage ownership is based upon 8,380,358 shares of common stock issued
and outstanding as of June 15, 1999.
(3) Includes 24,732 shares of common stock which may be acquired upon the
exercise of options that are currently exercisable.
(4) Represents 82,500 shares of common stock which may be acquired upon the
exercise of options that are currently exercisable.
(5) Represents 42,500 shares of common stock which may be acquired upon the
exercise of options that are currently exercisable.
(6) Represents 19,334 shares of common stock which may be acquired upon the
exercise of options that are currently exercisable.
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<PAGE>
CERTAIN TRANSACTIONS WITH RELATED PARTIES
Transition Services Agreement
Brooktrout has provided various services to us, including, but not limited to,
payroll, data processing, information technology and telecommunications, tax,
legal, treasury, human resources, accounts receivable management, order entry,
employee benefits administration, marketing, financial accounting, executive
services and insurance administration. Amounts reflected in our financial
statements as fees charged by Brooktrout reflect the cost of these services as
well as payments made by Brooktrout on our behalf for costs of providing
insurance and employee benefits, rent and occupancy costs, and other
out-of-pocket costs.
In connection with this offering, we have entered into a transition services
agreement with Brooktrout for the purposes of defining our ongoing relationship.
Under the transition services agreement, upon consummation of this offering
Brooktrout will make available to us generally until December 31, 1999 many of
the same services currently provided to us, and we will pay Brooktrout a
variable fee for such services based on the amount and type of services used,
estimated to be approximately $1 million. This fee, generally payable monthly in
arrears, has been determined by Brooktrout and us to be consistent with the
historical costs of providing these services and adjusted to recognize certain
additional services to be provided by Brooktrout to us after the offering and
certain other services historically provided by Brooktrout which will be our
responsibility to provide. In general, payments to third parties for insurance,
employee benefits and similar out-of-pocket costs will be paid directly by us,
and are not included within the fee payable to Brooktrout. We believe that the
fees charged by Brooktrout are substantially equivalent to those that will be
charged by third parties or the cost of providing the services internally. We
cannot provide any assurance, however, that one or more third parties could not
provide similar services for fees aggregating less than the fee payable to
Brooktrout, or that we may not face increased costs after the expiration of the
transitional services agreement.
Affiliated Transactions
We have adopted a policy providing that all material transactions between us and
our officers, directors and other affiliates must (i) be approved by a majority
of the members of our board of directors and by a majority of the disinterested
members of our board of directors and (ii) be on terms no less favorable to us
than can be obtained from unaffiliated third parties. In addition, this policy
requires any loans by us to our officers, directors or other affiliates be for
bona fide business purposes only.
Brooktrout has heretofore funded our operations primarily through open advances.
On the closing of this offering, Brooktrout will cancel our outstanding
indebtedness in the amount of approximately $ as a contribution to
our capital, and without other consideration. Brooktrout will not provide any
further financing for us after the closing of this offering.
Stockholder Rights Agreement
Pursuant to a Stockholder Rights Agreement to be entered into in connection with
the transition services agreement, we agreed to provide Brooktrout with the
following registration rights for its shares of common stock:
- the right to demand on an unlimited number of occasions that we
register its shares of common stock under the Securities Act for
resale to the public;
- the right to piggyback on any registration by us of securities for
our account or the account of other stockholders and to include its
shares in the registration statement filed by us; and
43
<PAGE>
- the right, after we become eligible to use Form S-3, to require us
to register its shares on a Form S-3.
Brooktrout has agreed pursuant to a lock-up agreement not to sell or offer to
sell or otherwise dispose of any of its shares of common stock for a period of
180 days after the date of this prospectus without the prior written consent of
U.S. Bancorp Piper Jaffray.
Brooktrout is permitted to transfer its registration rights to transferees who
agree to be subject to the terms and conditions of the Stockholder Rights
Agreement.
The Stockholder Rights Agreement also provides for us to indemnify Brooktrout
against claims and liabilities, including claims and liabilities arising under
the securities laws.
The transactions identified above may not have been conducted on terms no less
favorable to us than could have been obtained from unaffiliated third parties.
We have adopted a conflict of interest policy in connection with the offering.
In the future, all transactions between any of our officers, directors and
Brooktrout and us will require the approval of the disinterested members of our
board of directors and will be on terms no less favorable to us than could be
obtained from unaffiliated third parties.
Part-Time Employment Agreement
Brooktrout and Stephen A. Ide entered into a letter agreement under which Mr.
Ide will be retained by Brooktrout as a part-time employee of Brooktrout. In
exchange for providing up to two hours of service per week advising Brooktrout's
chief executive officer upon his request with respect to strategic and
operational matters, Mr. Ide will receive $5,000 per year.
44
<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
Following the offering, our authorized capital stock will consist of 30,000,000
shares of common stock, $.01 par value per share, of which 10,380,358 will be
issued and outstanding; and 1,000,000 shares of undesignated preferred stock
issuable in one or more series designated by the board of directors, of which no
shares will be issued and outstanding.
Common Stock
VOTING RIGHTS
The holders of common stock have one vote per share. Holders of common stock are
not entitled to vote cumulatively for the election of directors. Generally, all
matters to be voted on by stockholders must be approved by a majority, or, in
the case of election of directors, by a plurality, of the votes entitled to be
cast at a meeting at which a quorum is present by all shares of common stock
present in person or represented by proxy, voting together as a single class,
subject to any voting rights granted to holders of any then outstanding
preferred stock. Except as otherwise provided by law or in the certificate of
incorporation, amendments to our certificate of incorporation must be approved
by a majority of the voting power of the common stock.
DIVIDENDS
Holders of common stock will share ratably in any dividends declared by the
board of directors, subject to the preferential rights of any preferred stock
then outstanding. Dividends consisting of shares of common stock may be paid to
holders of shares of common stock.
OTHER RIGHTS
In the event of any merger or consolidation of Interspeed with or into another
company as a result of which shares of common stock are converted into or
exchangeable for shares of stock, other securities or property, including cash,
all holders of common stock will be entitled to receive the same kind and
amount, on a per share of common stock basis, of such shares of stock and other
securities and property, including cash. On liquidation, dissolution or winding
up of Interspeed, all holders of common stock are entitled to share ratably in
any assets available for distribution to holders of shares of common stock. No
shares of common stock are subject to redemption or have preemptive rights to
purchase additional shares of common stock.
Preferred Stock
Our board of directors is authorized to issue shares of preferred stock in one
or more series, to establish the number of shares in each series and to fix the
designation, powers, preferences and rights of each such series and the
qualifications, limitations or restrictions thereof, in each case, if any, as
are permitted by Delaware law and as the board of directors may determine by
adoption of an amendment of our charter, without any further vote or action by
our stockholders. Because our board of directors has the power to establish the
preferences and rights of each class or series of preferred stock, it may afford
the stockholders of any series or class of preferred stock preferences, powers
and rights, voting or otherwise, senior to the rights of holders of shares of
our common stock. The issuance of shares of preferred stock could have the
effect of delaying, deferring or preventing a change in control of Interspeed.
Options
As of July 21, 1999, Interspeed had outstanding options to purchase a total of
1,597,774 shares of common stock pursuant to the 1997 Stock Plan and 99,000
shares of common stock pursuant to the
45
<PAGE>
1999 Stock Plan. The weighted average exercise price of these 1,696,774 shares
was $.96 per share. Recommendations for option grants under the 1997 Stock Plan
and the 1999 Stock Plan are made by the compensation committee. The compensation
committee may issue options with varying vesting schedules, but all options
granted pursuant to the stock plans must be exercised within ten years from the
date of grant.
Registration Rights
Under the terms of the Stockholders Rights Agreement, Brooktrout has
registration rights for its shares of common stock. See "Certain Transactions
With Related Partners--Stockholder Rights Agreement."
Indemnification Matters
Our certificate of incorporation contains a provision permitted by Delaware law
that generally eliminates the personal liability of directors for monetary
damages for breaches of their fiduciary duty, including breaches involving
negligence or gross negligence in business combinations, unless the director has
breached his or her duty of loyalty, failed to act in good faith, engaged in
intentional misconduct or a knowing violation of law, paid a dividend or
approved a stock repurchase in violation of the Delaware General Corporation Law
or obtained an improper personal benefit. This provision does not alter a
director's liability under the federal securities laws and does not affect the
availability of equitable remedies, such as an injunction or rescission, for
breach of fiduciary duty. Our bylaws provide that directors and officers shall
be, and in the discretion of the board of directors, non-officer employees may
be, indemnified by us to the fullest extent authorized by Delaware law, as it
now exists or may in the future be amended, against all expenses and liabilities
reasonably incurred in connection with service for or on behalf of Interspeed.
The bylaws also provide that the right of directors and officers to
indemnification shall be a contract right and shall not be exclusive of any
other right now possessed or hereafter acquired under any bylaw, agreement, vote
of stockholders or otherwise. In addition, Interspeed's directors and officers
are entitled to indemnification under Brooktout's bylaws. We also have
directors' and officers' insurance against certain liabilities.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers or persons controlling Interspeed as
described above, we have been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable. At present, there is no pending material litigation
or proceeding involving any director, officer, employee or agent of Interspeed
in which indemnification will be required or permitted.
Amendment of the Certificate of Incorporation
Except as otherwise provided in the certificate of incorporation, any amendment
to our certificate of incorporation must first be approved by a majority of the
board of directors and thereafter approved by a majority of the total votes
eligible to be cast by holders of voting stock with respect to such amendment.
Bylaw Provisions
Our bylaws provide that a special meeting of stockholders may be called only by
the board of directors unless otherwise required by law. Our bylaws provide that
only those matters included in the notice of the special meeting may be
considered or acted upon at that special meeting unless otherwise provided by
law. In addition, our bylaws include advance notice and informational
requirements and time limitations on any director nomination or any new proposal
which a stockholder wishes to make at an annual meeting of stockholders.
46
<PAGE>
Ability to Adopt Stockholder Rights Plan
The board of directors may in the future resolve to issue shares of preferred
stock or rights to acquire such shares to implement a stockholder rights plan. A
stockholder rights plan typically creates voting or other impediments to
discourage persons seeking to gain control of a company by means of a merger,
tender offer, proxy contest or otherwise if the board of directors determines
that such change in control is not in the best interests of the company and its
stockholders. The board of directors has no present intention of adopting a
stockholder rights plan and is not aware of any attempt to obtain control of
Interspeed.
Statutory Business Combination Provision
Following the offering, we will be subject to Section 203 of the Delaware
General Corporation Law, which prohibits a publicly held Delaware corporation
from consummating a "business combination," except under certain circumstances,
with an "interested stockholder" for a period of three years after the date such
person became an "interested stockholder" unless:
- before such person became an interested stockholder, the board of
directors of the corporation approved the transaction in which the
interested stockholder became an interested stockholder or approved
the business combination;
- upon the closing of the transaction that resulted in the interested
stockholder's becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced,
excluding shares held by directors who are also officers of the
corporation and shares held by employee stock plans; or
- following the transaction in which such person became an interested
stockholder, the business combination is approved by the board of
directors of the corporation and authorized at a meeting of
stockholders by the affirmative vote of the holders of 66 2/3% of
the outstanding voting stock of the corporation not owned by the
interested stockholder.
The term "interested stockholder" generally is defined as a person who, together
with affiliates and associates, owns, or, within the prior three years, owned,
15% or more of a corporation's outstanding voting stock. The term "business
combination" includes mergers, asset sales and other similar transactions
resulting in a financial benefit to an interested stockholder. Section 203 makes
it more difficult for an "interested stockholder" to effect various business
combinations with a corporation for a three year period. A Delaware corporation
may "opt out" of Section 203 with an express provision in its original
certificate of incorporation or an express provision in its certificate of
incorporation or bylaws resulting from an amendment approved by holders of at
least a majority of the outstanding voting stock. Neither our certificate of
incorporation nor our bylaws contains any such exclusion.
Trading on the Nasdaq National Market System
We have applied to have the common stock approved for quotation on the Nasdaq
National Market under the symbol "ISPD."
Transfer Agent and Registrar
The transfer agent and registrar for our common stock will be BankBoston N.A.
47
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common stock. No
prediction can be made as to the effect, if any, that sales of common stock or
the availability of common stock for sale will have on the market price of our
common stock. The market price of our common stock could drop due to sale of a
large number of shares of our common stock or the perception that such sales
could occur. These factors could also make it more difficult to raise funds
through future offerings of common stock.
After this offering, 10,380,358 shares of common stock will be outstanding. See
"Capitalization." Of these shares, the 3,500,000 shares sold in this offering
will be freely tradeable without restriction under the Securities Act except for
any shares purchased by "affiliates" of Interspeed as defined in Rule 144 under
the Securities Act. The remaining 6,880,358 shares of common stock are
"restricted securities" within the meaning of Rule 144 under the Securities Act.
The restricted securities generally may not be sold unless they are registered
under the Securities Act or are sold pursuant to an exemption from registration,
such as the exemption provided by Rule 144 under the Securities Act.
In connection with this offering, our existing officers, directors and
Brooktrout, who will own a total of 6,808,600 shares of common stock after the
offering, have entered into lock-up agreements pursuant to which they have
agreed not to offer or sell any shares of common stock for a period of 180 days
after the date of this prospectus without the prior written consent of U.S.
Bancorp Piper Jaffray, on behalf of the underwriters. See "Underwriting." U.S.
Bancorp Piper Jaffray may, however, in its sole discretion, at any time and
without notice, waive any of the terms of these lock-up agreements specified in
the underwriting agreement. Following the lock-up period, these shares will not
be eligible for sale in the public market without registration under the
Securities Act unless such sale meet the conditions and restrictions of Rule 144
as described below.
Beginning 180 days after the date of this prospectus or earlier with the prior
written consent of U.S. Bancorp Piper Jaffray, 6,808,600 shares and
shares issuable upon exercise of outstanding vested options will be
eligible for sale in the public market subject to Rule 144 and Rule 701 of the
Securities Act.
In general, under Rule 144 as currently in effect, any person or persons whose
shares are aggregated, including an affiliate of ours, who has beneficially
owned shares for a period of at least one year is entitled to sell, within any
three-month period, commencing 90 days after the date of this prospectus, a
number of shares that does not exceed the greater of:
- 1% of the then outstanding shares of common stock, which is
expected to be approximately 10,380,358 shares upon the completion
of this offering, or
- the average weekly trading volume in the common stock during the
four calendar weeks immediately preceding the date on which the
notice of such sale on Form 144 is filed with the SEC.
Sales under Rule 144 are also subject to certain provisions relating to notice
and manner of sale and the availability of current public information about
Interspeed during the 90 days immediately preceding a sale. In addition, a
person who is not an affiliate of ours during the 90 days preceding a sale and
who has beneficially owned the shares proposed to be sold for at least two years
would be entitled to sell such shares under Rule 144(k) without regard to the
volume limitation and other conditions described above. The foregoing summary of
Rule 144 is not intended to be a complete description.
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<PAGE>
In general, in reliance upon Rule 144 but without compliance with certain
restrictions, including the holding period requirements, contained in Rule 144,
Rule 701 permits resales of shares issued pursuant to certain compensatory
benefit plans and contracts commencing 90 days after we become subject to the
reporting requirements of the Exchange Act. Prior to the expiration of the
lock-up agreement, Interspeed intends to register on a registration statement on
Form S-8:
- a total of up to 1,012,868 shares of common stock reserved for
future issuance pursuant to the 1999 Stock Plan; and
- a total of 200,000 shares of common stock reserved for future
issuance pursuant to the 1999 Purchase Plan.
The Form S-8 will permit the resale in the public market of shares so registered
by non-affiliates without restriction under the Securities Act.
We have agreed not to sell or otherwise dispose of any shares of common stock
during the 180 day period following the date of this prospectus, except we may
issue, and grant options to purchase, shares of common stock under the 1999
Stock Plan and 1999 Purchase Plan.
Following the offering, under specified circumstances and subject to customary
conditions, Brooktrout will have rights with respect to all of its shares of
common stock, subject to the 180 day lock-up arrangement, to require us to
register their shares of common stock under the Securities Act, and they will
have rights to participate in any future registrations of securities by us.
49
<PAGE>
UNDERWRITING
The underwriters named below, for whom U.S. Bancorp Piper Jaffray, Warburg
Dillon Read LLC, a subsidiary of UBS AG, Tucker Anthony Cleary Gull and
DLJDIRECT Inc. are acting as representatives, have agreed to buy, subject to the
terms of the underwriting agreement, the number of shares listed opposite their
names below. The underwriters are committed to purchase and pay for all of the
shares if any are purchased, other than those shares covered by the
over-allotment option described below.
<TABLE>
<CAPTION>
Number
Underwriters of Shares
- --------------------------------------------------------------------------------- ----------
<S> <C>
U.S. Bancorp Piper Jaffray Inc...................................................
Warburg Dillon Read LLC, a subsidiary of UBS AG..................................
Tucker Anthony Cleary Gull.......................................................
DLJDIRECT Inc....................................................................
----------
Total.................................................................... 3,500,000
----------
----------
</TABLE>
The underwriters have advised us that they propose to offer the shares to the
public at $ per share. The underwriters propose to offer the shares to
certain dealers at the same price less a concession of not more than $ per
share. The underwriters may allow and the dealers may reallow a concession of
not more than $ per share on sales to certain other brokers and dealers.
After the offering, these figures may be changed by the representatives.
DLJDIRECT Inc. is making a prospectus in electronic format available on its
Internet web site. The underwriters have agreed to allocate a limited number of
shares to DLJDIRECT for sale to its qualified brokerage account holders. Other
than the prospectus in electronic format, the information on DLJDIRECT'S web
site is not part of this prospectus or the registration statement of which this
prospectus forms a part, has not been approved and/or endorsed by us or any
underwriter and should not be relied on by prospective investors.
The underwriters have reserved for sale at the initial offering price (i) up to
150,000 shares of common stock to persons associated with Interspeed including
directors, officers, employees and friends and (ii) up to 200,000 shares of
common stock to Brooktrout's stockholders who hold more than 100 shares of
Brooktrout stock as of June 18, 1999. Shares not sold to these persons will be
reoffered immediately by the underwriters to the public at the initial public
offering price. The underwriters do not intend to confirm sales to any accounts
over which they exercise discretionary authority.
Brooktrout has granted to the underwriters an option to purchase up to an
additional 525,000 shares of common stock at the same price to the public, and
with the same underwriting discount, as set forth above. The underwriters may
exercise this option at any time during the 30-day period after the date of this
prospectus, but only to cover over-allotments, if any. To the extent the
underwriters exercise the option, each underwriter will become obligated,
subject to certain conditions, to purchase approximately the same percentage of
the additional shares as it was obligated to purchase under the underwriting
agreement.
The following table shows the underwriting fees to be paid to the underwriters
and the expenses to be paid by us in connection with this offering. These
amounts are shown assuming both no exercise and full exercise of the
over-allotment option.
<TABLE>
<CAPTION>
Total
-------------------------
<S> <C> <C> <C>
Full
Per Share No Exercise Exercise
----------- ----------- ------------
Underwriting discounts and commissions................. $ $ $
Expenses............................................... $ $ $
</TABLE>
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<PAGE>
We have agreed to indemnify the underwriters against certain liabilities,
including civil liabilities under the Securities Act, or to contribute to
payments that the underwriters may be required to make in respect of those
liabilities.
We and each of our directors, executive officers and Brooktrout have agreed to
certain restrictions on our ability to sell additional ordinary shares for a
period of 180 days after the date of this prospectus. We have agreed not to
directly or indirectly offer, pledge, sell, offer to sell, contract to sell,
sell any option or contract to purchase, purchase any option to sell, or
otherwise transfer or dispose of, directly or indirectly, any shares of common
stock, or any securities convertible into, or exercisable or exchangeable for,
shares of common stock, without the prior written consent of U.S. Bancorp Piper
Jaffray. The agreements provide exceptions for our sales in connection with the
exercise of options granted and the granting of options to purchase shares under
our existing stock option plans and certain other exceptions. However, U.S.
Bancorp Piper Jaffray may, in its sole discretion and at any time without
notice, release all or any portion of the securities subject to the lock-up
agreements. As of the date of this prospectus, there are no agreements between
the representatives and any of our shareholders providing consent by the
representatives to the sales of shares of common stock prior to the expiration
of the lock-up period.
Prior to the offering, there has been no established trading market for the
shares of common stock. The initial public offering price for the shares of
common stock offered by this prospectus was negotiated by us and the
underwriters. The factors considered in determining the initial public offering
price include the history of and the prospects for the industry in which we
compete, our past and present operations, our historical results of operation,
our prospects for future earnings, the recent market prices of securities of
generally comparable companies and the general condition of the securities
markets at the time of the offering and other relevant factors. There can be no
assurance that the initial public offering price of the shares of common stock
will correspond to the price at which the shares of common stock will trade in
the public market subsequent to this offering or that an active public market
for the shares of common stock will develop and continue after this offering.
To facilitate the offering, the underwriters may engage in transactions that
stabilize, maintain or otherwise affect the price of the shares of common stock
during and after the offering. Specifically, the underwriters may over-allot or
otherwise create a short position in the shares of common stock for their own
account by selling more shares of common stock than have been sold to them by
us. The underwriters may elect to cover any such short position by purchasing
shares of common stock in the open market or by exercising the over-allotment
option granted to the underwriters. In addition, the underwriters may stabilize
or maintain the price of the shares of common stock by bidding for or purchasing
shares of shares of common stock in the open market and may impose penalty bids.
If penalty bids are imposed, selling concessions allowed to syndicate members or
other broker-dealers participating in the offering are reclaimed if shares of
common stock previously distributed in the offering are repurchased, whether in
connection with stabilization transactions or otherwise. The effect of these
transactions may be to stabilize or maintain the market price of the shares of
common stock at a level above that which might otherwise prevail in the open
market. The imposition of a penalty bid may also effect the price of the shares
of common stock to the extent that it discourages resales of the shares of
common stock. The magnitude or effect of any stabilization or other transactions
is uncertain. These transactions may be effected on the Nasdaq National Market
or otherwise and, if commenced, may be discontinued at any time.
51
<PAGE>
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed upon
for Interspeed by Goodwin, Procter & Hoar LLP, Boston, Massachusetts. Certain
legal matters in connection with this offering will be passed upon for the
underwriters by Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts.
EXPERTS
The financial statements as of September 30, 1997 and 1998 and June 30, 1999,
and for the period October 23, 1996 (inception) to September 30, 1997, the year
ended September 30, 1998 and the nine months ended June 30, 1999, included in
this prospectus have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing herein, and are included in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-1 with the SEC for the stock we
are offering by this prospectus. This prospectus does not include all of the
information contained in the registration statement. You should refer to the
registration statement and its exhibits for additional information. Whenever we
make reference in this prospectus to any of our contracts, agreements or other
documents, the references are not necessarily complete and you should refer to
the exhibits attached to the registration statement for copies of the actual
contract, agreement or other document. When we complete this offering, we will
also be required to file annual, quarterly and special reports, proxy statements
and other information with the SEC. We intend to furnish to our stockholders
annual reports containing audited financial statements for each fiscal year.
You can read our SEC filings, including the registration statement, over the
Internet at the SEC's web site at http://www.sec.gov. You may also read and copy
any document we file with the SEC at its public reference facilities at 450
Fifth Street, NW, Washington, DC 20549, 7 World Trade Center, Suite 1300, New
York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. You may also obtain copies of the documents at
prescribed rates by writing to the Public Reference Section of the SEC at 450
Fifth Street, NW, Washington, DC 20549. Please call the SEC at 1-800-SEC-0330
for further information on the operation of the public reference facilities. Our
SEC filings are also available at the office of the Nasdaq National Market. For
further information on obtaining copies of our public filings at the Nasdaq
National Market you should call (212) 656-5060.
52
<PAGE>
INTERSPEED, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report.............................................. F-2
Balance Sheets............................................................ F-3
Statements of Operations.................................................. F-4
Statements of Stockholders' Equity (Deficit).............................. F-5
Statements of Cash Flows.................................................. F-6
Notes to Financial Statements............................................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Interspeed, Inc.
North Andover, MA
We have audited the accompanying balance sheets of Interspeed, Inc., a 99.8%
owned subsidiary of Brooktrout, Inc., as of September 30, 1997 and 1998 and June
30, 1999, and the related statements of operations, stockholders' equity
(deficit), and cash flows for the period from October 23, 1996 (inception) to
September 30, 1997, for the year ended September 30, 1998 and for the nine
months ended June 30, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with 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, such financial statements present fairly, in all material
respects, the financial position of the Company at September 30, 1997 and 1998
and June 30, 1999, and the results of its operations and its cash flows for the
period from October 23, 1996 (inception) to September 30, 1997, for the year
ended September 30, 1998 and for the nine months ended June 30, 1999.
Deloitte & Touche LLP
Boston, Massachusetts
July 23, 1999
F-2
<PAGE>
Interspeed, Inc.
Balance Sheets
(in thousands, except share data)
<TABLE>
<CAPTION>
September 30, Pro forma
-------------------- June 30, June 30,
1997 1998 1999 1999
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
(unaudited)
Assets
Current assets:
Cash............................................................ $ 21 $ 132 $ 136
Accounts receivable (less allowances of $26 at June 30, 1999)... -- -- 1,302
Inventory....................................................... -- 587 822
Prepaid expenses and other...................................... 8 19 104
--------- --------- -----------
Total current assets........................................ 29 738 2,364
Property and equipment, net..................................... 319 489 865
Deferred offering costs......................................... -- -- 463
Other assets.................................................... -- -- 5
--------- --------- -----------
Total assets................................................ $ 348 $ 1,227 $ 3,697
--------- --------- -----------
--------- --------- -----------
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable................................................ $ 118 $ 350 $ 1,513
Accrued expenses................................................ 66 175 662
Deferred revenue................................................ -- -- 39
--------- --------- -----------
Total current liabilities................................... 184 525 2,214
Long term note payable--due Brooktrout.......................... 206 5,038 10,887 $ --
Deferred rent................................................... -- -- 60 60
Commitments and contingencies (Notes 1 and 5)
Stockholders' equity (deficit):
Preferred Stock, $0.01 par value per share; 1,000,000 shares
authorized, no shares issued or outstanding................... -- -- -- --
Common stock, $.01 par value, 30,000,000 shares authorized
8,018,132 shares issued and outstanding....................... 80 80 80 80
Additional paid-in capital...................................... 921 1,391 7,394 18,281
Accumulated deficit............................................. (1,043) (5,356) (12,430) (12,430)
Deferred compensation........................................... -- (451) (4,508) (4,508)
--------- --------- ----------- -----------
Total stockholders' equity (deficit)........................ (42) (4,336) (9,464) $ 1,423
--------- --------- ----------- -----------
-----------
Total....................................................... $ 348 $ 1,227 $ 3,697
--------- --------- -----------
--------- --------- -----------
</TABLE>
See notes to financial statements.
F-3
<PAGE>
Interspeed, Inc.
Statements of Operations
(in thousands, except per share data)
<TABLE>
<CAPTION>
Period from Nine months
October 23, 1996 ended June 30,
(inception) Year ended ----------------------
to September 30, 1997 September 30, 1998 1999
-------------------------- ------------------ 1998 ---------
-----------
(unaudited)
<S> <C> <C> <C> <C>
Revenue........................................ $ -- $ -- $ -- $ 1,341
Cost of revenue................................ -- -- -- 826
------- ------- ----------- ---------
Gross profit................................... -- -- -- 515
------- ------- ----------- ---------
Operating expenses:
Research and development..................... 878 3,204 2,429 3,747
Sales and marketing.......................... -- 401 331 796
General and administrative................... 165 689 491 1,102
Stock compensation........................... -- 19 2 1,944
------- ------- ----------- ---------
Total operating expenses................... 1,043 4,313 3,253 7,589
------- ------- ----------- ---------
Loss before income taxes....................... (1,043) (4,313) (3,253) (7,074)
Income tax expense............................. -- -- -- --
------- ------- ----------- ---------
Net loss....................................... $ (1,043) $ (4,313) $ (3,253) $ (7,074)
------- ------- ----------- ---------
------- ------- ----------- ---------
Net loss per share-
basic and diluted............................ $ (0.24) $ (0.54) $ (0.41) $ (0.88)
------- ------- ----------- ---------
------- ------- ----------- ---------
Shares used to compute net loss
per share- basic and diluted................. 4,364 8,000 8,000 8,001
</TABLE>
See notes to financial statements.
F-4
<PAGE>
Interspeed, Inc.
Statements of Stockholders' Equity (Deficit)
(in thousands)
<TABLE>
<CAPTION>
Common Stock Additional
------------------------ Paid-in Accumulated Deferred
Shares Amount Capital Deficit Compensation Total
----------- ----------- ----------- ------------ ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, October 23, 1996 (inception)............. -- $ -- $ -- $ -- $ -- $ --
Common stock issued for cash to Parent............ 8,000 80 921 -- -- 1,001
Net loss.......................................... -- -- -- (1,043) -- (1,043)
----- --- ----------- ------------ ------------- ---------
Balance, September 30, 1997....................... 8,000 80 921 (1,043) -- (42)
Unearned compensation related to stock options.... -- -- 470 -- (470) --
Amortization of unearned compensation............. -- -- -- -- 19 19
Net loss.......................................... -- -- -- (4,313) -- (4,313)
----- --- ----------- ------------ ------------- ---------
Balance, September 30, 1998....................... 8,000 80 1,391 (5,356) (451) (4,336)
Unearned compensation related to stock options.... -- -- 6,001 -- (6,001) --
Stock options exercised........................... 18 -- 2 -- -- 2
Amortization of unearned compensation............. -- -- -- -- 1,944 1,944
Net loss.......................................... -- -- -- (7,074) -- (7,074)
----- --- ----------- ------------ ------------- ---------
Balance, June 30, 1999............................ 8,018 $ 80 $ 7,394 $ (12,430) $ (4,508) $ (9,464)
----- --- ----------- ------------ ------------- ---------
----- --- ----------- ------------ ------------- ---------
</TABLE>
See notes to financial statements.
F-5
<PAGE>
Interspeed, Inc.
Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Period from Nine months ended
October 23, 1996 Year ended June 30,
(inception) to September 30, ----------------------
September 30, 1997 1998 1998 1999
------------------ ------------- ----------- ---------
<S> <C> <C> <C> <C>
(unaudited)
Cash flows from operating activities:
Net loss............................................... $ (1,043) $ (4,313) $ (3,253) $ (7,074)
Adjustments to reconcile net loss to net cash used for
operating activities:
Depreciation......................................... 52 199 144 212
Stock compensation................................... -- 19 2 1,944
Increase (decrease) in cash from:
Accounts receivable................................ -- -- -- (1,302)
Inventory.......................................... -- (587) (25) (235)
Prepaid expenses and other......................... (8) (11) 5 (91)
Deferred Offering Costs............................ -- -- -- (463)
Accounts payable................................... 118 232 198 1,164
Accrued expenses................................... 66 109 117 487
Deferred revenue................................... -- -- -- 39
Deferred rent...................................... -- -- -- 60
------- ------------- ----------- ---------
Net cash used for operating activities................. (815) (4,352) (2,812) (5,259)
------- ------------- ----------- ---------
Cash flows used for investing activities-
Purchases of property and equipment.................. (371) (369) (326) (588)
------- ------------- ----------- ---------
Cash flows from financing activities:
Proceeds from issuances of common stock, net........... 1,001 -- -- 2
Proceeds from long term debt-due Brooktrout............ 206 4,832 3,124 5,849
------- ------------- ----------- ---------
Net cash provided by financing activities.............. 1,207 4,832 3,124 5,851
------- ------------- ----------- ---------
Net increase (decrease) in cash........................ 21 111 (14) 4
------- ------------- ----------- ---------
Cash, beginning of period.............................. -- 21 21 132
------- ------------- ----------- ---------
Cash, end of period.................................... $ 21 $ 132 $ 7 $ 136
------- ------------- ----------- ---------
------- ------------- ----------- ---------
</TABLE>
See notes to financial statements.
F-6
<PAGE>
Interspeed, Inc.
Notes to the Financial Statements
(Information for the Nine Months Ended June 30, 1998 is Unaudited)
1. Nature of the Business, Basis of Presentation and Summary of Significant
Accounting Policies:
NATURE OF THE BUSINESS
Interspeed, Inc. (the "Company" or "Interspeed"), a 99.8% owned subsidiary of
Brooktrout, Inc. ("Brooktrout"), was founded in October 1996 and began
operations in March 1997. Subsequent to September 30, 1998, the Company was no
longer considered a development stage company. The Company designs, develops,
and markets advanced high-speed data communications solutions based on digital
subscriber line, or DSL, technology. The Company's products enable data
communication service providers such as competitive local exchange carries,
Internet service providers, and owners of multi-tenant units to deliver high
speed data access solutions to their customers utilizing existing copper wire
infrastructure.
BASIS OF PRESENTATION
The accompanying financial statements represent the accounts of Interspeed, a
99.8% owned subsidiary of Brooktrout. Operating expenses include allocations of
general corporate overhead expenses related to Brooktrout's corporate
headquarters and common support activities, including payroll administration,
worker's compensation and general liability insurance, accounting and finance,
legal, tax and human resources. These costs amounted to $165,000, $668,000,
$470,000 and $749,000 for the period October 23, 1996 (inception) to September
30, 1997, the year ended September 30, 1998 and the nine month period ended June
30, 1998 and 1999, respectively, and have been allocated to Interspeed using
methodologies primarily based on headcount and usage. Although Interspeed
believes the allocations are reasonable, the costs of these services to
Interspeed may not be indicative of the costs that would have been incurred if
Interspeed had been a stand-alone entity. Interspeed has entered into a
Transition Services Agreement with Brooktrout, pursuant to which Brooktrout will
continue to provide certain services to Interspeed during a transition period.
In addition, Brooktrout has agreed to continue to fund the operations of the
Company until consummation of the offering. See Note 9.
Since inception and through the completion of this offering, Interspeed has been
or will be included in the consolidated tax returns of Brooktrout and Brooktrout
has realized or will realize the tax benefits associated with Interspeed's
operating losses through that date. Accordingly, despite its operating losses
since inception, Interspeed does not have available any net operating loss
carryforwards nor has it recognized any tax benefits afforded Brooktrout by
these net operating losses. Upon the completion of this offering, Interspeed
will no longer be included in the consolidated return of Brooktrout and income
or losses will be included in a separate return of Interspeed. Any taxes due
will be the responsibility of Interspeed and any benefits associated with losses
will inure to Interspeed.
REINCORPORATION IN DELAWARE AND STOCK SPLIT
On June 16, 1999, the Company established a Delaware subsidiary with 30,000,000
authorized shares of common stock, par value $0.01. In addition, the Board of
Directors authorized the creation of an unspecified class of preferred stock,
par value $0.01, with a total authorized amount of 1,000,000 shares. No shares
of preferred stock have been issued. On June 17, 1999 the Board of Directors
approved, and on June 18, 1999 effected, a four for one stock split of the
common stock. The stock split has been given retroactive recognition in all
periods presented in the accompanying financial statements.
F-7
<PAGE>
Interspeed, Inc.
Notes to the Financial Statements (Continued)
(Information for the Nine Months Ended June 30, 1998 is Unaudited)
1. Nature of the Business, Basis of Presentation and Summary of Significant
Accounting Policies: (continued)
UNAUDITED INTERIM FINANCIAL INFORMATION
The statements of operations, stockholder's equity and cash flows for the nine
months ended June 30 1998 are unaudited.
In the opinion of management, all adjustments, consisting of only normal
recurring items, which are necessary for a fair presentation, have been included
in such unaudited interim financial information. The results for interim periods
are not necessarily indicative of results which may be expected for any other
interim period or for the full year and may not necessarily reflect the results
of operations, financial position, changes in equity and cash flows of
Interspeed in the future or what they would have been had Interspeed been a
separate, stand- alone entity during the periods presented.
UNAUDITED PRO FORMA PRESENTATION
The unaudited pro forma balance sheet reflects the contribution to capital, as
of June 30, 1999, by Brooktrout of amounts due from the Company. Such
contribution will occur upon the effectiveness of this offering.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements, in conformity with generally accepted
accounting principles, requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Revenue
The Company generally recognizes revenues from equipment sales upon shipment. No
revenue is recognized on products shipped on a trial basis. The Company's
products generally carry a one year warranty from the date of purchase.
Estimated sales returns and warranty costs are recorded at the time the product
revenue is recognized. Customers may contract for support services over and
above that provided by the company's warranty policy. Revenue from such
contracts and from extended warranty contracts is recognized ratably over the
service period. The Company does not recognize revenue on beta units until beta
testing on such units is completed.
Inventory
Inventory is stated at the lower of cost (first-in, first-out basis) or market.
F-8
<PAGE>
Interspeed, Inc.
Notes to the Financial Statements (Continued)
(Information for the Nine Months Ended June 30, 1998 is Unaudited)
1. Nature of the Business, Basis of Presentation and Summary of Significant
Accounting Policies: (continued)
Advertising Expenses
The Company expenses advertising costs in the period in which they are incurred.
Advertising cost for the period October 23, 1996 (inception) to September 30,
1997, the year ended September 30, 1998 and the nine months ended June 30, 1998
and 1999 was $0 , $2,000, $1,000 and $42,000, respectively.
Property and Equipment
Purchased property and equipment is carried at cost and depreciation is provided
over the estimated useful lives of the related assets on the straight-line
basis. Leasehold improvements are depreciated over the lesser of the lease term
or the estimated useful life of the improvement.
Research and Development
Research and development costs, other than software development costs, are
expensed as incurred. Software development costs would be capitalized following
attainment of technological feasibility, however, no development costs which
qualify for capitalization were incurred during any of the periods presented.
Net Loss Per Share
Basic net loss per share is computed using the weighted average number of common
shares outstanding during each period. Outstanding stock options have been
excluded from the computation of diluted per share amounts since the effect
would be antidilutive. Had the impact of stock options, using the treasury stock
method, been included in the computation, weighted average shares would have
increased by 1,126,385 and 1,760,412 for the year ended September 30, 1998 and
the nine months ended June 30, 1999.
Stock-Based Compensation
Compensation expense associated with awards of stock options to employees is
measured using the intrinsic value method described in Accounting Principles
Board Opinion No. 25.
Cash Flows
There were no cash payments of interest or taxes for any of the periods
presented.
Comprehensive Income
There was no difference between the Company's net loss and its total
comprehensive loss for any of the periods presented.
F-9
<PAGE>
Interspeed, Inc.
Notes to the Financial Statements (Continued)
(Information for the Nine Months Ended June 30, 1998 is Unaudited)
1. Nature of the Business, Basis of Presentation and Summary of Significant
Accounting Policies: (continued)
Segment Information
The Company currently operates in one business segment, designing, developing
and marketing advanced communications products which enable service providers to
deliver high speed data access to small and medium sized businesses, MTUs, and
other organizations.
Concentration of Risk
To date, the Company's activities have been conducted primarily in the United
States. The Company performs ongoing credit evaluations of its customers and
generally requires no collateral. At June 30, 1999, 85% of the receivable
balance was comprised of balances due from two customers.
The Company relies on contract manufacturers and some single source suppliers of
materials for certain product components. As a result, should the Company's
current manufacturers or suppliers not produce and deliver inventory for the
Company to sell on a timely basis, operating results could be adversely
impacted.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities," effective for
fiscal years beginning after June 15, 2000. The new standard requires that all
companies record derviatives on the balance sheet as assets or liabilities,
measured at fair value. Gains or losses resulting from changes in the values of
those derivatives would be accounted for based on the use of the derivative and
whether it qualifies for hedge accounting. Management is currently assessing the
impact of SFAS No. 133 on the financial statements of the Company. The Company
will adopt this accounting standard on October 1, 2000 as required.
2. Inventory
Inventory consisted of the following (in thousands):
<TABLE>
<CAPTION>
September 30, June 30,
1997 1998 1999
--------- --------- -----------
<S> <C> <C> <C>
Raw material........................................................ $ -- $ 587 $ 575
Work in process..................................................... -- -- 51
Finished goods...................................................... -- -- 196
--------- --------- -----
Total............................................................... $ -- $ 587 $ 822
--------- --------- -----
--------- --------- -----
</TABLE>
F-10
<PAGE>
Interspeed, Inc.
Notes to the Financial Statements (Continued)
(Information for the Nine Months Ended June 30, 1998 is Unaudited)
3. Property and Equipment
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
September 30,
Estimated -------------------- June 30,
Useful Life 1997 1998 1999
--------------- --------- --------- -----------
<S> <C> <C> <C> <C>
Office equipment................................... 5 years $ 14 $ 77 $ 273
Computers and software............................. 3 years 282 497 648
Test equipment..................................... 5 years 21 82 296
Leasehold improvements............................. up to 5 years 54 84 111
--------- --------- -----------
Total.............................................. 371 740 1,328
Less accumulated depreciation...................... 52 251 463
--------- --------- -----------
Total.............................................. $ 319 $ 489 $ 865
--------- --------- -----------
--------- --------- -----------
</TABLE>
4. Accrued Expenses
Accrued expenses consisted of the following (in thousands):
<TABLE>
<CAPTION>
September 30,
---------------------- June 30,
1997 1998 1999
----- --------- -----------
<S> <C> <C> <C>
Compensation....................................................... $ 55 $ 145 $ 619
Accrued employee benefits.......................................... 8 12 --
Other.............................................................. 3 18 43
--- --------- -----
Total.............................................................. $ 66 $ 175 $ 662
--- --------- -----
--- --------- -----
</TABLE>
5. Lease Obligations
In March 1997, the Company leased office, manufacturing and warehouse space
under a non-cancelable operating lease that expired in February 1999. The
Company subsequently moved operations to a new location and entered into a
non-cancelable operating lease for office, manufacturing and warehouse space in
March 1999, which expires in March 2004. The Company also has an engineering
facility in Texas and entered into a non-cancelable operating lease in January
1999 which expires in January 2001.
Minimum future lease payments under all operating leases at June 30, 1999 are as
follows (in thousands):
<TABLE>
<S> <C>
Fiscal year:
1999 (3 months)..................................................... $ 79
2000................................................................ 426
2001................................................................ 481
2002................................................................ 485
2003................................................................ 509
Thereafter.......................................................... 216
---------
$ 2,196
---------
---------
</TABLE>
F-11
<PAGE>
Interspeed, Inc.
Notes to the Financial Statements (Continued)
(Information for the Nine Months Ended June 30, 1998 is Unaudited)
5. Lease Obligations (continued)
Rent expense for the period October 23, 1996 (inception) to September 30, 1997,
the year ended September 30, 1998, and the nine months ended June 30, 1998 and
1999 was $38,000, $80,000, $54,000 and $236,000, respectively.
6. Stock Option Plans
In April 1997, the Company's Board of Directors adopted and the stockholder
approved the 1997 Stock Option Plan (the "1997 Stock Plan"), under which the
Company may grant both incentive stock options and non-qualified options to
employees. The 1997 Stock Plan allows for the granting of options to purchase up
to 1,988,000 shares of common stock. The stock options are generally granted
with vesting periods of five years and have an expiration date of ten years from
the date of grant.
STOCK OPTION AND GRANT PLAN
In June 1999, the Company adopted, and the stockholders approved, the Interspeed
1999 Stock Option and Grant Plan (the "1999 Stock Plan"), under which the
Company may grant both incentive stock options and nonstatutory stock options to
employees, consultants and directors. Options issued under the 1999 Stock Plan
can have an exercise price of not less than 85% of the fair market value, as
defined under the 1999 Stock Plan, of the stock at the date of grant. The 1999
Stock Plan provides for the issuance of up to 1,012,868 shares of the Company's
common stock. Grants subsequent to June 30, 1999 totaled 24,000 and shares
available for future grant are 913,868.
Certain options have been granted with exercise prices which were less than the
estimated fair value of the Company's common stock at the date of grant.
Compensation cost associated with these options, determined as the difference
between the fair value of the stock and the exercise price, totalled $6.5
million as of June 30, 1999. This cost was recorded as deferred compensation and
is being charged to expense over the vesting period. Compensation cost was
$19,000 and $1,944,000 for the year ended September 30, 1998 and the nine months
ended June 30, 1999, respectively.
Compensation cost in the nine months ended June 30, 1999 included $548,000
related to grants to two directors that were 100% vested on the date of grant
and $1,186,000 related to a grant to the Company's president that vested 40% of
the shares on June 18, 1999 upon the initial filing of a registration statement
with the Securities and Exchange Commission. The remainder of the president's
grant vests 20% of the original grant on January 1 of each of the next three
years.
F-12
<PAGE>
Interspeed, Inc.
Notes to the Financial Statements (Continued)
(Information for the Nine Months Ended June 30, 1998 is Unaudited)
6. Stock Option Plans (continued)
Activity under the 1997 Stock Plan and the 1999 Stock Plan is summarized as
follows:
<TABLE>
<CAPTION>
Weighted
Average
Number of Exercise
Shares Price
---------- -----------
<S> <C> <C>
Granted................................................................................... 962,400 $ .13
Exercised................................................................................. -- --
Forfeited................................................................................. -- --
----------
Outstanding at September 30, 1997......................................................... 962,400 $ .13
Granted................................................................................... 381,600 $ .13
Exercised................................................................................. -- --
Forfeited................................................................................. 52,000 $ .13
----------
Outstanding at September 30, 1998......................................................... 1,292,000 $ .13
Granted................................................................................... 812,000 $ 1.44
Exercised................................................................................. 18,132 .13
Forfeited................................................................................. 41,868 $ .13
----------
Outstanding at June 30, 1999.............................................................. 2,044,000 $ .65
----------
----------
</TABLE>
The following table sets forth information regarding stock options outstanding
at June 30, 1999:
<TABLE>
<CAPTION>
Weighted Average
Range of Remaining
Exercise Number Life Number
Prices Of Shares (years) Exercisable
- -------------- ---------- ------------------- -----------
<S> <C> <C> <C>
$0.13.......... 1,682,000 4.02 383,873
$0.67 - 0.80... 207,000 4.86 --
$2.50.......... 80,000 4.42 80,000
$10.00......... 75,000 4.00 45,000
</TABLE>
The following information concerning the Company's stock option plan is provided
in accordance with SFAS 123.
The fair value of each option grant has been estimated on the date of grant
using the minimum value method. Weighted average assumptions used in determining
the fair value of grants for the period October 23, 1996 (inception) to
September 30, 1997 and the year ended September 30, 1998 and the nine months
ended June 30, 1999 include risk-free interest rates of 5.5%, 4.75% and 5.8%,
respectively, and an expected life of 5 years. Volatility and dividend yields
are not considered in the minimum value calculation.
The weighted average fair value of options granted for the period October 23,
1996 (inception) to September 30, 1997, for year ended September 30, 1998 and
for the nine months ended June 30, 1999 was $0.12, $1.20 and $8.17 per share,
respectively.
F-13
<PAGE>
Interspeed, Inc.
Notes to the Financial Statements (Continued)
(Information for the Nine Months Ended June 30, 1998 is Unaudited)
6. Stock Option Plans (continued)
Had compensation expense for stock options been determined based on fair value
at the grant date in accordance with the provisions of SFAS 123, pro forma net
loss and pro forma net loss per share would have been as follows (in thousands
except per share data):
<TABLE>
<CAPTION>
For the period
October 23, 1997 For the year
(inception) ended For the nine months
to September 30, September 30, ended June 30,
1997 1998 1999
-------------------------- ----------------- -------------------
<S> <C> <C> <C>
Pro forma net loss...... $ (1,045) $ (4,340) $ (9,010)
Pro forma net loss per
share-basic and
diluted............... $ (0.24) $ (0.54) $ (1.13)
</TABLE>
7. Retirement Plan
The Company has a 401(k) retirement plan available to qualified employees.
Employees are allowed to contribute up to 18% of their salary to the plan. The
Company matches contributions equal to $.25 per dollar contributed up to a
maximum of 6% of a participant's salary. The Company contributed $2,000,
$18,000, $10,000 and $32,000 to the plan for the period October 23, 1996
(inception) to September 30, 1997, the year ended September 30, 1998 and the
nine months ended June 30, 1998 and 1999, respectively.
8. Significant Customer and Geographic Information:
The Company currently targets its sales efforts to data communications service
providers, multi tenant units, and other service organizations to both public
and private network providers and users across four related market segments. For
the nine months ended June 30, 1999, sales to United States customers amounted
to $1,263,000 and export sales amounted to $78,000. Two customers accounted for
67% and 19%, respectively, of revenue for the nine months ended June 30, 1999.
9. Related Party Transactions
Since inception, the Company's operations have been funded through contributions
of capital and loans from Brooktrout of $1.2 million, $4.8 million and $5.8
million for the period October 23, 1996 (inception) to September 30, 1997, the
year ended September 30, 1998 and the nine months ended June 30, 1999,
respectively. At June 30, 1999, Interspeed had long term notes due to Brooktrout
in the amount of $10.9 million. The notes are non-interest bearing and are due
on demand. Brooktrout has agreed that the Company will not be required to repay
these notes until after October, 2000. In connection with this offering,
Brooktrout has agreed to contribute the outstanding note balance to the capital
of Interspeed on the effective date of the offering. The average balance due to
Brooktrout for the period October 23, 1996 (inception) to September 30, 1997,
the year ended September 30, 1998 and the nine months ended June 30, 1998 and
1999 was $105,000, $2,438,000, $1,751,000, and $7,922,000, respectively.
F-14
<PAGE>
Interspeed, Inc.
Notes to the Financial Statements (Continued)
(Information for the Nine Months Ended June 30, 1998 is Unaudited)
9. Related Party Transactions (continued)
The following is an analysis of the intercompany accounts:
<TABLE>
<CAPTION>
Period October 23,1996
(inception) to Year ended Nine months ended Nine months ended
September 30, 1997 September 30, 1998 June 30, 1998 June 30, 1999
---------------------- ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Beginning Balance................. $ 0 $ (206) $ (206) $ (5,038)
Expenses allocated from Parent.... (165) (668) (269) (749)
Cash Transfers.................... (694) (3,775) (1,375) (4,485)
Expenses paid by Parent on behalf
of the Company................... (348) (389) (211) (615)
Capital Contribution.............. 1,001 -- -- --
------- -------- -------- ----------
Ending Balance.................... $ (206) $ (5,038) $ (2,061) $ (10,887)
------- -------- -------- ----------
------- -------- -------- ----------
</TABLE>
The Company and Brooktrout have entered into a Transition Services Agreement
(the "Agreement") which outlines certain services that will continue to be
performed on behalf of the Company by Brooktrout for a specified period of time.
The Agreement calls for these services to be phased out over a period beginning
October 1999 to December 1999. The services called for in the Agreement include
payroll processing and administration, human resources, benefits, marketing,
information technology and telecommunications, accounts receivable, accounting
and finance and order entry.
F-15
<PAGE>
3,500,000 Shares
INTERSPEED, INC.
Common Stock
[LOGO]
--------------
PROSPECTUS
--------------
Until , 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 dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
U.S. Bancorp Piper Jaffray
Warburg Dillon Read LLC
Tucker Anthony Cleary Gull
DLJDIRECT Inc.
, 1999
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the expenses payable by us in connection with the
offering (excluding underwriting discounts and commissions):
<TABLE>
<CAPTION>
Nature of Expense Amount
- -------------------------------------------------------------------------------------------- ----------
<S> <C>
SEC Registration Fee........................................................................ $ 13,900
NASD Filing Fee............................................................................. 5,500
Nasdaq National Market Listing Fee.......................................................... 50,000
Accounting Fees and Expenses................................................................ 325,000
Legal Fees and Expenses..................................................................... 350,000
Printing Expenses........................................................................... 125,000
Blue Sky Qualification Fees and Expenses.................................................... 15,000
Transfer Agent's Fee........................................................................ 12,000
Miscellaneous............................................................................... 75,000
TOTAL................................................................................... $ 971,400
----------
----------
</TABLE>
The amounts set forth above, except for the Securities and Exchange Commission
and National Association of Securities Dealers, Inc. are in each case estimated.
- ------------------------------------
* To be completed by amendment.
Item 14. Indemnification of Directors and Officers
In accordance with Section 145 of the Delaware General Corporation Law, Article
VII of our amended and restated certificate of incorporation provides that no
director of Interspeed be personally liable to Interspeed or its stockholders
for monetary damages for breach of fiduciary duty as a director, except for
liability (1) for any breach of the director's duty of loyalty to Interspeed or
its stockholders, (2) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (3) in respect of unlawful
dividend payments or stock redemptions or repurchases, or (4) for any
transaction from which the director derived an improper personal benefit. In
addition, our amended and restated certificate of incorporation provides that if
the Delaware General Corporation Law is amended to authorize the further
elimination or limitation of the liability of directors, then the liability of a
director of the corporation shall be eliminated or limited to the fullest extent
permitted by the Delaware General Corporation Law, as so amended.
Article V of our amended and restated by-laws provides for indemnification by
Interspeed of its officers, directors and certain non-officer employees under
certain circumstances against expenses, including attorneys fees, judgments,
fines and amounts paid in settlement, reasonably incurred in connection with the
defense or settlement of any threatened, pending or completed legal proceeding
in which any such person is involved by reason of the fact that such person is
or was an officer, director or employee of the registrant if such person acted
in good faith and in a manner he or she reasonably believed to be in or not
opposed to the best interests of Interspeed, and, with respect to criminal
actions or proceedings, if such person had no reasonable cause to believe his or
her conduct was unlawful. We have also obtained directors' and officers'
insurance against certain liabilities.
II-1
<PAGE>
The Stockholder Rights Agreement, filed as Exhibit 10.6 hereto, provides for
Interspeed to indemnify Brooktrout against claims and liabilities, including
claims and liabilities arising under the securities laws.
Under Section 6 of the Underwriting Agreement filed as Exhibit 1.1 hereto, the
underwriters have agreed to indemnify, under certain conditions, Interspeed, its
directors, certain officers and persons who control Interspeed within the
meaning of the Securities Act against certain liabilities.
Item 15. Recent Sales of Unregistered Securities
Set forth in chronological order below is information regarding the number of
shares of capital stock issued by Interspeed during the past three years.
Further included is the consideration, if any, received by Interspeed for such
shares. We believe that the transactions described below with respect to option
grants to our employees were exempt from the registration requirements of the
Securities Act by reason of Rule 701 promulgated thereunder.
(1) In October, 1996, we sold 400 shares to Brooktrout, Inc. for an aggregate
purchase price of $1,000.00 in reliance upon the exemption from registration
under section 4(2) of the Securities Act.
(2) In April, 1997, we sold 7,999,600 shares to Brooktrout, Inc. for an
aggregate purchase price of $999,950.00 in the form of a promisory note in
the amount of $712,387.21 and by cancellation of our obligations with
respect to advances previously given in the aggregate amount of $287,562.79
in reliance upon the exemption from registration under section 4(2) of the
Securities Act.
(3) In April, 1997, pursuant to an incentive stock option agreement, we granted
options to purchase up to an aggregate of 400,000 shares of common stock to
an employee at an exercise price of $.13 per share in reliance upon the
exemption from registration under Rule 701 promulgated under the Securities
Act.
(4) In May, 1997, pursuant to incentive stock option agreements, we granted
options to purchase up to an aggregate of 180,000 shares of common stock to
employees at an exercise price of $.13 per share in reliance upon the
exemption from registration under Rule 701 promulgated under the Securities
Act.
(5) In June, 1997, pursuant to incentive stock option agreements, we granted
options to purchase up to an aggregate of 120,000 shares of common stock to
employees at an exercise price of $.13 per share in reliance upon the
exemption from registration under Rule 701 promulgated under the Securities
Act.
(6) In July, 1997, pursuant to incentive stock option agreements, we granted
options to purchase up to an aggregate of 262,400 shares of common stock to
employees at an exercise price of $.13 per share in reliance upon the
exemption from registration under Rule 701 promulgated under the Securities
Act.
(7) In December, 1997, pursuant to incentive stock option agreements, we granted
options to purchase up to an aggregate of 60,000 shares of common stock to
employees at an exercise price of $.13 per share in reliance upon the
exemption from registration under Rule 701 promulgated under the Securities
Act.
(8) In February, 1998, pursuant to incentive stock option agreements, we granted
options to purchase up to an aggregate of 122,000 shares of common stock to
employees at an exercise price of $.13 per share in reliance upon the
exemption from registration under Rule 701 promulgated under the Securities
Act.
(9) In April, 1998, pursuant to incentive stock option agreements, we granted
options to purchase up to an aggregate of 24,000 shares of common stock to
employees at an exercise price of $.13 per share
II-2
<PAGE>
in reliance upon the exemption from registration under Rule 701 promulgated
under the Securities Act.
(10) In May, 1998, pursuant to incentive stock option agreements, we granted
options to purchase up to an aggregate of 13,600 shares of common stock to
employees at an exercise price of $.13 per share in reliance upon the
exemption from registration under Rule 701 promulgated under the Securities
Act.
(11) In June, 1998, pursuant to incentive stock option agreements, we granted
options to purchase up to an aggregate of 52,000 shares of common stock to
employees at an exercise price of $.13 per share in reliance upon the
exemption from registration under Rule 701 promulgated under the Securities
Act.
(12) In July, 1998, pursuant to incentive stock option agreements, we granted
options to purchase up to an aggregate of 44,000 shares of common stock to
employees at an exercise price of $.13 per share in reliance upon the
exemption from registration under Rule 701 promulgated under the Securities
Act.
(13) In August, 1998, pursuant to incentive stock option agreements, we granted
options to purchase up to an aggregate of 54,000 shares of common stock to
employees at an exercise price of $.13 per share in reliance upon the
exemption from registration under Rule 701 promulgated under the Securities
Act.
(14) In September, 1998, pursuant to incentive stock option agreements, we
granted options to purchase up to an aggregate of 12,000 shares of common
stock to employees at an exercise price of $.13 per share in reliance upon
the exemption from registration under Rule 701 promulgated under the
Securities Act.
(15) In October, 1998, pursuant to incentive stock option agreements, we granted
options to purchase up to an aggregate of 36,000 shares of common stock to
employees at an exercise price of $.13 per share in reliance upon the
exemption from registration under Rule 701 promulgated under the Securities
Act.
(16) In December, 1998, pursuant to incentive stock option agreements, we
granted options to purchase up to an aggregate of 68,000 shares of common
stock to employees at an exercise price of $.13 per share in reliance upon
the exemption from registration under Rule 701 promulgated under the
Securities Act.
(17) In January, 1999, pursuant to incentive stock option agreements, we granted
options to purchase up to an aggregate of 20,000 shares of common stock to
employees at an exercise price of $.13 per share in reliance upon the
exemption from registration under Rule 701 promulgated under the Securities
Act.
(18) In February, 1999, pursuant to incentive stock option agreements, we
granted options to purchase up to an aggregate of 26,000 shares of common
stock to employees at an exercise price of $.13 per share in reliance upon
the exemption from registration under Rule 701 promulgated under the
Securities Act.
(19) In March, 1999, pursuant to an incentive stock option agreement, we granted
options to purchase up to an aggregate of 20,000 shares of common stock to
employees at an exercise price of $.67 per share in reliance upon the
exemption from registration under Rule 701 promulgated under the Securities
Act.
(20) In April, 1999, pursuant to incentive stock option agreements, we granted
options to purchase up to an aggregate of 20,000 shares of common stock to
employees at an exercise price of $.80 per share
II-3
<PAGE>
in reliance upon the exemption from registration under Rule 701 promulgated
under the Securities Act.
(21) In May, 1999, pursuant to incentive stock option agreements, we granted
options to purchase up to an aggregate of 147,000 shares of common stock to
employees at an exercise price of $.80 per share and pursuant to a
non-qualified stock option agreement, options to purchase up to an aggregate
of 300,000 shares of common stock to an employee at an exercise price of
$.13 per share in reliance upon the exemption from registration under Rule
701 promulgated under the Securities Act.
(22) In June, 1999, pursuant to incentive stock option agreements, we granted
options to purchase up to an aggregate of 24,000 shares of common stock to
employees at an exercise price of $.80 per share in reliance upon the
exemption from registration under Rule 701 promulgated under the Securities
Act. In addition, pursuant to non-qualified stock option agreements, we
granted options to purchase an aggregate of 80,000 shares of common stock to
directors at an exercise price of $2.50 per share and an aggregate of 75,000
shares of common stock to directors at an exercise price of $10.00 per share
in reliance upon the exemption from registration under Section 4(2) of the
Securities Act.
(23) In July, 1999, pursuant to incentive stock option agreements, we granted
options to purchase up to an aggregate of 24,000 shares of common stock to
employees at an exercise price equal to the initial public offering price in
reliance upon the exemption from registration under Rule 701 promulgated
under the Securities Act.
II-4
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<C> <S>
*1.1 Form of Underwriting Agreement.
*3.1 Certificate of Incorporation.
*3.2 Amended and Restated Certificate of Incorporation to be filed with the Secretary of
State of the State of Delaware upon effectiveness of this registration statement.
*3.3 By-laws.
*3.4 Amended and Restated By-laws to be effective upon effectiveness of this
registration statement.
**4.1 Specimen certificate for shares of common stock, $.01 par value per share.
**5.1 Opinion of Goodwin, Procter & Hoar LLP as to the legality of the securities being
offered.
+10.1 1997 Stock Option Plan
*10.2 1999 Stock Option and Grant Plan.
*10.3 Employee Stock Purchase Plan.
***10.4 Transition Services Agreement, dated as of , 1999, by and between
Interspeed and Brooktrout, Inc.
***10.5 Authorized Reseller Agreement, dated as of May , 1999, by and between Interspeed
and Cabletron Systems, Inc.
*10.6 Stockholder Rights Agreement, dated as of August 9, 1999, by and between Interspeed
and Brooktrout, Inc.
+10.7 Capitalization Agreement, dated June 17, 1999, by and between Interspeed and
Brooktrout, Inc.
*10.8 Capitalization Agreement, dated July 23, 1999, by and between Interspeed and
Brooktrout, Inc.
**11.1 Statement regarding computation of income per common share.
**23.1 Consent of Goodwin, Procter & Hoar LLP (included in Exhibit 5.1 hereto).
*23.2 Consent of Deloitte & Touche LLP.
+24.1 Powers of Attorney.
+27.1 Financial Data Schedule.
- ------------------------------------
* Filed herewith
** To be filed by amendment to this registration statement.
*** Portions of these exhibits have been omitted pursuant to a request for confidential
treatment.
+ Previously filed.
</TABLE>
II-5
<PAGE>
(b) Financial Statement Schedules
All schedules have been omitted because they are not required or because the
required information is given in the Financial Statements or Notes to those
statements.
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 for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, 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 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 such
director, officer or controlling person in connection with the securities being
registered, 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 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 of 1933,
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 of
1933, 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-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Amendment No. 2 to Registration Statement File No. 333-81071 to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
Town of North Andover, Commonwealth of Massachusetts, on August 11, 1999.
INTERSPEED, INC.
BY: /S/ STEPHEN A. IDE
-----------------------------------------
Stephen A. Ide
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 2
to the Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
Signature Title Date
- ------------------------------ --------------------------- -------------------
/s/ STEPHEN A. IDE President and Director
- ------------------------------ (Principal Executive August 11, 1999
Stephen A. Ide Officer)
Chief Technology Officer,
* Senior Vice
- ------------------------------ President-Research and August 11, 1999
Rajeev Agarwal Development and Director
Chief Financial Officer,
Senior Vice
* President-Finance, and
- ------------------------------ Treasurer (Principal August 11, 1999
William J. Burke Financial and Accounting
Officer)
* Director
- ------------------------------ August 11, 1999
Eric R. Giler
* Director
- ------------------------------ August 11, 1999
Robert G. Barrett
* Director
- ------------------------------ August 11, 1999
Paul J. Severino
*By: /s/ STEPHEN A. IDE
----------------------------------
Attorney-in-Fact
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
*1.1 Form of Underwriting Agreement.
*3.1 Certificate of Incorporation.
*3.2 Amended and Restated Certificate of Incorporation to be filed with the Secretary of
State of the State of Delaware upon effectiveness of this registration statement.
*3.3 By-laws.
*3.4 Amended and Restated By-laws to be effective upon effectiveness of this
registration statement.
**4.1 Specimen certificate for shares of common stock, $.01 par value per share.
**5.1 Opinion of Goodwin, Procter & Hoar LLP as to the legality of the securities being
offered.
+10.1 1997 Stock Option Plan
*10.2 1999 Stock Option and Grant Plan.
*10.3 Employee Stock Purchase Plan.
***10.4 Transition Services Agreement, dated as of , 1999, by and between
Interspeed and Brooktrout, Inc.
***10.5 Authorized Reseller Agreement, dated as of May , 1999, by and between Interspeed
and Cabletron Systems, Inc.
*10.6 Stockholder Rights Agreement, dated as of August 9, 1999, by and between Interspeed
and Brooktrout, Inc.
+10.7 Capitalization Agreement, dated June 17, 1999, by and between Interspeed and
Brooktrout, Inc.
*10.8 Capitalization Agreement, dated July 23, 1999, by and between Interspeed and
Brooktrout, Inc.
**11.1 Statement regarding computation of income per common share.
**23.1 Consent of Goodwin, Procter & Hoar LLP (included in Exhibit 5.1 hereto).
*23.2 Consent of Deloitte & Touche LLP.
+24.1 Powers of Attorney.
+27.1 Financial Data Schedule.
- ------------------------------------
* Filed herewith.
** To be filed by amendment to this registration statement.
*** Portions of these exhibits have been omitted pursuant to a request for confidential
treatment.
+ Previously filed.
</TABLE>
<PAGE>
3,500,000 SHARES(1)
INTERSPEED, INC.
COMMON STOCK
FORM OF
PURCHASE AGREEMENT
September __, 1999
U.S. BANCORP PIPER JAFFRAY INC.
WARBURG DILLON READ LLC
TUCKER ANTHONY CLEARY GULL
DLJDIRECT Inc.
As Representatives of the several
Underwriters named in Schedule I hereto
c/o U.S. Bancorp Piper Jaffray
Piper Jaffray Tower
222 South Ninth Street
Minneapolis, Minnesota 55402
Gentlemen:
Interspeed, Inc., a Delaware corporation (the "Company"), and Brooktrout,
Inc., a Massachusetts corporation and the principal stockholder of the Company
(the "Parent"), severally propose to sell to the several Underwriters named in
Schedule I hereto (the "Underwriters") an aggregate of 3,500,000 shares (the
"Firm Shares") of Common Stock, $.01 par value per share (the "Common Stock"),
of the Company. The Firm Shares consist of 2,000,000 authorized but unissued
shares of Common Stock to be issued and sold by the Company and 1,500,000
outstanding shares of Common Stock to be sold by the Parent. Parent has also
granted to the several Underwriters an option to purchase up to 525,000
additional shares of Common Stock on the terms and for the purposes set forth in
Section 3 hereof (the "Option Shares"). The Firm Shares and any Option Shares
purchased pursuant to this Purchase Agreement are herein collectively called the
"Securities."
The Company and the Parent hereby confirm their agreement with respect to
the sale of the Securities to the several Underwriters, for whom you are acting
as Representatives (the "Representatives").
The Company, Parent and the Underwriters further agree that of the
3,500,000 Firm Shares, up to 350,000 Firm Shares to be purchased by the
Underwriters (the "Reserved Shares") shall be reserved for sale by the
Underwriters in the manner contemplated by this paragraph, as
- --------
(1) Plus an option to purchase up to 525,000 additional shares to cover
over-allotments.
<PAGE>
Purchase Agreement - Page 2
part of the distribution of the Securities by the Underwriters, subject to the
terms of this Agreement, the applicable rules, regulations and interpretations
of the National Association of Securities Dealers, Inc. (the "NASD") and all
other applicable laws, rules and regulations. Of the Reserved Shares, (i) up to
150,000 shares of Common Stock will be reserved for issuance to certain eligible
employees and persons having business relationships with the Company and (ii) up
to 200,000 shares of Common Stock will be reserved for issuance to certain
eligible stockholders of the Parent. To the extent that such Reserved Shares are
not orally confirmed for purchase by such eligible employees, persons having
business relationships with the Company or stockholders of the Parent by the end
of the first business day after the date of this Agreement, such Reserved Shares
may be offered to the public as part of the public offering contemplated hereby.
1. REGISTRATION STATEMENT AND PROSPECTUS. A registration statement on Form
S-1 (File No. 333-81071) with respect to the Securities, including a preliminary
form of prospectus, has been prepared by the Company in conformity with the
requirements of the Securities Act of 1933, as amended (the "Act"), and the
rules and regulations ("Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") thereunder and has been filed with the Commission;
one or more amendments to such registration statement have also been so prepared
and have been, or will be, so filed; and, if the Company has elected to rely
upon Rule 462(b) of the Rules and Regulations to increase the size of the
offering registered under the Act, the Company will prepare and file with the
Commission a registration statement with respect to such increase pursuant to
Rule 462(b). Copies of such registration statement(s) and amendments and each
related preliminary prospectus have been delivered to you.
If the Company has elected not to rely upon Rule 430A of the Rules and
Regulations, the Company has prepared and will promptly file an amendment to the
registration statement and an amended prospectus (including a term sheet meeting
the requirements of Rule 434 of the Rules and Regulations). If the Company has
elected to rely upon Rule 430A of the Rules and Regulations, it will prepare and
file a prospectus (or a term sheet meeting the requirements of Rule 434)
pursuant to Rule 424(b) that discloses the information previously omitted from
the prospectus in reliance upon Rule 430A. Such registration statement as
amended at the time it is or was declared effective by the Commission, and, in
the event of any amendment thereto after the effective date and prior to the
First Closing Date (as hereinafter defined), such registration statement as so
amended (but only from and after the effectiveness of such amendment), including
a registration statement (if any) filed pursuant to Rule 462(b) of the Rules and
Regulations increasing the size of the offering registered under the Act and
information (if any) deemed to be part of the registration statement at the time
of effectiveness pursuant to Rules 430A(b) and 434(d) of the Rules and
Regulations, is hereinafter called the "Registration Statement." The prospectus
included in the Registration Statement at the time it is or was declared
effective by the Commission is hereinafter called the "Prospectus," except that
if any prospectus (including any term sheet meeting the requirements of Rule 434
of the Rules and Regulations provided by the Company for use with a prospectus
subject to completion within the meaning of Rule 434 in order to meet the
requirements of Section 10(a) of the Rules and Regulations) filed by the Company
with the Commission pursuant to Rule 424(b) (and Rule 434, if applicable) of the
Rules and Regulations or any other such prospectus provided to the Underwriters
by the Company for use in connection with the offering of the Securities
(whether or not required to be filed by the Company with the Commission pursuant
to Rule 424(b) of the Rules and
<PAGE>
Purchase Agreement - Page 3
Regulations) differs from the prospectus on file at the time the Registration
Statement is or was declared effective by the Commission, the term "Prospectus"
shall refer to such differing prospectus (including any term sheet within the
meaning of Rule 434 of the Rules and Regulations) from and after the time such
prospectus is filed with the Commission or transmitted to the Commission for
filing pursuant to such Rule 424(b) (and Rule 434, if applicable) or from and
after the time it is first provided to the Underwriters by the Company for such
use. The term "Preliminary Prospectus" as used herein means any preliminary
prospectus included in the Registration Statement prior to the time it becomes
or became effective under the Act and any prospectus subject to completion as
described in Rule 430A or 434 of the Rules and Regulations.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE PARENT.
(a) The Company and the Parent hereby, jointly and severally,
represent and warrant to, and agree with, the several Underwriters as follows:
(i) The Company has not received, nor is the Company after due
and diligent inquiry, aware of any order issued by the Commission
preventing or suspending the use of any Preliminary Prospectus. Each
Preliminary Prospectus, at the time of filing thereof, did not contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not
misleading; except that the foregoing shall not apply to statements in or
omissions from any Preliminary Prospectus in reliance upon, and in
conformity with, written information furnished to the Company by you, or by
any Underwriter through you, specifically for use in the preparation
thereof.
(ii) As of the time the Registration Statement (or any
post-effective amendment thereto, including a registration statement (if
any) filed pursuant to Rule 462(b) of the Rules and Regulations increasing
the size of the offering registered under the Act) is or was declared
effective by the Commission, upon the filing or first delivery to the
Underwriters of the Prospectus (or any supplement to the Prospectus
(including any term sheet meeting the requirements of Rule 434 of the Rules
and Regulations)) and at the First Closing Date and Second Closing Date (as
hereinafter defined), (A) the Registration Statement and Prospectus (in
each case, as so amended and/or supplemented) conformed or will conform in
all material respects to the requirements of the Act and the Rules and
Regulations, (B) the Registration Statement (as so amended) did not or will
not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and (C) the Prospectus (as so
supplemented) did not or will not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in
which they are or were made, not misleading; except that the foregoing
shall not apply to statements in or omissions from any such document in
reliance upon, and in conformity with, written information furnished to the
Company by you, or by any Underwriter through you, specifically for use in
the preparation thereof. If the Registration Statement has been declared
effective by the Commission, no stop order suspending the effectiveness of
the Registration Statement has been issued, and no
<PAGE>
Purchase Agreement - Page 4
proceeding for that purpose has been initiated or, to the Company's or
Parent's knowledge, threatened by the Commission.
(iii) The financial statements of the Company, together with the
notes thereto, set forth in the Registration Statement and Prospectus
comply in all material respects with the requirements of the Act and fairly
present the financial condition of the Company as of the dates indicated
and the results of operations and changes in cash flows for the periods
therein specified in conformity with generally accepted accounting
principles consistently applied throughout the periods involved (except as
otherwise stated therein); and the supporting schedules included in the
Registration Statement present fairly the information required to be stated
therein. No other financial statements or schedules are required to be
included in the Registration Statement or Prospectus. Deloitte & Touche
LLP, which has expressed its opinion with respect to the financial
statements and schedules filed as a part of the Registration Statement and
included in the Registration Statement and Prospectus, are independent
public accountants as required by the Act and the Rules and Regulations.
(iv) Each of the Company and its subsidiaries has been duly
organized and is validly existing as a corporation in good standing under
the laws of its jurisdiction of incorporation. Each of the Company and its
subsidiaries has full corporate power and authority to own its properties
and conduct its business as currently being carried on and as described in
the Registration Statement and Prospectus, and is duly qualified to do
business as a foreign corporation in good standing in each jurisdiction in
which it owns or leases real property or in which the conduct of its
business makes such qualification necessary and in which the failure to so
qualify would have a material adverse effect upon its business, condition
(financial or otherwise) or properties, taken as a whole.
(v) Except as disclosed in the Prospectus, subsequent to the
respective dates as of which information is given in the Registration
Statement and the Prospectus, neither the Company nor any of its
subsidiaries has incurred any material liabilities or obligations, direct
or contingent, or entered into any material transactions, or declared or
paid any dividends or made any distribution of any kind with respect to its
capital stock; there has not been any change in the capital stock (other
than a change in the number of outstanding shares of Common Stock due to
the issuance of shares upon the exercise of outstanding options or
warrants), or any material change in the short-term or long-term debt, or
any issuance of options, warrants, convertible securities or other rights
to purchase the capital stock, of the Company or any of its subsidiaries,
other that the grant of options to purchase Common Stock in the ordinary
course of business, consistent with past practice, covering not more than
_____ shares of Common Stock in the aggregate; and there has not been any
material adverse change, or any development involving a prospective
material adverse change, in the general affairs, condition (financial or
otherwise), business, key personnel, property, prospects, net worth or
results of operations of the Company and its subsidiaries, taken as a
whole.
(vi) Except as set forth in the Prospectus, there is not pending
or, to the knowledge of the Company or Parent, threatened or contemplated,
any action, suit
<PAGE>
Purchase Agreement - Page 5
or proceeding to which the Company or any of its subsidiaries is a party
before or by any court or governmental agency, authority or body, or any
arbitrator, which might result in any material adverse change in the
condition (financial or otherwise), business, prospects, net worth or
results of operations of the Company and its subsidiaries, taken as a
whole.
(vii) There are no contracts or documents of the Company or any
of its subsidiaries that are required to be filed as exhibits to the
Registration Statement by the Act or by the Rules and Regulations that have
not been so filed.
(viii) This Agreement has been duly authorized, executed and
delivered by the Company, and constitutes a valid, legal and binding
obligation of the Company, enforceable in accordance with its terms, except
as rights to indemnity hereunder may be limited by federal or state
securities laws and except as such enforceability may be limited by
bankruptcy, insolvency, reorganization or similar laws affecting the rights
of creditors generally and subject to general principles of equity. The
execution, delivery and performance of this Agreement and the consummation
of the transactions herein contemplated will not result in a breach or
violation of any of the terms and provisions of, or constitute a default
under, any statute, any agreement or instrument to which the Company is a
party or by which it is bound or to which any of its property is subject,
the Company's charter or by-laws, or any order, rule, regulation or decree
of any court or governmental agency or body having jurisdiction over the
Company or any of its properties; no consent, approval, authorization or
order of, or filing with, any court or governmental agency or body is
required for the execution, delivery and performance of this Agreement or
for the consummation of the transactions contemplated hereby, including the
issuance or sale of the Securities by the Company, except such as may be
required under the Act or state securities or blue sky laws; and the
Company has full power and authority to enter into this Agreement and to
authorize, issue and sell the Securities as contemplated by this Agreement.
(ix) All of the issued and outstanding shares of capital stock of
the Company, including the outstanding shares of Common Stock, are duly
authorized and validly issued, fully paid and nonassessable, have been
issued in compliance with all federal and state securities laws, were not
issued in violation of or subject to any preemptive rights or other rights
to subscribe for or purchase securities, and the holders thereof are not
subject to personal liability by reason of being such holders; the
Securities which may be sold hereunder by the Company have been duly
authorized and, when issued, delivered and paid for in accordance with the
terms hereof, will have been validly issued and will be fully paid and
nonassessable, and the holders thereof will not be subject to personal
liability by reason of being such holders; and the capital stock of the
Company, including the Common Stock, conforms to the description thereof in
the Registration Statement and Prospectus. Except as otherwise stated in
the Registration Statement and Prospectus, there are no preemptive rights
or other rights to subscribe for or to purchase, or any restriction upon
the voting or transfer of, any shares of Common Stock pursuant to the
Company's charter, by-laws or any agreement or other instrument to which
the Company is a party or by which the Company is bound. Except for the
registration rights of Parent described in the Prospectus, neither the
filing of the Registration Statement nor the offering or sale of the
Securities as contemplated by this Agreement gives rise to any rights for
or relating to the registration of any shares of
<PAGE>
Purchase Agreement - Page 6
Common Stock or other securities of the Company. All of the issued and
outstanding shares of capital stock of each of the Company's subsidiaries
have been duly and validly authorized and issued and are fully paid and
nonassessable, and the Company owns of record and beneficially, free and
clear of any security interests, claims, liens, proxies, equities or other
encumbrances, all of the issued and outstanding shares of such stock.
Except as described in the Registration Statement and the Prospectus, there
are no options, warrants, agreements, contracts or other rights in
existence to purchase or acquire from the Company or any subsidiary of the
Company any shares of the capital stock of the Company or any subsidiary of
the Company. The Company has an authorized and outstanding capitalization
as set forth in the Registration Statement and the Prospectus.
(x) The Company and each of its subsidiaries holds, and is
operating in compliance in all material respects with, all franchises,
grants, authorizations, licenses, permits, easements, consents,
certificates and orders of any governmental or self-regulatory body
required for the conduct of its business and all such franchises, grants,
authorizations, licenses, permits, easements, consents, certifications and
orders are valid and in full force and effect; and the Company and each of
its subsidiaries is in compliance in all material respects with all
applicable federal, state, local and foreign laws, regulations, orders and
decrees.
(xi) The Company and its subsidiaries have good and marketable
title to all property described in the Registration Statement and
Prospectus as being owned by them, in each case free and clear of all
liens, claims, security interests or other encumbrances except such as are
described in the Registration Statement and the Prospectus; the property
held under lease by the Company and its subsidiaries is held by them under
valid, subsisting and enforceable leases with only such exceptions with
respect to any particular lease as do not interfere in any material respect
with the conduct of the business of the Company or its subsidiaries; the
Company and each of its subsidiaries owns or possesses all patents, patent
applications, trademarks, service marks, tradenames, trademark
registrations, service mark registrations, copyrights, licenses,
inventions, trade secrets and rights necessary for the conduct of the
business of the Company and its subsidiaries as currently carried on and as
described in the Registration Statement and Prospectus, except where the
failure to so own or possess such right would not have a material adverse
effect on the business, condition (financial or otherwise), prospects, net
worth or results of operations of the Company and its subsidiaries, taken
as a whole; except as stated in the Registration Statement and Prospectus,
to the knowledge of the Company, no name which the Company or any of its
subsidiaries uses and no other aspect of the business of the Company or any
of its subsidiaries will involve or give rise to any infringement of, or
license or similar fees for, any patents, patent applications, trademarks,
service marks, tradenames, trademark registrations, service mark
registrations, copyrights, licenses, inventions, trade secrets or other
similar rights of others material to the business or prospects of the
Company, and the Company, Parent and their respective subsidiaries have not
received any notice alleging any such infringement or fee, except for such
allegations which, if true, would not have a material adverse effect upon
the business, condition (financial or otherwise) prospects, net worth, or
results of operations of the Company and its subsidiaries, taken as a
whole.
<PAGE>
Purchase Agreement - Page 7
(xii) Neither the Company nor any of its subsidiaries is in
violation of its respective charter or by-laws or in breach of or otherwise
in default in the performance of any material obligation, agreement or
condition contained in any bond, debenture, note, indenture, loan agreement
or any other material contract, lease or other instrument to which it is
subject or by which any of them may be bound, or to which any of the
material property or assets of the Company or any of its subsidiaries is
subject.
(xiii) The Company and its subsidiaries have filed all federal,
state, local and foreign income and franchise tax returns required to be
filed and are not in default in the payment of any taxes which were payable
pursuant to said returns or any assessments with respect thereto, other
than any which the Company or any of its subsidiaries is contesting in good
faith.
(xiv) The Company has not distributed and will not distribute any
prospectus or other offering material in connection with the offering and
sale of the Securities other than any Preliminary Prospectus or the
Prospectus or other materials permitted by the Act to be distributed by the
Company.
(xv) The Securities have been conditionally approved for
quotation on the Nasdaq National Market and, on the date the Registration
Statement became or becomes effective, the Company's Registration Statement
on Form 8-A or other applicable form under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), became or will become effective.
(xvi) Other than the subsidiaries of the Company listed in
Exhibit 21 to the Registration Statement, the Company owns no capital stock
or other equity or ownership or proprietary interest in any corporation,
partnership, association, trust or other entity.
(xvii) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions
are executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets; (iii)
access to assets is permitted only in accordance with management's general
or specific authorization; and (iv) the recorded accountability for assets
is compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(xviii) Other than as contemplated by this Agreement, the Company
has not incurred any liability for any finder's or broker's fee or agent's
commission in connection with the execution and delivery of this Agreement
or the consummation of the transactions contemplated hereby.
(xix) Neither the Company nor any of its affiliates is presently
doing business with the government of Cuba or with any person or affiliate
located in Cuba.
<PAGE>
Purchase Agreement - Page 8
(b) In addition to the representations and warranties made by Parent
in subsection (a) hereof, the Parent hereby represents and warrants to, and
agrees with, the several Underwriters as follows:
(i) Parent has been duly organized and is validly existing as a
corporation in good standing under the laws of its jurisdiction of
incorporation. Parent has full corporate power and authority to own its
properties and conduct its business as currently conducted, and is duly
qualified to do business as a foreign corporation in good standing in each
jurisdiction in which it owns or leases real property or in which the
conduct of its business makes such qualification necessary and in which the
failure to so qualify would have a material adverse effect upon its
business, condition (financial or otherwise) or properties, taken as a
whole.
(ii) There has not been any material adverse change, or any
development involving a prospective material adverse change, in the
condition (financial or otherwise), management, business prospects, net
worth, or results of operations of Parent and its subsidiaries, taken as a
whole from the date as of which information is given in the most recent
quarterly or annual report filed by Parent pursuant to the Exchange Act
which change or development would reasonably be expected to have a material
adverse effect upon the business, condition (financial or otherwise),
prospects, net worth, or results of operations of the Company and its
subsidiaries, taken as a whole.
(iii) The most recent Annual Report on Form 10-K of Parent and
any subsequent reports filed pursuant to the Exchange Act complied as of
the date thereof in all material respects with the Exchange Act and the
rules and regulations thereunder.
(iv) Parent is the record and beneficial owner of, and has, and
on the First Closing Date and/or the Second Closing Date, as the case may
be, will have, valid and marketable title to the Securities to be sold by
it, free and clear of all security interests, claims, liens, restrictions
on transferability, legends, proxies, equities or other encumbrances, other
than the rights of the Underwriters under this Agreement; and upon delivery
of and payment for such Securities hereunder, the several Underwriters will
acquire valid and marketable title thereto, free and clear of any security
interests, claims, liens, restrictions on transferability, legends,
proxies, equities or other encumbrances. Parent is selling the Securities
to be sold by it for Parent's own account and is not selling such
Securities, directly or indirectly, for the benefit of the Company, and no
part of the proceeds of such sale received by Parent will inure, either
directly or indirectly, to the benefit of the Company other than as
described in the Registration Statement and Prospectus.
(v) This Agreement has been duly authorized, executed and
delivered by Parent and constitutes a valid and binding agreement of
Parent, enforceable in accordance with its terms, except as rights to
indemnity hereunder or thereunder may be limited by federal or state
securities laws and except as such enforceability may be limited by
bankruptcy, insolvency, reorganization or laws affecting the rights of
creditors generally and subject to general principles of equity. The
execution and delivery of this Agreement and the performance of the terms
hereof and the consummation of the transactions herein
<PAGE>
Purchase Agreement - Page 9
contemplated will not result in a breach or violation of any of the terms
and provisions of, or constitute a default under, any agreement or
instrument to which the Parent is a party or by which Parent is bound, or
any law, regulation, order or decree applicable to Parent; no consent,
approval, authorization or order of, or filing with, any court or
governmental agency or body is required for the execution, delivery and
performance of this Agreement or for the consummation of the transactions
contemplated hereby, including the sale of the Securities being sold by
Parent, except such as may be required under the Act or state securities
laws or blue sky laws; and the Parent has full power and authority to enter
into this Agreement and to sell the Securities to be sold by it as
contemplated by this Agreement.
(vi) Parent has not distributed and will not distribute any
prospectus or other offering material in connection with the offering and
sale of the Securities other than any Preliminary Prospectus or the
Prospectus or other materials permitted by the Act to be distributed by
Parent.
(c) Any certificate signed by any officer of the Company or Parent and
delivered to you or to counsel for the Underwriters shall be deemed a joint and
several representation and warranty by the Company and the Parent to each
Underwriter as to the matters covered thereby.
3. PURCHASE, SALE AND DELIVERY OF SECURITIES.
(a) On the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth, the
Company agrees to issue and sell 2,000,000 Firm Shares and Parent agrees to sell
1,500,000 Firm Shares, to the several Underwriters, and each Underwriter agrees,
severally and not jointly, to purchase from the Company and Parent the number of
Firm Shares set forth opposite the name of such Underwriter in Schedule I
hereto. The purchase price for each Firm Share shall be $ . The obligation of
each Underwriter to each of the Company and the Parent shall be to purchase from
each of the Company and the Parent that number of Firm Shares (to be adjusted by
the Representatives to avoid fractional shares) which represents the same
proportion of the number of Firm Shares to be sold by each of the Company and
the Parent pursuant to this Agreement as the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule I hereto represents to the
total number of Firm Shares to be purchased by all Underwriters pursuant to this
Agreement. In making this Agreement, each Underwriter is contracting severally
and not jointly; except as provided in paragraph (c) of this Section 3 and in
Section 8 hereof, the agreement of each Underwriter is to purchase only the
respective number of Firm Shares specified in Schedule I.
The Firm Shares will be delivered by the Company and the Parent to you
for the accounts of the several Underwriters against payment of the purchase
price therefor by certified or official bank check or other next day funds
payable to the order of the Company and the Parent, as appropriate, at the
offices of U.S. Bancorp Piper Jaffray, Piper Jaffray Tower, 222 South Ninth
Street, Minneapolis, Minnesota, or such other location as may be mutually
acceptable, at 9:00 a.m. Central time on the third (or if the Securities are
priced, as contemplated by Rule 15c6-1(c) under the Exchange Act, after 4:30
p.m. Eastern time, the fourth) full business day following the date hereof, or
at such other time and date as you and the Company determine pursuant to Rule
15c6-
<PAGE>
Purchase Agreement - Page 10
1(a) under the Exchange Act, such time and date of delivery being herein
referred to as the "First Closing Date." If the Representatives so elect,
delivery of the Firm Shares may be made by credit through full fast transfer to
the accounts at The Depository Trust Company designated by the Representatives.
Certificates representing the Firm Shares, in definitive form and in such
denominations and registered in such names as you may request upon at least two
business days' prior notice to the Company and the Parent, will be made
available for checking and packaging not later than 10:30 a.m., Central time, on
the business day next preceding the First Closing Date at the offices of U.S.
Bancorp Piper Jaffray, Piper Jaffray Tower, 222 South Ninth Street, Minneapolis,
Minnesota, or such other location as may be mutually acceptable.
(b) On the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth,
Parent hereby grants to the several Underwriters an option to purchase all or
any portion of the Option Shares at the same purchase price as the Firm Shares,
for use solely in covering any over-allotments made by the Underwriters in the
sale and distribution of the Firm Shares. The option granted hereunder may be
exercised at any time (but not more than once) within 30 days after the
effective date of this Agreement upon notice (confirmed in writing) by the
Representatives to the Company and to the Parent setting forth the aggregate
number of Option Shares as to which the several Underwriters are exercising the
option, the names and denominations in which the certificates for the Option
Shares are to be registered and the date and time, as determined by you, when
the Option Shares are to be delivered, such time and date being herein referred
to as the "Second Closing" and "Second Closing Date," respectively; PROVIDED,
HOWEVER, that the Second Closing Date shall not be earlier than the First
Closing Date nor earlier than the second business day after the date on which
the option shall have been exercised. The number of Option Shares to be
purchased by each Underwriter shall be the same percentage of the total number
of Option Shares to be purchased by the several Underwriters as the number of
Firm Shares to be purchased by such Underwriter is of the total number of Firm
Shares to be purchased by the several Underwriters, as adjusted by the
Representatives in such manner as the Representatives deem advisable to avoid
fractional shares. No Option Shares shall be sold and delivered unless the Firm
Shares previously have been, or simultaneously are, sold and delivered.
The Option Shares will be delivered by the Parent to you for the
accounts of the several Underwriters against payment of the purchase price
therefor by certified or official bank check or other next day funds payable to
the order of the Parent at the offices of U.S. Bancorp Piper Jaffray, Piper
Jaffray Tower, 222 South Ninth Street, Minneapolis, Minnesota, or such other
location as may be mutually acceptable at 9:00 a.m., Central time, on the Second
Closing Date. If the Representatives so elect, delivery of the Option Shares may
be made by credit through full fast transfer to the accounts at The Depository
Trust Company designated by the Representatives. Certificates representing the
Option Shares in definitive form and in such denominations and registered in
such names as you have set forth in your notice of option exercise, will be made
available for checking and packaging not later than 10:30 a.m., Central time, on
the business day next preceding the Second Closing Date at the office of U.S.
Bancorp Piper Jaffray, Piper Jaffray Tower, 222 South Ninth Street, Minneapolis,
Minnesota, or such other location as may be mutually acceptable.
<PAGE>
Purchase Agreement - Page 11
(c) It is understood that you, individually and not as Representatives
of the several Underwriters, may (but shall not be obligated to) make payment to
the Company or the Parent, on behalf of any Underwriter for the Securities to be
purchased by such Underwriter. Any such payment by you shall not relieve any
such Underwriter of any of its obligations hereunder. Nothing herein contained
shall constitute any of the Underwriters an unincorporated association or
partner with the Company or the Parent.
4. COVENANTS.
(a) The Company and Parent hereby, jointly and severally, covenant and
agree with the several Underwriters as follows:
(i) If the Registration Statement has not already been declared
effective by the Commission, the Company will use its best efforts to cause
the Registration Statement and any post-effective amendments thereto to
become effective as promptly as possible; the Company will notify you
promptly of the time when the Registration Statement or any post-effective
amendment to the Registration Statement has become effective or any
supplement to the Prospectus (including any term sheet within the meaning
of Rule 434 of the Rules and Regulations) has been filed and of any request
by the Commission for any amendment or supplement to the Registration
Statement or Prospectus or additional information; if the Company has
elected to rely on Rule 430A of the Rules and Regulations, the Company will
prepare and file a Prospectus (or term sheet within the meaning of Rule 434
of the Rules and Regulations) containing the information omitted therefrom
pursuant to Rule 430A of the Rules and Regulations with the Commission
within the time period required by, and otherwise in accordance with the
provisions of, Rules 424(b), 430A and 434, if applicable, of the Rules and
Regulations; if the Company has elected to rely upon Rule 462(b) of the
Rules and Regulations to increase the size of the offering registered under
the Act, the Company will prepare and file a registration statement with
respect to such increase with the Commission within the time period
required by, and otherwise in accordance with the provisions of, Rule
462(b); the Company will prepare and file with the Commission, promptly
upon your request, any amendments or supplements to the Registration
Statement or Prospectus (including any term sheet within the meaning of
Rule 434 of the Rules and Regulations) that, in your opinion, may be
necessary or advisable in connection with the distribution of the
Securities by the Underwriters; and the Company will not file any amendment
or supplement to the Registration Statement or Prospectus (including any
term sheet within the meaning of Rule 434 of the Rules and Regulations) to
which you shall reasonably object by notice to the Company after having
been furnished a copy a reasonable time prior to the filing.
(ii) The Company will advise you, promptly after it shall receive
notice or obtain knowledge thereof, of the issuance by the Commission of
any stop order suspending the effectiveness of the Registration Statement,
of the suspension of the qualification of the Securities for offering or
sale in any jurisdiction, or of the initiation or threatening of any
proceeding for any such purpose; and the Company will promptly use its best
efforts to prevent the issuance of any stop order or to obtain its
withdrawal if such a stop order should be issued.
<PAGE>
Purchase Agreement - Page 12
(iii) Within the time during which a prospectus (including any
term sheet within the meaning of Rule 434 of the Rules and Regulations)
relating to the Securities is required to be delivered under the Act, the
Company will comply as far as it is able with all requirements imposed upon
it by the Act, as now and hereafter amended, and by the Rules and
Regulations, as from time to time in force, so far as necessary to permit
the continuance of sales of or dealings in the Securities as contemplated
by the provisions hereof and the Prospectus. If during such period any
event occurs as a result of which the Prospectus would include an untrue
statement of a material fact or omit to state a material fact necessary to
make the statements therein, in the light of the circumstances then
existing, not misleading, or if during such period it is necessary to amend
the Registration Statement or supplement the Prospectus to comply with the
Act, the Company will promptly notify you and will amend the Registration
Statement or supplement the Prospectus (at the expense of the Company) so
as to correct such statement or omission or effect such compliance.
(iv) The Company will use its best efforts to qualify the
Securities for sale under the securities laws of such jurisdictions as you
reasonably designate and to continue such qualifications in effect so long
as required for the distribution of the Securities, except that the Company
shall not be required in connection therewith to qualify as a foreign
corporation or to execute a general consent to service of process in any
state.
(v) The Company will furnish to the Underwriters copies of the
Registration Statement (three of which will be signed and will include all
exhibits), each Preliminary Prospectus, the Prospectus, and all amendments
and supplements (including any term sheet within the meaning of Rule 434 of
the Rules and Regulations) to such documents, in each case as soon as
available and in such quantities as you may from time to time reasonably
request.
(vi) During a period of three years commencing with the date
hereof, the Company will furnish to the Representatives, and to each
Underwriter who may so request in writing, copies of all periodic and
special reports furnished to the stockholders of the Company and all
information, documents and reports filed with the Commission, the National
Association of Securities Dealers, Inc., Nasdaq or any securities exchange.
(vii) The Company will make generally available to its security
holders as soon as practicable, but in any event not later than 15 months
after the end of the Company's current fiscal quarter, an earnings
statement (which need not be audited) covering a 12-month period beginning
after the effective date of the Registration Statement that shall satisfy
the provisions of Section 11(a) of the Act and Rule 158 of the Rules and
Regulations.
(viii) The Company, whether or not the transactions contemplated
hereunder are consummated or this Agreement is prevented from becoming
effective under the provisions of Section 9(a) hereof or is terminated,
will pay or cause to be paid (A) all expenses (including transfer taxes
allocated to the respective transferees) incurred in connection with the
delivery to the Underwriters of the Securities, (B) all expenses and fees
(including, without limitation, fees and expenses of the Company's
accountants and counsel
<PAGE>
Purchase Agreement - Page 13
but, except as otherwise provided below, not including fees of the
Underwriters' counsel) in connection with the preparation, printing,
filing, delivery, and shipping of the Registration Statement (including the
financial statements therein and all amendments, schedules, and exhibits
thereto), the Securities, each Preliminary Prospectus, the Prospectus, and
any amendment thereof or supplement thereto, and the printing, delivery,
and shipping of this Agreement and other underwriting documents, including
Blue Sky Memoranda, (C) all filing fees and fees and disbursements of the
Underwriters' counsel incurred in connection with the qualification of the
Securities for offering and sale by the Underwriters or by dealers under
the securities or blue sky laws of the states and other jurisdictions which
you shall designate in accordance with Section 4(d) hereof, (D) the fees
and expenses of any transfer agent or registrar, (E) the filing fees
incident to any required review by the National Association of Securities
Dealers, Inc. of the terms of the sale of the Securities, (F) listing fees,
if any, and (G) all other costs and expenses incident to the performance of
its obligations hereunder that are not otherwise specifically provided for
herein. If the sale of the Securities provided for herein is not
consummated by reason of action by the Company pursuant to Section 9(a)
hereof which prevents this Agreement from becoming effective, or by reason
of any failure, refusal or inability on the part of the Company or the
Parent to perform any agreement on its part to be performed, or because any
other condition of the Underwriters' obligations hereunder required to be
fulfilled by the Company or the Parent is not fulfilled, the Company will
reimburse the several Underwriters for all out-of-pocket disbursements
(including fees and disbursements of counsel) incurred by the Underwriters
in connection with their investigation, preparing to market and marketing
the Securities or in contemplation of performing their obligations
hereunder. The Company shall not in any event be liable to any of the
Underwriters for loss of anticipated profits from the transactions covered
by this Agreement.
(ix) The Company will apply the net proceeds from the sale of the
Securities to be sold by it hereunder for the purposes set forth in the
Prospectus and will file such reports with the Commission with respect to
the sale of the Securities and the application of the proceeds therefrom as
may be required in accordance with Rule 463 of the Rules and Regulations.
(x) For a period of 180 days after the commencement of the public
offering of the Securities by the Underwriters, the Company will not,
without your prior written consent, offer for sale, sell, contract to sell,
grant any option for the sale of or otherwise issue or dispose of any
Common Stock or any securities convertible into or exchangeable for, or any
options or rights to purchase or acquire, Common Stock, except to the
Underwriters pursuant to this Agreement and except for the grant of options
under the Company's 1999 Stock Option and Grant Plan and 1999 Employee
Stock Purchase Plan in the ordinary course of the Company's business,
consistent with past practice, and shares of Common Stock issued upon the
exercise of outstanding options granted thereunder.
(xi) The Company either has caused to be delivered to you or will
cause to be delivered to you prior to the effective date of the
Registration Statement a letter from each of the Company's directors and
officers stating that such person agrees that he or she will not, without
your prior written consent, offer for sale, sell, contract to sell or
otherwise
<PAGE>
Purchase Agreement - Page 14
dispose of any shares of Common Stock or rights to purchase Common Stock,
except to the Underwriters pursuant to this Agreement, for a period of 180
days after commencement of the public offering of the Securities by the
Underwriters.
(xii) The Company has not taken and will not take, directly or
indirectly, any action designed to or which might reasonably be expected to
cause or result in, or which has constituted, the stabilization or
manipulation of the price of any security of the Company to facilitate the
sale or resale of the Securities, and has not effected any sales of Common
Stock which are required to be disclosed in response to Item 701 of
Regulation S-K under the Act which have not been so disclosed in the
Registration Statement.
(xiii) The Company will not incur any liability for any finder's
or broker's fee or agent's commission in connection with the execution and
delivery of this Agreement or the consummation of the transactions
contemplated hereby.
(xiv) The Company will inform the Florida Department of Banking
and Finance at any time prior to the consummation of the distribution of
the Securities by the Underwriters if it commences engaging in business
with the government of Cuba or with any person or affiliate located in
Cuba. Such information will be provided within 90 days after the
commencement thereof or after a change occurs with respect to previously
reported information.
(b) In addition to the covenants of Parent set forth in subsection (a)
hereof, Parent covenants and agrees with the several Underwriters as follows:
(i) Except as otherwise agreed to by the Company and the Parent
in writing, Parent will pay all taxes, if any, on the transfer and sale,
respectively, of the Securities being sold by it, the fees of Parent's
counsel and Parent's proportionate share (based upon the number of
Securities being offered by Parent pursuant to the Registration Statement)
of all costs and expenses (except for legal and accounting expenses and
fees of the registrar and transfer agent) incurred by the Company pursuant
to the provisions of Section 4(a)(viii) of this Agreement; PROVIDED,
HOWEVER, that Parent agrees to reimburse the Company for any reimbursement
made by the Company to the Underwriters pursuant to Section 4(a)(viii)
hereof to the extent such reimbursement resulted from the failure or
refusal on the part of Parent to comply under the terms or fulfill any of
the conditions of this Agreement.
(ii) Parent will not, without your prior written consent, offer
for sale, sell, contract to sell, grant any option for the sale of or
otherwise dispose of any Common Stock or any securities convertible into or
exchangeable for, or any options or rights to purchase or acquire, Common
Stock, except to the Underwriters pursuant to this Agreement, for a period
of 180 days after the commencement of the public offering of the Securities
by the Underwriters.
(iii) Parent has not taken and will not take, directly or
indirectly, any action designed to or which might reasonably be expected to
cause or result in stabilization
<PAGE>
Purchase Agreement - Page 15
or manipulation of the price of any security of the Company to facilitate
the sale or resale of the Securities, and has not effected any sales of
Common Stock which, if effected by the Company, would be required to be
disclosed in response to Item 701 of Regulation S-K.
(iv) Parent shall immediately notify you if any event occurs, or
of any change in information relating to Parent or the Company or any new
information relating to the Company or Parent or relating to any matter
stated in the Prospectus or any supplement thereto (including any term
sheet within the meaning of Rule 434 of the Rules and Regulations), which
results in the Prospectus (as supplemented) including an untrue statement
of a material fact or omitting to state any material fact necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading.
5. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the several
Underwriters hereunder are subject to the accuracy, as of the date hereof and at
each of the First Closing Date and the Second Closing Date (as if made at such
Closing Date), of and compliance with all representations, warranties and
agreements of the Company and the Parent contained herein, to the performance by
the Company and the Parent of their respective obligations hereunder and to the
following additional conditions:
(a) The Registration Statement shall have become effective not later
than 5:00 p.m., Central time, on the date of this Agreement, or such later time
and date as you, as Representatives of the several Underwriters, shall approve
and all filings required by Rules 424, 430A and 434 of the Rules and Regulations
shall have been timely made; no stop order suspending the effectiveness of the
Registration Statement or any amendment thereof shall have been issued; no
proceedings for the issuance of such an order shall have been initiated or
threatened; and any request of the Commission for additional information (to be
included in the Registration Statement or the Prospectus or otherwise) shall
have been complied with to your satisfaction.
(b) No Underwriter shall have advised the Company that the
Registration Statement or the Prospectus, or any amendment thereof or supplement
thereto (including any term sheet within the meaning of Rule 434 of the Rules
and Regulations), contains an untrue statement of fact which, in your opinion,
is material, or omits to state a fact which, in your opinion, is material and is
required to be stated therein or necessary to make the statements therein not
misleading.
(c) Except as contemplated in the Prospectus, subsequent to the
respective dates as of which information is given in the Registration Statement
and the Prospectus, neither the Company nor any of its subsidiaries shall have
incurred any material liabilities or obligations, direct or contingent, or
entered into any material transactions, or declared or paid any dividends or
made any distribution of any kind with respect to its capital stock; there shall
not have been any change in the capital stock (other than a change in the number
of outstanding shares of Common Stock due to the issuance of shares upon the
exercise of outstanding options or warrants), or any material change in the
short-term or long-term debt of the Company, or any issuance of options,
warrants, convertible securities or other rights to purchase the capital stock
of the Company or any of its subsidiaries other than the grant of options to
purchase Common Stock in the ordinary course of business, consistent with past
practice, covering not more than ______ shares of Common Stock in
<PAGE>
Purchase Agreement - Page 16
the aggregate; and there shall not have been any material adverse change or any
development involving a prospective material adverse change (whether or not
arising in the ordinary course of business), in the general affairs, condition
(financial or otherwise), business, key personnel, property, prospects, net
worth or results of operations of the Company and its subsidiaries, taken as a
whole, that, in your judgment, makes it impractical or inadvisable to offer or
deliver the Securities on the terms and in the manner contemplated in the
Prospectus.
(d) On each Closing Date, there shall have been furnished to you, as
Representatives of the several Underwriters, the opinion of Goodwin, Procter &
Hoar LLP, counsel for the Company, dated such Closing Date and addressed to you,
to the effect that:
(i) Each of the Company and its subsidiaries has been duly
organized and is validly existing as a corporation in good standing under
the laws of its jurisdiction of incorporation. Each of the Company and its
subsidiaries has full corporate power and authority to own its properties
and conduct its business as currently being carried on and as described in
the Registration Statement and Prospectus, and is duly qualified to do
business as a foreign corporation and is in good standing in each
jurisdiction in which it owns or leases real property or in which the
conduct of its business makes such qualification necessary and in which the
failure to so qualify would have a material adverse effect upon the
business, condition (financial or otherwise) or properties of the Company
and its subsidiaries, taken as a whole.
(ii) The capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus under the
caption "Description of Capital Stock." All of the issued and outstanding
shares of the capital stock of the Company have been duly authorized and
validly issued and are fully paid and nonassessable, and the holders
thereof are not subject to personal liability by reason of being such
holders. The Securities to be issued and sold by the Company hereunder have
been duly authorized and, when issued, delivered and paid for in accordance
with the terms of this Agreement, will have been validly issued and will be
fully paid and nonassessable, and the holders thereof will not be subject
to personal liability by reason of being such holders. Except as otherwise
stated in the Registration Statement and Prospectus, there are no
preemptive rights or other rights to subscribe for or to purchase, or any
restriction upon the voting or transfer of, any shares of Common Stock
pursuant to the Company's charter, by-laws or any agreement or other
instrument known to such counsel to which the Company is a party or by
which the Company is bound. To the best of such counsel's knowledge, except
for the registration rights of Parent described in the Prospectus, neither
the filing of the Registration Statement nor the offering or sale of the
Securities as contemplated by this Agreement gives rise to any rights for
or relating to the registration of any shares of Common Stock or other
securities of the Company.
(iii) All of the issued and outstanding shares of capital stock
of each of the Company's subsidiaries have been duly and validly authorized
and issued and are fully paid and nonassessable, and, to the best of such
counsel's knowledge, except as otherwise described in the Registration
Statement and Prospectus and except for directors' qualifying shares, the
Company owns of record and beneficially, free and clear of any security
<PAGE>
Purchase Agreement - Page 17
interests, claims, liens, proxies, equities or other encumbrances, all of
the issued and outstanding shares of such stock. To the best of such
counsel's knowledge, except as described in the Registration Statement and
Prospectus, there are no options, warrants, agreements, contracts or other
rights in existence to purchase or acquire from the Company or any
subsidiary any shares of the capital stock of the Company or any subsidiary
of the Company.
(iv) The Registration Statement has become effective under the
Act and, to the best of such counsel's knowledge, no stop order suspending
the effectiveness of the Registration Statement has been issued and no
proceeding for that purpose has been instituted or, to the knowledge of
such counsel, threatened by the Commission.
(v) The descriptions in the Registration Statement and Prospectus
of statutes, legal and governmental proceedings, contracts and other
documents are accurate and fairly present the information required to be
shown; and such counsel does not know of any statutes or legal or
governmental proceedings required to be described in the Prospectus that
are not described as required, or of any contracts or documents of a
character required to be described in the Registration Statement or
Prospectus or included as exhibits to the Registration Statement that are
not described or included as required.
(vi) The Company has full corporate power and authority to enter
into this Agreement, and this Agreement has been duly authorized, executed
and delivered by the Company and constitutes a valid, legal and binding
obligation of the Company; the execution, delivery and performance of this
Agreement and the consummation of the transactions herein contemplated will
not result in a breach or violation of any of the terms and provisions of,
or constitute a default under, any statute, rule or regulation, any
agreement or instrument known to such counsel to which the Company is a
party or by which it is bound or to which any of its property is subject,
the Company's charter or by-laws, or any order or decree known to such
counsel of any court or governmental agency or body having jurisdiction
over the Company or any of its respective properties; and no consent,
approval, authorization or order of, or filing with, any court or
governmental agency or body is required for the execution, delivery and
performance of this Agreement or for the consummation of the transactions
contemplated hereby, including the issuance or sale of the Securities by
the Company, except such as may be required under the Act or state
securities laws.
(vii) To the best of such counsel's knowledge, the Company and
each of its subsidiaries holds, and is operating in compliance in all
material respects with, all franchises, grants, authorizations, licenses,
permits, easements, consents, certificates and orders of any governmental
or self-regulatory body required for the conduct of its business and all
such franchises, grants, authorizations, licenses, permits, easements,
consents, certifications and orders are valid and in full force and effect.
(viii) To the best of such counsel's knowledge, neither the
Company nor any of its subsidiaries is in violation of its respective
charter or by-laws. To the best of such counsel's knowledge, neither the
Company nor any of its subsidiaries is in breach of or
<PAGE>
Purchase Agreement - Page 18
otherwise in default in the performance of any material obligation,
agreement or condition contained in any bond, debenture, note, indenture,
loan agreement or any other material contract, lease or other instrument to
which it is subject or by which any of them may be bound, or to which any
of the material property or assets of the Company or any of its
subsidiaries is subject.
The Registration Statement and the Prospectus, and any amendment
thereof or supplement thereto (including any term sheet within the meaning
of Rule 434 of the Rules and Regulations), comply as to form in all
material respects with the requirements of the Act and the Rules and
Regulations; and on the basis of conferences with officers of the Company,
examination of documents referred to in the Registration Statement and
Prospectus and such other procedures as such counsel deemed appropriate,
nothing has come to the attention of such counsel during the course of its
representation of the Company that causes such counsel to believe that the
Registration Statement or any amendment thereof, at the time the
Registration Statement became effective and as of such Closing Date
(including any Registration Statement filed under Rule 462(b) of the Rules
and Regulations), contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or
necessary to make the statements therein not misleading or that the
Prospectus (as of its date and as of such Closing Date), as amended or
supplemented, includes any untrue statement of material fact or omits to
state a material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading; it being
understood that such counsel need express no opinion as to the financial
statements (including the notes thereto) and schedules or other financial
and statistical data included in any of the documents mentioned in this
clause.
In rendering such opinion such counsel may rely (i) as to matters of
law other than the Commonwealth of Massachusetts and federal law, upon the
opinion or opinions of local counsel provided that the extent of such reliance
is specified in such opinion and that such counsel shall state that such opinion
or opinions of local counsel are satisfactory to them and that they believe they
and you are justified in relying thereon and (ii) as to matters of fact, to the
extent such counsel deems reasonable upon certificates of officers of the
Company and its subsidiaries provided that the extent of such reliance is
specified in such opinion.
(e) On each Closing Date, there shall have been furnished to you, as
Representatives of the several Underwriters, the opinion of Goodwin, Procter &
Hoar LLP, counsel for the Parent, dated such Closing Date and addressed to you,
to the effect that:
(i) Parent has been duly organized and is validly existing as a
corporation in good standing under the laws of its jurisdiction of
incorporation. Parent has full corporate power and authority to own its
properties and conduct its business as currently conducted, and is duly
qualified to do business as a foreign corporation and is in good standing
in each jurisdiction in which it owns or leases real property or in which
the conduct of its business makes such qualification necessary and in which
the failure to so qualify would have a material adverse effect upon the
business, condition (financial or otherwise) or properties of Parent and
its subsidiaries, taken as a whole
<PAGE>
Purchase Agreement - Page 19
(ii) Parent is the sole record and beneficial owner of the
Securities to be sold by it. When the Underwriters obtain control of the
Securities to be sold by Parent, assuming that the Underwriters purchased
such Securities for value and without notice of any adverse claim to such
Securities within the meaning of Section 8-102 of the Uniform Commercial
Code as in effect in the Commonwealth of Massachusetts, the Underwriters
will have acquired all rights of the Parent in such Securities, free and
clear of any security interests, claims, liens or other encumbrances.
(iii) The Parent has full corporate power and authority to enter
into this Agreement, and this Agreement has been duly authorized, executed
and delivered by the Parent and constitutes a valid, legal and binding
obligation of the Parent; the execution, delivery and performance of this
Agreement and the consummation of the transactions herein contemplated will
not result in a breach or violation of any of the terms and provisions of,
or constitute a default under, any statute, rule or regulation, any
agreement or instrument known to such counsel to which the Parent is a
party or by which it is bound or to which any of its property is subject,
the Parent's charter or by-laws, or any order or decree known to such
counsel of any court or governmental agency or body having jurisdiction
over the Parent or any of its respective properties; and no consent,
approval, authorization or order of, or filing with, any court or
governmental agency or body is required for the execution, delivery and
performance of this Agreement or for the consummation of the transactions
contemplated hereby, including the sale of the Securities by the Parent,
except such as may be required under the Act or state securities laws.
In rendering such opinion such counsel may rely (i) as to matters of
law other than the Commonwealth of Massachusetts and federal law, upon the
opinion or opinions of local counsel provided that the extent of such reliance
is specified in such opinion and that such counsel shall state that such opinion
or opinions of local counsel are satisfactory to them and that they believe they
and you are justified in relying thereon and (ii) as to matters of fact, to the
extent such counsel deems reasonable, upon certificates of officers of the
Parent provided that the extent of such reliance is specified in such opinion.
(f) On each Closing Date, there shall have been furnished to you, as
Representatives of the several Underwriters, such opinion or opinions from
Testa, Hurwitz & Thibeault, LLP, counsel for the several Underwriters, dated
such Closing Date and addressed to you, with respect to the formation of the
Company, the validity of the Securities, the Registration Statement, the
Prospectus and other related matters as you reasonably may request, and such
counsel shall have received such papers and information as they request to
enable them to pass upon such matters.
(g) On each Closing Date you, as Representatives of the several
Underwriters, shall have received a letter of Deloitte & Touche LLP, dated such
Closing Date and addressed to you, confirming that they are independent public
accountants within the meaning of the Act and are in compliance with the
applicable requirements relating to the qualifications of accountants under Rule
2-01 of Regulation S-X of the Commission, and stating, as of the date of such
letter (or, with respect to matters involving changes or developments since the
respective dates as of which specified financial information is given in the
Prospectus, as of a date not more than five days prior
<PAGE>
Purchase Agreement - Page 20
to the date of such letter), the conclusions and findings of said firm with
respect to the financial information and other matters covered by its letter
delivered to you concurrently with the execution of this Agreement, and the
effect of the letter so to be delivered on such Closing Date shall be to confirm
the conclusions and findings set forth in such prior letter.
(h) On each Closing Date, there shall have been furnished to you, as
Representatives of the Underwriters, a certificate, dated such Closing Date and
addressed to you, signed by the chief executive officer and by the chief
financial officer of the Company, to the effect that:
(i) The representations and warranties of the Company in this
Agreement are true and correct, in all material respects, as if made at and
as of such Closing Date, and the Company has complied with all the
agreements and satisfied all the conditions on its part to be performed or
satisfied at or prior to such Closing Date;
(ii) No stop order or other order suspending the effectiveness of
the Registration Statement or any amendment thereof or the qualification of
the Securities for offering or sale has been issued, and no proceeding for
that purpose has been instituted or, to the best of their knowledge, is
contemplated by the Commission or any state or regulatory body; and
(iii) The signers of said certificate have carefully examined the
Registration Statement and the Prospectus, and any amendments thereof or
supplements thereto (including any term sheet within the meaning of Rule
434 of the Rules and Regulations), and (A) such documents contain all
statements and information required to be included therein, the
Registration Statement, or any amendment thereof, does not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading, and the Prospectus, as amended or supplemented, does not
include any untrue statement of material fact or omit to state a material
fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, (B) since the
effective date of the Registration Statement, there has occurred no event
required to be set forth in an amended or supplemented prospectus which has
not been so set forth, (C) subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus,
neither the Company nor any of its subsidiaries has incurred any material
liabilities or obligations, direct or contingent, or entered into any
material transactions, not in the ordinary course of business, or declared
or paid any dividends or made any distribution of any kind with respect to
its capital stock, and except as disclosed in the Prospectus, there has not
been any change in the capital stock (other than a change in the number of
outstanding shares of Common Stock due to the issuance of shares upon the
exercise of outstanding options or warrants), or any material change in the
short-term or long-term debt, or any issuance of options, warrants,
convertible securities or other rights to purchase the capital stock, of
the Company, or any of its subsidiaries other than the grant of options to
purchase Common Stock in the ordinary course of business consistent with
past practice, covering not more than ______ shares of Common Stock in the
aggregate; and there has not been any material adverse
<PAGE>
Purchase Agreement - Page 21
change or any development involving a prospective material adverse change
(whether or not arising in the ordinary course of business), in the general
affairs, condition (financial or otherwise), business, key personnel,
property, prospects, net worth or results of operations of the Company and
its subsidiaries, taken as a whole, and (D) except as stated in the
Registration Statement and the Prospectus, there is not pending, or, to the
knowledge of the Company, threatened or contemplated, any action, suit or
proceeding to which the Company or any of its subsidiaries is a party
before or by any court or governmental agency, authority or body, or any
arbitrator, which might result in any material adverse change in the
condition (financial or otherwise), business, prospects or results of
operations of the Company and its subsidiaries, taken as a whole.
(i) On each Closing Date, there shall have been furnished to you, as
Representatives of the several Underwriters, a certificate or certificates,
dated such Closing Date and addressed to you, signed by the chief executive
officer and by the chief financial officer of the Parent, to the effect that:
(i) The representations and warranties of Parent in this
Agreement are true and correct, in all material respects, as if made at and
as of such Closing Date, and Parent has complied with all the agreements
and satisfied all the conditions on its part to be performed or satisfied
at or prior to such Closing Date;
(ii) No stop order or other order suspending the effectiveness of
the Registration Statement or any amendment thereof or the qualification of
the Securities for offering or sale has been issued, and no proceeding for
that purpose has been instituted or, to the best of their knowledge, is
contemplated by the Commission or any state or regulatory body; and
(iii) The signers of said certificate have carefully examined the
Registration Statement and the Prospectus, and any amendments thereof or
supplements thereto (including any term sheet within the meaning of Rule
434 of the Rules and Regulations), and (A) such documents contain all
statements and information required to be included therein, the
Registration Statement, or any amendment thereof, does not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading, and the Prospectus, as amended or supplemented, does not
include any untrue statement of material fact or omit to state a material
fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, (B) since the
effective date of the Registration Statement, there has occurred no event
required to be set forth in an amended or supplemented prospectus which has
not been so set forth, (C) subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus,
neither the Company nor any of its subsidiaries has incurred any material
liabilities or obligations, direct or contingent, or entered into any
material transactions, not in the ordinary course of business, or declared
or paid any dividends or made any distribution of any kind with respect to
its capital stock, and except as disclosed in the Prospectus, there has not
been any change in the capital stock (other than a change in the number of
outstanding shares of Common Stock due to the issuance of shares upon the
exercise of outstanding options or warrants), or any material change in the
short-term or long-term debt, or any
<PAGE>
Purchase Agreement - Page 22
issuance of options, warrants, convertible securities or other rights to
purchase the capital stock, of the Company, or any of its subsidiaries
other than the grant of options to purchase Common Stock in the ordinary
course of business consistent with past practice, covering not more than
______ shares of Common Stock in the aggregate; and there has not been any
material adverse change or any development involving a prospective material
adverse change (whether or not arising in the ordinary course of business),
in the general affairs, condition (financial or otherwise), business, key
personnel, property, prospects, net worth or results of operations of the
Company and its subsidiaries, taken as a whole, and (D) except as stated in
the Registration Statement and the Prospectus, there is not pending, or, to
the knowledge of Parent, threatened or contemplated, any action, suit or
proceeding to which the Company or any of its subsidiaries is a party
before or by any court or governmental agency, authority or body, or any
arbitrator, which might result in any material adverse change in the
condition (financial or otherwise), business, prospects or results of
operations of the Company and its subsidiaries, taken as a whole.
(j) The Company shall have furnished to you and counsel for the
Underwriters such additional documents, certificates and evidence as you or they
may have reasonably requested.
(k) Prior to the commencement of the offering of the Securities, the
Securities shall have been included for trading on the Nasdaq National Market.
All such opinions, certificates, letters and other documents will be
in compliance with the provisions hereof only if they are satisfactory in form
and substance to you and counsel for the Underwriters. The Company will furnish
you with such conformed copies of such opinions, certificates, letters and other
documents as you shall reasonably request.
6. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company and Parent, jointly and severally, agree to indemnify
and hold harmless each Underwriter against any losses, claims, damages or
liabilities, joint or several, to which such Underwriter may become subject,
under the Act or otherwise (including in settlement of any litigation if such
settlement is effected with the written consent of the Company and/or Parent, as
the case may be), insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon an untrue statement
or alleged untrue statement of a material fact contained in the Registration
Statement, including the information deemed to be a part of the Registration
Statement at the time of effectiveness pursuant to Rules 430A and 434(d) of the
Rules and Regulations, if applicable, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto (including any term sheet
within the meaning of Rule 434 of the Rules and Regulations), or arise out of or
are based upon 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, and will reimburse each Underwriter for any legal or other expenses
reasonably incurred by it in connection with investigating or defending against
such loss, claim, damage, liability or action; PROVIDED, HOWEVER, that neither
the Company nor Parent shall be liable in any such case to the extent that any
such loss, claim, damage, liability or action arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in the Registration Statement, any Preliminary Prospectus, the Prospectus,
or any such amendment or
<PAGE>
Purchase Agreement - Page 23
supplement, in reliance upon and in conformity with written information
furnished to the Company by you, or by any Underwriter through you, specifically
for use in the preparation thereof.
In addition to their other obligations under this Section
6(a), the Company and Parent, jointly and severally, agree that, as an interim
measure during the pendency of any claim, action, investigation, inquiry or
other proceeding arising out of or based upon any statement or omission, or any
alleged statement or omission, described in this Section 6(a), they will
reimburse each Underwriter on a monthly basis for all reasonable legal fees or
other expenses incurred in connection with investigating or defending any such
claim, action, investigation, inquiry or other proceeding, notwithstanding the
absence of a judicial determination as to the propriety and enforceability of
the Company's and/or the Parent's obligation to reimburse the Underwriters for
such expenses and the possibility that such payments might later be held to have
been improper by a court of competent jurisdiction. To the extent that any such
interim reimbursement payment is so held to have been improper, the Underwriter
that received such payment shall promptly return it to the party or parties that
made such payment, together with interest, compounded daily, determined on the
basis of the prime rate (or other commercial lending rate for borrowers of the
highest credit standing) announced from time to time by [BANKBOSTON, N.A.] (the
"Prime Rate"). Any such interim reimbursement payments which are not made to an
Underwriter within 30 days of a request for reimbursement shall bear interest at
the Prime Rate from the date of such request. This indemnity agreement shall be
in addition to any liabilities which the Company or the Parent may otherwise
have.
(b) Each Underwriter will indemnify and hold harmless the Company and
Parent against any losses, claims, damages or liabilities to which the Company
and Parent may become subject, under the Act or otherwise (including in
settlement of any litigation, if such settlement is effected with the written
consent of such Underwriter), insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto (including any term sheet within the meaning of
Rule 434 of the Rules and Regulations), or arise out of or are based upon 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, in
each case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any such
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by you, or by such Underwriter through you,
specifically for use in the preparation thereof, and will reimburse the Company
and the Parent for any legal or other expenses reasonably incurred by the
Company or Parent in connection with investigating or defending against any such
loss, claim, damage, liability or action.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve the indemnifying party from any liability
that it may have to any indemnified party, except to the extent that the
indemnifying party clearly demonstrates that the
<PAGE>
Purchase Agreement - Page 24
defense of any such action has been materially prejudiced by the indemnified
party's failure to give such notice. In case any such action shall be brought
against any indemnified party, and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
in, and, to the extent that it shall wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, with counsel
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of the indemnifying party's election so to
assume the defense thereof, the indemnifying party shall not be liable to such
indemnified party under such subsection for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation; PROVIDED, HOWEVER, that
if, in the sole judgment of the Representatives, it is advisable for the
Underwriters to be represented as a group by separate counsel, the
Representatives shall have the right to employ a single counsel to represent the
Representatives and all Underwriters who may be subject to liability arising
from any claim in respect of which indemnity may be sought by the Underwriters
under subsection (a) of this Section 6, in which event the reasonable fees and
expenses of such separate counsel shall be borne by the indemnifying party or
parties and reimbursed to the Underwriters as incurred (in accordance with the
provisions of the second paragraph in subsection (a) above); AND PROVIDED,
FURTHER, HOWEVER, that if, in the sole judgment of the Company, it is advisable
for the Company and Parent to be represented as a group by separate counsel, the
Company shall have the right to employ a single counsel to represent the Company
and Parent, in which event the reasonable fees and expenses of such separate
counsel shall be borne by the indemnifying party or parties and reimbursed to
the Company as incurred. An indemnifying party shall not be obligated under any
settlement agreement relating to any action under this Section 6 to which it has
not agreed in writing.
(d) If the indemnification provided for in this Section 6 is
unavailable or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of the losses,
claims, damages or liabilities referred to in subsection (a) or (b) above, (i)
in such proportion as is appropriate to reflect the relative benefits received
by the Company and the Parent on the one hand and the Underwriters on the other
from the offering of the Securities or (ii) if the allocation provided by clause
(i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company and the Parent on the one hand
and the Underwriters on the other in connection with the statements or omissions
that resulted in such losses, claims, damages or liabilities, as well as any
other relevant equitable considerations. The relative benefits received by the
Company and the Parent on the one hand and the Underwriters on the other shall
be deemed to be in the same proportion as the total net proceeds from the
offering (before deducting expenses) received by the Company and Parent bear to
the total underwriting discounts and commissions received by the Underwriters,
in each case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company, the Parent or the Underwriters and the parties' relevant intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statement or omission. The Company, the Parent and the Underwriters agree
that it would not be just and equitable if contributions pursuant to this
subsection (d) were to be determined by pro rata allocation (even if the
Underwriters were treated as one entity for such purpose) or by any
<PAGE>
Purchase Agreement - Page 25
other method of allocation which does not take account of the equitable
considerations referred to in the first sentence of this subsection (d). The
amount paid by an indemnified party as a result of the losses, claims, damages
or liabilities referred to in the first sentence of this subsection (d) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending against any
action or claim which is the subject of this subsection (d). Notwithstanding the
provisions of this subsection (d), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at which
the Securities underwritten by it and distributed to the public were offered to
the public exceeds the amount of any damages that such Underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) The obligations of the Company and the Parent under this Section 6
shall be in addition to any liability which the Company and the Parent may
otherwise have and shall extend, upon the same terms and conditions, to each
person, if any, who controls any Underwriter within the meaning of the Act; and
the obligations of the Underwriters under this Section 6 shall be in addition to
any liability that the respective Underwriters may otherwise have and shall
extend, upon the same terms and conditions, to each director of the Company
(including any person who, with his consent, is named in the Registration
Statement as about to become a director of the Company), to each officer of the
Company who has signed the Registration Statement and to each person, if any,
who controls the Company or Parent within the meaning of the Act.
7. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. All representations,
warranties, and agreements of the Company herein or in certificates delivered
pursuant hereto, and the agreements of the several Underwriters, the Company and
the Parent contained in Section 6 hereof, shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of any
Underwriter or any controlling person thereof, or the Company or any of its
officers, directors, or controlling persons, or Parent or any controlling person
thereof, and shall survive delivery of, and payment for, the Securities to and
by the Underwriters hereunder.
8. SUBSTITUTION OF UNDERWRITERS.
(a) If any Underwriter or Underwriters shall fail to take up and pay
for the amount of Firm Shares agreed by such Underwriter or Underwriters to be
purchased hereunder, upon tender of such Firm Shares in accordance with the
terms hereof, and the amount of Firm Shares not purchased does not aggregate
more than 10% of the total amount of Firm Shares set forth in Schedule I hereto,
the remaining Underwriters shall be obligated to take up and pay for (in
proportion to their respective underwriting obligations hereunder as set forth
in Schedule I hereto except as may otherwise be determined by you) the Firm
Shares that the withdrawing or defaulting Underwriters agreed but failed to
purchase.
(b) If any Underwriter or Underwriters shall fail to take up and pay
for the amount of Firm Shares agreed by such Underwriter or Underwriters to be
purchased hereunder,
<PAGE>
Purchase Agreement - Page 26
upon tender of such Firm Shares in accordance with the terms hereof, and the
amount of Firm Shares not purchased aggregates more than 10% of the total amount
of Firm Shares set forth in Schedule I hereto, and arrangements satisfactory to
you for the purchase of such Firm Shares by other persons are not made within 36
hours thereafter, this Agreement shall terminate. In the event of any such
termination neither the Company nor Parent shall be under any liability to any
Underwriter (except to the extent provided in Section 4(a)(viii), Section
4(b)(ii) and Section 6 hereof) nor shall any Underwriter (other than an
Underwriter who shall have failed, otherwise than for some reason permitted
under this Agreement, to purchase the amount of Firm Shares agreed by such
Underwriter to be purchased hereunder) be under any liability to the Company or
the Parent (except to the extent provided in Section 6 hereof).
If Firm Shares to which a default relates are to be purchased by the
non-defaulting Underwriters or by any other party or parties, the
Representatives or the Company shall have the right to postpone the First
Closing Date for not more than seven business days in order that the necessary
changes in the Registration Statement, Prospectus and any other documents, as
well as any other arrangements, may be effected. As used herein, the term
"Underwriter" includes any person substituted for an Underwriter under this
Section 8.
9. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION.
(a) This Agreement shall become effective at 10:00 a.m., Central time,
on the first full business day following the effective date of the Registration
Statement, or at such earlier time after the effective time of the Registration
Statement as you in your discretion shall first release the Securities for sale
to the public; PROVIDED, that if the Registration Statement is effective at the
time this Agreement is executed, this Agreement shall become effective at such
time as you in your discretion shall first release the Securities for sale to
the public. For the purpose of this Section, the Securities shall be deemed to
have been released for sale to the public upon release by you of the publication
of a newspaper advertisement relating thereto or upon release by you of telexes
offering the Securities for sale to securities dealers, whichever shall first
occur. By giving notice as hereinafter specified before the time this Agreement
becomes effective, you, as Representatives of the several Underwriters, or the
Company may prevent this Agreement from becoming effective without liability of
any party to any other party, except that the provisions of Section 4(a)(viii)
and Section 6 hereof shall at all times be effective.
(b) You, as Representatives of the several Underwriters, shall have
the right to terminate this Agreement by giving notice as hereinafter specified
at any time at or prior to the First Closing Date, and the option referred to in
Section 3(b), if exercised, may be cancelled at any time prior to the Second
Closing Date, if (i) the Company shall have failed, refused or been unable, at
or prior to such Closing Date, to perform any agreement on its part to be
performed hereunder, (ii) any other condition of the Underwriters' obligations
hereunder is not fulfilled, (iii) trading on the New York Stock Exchange, the
American Stock Exchange or the Nasdaq National Market shall have been wholly
suspended, (iv) minimum or maximum prices for trading shall have been fixed, or
maximum ranges for prices for securities shall have been required, on the New
York Stock Exchange or the American Stock Exchange, by such Exchange or by order
of the Commission or any other governmental authority having jurisdiction, (v) a
banking moratorium shall have been declared by Federal, New York or
Massachusetts authorities, or (vi) there has occurred any material
<PAGE>
Purchase Agreement - Page 27
adverse change in the financial markets in the United States or an outbreak of
major hostilities (or an escalation thereof) in which the United States is
involved, a declaration of war by Congress, or any other substantial national or
international calamity since the execution of this Agreement that, in your
judgment, makes it impractical or inadvisable to proceed with the completion of
the sale of and payment for the Securities. Any such termination shall be
without liability of any party to any other party except that the provisions of
Section 4(a)(viii) and Section 6 hereof shall at all times be effective.
(c) If you elect to prevent this Agreement from becoming effective or
to terminate this Agreement as provided in this Section, the Company and Parent,
shall be notified promptly by you by telephone or telegram, confirmed by letter.
If the Company elects to prevent this Agreement from becoming effective, you and
Parent, shall be notified by the Company by telephone or telegram, confirmed by
letter.
10. DEFAULT BY PARENT OR THE COMPANY. If Parent shall fail at the First
Closing Date to sell and deliver the number of Securities which Parent is
obligated to sell hereunder, then the Underwriters may at your option, by notice
from you to the Company, either (a) terminate this Agreement without any
liability on the part of any non-defaulting party or (b) elect to purchase the
Securities which the Company has agreed to sell hereunder.
In the event of a default by Parent as referred to in this Section,
either you or the Company shall have the right to postpone the First Closing
Date for a period not exceeding seven days in order to effect any required
changes in the Registration Statement or Prospectus or in any other documents or
arrangements.
If the Company shall fail at the First Closing Date to sell and
deliver the number of Securities which it is obligated to sell hereunder, then
this Agreement shall terminate without any liability on the part of any
non-defaulting party.
No action taken pursuant to this Section shall relieve the Company or
Parent from liability, if any, in respect of such default.
11. INFORMATION FURNISHED BY UNDERWRITERS. The statements set forth in the
last paragraph of the cover page and under the caption "Underwriting" in any
Preliminary Prospectus and in the Prospectus constitute the written information
furnished by or on behalf of the Underwriters referred to in Section 2 and
Section 6 hereof.
12. NOTICES. Except as otherwise provided herein, all communications
hereunder shall be in writing or by telegraph and, if to the Underwriters, shall
be mailed, telegraphed or delivered to the Representatives c/o U.S. Bancorp
Piper Jaffray, Piper Jaffray Tower, 222 South Ninth Street, Minneapolis,
Minnesota 55402, except that notices given to an Underwriter pursuant to Section
6 hereof shall be sent to such Underwriter at the address stated in the
Underwriters' Questionnaire furnished by such Underwriter in connection with
this offering; if to the Company, shall be mailed, telegraphed or delivered to
it at 39 High Street, North Andover, Massachusetts 01845, Attention:
______________; if to Parent at 410 First Avenue, Needham, Massachusetts 02194,
Attention: ______________; or in each case to such other address as the person
to be notified may have
<PAGE>
Purchase Agreement - Page 28
requested in writing. All notices given by telegram shall be promptly confirmed
by letter. Any party to this Agreement may change such address for notices by
sending to the parties to this Agreement written notice of a new address for
such purpose.
13. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement shall inure to
the benefit of and be binding upon the parties hereto and their respective
successors and assigns and the controlling persons, officers and directors
referred to in Section 6. Nothing in this Agreement is intended or shall be
construed to give to any other person, firm or corporation any legal or
equitable remedy or claim under or in respect of this Agreement or any provision
herein contained. The term "successors and assigns" as herein used shall not
include any purchaser, as such purchaser, of any of the Securities from any of
the several Underwriters.
14. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Minnesota.
[Signature Page Follows]
Purchase Agreement - Page 29
<PAGE>
Please sign and return to the Company the enclosed duplicates of this
letter whereupon this letter will become a binding agreement among the Company,
Parent and the several Underwriters in accordance with its terms.
Very truly yours,
INTERSPEED, INC.
By _________________________________________
Name:
Title:
BROOKTROUT, INC.
By _________________________________________
Name:
Title:
Confirmed as of the date first above mentioned, on behalf of themselves and the
other several Underwriters named in Schedule I hereto.
U.S. BANCORP PIPER JAFFRAY INC.
By_____________________________________________
Managing Director
WARBURG DILLON READ LLC
By_____________________________________________
Managing Director
TUCKER ANTHONY CLEARY GULL
By_____________________________________________
Managing Director
<PAGE>
Purchase Agreement - Page 30
DLJDIRECT INC.
By_____________________________________________
Managing Director
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF FIRM SHARES (1)
- ----------- -------------------------
<S> <C>
Total. . . . . . . . . . . . . . . . . . .
---------------
---------------
</TABLE>
- -----------------
(1) The Underwriters may purchase up to an additional 525,000 Option
Shares, to the extent the option described in Section 3(b) of the
Agreement is exercised, in the proportions and in the manner described
in the Agreement.
<PAGE>
CERTIFICATE OF INCORPORATION
OF
INTERSPEED, INC.
ARTICLE I
The name of the corporation is Interspeed, Inc.
ARTICLE II
The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
ARTICLE III
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.
ARTICLE IV
SECTION 1. NUMBER OF SHARES.
The total number of shares of capital stock which the Corporation shall
have the authority to issue is 31,000,000 shares, of which 30,000,000 shares
shall be Common Stock, par value $.01 per share (the "Common Stock") and (ii)
1,000,000 shares shall be Undesignated Preferred Stock, par value $.01 per share
(the "Undesignated Preferred Stock"). As set forth in this Article IV, the Board
of Directors or any authorized committee thereof is authorized from time to time
to establish and designate one or more series of Undesignated Preferred Stock,
to fix and determine the variations in the relative rights and preferences as
between the different series of Undesignated Preferred Stock in the manner
hereinafter set forth in this Article IV, and to fix or alter the number of
shares comprising any such series and the designation thereof to the extent
permitted by law.
The number of authorized shares of the class of Undesignated Preferred
Stock may be increased or decreased (but not below the number of shares
outstanding) by the affirmative vote of the holders of a majority of the Common
Stock, without a vote of the holders of the Undesignated Preferred Stock,
pursuant to the resolution or resolutions establishing the class of Undesignated
Preferred Stock or this Certificate of Incorporation, as it may be amended from
time to time.
<PAGE>
SECTION 2. GENERAL.
The designations, powers, preferences and rights of, and the
qualifications, limitations and restrictions upon, each class or series of stock
shall be determined in accordance with, or as set forth below in, Sections 3 and
4 of this Article IV.
SECTION 3. COMMON STOCK.
Subject to all of the rights, powers and preferences of the
Undesignated Preferred Stock, and except as provided by law or in this Article
IV (or in any certificate of designation of any series of Undesignated Preferred
Stock) or by the Board of Directors or any authorized committee thereof pursuant
to this Article IV:
(a) the holders of the Common Stock shall have the exclusive
right to vote for the election of Directors and on all other matters requiring
stockholder action, each share being entitled to one vote;
(b) dividends may be declared and paid or set apart for
payment upon the Common Stock out of any assets or funds of the Corporation
legally available for the payment of dividends, but only when and as declared by
the Board of Directors or any authorized committee thereof; and
(c) upon the voluntary or involuntary liquidation, dissolution
or winding up of the Corporation, the net assets of the Corporation shall be
distributed pro rata to the holders of the Common Stock in accordance with their
respective rights and interests.
SECTION 4. UNDESIGNATED PREFERRED STOCK.
Subject to any limitations prescribed by law, the Board of Directors or
any authorized committee thereof is expressly authorized to provide for the
issuance of the shares of Undesignated Preferred Stock in one or more series of
such stock, and by filing a certificate pursuant to applicable law of the State
of Delaware, to establish or change from time to time the number of shares to be
included in each such series, and to fix the designations, powers, preferences
and the relative, participating, optional or other special rights of the shares
of each series and any qualifications, limitations and restrictions thereof. Any
action by the Board of Directors or any authorized committee thereof under this
Article IV.4 shall require the affirmative vote of a majority of the Directors
then in office or a majority of the members of such committee. The Board of
Directors or any authorized committee thereof shall have the right to determine
or fix one or more of the following with respect to each series of Undesignated
Preferred Stock to the extent permitted by law:
(a) The distinctive serial designation and the number of
shares constituting such series;
2
<PAGE>
(b) The dividend rates or the amount of dividends to be paid
on the shares of such series, whether dividends shall be cumulative and, if so,
from which date or dates, the payment date or dates for dividends, and the
participating and other rights, if any, with respect to dividends;
(c) The voting powers, full or limited, if any, of the shares
of such series;
(d) Whether the shares of such series shall be redeemable and,
if so, the price or prices at which, and the terms and conditions on which, such
shares may be redeemed;
(e) The amount or amounts payable upon the shares of such
series and any preferences applicable thereto in the event of voluntary or
involuntary liquidation, dissolution or winding up of the Corporation;
(f) Whether the shares of such series shall be entitled to the
benefit of a sinking or retirement fund to be applied to the purchase or
redemption of such shares, and if so entitled, the amount of such fund and the
manner of its application, including the price or prices at which such shares
may be redeemed or purchased through the application of such fund;
(g) Whether the shares of such series shall be convertible
into, or exchangeable for, shares of any other class or classes or of any other
series of the same or any other class or classes of stock of the Corporation
and, if so convertible or exchangeable, the conversion price or prices, or the
rate or rates of exchange, and the adjustments thereof, if any, at which such
conversion or exchange may be made, and any other terms and conditions of such
conversion or exchange;
(h) The price or other consideration for which the shares of
such series shall be issued;
(i) Whether the shares of such series which are redeemed or
converted shall have the status of authorized but unissued shares of
Undesignated Preferred Stock (or series thereof) and whether such shares may be
reissued as shares of the same or any other class or series of stock; and
(j) Such other powers, preferences, rights, qualifications,
limitations and restrictions thereof as the Board of Directors or any authorized
committee thereof may deem advisable.
3
<PAGE>
ARTICLE V
The name and mailing address of the incorporator is as follows:
<TABLE>
<CAPTION>
NAME MAILING ADDRESS
---- ---------------
<S> <C>
Sharon Schlesinger c/o Goodwin Procter & Hoar LLP
Exchange Place
Boston, MA 02109
</TABLE>
The powers of the incorporator shall terminate upon the filing of this
Certificate of Incorporation.
ARTICLE VI
The name and mailing address of each person who is to serve as a
director until the first annual meeting of the stockholders or until a successor
is elected and qualified, is as follows:
<TABLE>
<CAPTION>
NAME MAILING ADDRESS
---- ---------------
<S> <C>
Stephen A. Ide 39 High Street
North Andover, MA 01845
Rajeev Agarwal 39 High Street
North Andover, MA 01845
Eric R. Giler 39 High Street
North Andover, MA 01845
Robert G. Barrett 39 High Street
North Andover, MA 01845
Paul J. Severino 39 High Street
North Andover, MA 01845
</TABLE>
ARTICLE VII
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to adopt, amend, or
repeal the by-laws of the corporation.
4
<PAGE>
ARTICLE VIII
Elections of directors need not be by written ballot unless the by-laws
of the corporation shall so provide.
ARTICLE IX
A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived any improper
personal benefit. No amendment or repeal of this Section shall adversely affect
the rights and protection afforded to a director of the corporation under this
Section for acts or omissions occurring prior to such amendment or repeal.
ARTICLE X
The corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
ARTICLE XI
Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this corporation under
the provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this corporation under the provisions of section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this corporation, as the case may be,
and also on this corporation.
5
<PAGE>
THE UNDERSIGNED incorporator, for the purpose of forming a corporation
pursuant to the General Corporation Law of the State of Delaware, does hereby
make this certificate, hereby declaring and certifying that it is his or her
free act and deed and the facts herein stated are true, and accordingly he or
her has hereunto set his or her hand this 16th day of June, 1999.
/s/ SHARON SCHLESINGER
------------------------------------
Sharon Schlesinger, Incorporator
6
<PAGE>
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
INTERSPEED, INC.
INTERSPEED, INC., a corporation organized and existing under the laws
of the State of Delaware (the "Corporation"), hereby certifies as follows:
1. The name of the Corporation is Interspeed, Inc. The date of the
filing of its original Certificate of Incorporation (the "Original Certificate")
with the Secretary of State of the State of Delaware was June 16, 1999.
2. This Amended and Restated Certificate of Incorporation amends,
restates and integrates the provisions of the Original Certificate and (i) was
duly adopted by the Board of Directors in accordance with the provisions of
Section 245 of the Delaware General Corporation Law (the "DGCL"), (ii) was
declared by the Board of Directors to be advisable and in the best interests of
the Corporation and was directed by the Board of Directors to be submitted to
and be considered by the stockholders of the Corporation entitled to vote
thereon for approval by the affirmative vote of such stockholders in accordance
with Section 242 of the DGCL and (iii) was duly adopted by a consent in lieu of
a meeting of the holders of the Corporation's common stock, par value $.01 per
share (the "Common Stock"), in accordance with the provisions of Sections 228
and 242 of the DGCL, such holders being all of the holders of the Corporation's
capital stock entitled to vote thereon.
3. The text of the Original Certificate is hereby amended and restated
in its entirety to provide as herein set forth in full.
ARTICLE I
NAME
The name of the Corporation is Interspeed, Inc.
ARTICLE II
REGISTERED OFFICE
The address of the registered office of the Corporation in the State of
Delaware is c/o The Corporation Trust Company, 1209 Orange Street, in the City
of Wilmington, County of
<PAGE>
New Castle. The name of its registered agent at such address is The Corporation
Trust Company.
ARTICLE III
PURPOSES
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the DGCL.
ARTICLE IV
CAPITAL STOCK
SECTION 1. NUMBER OF SHARES.
The total number of shares of capital stock which the Corporation shall
have the authority to issue is 31,000,000 shares, of which 30,000,000 shares
shall be Common Stock, par value $.01 per share (the "Common Stock") and (ii)
1,000,000 shares shall be Undesignated Preferred Stock, par value $.01 per share
(the "Undesignated Preferred Stock").
As set forth in this Article IV, the Board of Directors or any
authorized committee thereof is authorized from time to time to establish and
designate one or more series of Undesignated Preferred Stock, to fix and
determine the variations in the relative rights and preferences as between the
different series of Undesignated Preferred Stock in the manner hereinafter set
forth in this Article IV, and to fix or alter the number of shares comprising
any such series and the designation thereof to the extent permitted by law.
The number of authorized shares of the class of Undesignated Preferred
Stock may be increased or decreased (but not below the number of shares
outstanding) by the affirmative vote of the holders of a majority of the Common
Stock, without a vote of the holders of the Undesignated Preferred Stock,
pursuant to the resolution or resolutions establishing the class of Undesignated
Preferred Stock or this Amended and Restated Certificate of Incorporation, as it
may be amended from time to time.
SECTION 2. GENERAL.
The designations, powers, preferences and rights of, and the
qualifications, limitations and restrictions upon, each class or series of stock
shall be determined in accordance with, or
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as set forth below in, Sections 3 and 4 of this Article IV.
SECTION 3. COMMON STOCK.
Subject to all of the rights, powers and preferences of the
Undesignated Preferred Stock, and except as provided by law or in this Article
IV (or in any certificate of designation of any series of Undesignated Preferred
Stock) or by the Board of Directors or any authorized committee thereof pursuant
to this Article IV:
(a) the holders of the Common Stock shall have the exclusive
right to vote for the election of Directors and on all other matters requiring
stockholder action, each share being entitled to one vote;
(b) dividends may be declared and paid or set apart for
payment upon the Common Stock out of any assets or funds of the Corporation
legally available for the payment of dividends, but only when and as declared by
the Board of Directors or any authorized committee thereof; and
(c) upon the voluntary or involuntary liquidation, dissolution
or winding up of the Corporation, the net assets of the Corporation shall be
distributed pro rata to the holders of the Common Stock.
SECTION 4. UNDESIGNATED PREFERRED STOCK.
Subject to any limitations prescribed by law, the Board of Directors or
any authorized committee thereof is expressly authorized to provide for the
issuance of the shares of Undesignated Preferred Stock in one or more series of
such stock, and by filing a certificate pursuant to applicable law of the State
of Delaware, to establish or change from time to time the number of shares to be
included in each such series, and to fix the designations, powers, preferences
and the relative, participating, optional or other special rights of the shares
of each series and any qualifications, limitations and restrictions thereof. Any
action by the Board of Directors or any authorized committee thereof under this
Article IV.4 shall require the affirmative vote of a majority of the Directors
then in office or a majority of the members of such committee. The Board of
Directors or any authorized committee thereof shall have the right to determine
or fix one or more of the following with respect to each series of Undesignated
Preferred Stock to the extent permitted by law:
(a) The distinctive serial designation and the number of
shares constituting such series;
(b) The dividend rates or the amount of dividends to be paid
on the shares of such series, whether dividends shall be cumulative and, if so,
from which date or dates, the payment date or dates for dividends, and the
participating and other rights, if any, with respect
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to dividends;
(c) The voting rights and powers, full or limited, if any, of
the shares of such series;
(d) Whether the shares of such series shall be redeemable and,
if so, the price or prices at which, and the terms and conditions on which, such
shares may be redeemed;
(e) The amount or amounts payable upon the shares of such
series and any preferences applicable thereto in the event of voluntary or
involuntary liquidation, dissolution or winding up of the Corporation;
(f) Whether the shares of such series shall be entitled to the
benefit of a sinking or retirement fund to be applied to the purchase or
redemption of such shares, and if so entitled, the amount of such fund and the
manner of its application, including the price or prices at which such shares
may be redeemed or purchased through the application of such fund;
(g) Whether the shares of such series shall be convertible
into, or exchangeable for, shares of any other class or classes or of any other
series of the same or any other class or classes of stock of the Corporation
and, if so convertible or exchangeable, the conversion price or prices, or the
rate or rates of exchange, and the adjustments thereof, if any, at which such
conversion or exchange may be made, and any other terms and conditions of such
conversion or exchange;
(h) The price or other consideration for which the shares of
such series shall be issued;
(i) Whether the shares of such series which are redeemed or
converted shall have the status of authorized but unissued shares of
Undesignated Preferred Stock (or series thereof) and whether such shares may be
reissued as shares of the same or any other class or series of stock; and
(j) Such other powers, preferences, rights, qualifications,
limitations and restrictions thereof as the Board of Directors or any authorized
committee thereof may deem advisable.
ARTICLE V
STOCKHOLDER ACTION
SECTION 1. ACTION WITHOUT MEETING.
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Except as otherwise provided herein, any action required or permitted
to be taken by the stockholders of the Corporation at any annual or special
meeting of stockholders of the Corporation must be effected at a duly called
annual or special meeting of stockholders and may not be taken or effected by a
written consent of stockholders in lieu thereof.
SECTION 2. SPECIAL MEETINGS.
Except as otherwise required by law and subject to the rights, if any,
of the holders of any series of Undesignated Preferred Stock, special meetings
of the stockholders of the Corporation may be called only by the Board of
Directors pursuant to a resolution approved by the majority of the Directors
then in office.
ARTICLE VI
DIRECTORS
SECTION 1. GENERAL.
The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors except as otherwise provided
herein or required by law.
SECTION 2. ELECTION OF DIRECTORS.
Election of Directors need not be by written ballot unless the By-laws
of the Corporation shall so provide.
SECTION 3. TERMS OF DIRECTORS.
The number of Directors of the Corporation shall be fixed by resolution
duly adopted from time to time by the Board of Directors. The Directors, other
than those who may be elected by the holders of any series of Undesignated
Preferred Stock of the Corporation, shall be classified, with respect to the
term for which they severally hold office, into three classes, as nearly equal
in number as possible. The initial Class I Directors of the Corporation shall be
Eric R. Giler and Rajeev Agarwal; the initial Class II Directors of the
Corporation shall be Stephen A. Ide and Robert G. Barrett; and the initial Class
III Director of the Corporation shall be Paul J. Severino. The initial Class I
Directors shall serve for a term expiring at the annual meeting of stockholders
to be held in 2000, the initial Class II Directors shall serve for a term
expiring at the annual meeting of stockholders to be held in 2001, and the
initial Class III Director shall serve for a term expiring at the annual meeting
of stockholders to be held in 2002. At each annual meeting of stockholders, the
successor or successors of the class of Directors whose term expires at that
meeting shall be elected by a plurality of the votes cast at such meeting and
shall hold office for a term expiring at the annual meeting of stockholders
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held in the third year following the year of their election. The Directors
elected to each class shall hold office until their successors are duly elected
and qualified or until their earlier resignation or removal.
Notwithstanding the foregoing, whenever, pursuant to the provisions of
Article IV of this Amended and Restated Certificate of Incorporation, the
holders of any one or more series of Undesignated Preferred Stock shall have the
right, voting separately as a series or together with holders of other such
series, to elect Directors at an annual or special meeting of stockholders, the
election, term of office, filling of vacancies and other features of such
directorships shall be governed by the terms of this Amended and Restated
Certificate of Incorporation and any certificate of designations applicable
thereto, and such Directors so elected shall not be divided into classes
pursuant to this Article VI.3.
SECTION 4. VACANCIES.
Subject to the rights, if any, of the holders of any series of
Undesignated Preferred Stock to elect Directors and to fill vacancies in the
Board of Directors relating thereto, any and all vacancies in the Board of
Directors, however occurring, including, without limitation, by reason of an
increase in size of the Board of Directors, or the death, resignation,
disqualification or removal of a Director, shall be filled solely by the
affirmative vote of a majority of the remaining Directors then in office, even
if less than a quorum of the Board of Directors. Any Director appointed in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the class of Directors in which the new directorship was
created or the vacancy occurred and until such Director's successor shall have
been duly elected and qualified or until his or her earlier resignation or
removal. Subject to the rights, if any, of the holders of any series of
Undesignated Preferred Stock to elect Directors, when the number of Directors is
increased or decreased, the Board of Directors shall determine the class or
classes to which the increased or decreased number of Directors shall be
apportioned; provided, however, that no decrease in the number of Directors
shall shorten the term of any incumbent Director. In the event of a vacancy in
the Board of Directors, the remaining Directors, except as otherwise provided by
law, may exercise the powers of the full Board of Directors until the vacancy is
filled.
SECTION 5. REMOVAL.
Subject to the rights, if any, of any series of Undesignated Preferred
Stock to elect Directors and to remove any Director whom the holders of any such
stock have the right to elect, any Director (including persons elected by
Directors to fill vacancies in the Board of Directors) may be removed from
office (i) only with cause and (ii) only by the affirmative vote of the holders
of two-thirds of the shares then entitled to vote at an election of Directors.
At least 30 days prior to any meeting of stockholders at which it is proposed
that any Director be removed from office, written notice of such proposed
removal shall be sent to the Director whose removal will be considered at the
meeting.
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ARTICLE VII
LIMITATION OF LIABILITY
A Director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director, except for liability (i) for any breach of the Director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the DGCL or (iv) for any
transaction from which the Director derived an improper personal benefit. If the
DGCL is amended after the effective date of this Amended and Restated
Certificate of Incorporation to authorize corporate action further eliminating
or limiting the personal liability of Directors, then the liability of a
Director of the Corporation shall be eliminated or limited to the fullest extent
permitted by the DGCL, as so amended.
Any repeal or modification of this Article VII by either of (i) the
stockholders of the Corporation or (ii) an amendment to the DGCL, shall not
adversely affect any right or protection existing at the time of such repeal or
modification with respect to any acts or omissions occurring before such repeal
or modification of a person serving as a Director at the time of such repeal or
modification.
ARTICLE VIII
AMENDMENT OF BY-LAWS
SECTION 1. AMENDMENT BY DIRECTORS
Except as otherwise provided by law, the By-laws of the Corporation may
be amended or repealed by the Board of Directors by the affirmative vote of a
majority of the Directors then in office.
SECTION 2. AMENDMENT BY STOCKHOLDERS
The By-laws of the Corporation may be amended or repealed at any annual
meeting of stockholders, or special meeting of stockholders called for such
purpose as provided in the Bylaws, by the affirmative vote of at least
two-thirds of the shares present in person or represented by proxy at such
meeting and entitled to vote on such amendment or repeal, voting together as a
single class; provided, however, that if the Board of Directors recommends that
stockholders approve such amendment or repeal at such meeting of stockholders,
such amendment or repeal shall only require the affirmative vote of the majority
of the shares present in person or represented by proxy at such meeting and
entitled to vote on such amendment or repeal by holders of voting stock, voting
together as a single class.
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ARTICLE IX
AMENDMENT OF CERTIFICATE OF INCORPORATION
The Corporation reserves the right to amend or repeal this Amended and
Restated Certificate of Incorporation in the manner now or hereafter prescribed
by statute and this Amended and Restated Certificate of Incorporation, and all
rights conferred upon stockholders herein are granted subject to this
reservation. No amendment or repeal of this Amended and Restated Certificate of
Incorporation shall be made unless the same is first approved by the Board of
Directors pursuant to a resolution adopted by the Board of Directors in
accordance with Section 242 of the DGCL, and, except as otherwise provided by
law, thereafter approved by the stockholders. Whenever any vote of the holders
of voting stock is required, and in addition to any other vote of holders of
voting stock that is required by this Amended and Certificate of Incorporation
or by law, the affirmative vote of the majority of the outstanding shares
entitled to vote on such amendment or repeal, and the affirmative vote of the
majority of the outstanding shares of each class entitled to vote thereon as a
class, at a duly constituted meeting of stockholders called expressly for such
purpose shall be required to amend or repeal any provisions of this Amended and
Restated Certificate of Incorporation; provided, however, that the affirmative
vote of not less than two-thirds of the outstanding shares entitled to vote on
such amendment or repeal, and the affirmative vote of not less than two-thirds
of the outstanding shares of each class entitled to vote thereon as a class,
shall be required to amend or repeal any of the provisions of Article V, VI, VII
or Article IX of this Amended and Restated Certificate of Incorporation.
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This Amended and Restated Certificate of Incorporation is executed as
of this ___ day of September, 1999.
INTERSPEED, INC.
By:
--------------------------------
Stephen A. Ide, President
<PAGE>
BY-LAWS
of
INTERSPEED, INC.
ARTICLE I
STOCKHOLDERS
1. ANNUAL MEETING. The annual meeting of stockholders shall be held at
such time as the Board of Directors or the President may designate at the
principal office of the corporation unless a different hour or place within or
without the State of Delaware is fixed by the Board of Directors or the
President. The purposes for which the annual meeting is to be held, in addition
to those prescribed by law, by the Certificate of Incorporation or by these
By-laws, may be specified by the Board of Directors or the President. If no
annual meeting has been held on the date fixed above, a special meeting in lieu
thereof may be held or there may be action by written consent of the
stockholders on matters to be voted on at the annual meeting, and such special
meeting or written consent shall have for the purposes of these By-Laws or
otherwise all the force and effect of an annual meeting.
2. SPECIAL MEETINGS. Special meetings of stockholders may be called by
the President or by the Board of Directors. Special meetings shall be called by
the Secretary, or in case of death, absence, incapacity or refusal of the
Secretary, by any other officer, upon written application of one or more
stockholders who hold at least twenty-five percent in interest of the capital
stock entitled to vote at such meeting. The call for the meeting shall state the
place, date, hour and purposes of the meeting. Only the purposes specified in
the notice of special meeting shall be considered or dealt with at such special
meeting.
3. NOTICE OF MEETINGS. A written notice stating the place, date and
hour of all meetings of stockholders, and in the case of special meetings, the
purposes of the meeting shall be given by the Secretary (or other person
authorized by these By-Laws or by law) not less than ten nor more than sixty
days before the meeting to each stockholder entitled to vote thereat and to each
stockholder who, under the Certificate of Incorporation or under these By-laws
is entitled to such notice, by delivering such notice to him or by mailing it,
postage prepaid, and addressed to such stockholder at his address as it appears
in the records of the corporation. Notice need not be given to a stockholder if
a written waiver of notice is executed before or after the meeting by such
stockholder, if communication with such stockholder is unlawful, or if such
stockholder attends the meeting in question, unless such attendance was for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting was not lawfully called or
convened. If a meeting is adjourned to another time or place, notice need not be
given of the adjourned meeting if the time and place are announced at the
meeting at which the adjournment is taken, except that if the adjournment is for
more than thirty days, or if after the adjournment a new
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record date is fixed for the adjourned meeting, notice of the adjourned meeting
shall be given to each stockholder of record entitled to vote at the meeting.
4. QUORUM. The holders of a majority in interest of all stock issued,
outstanding and entitled to vote at a meeting shall constitute a quorum. Any
meeting may be adjourned from time to time by a majority of the votes properly
cast upon the question, whether or not a quorum is present. The stockholders
present at a duly constituted meeting may continue to transact business until
adjournment notwithstanding the withdrawal of enough stockholders to reduce the
voting shares below a quorum.
5. VOTING AND PROXIES. Stockholders shall have one vote for each share
of stock entitled to vote owned by them of record according to the books of the
corporation unless otherwise provided by law or by the Certificate of
Incorporation. Stockholders may vote either in person or by written proxy or
express directly or by written proxy their consent or dissent to a corporate
action taken without a meeting, but no proxy shall be voted or acted upon after
three years from its date, unless the proxy provides for a longer period or is
irrevocable and coupled with an interest. Proxies shall be filed with the
Secretary of the meeting, or of any adjournment thereof. Except as otherwise
limited therein, proxies shall entitle the persons authorized thereby to vote at
any adjournment of such meeting.
6. ACTION AT MEETING. When a quorum is present, any matter before the
meeting shall be decided by vote of the holders of a majority of the shares of
stock voting on such matter except where a larger vote is required by law, by
the Certificate of Incorporation or by these By-laws. Any election by
stockholders shall be determined by a plurality of the votes cast, except where
a larger vote is required by law, by the Certificate of Incorporation or by
these By-laws. The corporation shall not directly or indirectly vote any share
of its own stock; provided, however, that the corporation may vote shares which
it holds in a fiduciary capacity to the extent permitted by law.
7. ACTION WITHOUT A MEETING. Any action required or permitted by law to
be taken at any annual or special meeting of stockholders, may be taken without
a meeting, without prior notice and without a vote, if a consent or consents in
writing, setting forth the action so taken, shall be signed by the holders of
all of the outstanding shares of stock entitled to vote on the matter
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted and shall be delivered to the
corporation by delivery to its registered office, by hand or by certified mail,
return receipt requested or to the corporation's principal place of business or
to the officer of the corporation having custody of the minute book. Every
written consent shall bear the date of signature and no written consent shall be
effective unless, within sixty days of the earliest dated consent delivered
pursuant to these By-laws, written consents signed by all a sufficient number of
stockholders entitled to take action are delivered to the corporation in the
manner set forth in these By-laws. Prompt notice of the taking of the corporate
action without a meeting by less than unanimous written consent shall be given
to those stockholders who have not consented in writing.
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8. STOCKHOLDER LISTS. The officer who has charge of the stock ledger of
the corporation shall prepare and make, at least ten 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 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 II
DIRECTORS
1. POWERS. The business of the corporation shall be managed by or under
the direction of a Board of Directors who may exercise all the powers of the
corporation except as otherwise provided by law, by the Certificate of
Incorporation or by these By-laws. In the event of a vacancy in the Board of
Directors, the remaining Directors, except as otherwise provided by law, may
exercise the powers of the full Board until the vacancy is filled.
2. ELECTION AND QUALIFICATION. Unless otherwise provided in the
Certificate of Incorporation or in these By-laws, the number of Directors which
shall constitute the whole board shall be determined by vote of the Board of
Directors or by the stockholders at the annual meeting. Directors need not be
stockholders.
3. VACANCIES; REDUCTION OF BOARD. A majority of the Directors then in
office, although less than a quorum, or a sole remaining Director, may fill
vacancies in the Board of Directors occurring for any reason and newly created
directorships resulting from any increase in the authorized number of Directors.
In lieu of filling any vacancy the stockholders or the Board of Directors may
reduce the number of Directors.
4. ENLARGEMENT OF THE BOARD. The Board of Directors may be enlarged by
the stockholders at any meeting or by vote of a majority of the Directors then
in office.
5. TENURE. Except as otherwise provided by law, by the Certificate of
Incorporation or by these By-laws, Directors shall hold office until their
successors are elected and qualified or until their earlier resignation or
removal. Any Director may resign by delivering his written resignation to the
corporation. Such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event.
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6. REMOVAL. To the extent permitted by law, a Director may be removed
from office with or without cause by vote of the holders of a majority of the
shares of stock entitled to vote in the election of Directors. A Director may be
removed for cause only after reasonable notice and opportunity to be heard
before the body proposing to remove him.
7. MEETINGS. Regular meetings of the Board of Directors may be held
without notice at such time, date and place as the Board of Directors may from
time to time determine. Special meetings of the Board of Directors may be
called, orally or in writing, by the President, Treasurer or two or more
Directors, designating the time, date and place thereof. Directors may
participate in meetings of the Board of Directors by means of conference
telephone or similar communications equipment by means of which all Directors
participating in the meeting can hear each other, and participation in a meeting
in accordance herewith shall constitute presence in person at such meeting.
8. NOTICE OF MEETINGS. Notice of the time, date and place of all
special meetings of the Board of Directors shall be given to each Director by
the Secretary, or Assistant Secretary, or in case of the death, absence,
incapacity or refusal of such persons, by the officer or one of the Directors
calling the meeting. Notice shall be given to each Director in person or by
telephone or by telegram sent to his business or home address at least
twenty-four hours in advance of the meeting, or by written notice mailed to his
business or home address at least forty-eight hours in advance of the meeting.
Notice need not be given to any Director if a written waiver of notice is
executed by him before or after the meeting, or if communication with such
Director is unlawful. A notice or waiver of notice of a meeting of the Board of
Directors need not specify the purposes of the meeting.
9. QUORUM. At any meeting of the Board of Directors, a majority of the
Directors then in office shall constitute a quorum. Less than a quorum may
adjourn any meeting from time to time and the meeting may be held as adjourned
without further notice.
10. ACTION AT MEETING. At any meeting of the Board of Directors at
which a quorum is present, a majority of the Directors present may take any
action on behalf of the Board of Directors, unless a larger number is required
by law, by the Certificate of Incorporation or by these By-laws.
11. ACTION BY CONSENT. Any action required or permitted to be taken at
any meeting of the Board of Directors may be taken without a meeting if a
written consent thereto is signed by all the Directors and filed with the
records of the meetings of the Board of Directors. Such consent shall be treated
as a vote of the Board of Directors for all purposes.
12. COMMITTEES. The Board of Directors, by vote of a majority of the
Directors then in office, may establish one or more committees, each committee
to consist of one or more Directors, and may delegate thereto some or all of its
powers except those which by law, by the Certificate of Incorporation, or by
these By-laws may not be delegated. Except as the Board of Directors may
otherwise determine, any such committee may make rules for the
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conduct of its business, but in the absence of such rules its business shall be
conducted so far as possible in the same manner as is provided in these By-laws
for the Board of Directors. All members of such committees shall hold their
committee offices at the pleasure of the Board of Directors, and the Board may
abolish any committee at any time. Each such committee shall report its action
to the Board of Directors who shall have power to rescind any action of any
committee without retroactive effect.
ARTICLE III
OFFICERS
1. ENUMERATION. The officers of the corporation shall consist of a
President, a Treasurer, a Secretary, and such other officers, including one or
more Vice Presidents, Assistant Treasurers and Assistant Secretaries, as the
Board of Directors may determine.
2. ELECTION. The President, Treasurer and Secretary shall be elected
annually by the Board of Directors at their first meeting following the annual
meeting of stockholders. Other officers may be chosen by the Board of Directors
at such meeting or at any other meeting.
3. QUALIFICATION. No officer need be a stockholder or Director. Any two
or more offices may be held by the same person. Any officer may be required by
the Board of Directors to give bond for the faithful performance of his duties
in such amount and with such sureties as the Board of Directors may determine.
4. TENURE. Except as otherwise provided by the Certificate of
Incorporation or by these By-laws, each of the officers of the corporation shall
hold his office until his successor is elected and qualified or until his
earlier resignation or removal. Any officer may resign by delivering his written
resignation to the corporation, and such resignation shall be effective upon
receipt unless it is specified to be effective at some other time or upon the
happening of some other event.
5. REMOVAL. The Board of Directors may remove any officer with or
without cause by a vote of a majority of the entire number of Directors then in
office; provided, that an officer may be removed for cause only after reasonable
notice and opportunity to be heard by the Board of Directors.
6. VACANCIES. Any vacancy in any office may be filled for the unexpired
portion of the term by the Board of Directors.
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7. PRESIDENT AND VICE PRESIDENTS. The President shall be the chief
operating officer of the corporation and shall have general charge of its
business operations, subject to the direction of the Board of Directors.
Any Vice President shall have such powers and shall perform such duties
as the Board of Directors may from time to time designate. In the absence of the
President or in the event of his inability or refusal to act, the Vice President
(or in the event there be more than one Vice President, the Vice Presidents in
the order designated by the directors, or in the absence of any designation,
then in the order of their election) shall perform the duties of the President,
and when so acting, shall have all the powers and responsible of and be subject
to all the restrictions upon the President.
8. TREASURER AND ASSISTANT TREASURERS. The Treasurer shall, subject to
the direction of the Board of Directors, have general charge of the financial
affairs of the corporation and shall cause to be kept accurate books of account.
He shall have custody of all funds, securities, and valuable documents of the
corporation, except as the Board of Directors may otherwise provide.
Any Assistant Treasurer shall have such powers and perform such duties
as the Board of Directors may from time to time designate.
9. SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall record the
proceedings of all meetings of the stockholders and the Board of Directors in
books kept for that purpose. In his absence from any such meeting an Assistant
Secretary, or if he is absent, a temporary secretary chosen at the meeting,
shall record the proceedings thereof.
The Secretary shall have charge of the stock ledger (which may,
however, be kept by any transfer or other agent of the corporation) and shall
have such other duties and powers as may be designated from time to time by the
Board of Directors or the President.
Any Assistant Secretary shall have such powers and perform such duties
as the Board of Directors may from time to time designate.
10. OTHER POWERS AND DUTIES. Subject to these By-laws, each officer of
the corporation shall have in addition to the duties and powers specifically set
forth in these By-laws, such duties and powers as are customarily incident to
his office, and such duties and powers as may be designated from time to time by
the Board of Directors.
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ARTICLE IV
CAPITAL STOCK
1. CERTIFICATES OF STOCK. Each stockholder shall be entitled to a
certificate of the capital stock of the corporation in such form as may from
time to time be prescribed by the Board of Directors. Such certificate shall
be signed by the President or a Vice President and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary. Such
signatures may be facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed on such
certificate shall have 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 were such officer, transfer agent or registrar at
the time of its issue. Every certificate for shares of stock which are
subject to any restriction on transfer and every certificate issued when the
corporation is authorized to issue more than one class or series of stock
shall contain such legend with respect thereto as is required by law. The
corporation shall be permitted to issue fractional shares.
2. TRANSFERS. Subject to any restrictions on transfer, shares of stock
may be transferred on the books of the corporation by the surrender to the
corporation or its transfer agent of the certificate therefor properly endorsed
or accompanied by a written assignment or power of attorney properly executed,
with transfer stamps (if necessary) affixed, and with such proof of the
authenticity of signature as the corporation or its transfer agent may
reasonably require.
3. RECORD HOLDERS. Except as may otherwise be required by law, by the
Certificate of Incorporation or by these By-laws, the corporation shall be
entitled to treat the record holder of stock as shown on its books as the owner
of such stock for all purposes, including the payment of dividends and the right
to vote with respect thereto, regardless of any transfer, pledge or other
disposition of such stock, until the shares have been transferred on the books
of the corporation in accordance with the requirements of these By-laws.
It shall be the duty of each stockholder to notify the corporation of
his post office address.
4. RECORD DATE. In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to consent to corporate action in writing without a
meeting, or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix, in advance, a record date, which shall
not precede the date on which it is established, and which shall not be more
than sixty nor less than ten days before the date of such meeting, more than ten
days after the date on which the record date for stockholder consent without a
meeting is established, nor more than sixty days prior to any
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other action. In such case only stockholders of record on such record date shall
be so entitled notwithstanding any transfer of stock on the books of the
corporation after the record date.
If no record date is fixed, (a) 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 day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held, (b) the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting, when no prior action by the Board of Directors is necessary,
shall be the first date on which a signed written consent setting forth the
action taken or proposed to be taken is delivered to the corporation by delivery
to its registered office in this state, to its principal place of business, or
to an officer or agent of the corporation having custody of the book in which
proceedings of meetings of stockholders are recorded, and (c) the record date
for determining stockholders for any other purpose shall be at the close of
business on the day on which the Board of Directors adopts the resolution
relating thereto.
5. REPLACEMENT OF CERTIFICATES. In case of the alleged loss,
destruction or mutilation of a certificate of stock, a duplicate certificate may
be issued in place thereof, upon such terms as the Board of Directors may
prescribe.
ARTICLE V
INDEMNIFICATION
1. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The corporation shall
indemnify, to the fullest extent permitted by the General Corporation Law of the
State of Delaware any person who was or is a party or is threatened to be made a
party to or is otherwise involved in any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative,
investigative or otherwise, and whether by or in the right of the corporation,
its stockholders, a third party or otherwise (a "Proceeding"), by reason of the
fact that he is or was a Director or officer of the corporation, or is or was a
Director or officer of the corporation serving at its request as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against all expense (including, but not limited to,
attorneys' fees), liability, loss, judgments, fines, excise taxes, penalties and
amounts paid in settlement actually and reasonably incurred by him in connection
with such Proceeding, including expenses incurred in seeking such
indemnification. In addition, the corporation shall grant such indemnification
to each of its Directors and officers with respect to any matter in a Proceeding
as to which his liability is limited pursuant to Section 9 of the Certificate of
Incorporation of the corporation. However, such indemnification shall exclude
(i) indemnification with respect to any improper personal benefit which a
Director or officer is determined to have received and of the expenses of
defending against an improper personal benefit claim unless the Director or
officer is successful on the merits in said defense, and (ii) indemnification of
present or former officers, directors, employees or agents of a
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constituent corporation absorbed in a merger or consolidation transaction with
this corporation with respect to their activities prior to said transaction,
unless specifically authorized by the Board of Directors or stockholders of this
corporation. Such indemnification shall include prompt payment of expenses
incurred by a Director or officer in defending a Proceeding in advance of the
final disposition of such Proceeding, upon receipt of an undertaking by or on
behalf of the Director or officer to repay such amounts if it shall ultimately
be determined that he is not entitled to be indemnified by the corporation under
this Article V, which undertaking shall be an unsecured general obligation of
the Director or officer and may be accepted without regard to his ability to
make repayment.
2. INDEMNIFICATION OF EMPLOYEES AND AGENTS. The corporation may, to the
extent authorized from time to time by the Board of Directors, grant rights to
indemnification and to an advancement of expenses, pursuant to the provisions of
this Article V, to any person who was or is a party or is threatened to be made
a party to or is otherwise involved in any Proceeding by reason of the fact that
he is or was an 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.
3. NATURE OF INDEMNIFICATION RIGHTS. The indemnification rights
provided in this Article V shall be a contract right and shall not be deemed
exclusive of any other rights to which any person, whether or not entitled to be
indemnified hereunder, may be entitled under any statute, by-law, agreement,
vote of stockholders or Directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a Director,
officer, employee or agent and inure to the benefit of the heirs, executors and
administrators of such a person. A Director or officer shall be entitled to the
benefit of any amendment of the Delaware General Corporation Law which enlarges
indemnification rights hereunder, but any such amendment which adversely affects
indemnification rights with respect to prior activities shall not apply to him
without his consent unless otherwise required by law. Each person who is or
becomes a Director or officer of the corporation shall be deemed to have served
or to have continued to serve in such capacity in reliance upon the indemnity
provided for in this Article V.
4. AMENDMENT. The provisions of this Article may be amended as provided
in Article VI; however, no amendment or repeal of such provisions which
adversely affects the rights of a Director or officer under this Article V with
respect to his acts or omissions prior to such amendment or repeal, shall apply
to him without his consent.
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ARTICLE VI
MISCELLANEOUS PROVISIONS
1. FISCAL YEAR. Except as otherwise determined by the Board of
Directors, the fiscal year of the corporation shall end on September 30 of each
year.
2. SEAL. The Board of Directors shall have power to adopt and alter the
seal of the corporation.
3. EXECUTION OF INSTRUMENTS. All deeds, leases, transfers, contracts,
bonds, notes and other obligations authorized to be executed by an officer of
the corporation in its behalf shall be signed by the President or Treasurer, or
by any other officer of the corporation designated by the Board of Directors,
except as the Board of Directors may generally or in particular cases otherwise
determine.
4. VOTING OF SECURITIES. Unless otherwise provided by the Board of
Directors, the President or Treasurer may waive notice of and act on behalf of
this corporation, or appoint another person or persons to act as proxy or
attorney in fact for this corporation with or without discretionary power and/or
power of substitution, at any meeting of stockholders or shareholders of any
other corporation or organization, any of whose securities are held by this
corporation.
5. RESIDENT AGENT. The Board of Directors may appoint a resident agent
upon whom legal process may be served in any action or proceeding against the
corporation.
6. CORPORATE RECORDS. The original or attested copies of the
Certificate of Incorporation, By-laws and records of all meetings of the
incorporators, stockholders and the Board of Directors and the stock and
transfer records, which shall contain the names of all stockholders, their
record addresses and the amount of stock held by each, shall be kept at the
principal office of the corporation, at the office of its counsel, or at an
office of its transfer agent.
7. CERTIFICATE OF INCORPORATION. All references in these By-laws to the
Certificate of Incorporation shall be deemed to refer to the Certificate of
Incorporation of the corporation, as amended and in effect from time to time.
8. AMENDMENTS. These By-laws may be amended or repealed or additional
By-laws adopted by the stockholders or by the Board of Directors; provided, that
(a) the Board of Directors may not amend or repeal Article V or this Section 8
of Article VI or any provision of these By-laws which by law, by the Certificate
of Incorporation or by these By-laws requires action by the stockholders, (b)
any amendment or repeal of these By-laws by the Board of Directors and any
By-law adopted by the Board of Directors may be amended or repealed by the
stockholders.
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AMENDED AND RESTATED
BY-LAWS
OF
INTERSPEED, INC.
(the "Corporation")
ARTICLE I
STOCKHOLDERS
SECTION 1. ANNUAL MEETING. The annual meeting of stockholders (any such
meeting being referred to in these By-laws as an "Annual Meeting") shall be held
at the hour, date and place within or without the United States which is fixed
by the majority of the Board of Directors, the Chairman of the Board, if one is
elected, or the President, which time, date and place may subsequently be
changed at any time by vote of the Board of Directors. If no Annual Meeting has
been held for a period of thirteen months after the Corporation's last Annual
Meeting, a meeting in lieu thereof may be held, and such meeting shall have, for
the purposes of these By-laws or otherwise, all the force and effect of an
Annual Meeting. Any and all references hereafter in these By-laws to an Annual
Meeting or Annual Meetings also shall be deemed to refer to any meeting(s) in
lieu thereof.
SECTION 2. SPECIAL MEETINGS. Except as otherwise required by law and
subject to the rights, if any, of the holders of any series of preferred stock,
special meetings of the stockholders of the Corporation may be called only by
the Board of Directors pursuant to a resolution approved by the affirmative vote
of a majority of the directors then in office.
SECTION 3. NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS.
(a) ANNUAL MEETINGS OF STOCKHOLDERS.
(1) 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 (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 was a stockholder of record at the time of giving of
notice provided for in this By-law, who is entitled to vote at the
meeting and who complied with the notice procedures set forth in this
By-law.
<PAGE>
(2) For nominations or other business to be properly brought
before an Annual Meeting by a stockholder pursuant to clause (c) of
paragraph (a)(1) of this Bylaw, the stockholder must have given timely
notice thereof in writing to the Secretary of the Corporation and such
other business must 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 90th day nor earlier than the close of
business on the 120th day prior to the first anniversary of the
preceding year's Annual Meeting; provided, however, that in the event
that the date of the Annual Meeting is more than 30 days before or more
than 60 days after such anniversary date, notice by the stockholder to
be timely must be so delivered not earlier than the close of business
on the 120th day prior to such Annual Meeting and not later than the
close of business on the later of the 90th day prior to such Annual
Meeting or the 10th day following the day on which public announcement
of the date of such meeting is first made. 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
(the "Exchange Act") and Rule 14a-11 thereunder (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 which are owned beneficially and of record by
such stockholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of
paragraph (a)(2) of this By-law to the contrary, in the event that the
number of directors to be elected to the Board of Directors of the
Corporation is increased and there is no public announcement naming all
of the nominees for director or specifying the size of the increased
Board of Directors made by the Corporation at least 100 days prior to
the first anniversary of the preceding year's Annual Meeting, a
stockholder's notice required by this By-law shall also be considered
timely, but only with respect to nominees for any new positions created
by such increase, if it shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close
of business on the 10th day following the day on which such public
announcement is first made by the Corporation.
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(b) SPECIAL MEETINGS OF STOCKHOLDERS. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the Corporation's notice of meeting. Nominations of
persons for election to the Board of Directors may be made at a special meeting
of stockholders at which directors are to be elected pursuant to the
Corporation's notice of meeting (a) by or at the direction of the Board of
Directors or (b) by any stockholder of the Corporation who is a stockholder of
record at the time of giving of notice provided for in this By-law, who shall be
entitled to vote at the meeting and who complies with the notice procedures set
forth in this By-law. In the event the Corporation calls a special meeting of
stockholders for the purpose of electing one or more directors to the Board of
Directors, any such stockholder may nominate a person or persons (as the case
may be), for election to such position(s) as specified in the Corporation's
notice of meeting, if the stockholder's notice required by paragraph (a)(2) of
this By-law shall be delivered to the Secretary at the principal executive
offices of the Corporation not earlier than the close of business on the 120th
day prior to such special meeting and not later than the close of business on
the later of the 90th day prior to such special meeting or the 10th day
following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting. In no event shall the public announcement of an
adjournment of a special meeting commence a new time period for the giving of a
stockholder's notice as described above.
(c) GENERAL.
(1) Only such persons who are nominated in accordance with the
procedures set forth in this By-law shall be eligible for election as
and to serve as directors and only such business shall be conducted at
a meeting of stockholders as shall have been brought before the meeting
in accordance with the procedures set forth in this By-law. If the
Board of Directors or a designated committee thereof determines that
any stockholder proposal or nomination was not made in a timely fashion
in accordance with the provisions of this By-law or that the
information provided in a stockholder's notice does not satisfy the
information requirements of this By-law in any material respect, such
proposal or nomination shall not be presented for action at the Annual
Meeting in question. If neither the Board of Directors nor such
committee makes a determination as to the validity of any stockholder
proposal or nomination in the manner set forth above, the presiding
officer of the Annual Meeting shall determine whether the stockholder
proposal or nomination was made in accordance with the terms of this
By-law. If the presiding officer determines that any stockholder
proposal or nomination was not made in a timely fashion in accordance
with the provisions of this By-law or that the information provided in
a stockholder's notice does not satisfy the information requirements of
this By-law in any material respect, such proposal or nomination shall
not be presented for action at the Annual Meeting in question. If the
Board of Directors, a designated committee thereof or the presiding
officer determines that a stockholder proposal or nomination was made
in accordance with the requirements of this By-law, the presiding
officer shall so declare at the Annual
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Meeting and ballots shall be provided for use at the meeting with
respect to such proposal or nomination.
(2) For purposes of this By-law, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News
Service, Associated Press or comparable national news service or in a
document publicly filed by the Corporation with the Securities and
Exchange Commission (including, without limitation, a Form 8-K)
pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this By-law, a
stockholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to
the matters set forth in this By-law. Nothing in this By-law shall be
deemed to affect any rights of (i) stockholders to request inclusion of
proposals in the Corporation's proxy statement pursuant to Rule 14a-8
under the Exchange Act or (ii) the holders of any series of preferred
stock to elect directors under specified circumstances.
SECTION 4. MATTERS TO BE CONSIDERED AT SPECIAL MEETINGS. Only those
matters set forth in the notice of the special meeting may be considered or
acted upon at a special meeting of stockholders of the Corporation, unless
otherwise provided by law.
SECTION 5. NOTICE OF MEETINGS; ADJOURNMENTS. A written notice of each
Annual Meeting stating the hour, date and place of such Annual Meeting shall be
given by the Secretary or an Assistant Secretary (or other person authorized by
these By-laws or by law) not less than 10 days nor more than 60 days before the
Annual Meeting, to each stockholder entitled to vote thereat and to each
stockholder who, by law or under the Amended and Restated Certificate of
Incorporation of the Corporation (as the same may hereafter be amended and/or
restated, the "Certificate") or under these By-laws, is entitled to such notice,
by delivering such notice to him or by mailing it, postage prepaid, addressed to
such stockholder at the address of such stockholder as it appears on the
Corporation's stock transfer books. Such notice shall be deemed to be given when
hand delivered to such address or deposited in the mail so addressed, with
postage prepaid.
Notice of all special meetings of stockholders shall be given in the
same manner as provided for Annual Meetings, except that the written notice of
all special meetings shall state the purpose or purposes for which the meeting
has been called.
Notice of an Annual Meeting or special meeting of stockholders need not
be given to a stockholder if a written waiver of notice is signed before or
after such meeting by such stockholder or if such stockholder attends such
meeting, unless such attendance was for the express purpose of objecting at the
beginning of the meeting to the transaction of any business because the meeting
was not lawfully called or convened. Neither the business to be transacted
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at, nor the purpose of, any Annual Meeting or special meeting of stockholders
need be specified in any written waiver of notice.
The Board of Directors may postpone and reschedule any previously
scheduled Annual Meeting or special meeting of stockholders and any record date
with respect thereto, regardless of whether any notice or public disclosure with
respect to any such meeting has been sent or made pursuant to Section 3 of this
Article I of these By-laws or otherwise. In no event shall the public
announcement of an adjournment, postponement or rescheduling of any previously
scheduled meeting of stockholders commence a new time period for the giving of a
stockholder's notice under Section 3 of this Article I of these By-laws.
When any meeting is convened, the presiding officer may adjourn the
meeting if (a) no quorum is present for the transaction of business, (b) the
Board of Directors determines that adjournment is necessary or appropriate to
enable the stockholders to consider fully information which the Board of
Directors determines has not been made sufficiently or timely available to
stockholders, or (c) the presiding officer determines that adjournment is
otherwise in the best interests of the Corporation. When any Annual Meeting or
special meeting of stockholders is adjourned to another hour, date or place,
notice need not be given of the adjourned meeting other than an announcement at
the meeting at which the adjournment is taken of the hour, date and place to
which the meeting is adjourned; provided, however, that if the adjournment is
for more than 30 days, or if after the adjournment a new record date is fixed
for the adjourned meeting, notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote thereat and each stockholder who, by
law or under the Certificate or these By-laws, is entitled to such notice.
SECTION 6. QUORUM. A majority of the shares entitled to vote, present
in person or represented by proxy, shall constitute a quorum at any meeting of
stockholders. If less than a quorum is present at a meeting, the holders of
voting stock representing a majority of the voting power present at the meeting
or the presiding officer may adjourn the meeting from time to time, and the
meeting may be held as adjourned without further notice, except as provided in
Section 5 of this Article I. At such adjourned meeting at which a quorum is
present, any business may be transacted which might have been transacted at the
meeting as originally noticed. The stockholders present at a duly constituted
meeting may continue to transact business until adjournment, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum.
SECTION 7. VOTING AND PROXIES. Stockholders shall have one vote for
each share of stock entitled to vote owned by them of record according to the
books of the Corporation, unless otherwise provided by law or by the
Certificate. Stockholders may vote either in person or by written proxy, but no
proxy shall be voted or acted upon after three years from its date, unless the
proxy provides for a longer period. Proxies shall be filed with the Secretary of
the meeting before being voted. Except as otherwise limited therein or as
otherwise provided by law, proxies shall entitle the persons authorized thereby
to vote at any adjournment of such
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meeting, but they shall not be valid after final adjournment of such meeting. A
proxy with respect to stock held in the name of two or more persons shall be
valid if executed by or on behalf of any one of them unless at or prior to the
exercise of the proxy the Corporation receives a specific written notice to the
contrary from any one of them.
SECTION 8. ACTION AT MEETING. When a quorum is present at any meeting,
any matter before any meeting of stockholders shall be decided by a majority of
the votes properly cast on such matter other than an election to office, except
where a larger vote is required by law, by the Certificate or by these By-laws.
Any election of directors by stockholders shall be determined by a plurality of
the votes properly cast on the election of directors, except where a larger vote
is required by law, by the Certificate or by these By-laws. The Corporation
shall not directly or indirectly vote any shares of its own stock; provided,
however, that the Corporation may vote shares which it holds in a fiduciary
capacity to the extent permitted by law.
SECTION 9. STOCKHOLDER LISTS. The Secretary or an Assistant Secretary
(or the Corporation's transfer agent or other person authorized by these By-laws
or by law) shall prepare and make, at least 10 days before every Annual Meeting
or special meeting of stockholders, a complete list of the stockholders entitled
to vote at the meeting, arranged in alphabetical order, and showing the address
of each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least 10 days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the hour, date and place of
the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
SECTION 10. PRESIDING OFFICER. The Chairman of the Board, if one is
elected, or if not elected or in his or her absence, the President, shall
preside at all Annual Meetings or special meetings of stockholders and shall
have the power, among other things, to adjourn such meeting at any time and from
time to time, subject to Sections 5 and 6 of this Article I. The order of
business and all other matters of procedure at any meeting of the stockholders
shall be determined by the presiding officer.
SECTION 11. VOTING PROCEDURES AND INSPECTORS OF ELECTIONS. The
Corporation shall, in advance of any meeting of stockholders, appoint one or
more inspectors to act at the meeting and make a written report thereof. The
Corporation may designate one or more persons as alternate inspectors to replace
any inspector who fails to act. If no inspector or alternate is able to act at a
meeting of stockholders, the presiding officer shall appoint one or more
inspectors to act at the meeting. Any inspector may, but need not, be an
officer, employee or agent of the Corporation. Each inspector, before entering
upon the discharge of his or her duties, shall take and sign an oath faithfully
to execute the duties of inspector with strict
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impartiality and according to the best of his or her ability. The inspectors
shall perform such duties as are required by the General Corporation Law of the
State of Delaware, as amended from time to time (the "DGCL"), including the
counting of all votes and ballots. The inspectors may appoint or retain other
persons or entities to assist the inspectors in the performance of the duties of
the inspectors. The presiding officer may review all determinations made by the
inspectors, and in so doing the presiding officer shall be entitled to exercise
his or her sole judgment and discretion and he or she shall not be bound by any
determinations made by the inspectors. All determinations by the inspectors and,
if applicable, the presiding officer, shall be subject to further review by any
court of competent jurisdiction.
ARTICLE II
DIRECTORS
SECTION 1. POWERS. The business and affairs of the Corporation shall be
managed by or under the direction of the Board of Directors except as otherwise
provided by the Certificate or required by law.
SECTION 2. NUMBER AND TERMS. The number of directors of the Corporation
shall be fixed solely by resolution duly adopted from time to time by the Board
of Directors. The directors shall hold office as provided in the Certificate.
SECTION 3. QUALIFICATION. No director need be a stockholder of the
Corporation.
SECTION 4. VACANCIES. Subject to the rights, if any, of the holders of
any series of preferred stock to elect directors and to fill vacancies in the
Board of Directors relating thereto, any and all vacancies in the Board of
Directors, however occurring, including, without limitation, by reason of an
increase in size of the Board of Directors, or the death, resignation,
disqualification or removal of a director, shall be filled solely by the
affirmative vote of a majority of the remaining directors then in office, even
if less than a quorum of the Board of Directors. Any director appointed in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the class of directors in which the new directorship was
created or the vacancy occurred and until such director's successor shall have
been duly elected and qualified or until his or her earlier resignation or
removal. Subject to the rights, if any, of the holders of any series of
preferred stock to elect directors, when the number of directors is increased or
decreased, the Board of Directors shall determine the class or classes to which
the increased or decreased number of directors shall be apportioned; provided,
however, that no decrease in the number of directors shall shorten the term of
any incumbent director. In the event of a vacancy in the Board of Directors, the
remaining directors, except as otherwise provided by law, may exercise the
powers of the full Board of Directors until the vacancy is filled.
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SECTION 5. REMOVAL. Directors may be removed from office in the manner
provided in the Certificate.
SECTION 6. RESIGNATION. A director may resign at any time by giving
written notice to the Chairman of the Board, if one is elected, the President or
the Secretary. A resignation shall be effective upon receipt, unless the
resignation otherwise provides.
SECTION 7. REGULAR MEETINGS. The regular annual meeting of the Board of
Directors shall be held, without notice other than this Section 7, on the same
date and at the same place as the Annual Meeting following the close of such
meeting of stockholders. Other regular meetings of the Board of Directors may be
held at such hour, date and place as the Board of Directors may by resolution
from time to time determine without notice other than such resolution.
SECTION 8. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called, orally or in writing, by or at the request of a majority of the
directors, the Chairman of the Board, if one is elected, or the President. The
person calling any such special meeting of the Board of Directors may fix the
hour, date and place thereof.
SECTION 9. NOTICE OF MEETINGS. Notice of the hour, date and place of
all special meetings of the Board of Directors shall be given to each director
by the Secretary or an Assistant Secretary, or in case of the death, absence,
incapacity or refusal of such persons, by the Chairman of the Board, if one is
elected, or the President or such other officer designated by the Chairman of
the Board, if one is elected, or the President. Notice of any special meeting of
the Board of Directors shall be given to each director in person, by telephone,
or by facsimile, telex, telecopy, telegram, or other written form of electronic
communication, sent to his or her business or home address, at least 24 hours in
advance of the meeting, or by written notice mailed to his or her business or
home address, at least 48 hours in advance of the meeting. Such notice shall be
deemed to be delivered when hand delivered to such address, read to such
director by telephone, deposited in the mail so addressed, with postage thereon
prepaid if mailed, dispatched or transmitted if faxed, telexed or telecopied, or
when delivered to the telegraph company if sent by telegram.
When any Board of Directors meeting, either regular or special, is
adjourned for 30 days or more, notice of the adjourned meeting shall be given as
in the case of an original meeting. It shall not be necessary to give any notice
of the hour, date or place of any meeting adjourned for less than 30 days or of
the business to be transacted thereat, other than an announcement at the meeting
at which such adjournment is taken of the hour, date and place to which the
meeting is adjourned.
A written waiver of notice signed before or after a meeting by a
director and filed with the records of the meeting shall be deemed to be
equivalent to notice of the meeting. The attendance of a director at a meeting
shall constitute a waiver of notice of such meeting, except
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where a director attends a meeting for the express purpose of objecting at the
beginning of the meeting to the transaction of any business because such meeting
is not lawfully called or convened. Except as otherwise required by law, by the
Certificate or by these By-laws, neither the business to be transacted at, nor
the purpose of, any meeting of the Board of Directors need be specified in the
notice or waiver of notice of such meeting.
SECTION 10. QUORUM. At any meeting of the Board of Directors, a
majority of the total number of directors then in office shall constitute a
quorum for the transaction of business, but if less than a quorum is present at
a meeting, a majority of the directors present may adjourn the meeting from time
to time, and the meeting may be held as adjourned without further notice, except
as provided in Section 9 of this Article II. Any business which might have been
transacted at the meeting as originally noticed may be transacted at such
adjourned meeting at which a quorum is present.
SECTION 11. ACTION AT MEETING. At any meeting of the Board of Directors
at which a quorum is present, a majority of the directors present may take any
action on behalf of the Board of Directors, unless otherwise required by law, by
the Certificate or by these By-laws.
SECTION 12. ACTION BY CONSENT. Any action required or permitted to be
taken at any meeting of the Board of Directors may be taken without a meeting if
all members of the Board of Directors consent thereto in writing. Such written
consent shall be filed with the records of the meetings of the Board of
Directors and shall be treated for all purposes as a vote at a meeting of the
Board of Directors.
SECTION 13. MANNER OF PARTICIPATION. Directors may participate in
meetings of the Board of Directors by means of conference telephone or similar
communications equipment by means of which all directors participating in the
meeting can hear each other, and participation in a meeting in accordance
herewith shall constitute presence in person at such meeting for purposes of
these By-laws.
SECTION 14. COMMITTEES. The Board of Directors, by vote of a majority
of the directors then in office, may elect from its number one or more
committees, including, without limitation, an Executive Committee, a
Compensation Committee, a Stock Option Committee and an Audit Committee, and may
delegate thereto some or all of its powers except those which by law, by the
Certificate or by these By-laws may not be delegated. Except as the Board of
Directors may otherwise determine, any such committee may make rules for the
conduct of its business, but unless otherwise provided by the Board of Directors
or in such rules, its business shall be conducted so far as possible in the same
manner as is provided by these By-laws for the Board of Directors. All members
of such committees shall hold such offices at the pleasure of the Board of
Directors. The Board of Directors may abolish any such committee at any time.
Any committee to which the Board of Directors delegates any of its powers or
duties shall keep records of its meetings and shall report its action to the
Board of Directors.
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SECTION 15. COMPENSATION OF DIRECTORS. Directors shall receive such
compensation for their services as shall be determined by a majority of the
Board of Directors provided that directors who are serving the Corporation as
employees and who receive compensation for their services as such, shall not
receive any salary or other compensation for their services as directors of the
Corporation.
ARTICLE III
OFFICERS
SECTION 1. ENUMERATION. The officers of the Corporation shall consist
of a President, a Treasurer, a Secretary and such other officers, including,
without limitation, a Chairman of the Board of Directors, a Chief Executive
Officer and one or more Vice Presidents (including Executive Vice Presidents or
Senior Vice Presidents), Assistant Vice Presidents, Assistant Treasurers and
Assistant Secretaries, as the Board of Directors may determine.
SECTION 2. ELECTION. At the regular annual meeting of the Board
following the Annual Meeting, the Board of Directors shall elect the President,
the Treasurer and the Secretary. Other officers may be elected by the Board of
Directors at such regular annual meeting of the Board of Directors or at any
other regular or special meeting.
SECTION 3. QUALIFICATION. No officer need be a stockholder or a
director. Any person may occupy more than one office of the Corporation at any
time. Any officer may be required by the Board of Directors to give bond for the
faithful performance of his or her duties in such amount and with such sureties
as the Board of Directors may determine.
SECTION 4. TENURE. Except as otherwise provided by the Certificate or
by these Bylaws, each of the officers of the Corporation shall hold office until
the regular annual meeting of the Board of Directors following the next Annual
Meeting and until his or her successor is elected and qualified or until his or
her earlier resignation or removal.
SECTION 5. RESIGNATION. Any officer may resign by delivering his or her
written resignation to the Corporation addressed to the President or the
Secretary, and such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event.
SECTION 6. REMOVAL. Except as otherwise provided by law, the Board of
Directors may remove any officer with or without cause by the affirmative vote
of a majority of the directors then in office.
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SECTION 7. ABSENCE OR DISABILITY. In the event of the absence or
disability of any officer, the Board of Directors may designate another officer
to act temporarily in place of such absent or disabled officer.
SECTION 8. VACANCIES. Any vacancy in any office may be filled for the
unexpired portion of the term by the Board of Directors.
SECTION 9. PRESIDENT. The President shall, subject to the direction of
the Board of Directors, have general supervision and control of the
Corporation's business. If there is no Chairman of the Board or if he or she is
absent, the President shall preside, when present, at all meetings of
stockholders and of the Board of Directors. The President shall have such other
powers and perform such other duties as the Board of Directors may from time to
time designate.
SECTION 10. CHAIRMAN OF THE BOARD. The Chairman of the Board, if one is
elected, shall preside, when present, at all meetings of the stockholders and of
the Board of Directors. The Chairman of the Board shall have such other powers
and shall perform such other duties as the Board of Directors may from time to
time designate.
SECTION 11. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer, if
one is elected, shall have such powers and shall perform such duties as the
Board of Directors may from time to time designate.
SECTION 12. VICE PRESIDENTS AND ASSISTANT VICE PRESIDENTS. Any Vice
President (including any Executive Vice President or Senior Vice President) and
any Assistant Vice President shall have such powers and shall perform such
duties as the Board of Directors or the Chief Executive Officer may from time to
time designate.
SECTION 13. TREASURER AND ASSISTANT TREASURERS. The Treasurer shall,
subject to the direction of the Board of Directors and except as the Board of
Directors or the Chief Executive Officer may otherwise provide, have general
charge of the financial affairs of the Corporation and shall cause to be kept
accurate books of account. The Treasurer shall have custody of all funds,
securities, and valuable documents of the Corporation. He or she shall have such
other duties and powers as may be designated from time to time by the Board of
Directors or the Chief Executive Officer.
Any Assistant Treasurer shall have such powers and perform such duties
as the Board of Directors or the Chief Executive Officer may from time to time
designate.
SECTION 14. SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall
record all the proceedings of the meetings of the stockholders and the Board of
Directors (including committees of the Board) in books kept for that purpose. In
his or her absence from any such meeting, a temporary secretary chosen at the
meeting shall record the proceedings thereof.
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The Secretary shall have charge of the stock ledger (which may, however, be kept
by any transfer or other agent of the Corporation). The Secretary shall have
custody of the seal of the Corporation, and the Secretary, or an Assistant
Secretary, shall have authority to affix it to any instrument requiring it, and,
when so affixed, the seal may be attested by his or her signature or that of an
Assistant Secretary. The Secretary shall have such other duties and powers as
may be designated from time to time by the Board of Directors or the Chief
Executive Officer. In the absence of the Secretary, any Assistant Secretary may
perform his or her duties and responsibilities.
Any Assistant Secretary shall have such powers and perform such duties
as the Board of Directors or the Chief Executive Officer may from time to time
designate.
SECTION 15. OTHER POWERS AND DUTIES. Subject to these By-laws and to
such limitations as the Board of Directors may from time to time prescribe, the
officers of the Corporation shall each have such powers and duties as generally
pertain to their respective offices, as well as such powers and duties as from
time to time may be conferred by the Board of Directors or the Chief Executive
Officer.
ARTICLE IV
CAPITAL STOCK
SECTION 1. CERTIFICATES OF STOCK. Each stockholder shall be entitled to
a certificate of the capital stock of the Corporation in such form as may from
time to time be prescribed by the Board of Directors. Such certificate shall be
signed by the Chairman of the Board of Directors, the President or a Vice
President and by the Treasurer or an Assistant Treasurer, or the Secretary or an
Assistant Secretary. The Corporation seal and the signatures by the
Corporation's officers, the transfer agent or the registrar may be facsimiles.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed on such certificate shall have 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 time of its issue. Every certificate
for shares of stock which are subject to any restriction on transfer and every
certificate issued when the Corporation is authorized to issue more than one
class or series of stock shall contain such legend with respect thereto as is
required by law.
SECTION 2. TRANSFERS. Subject to any restrictions on transfer and
unless otherwise provided by the Board of Directors, shares of stock may be
transferred only on the books of the Corporation by the surrender to the
Corporation or its transfer agent of the certificate theretofore properly
endorsed or accompanied by a written assignment or power of attorney properly
executed, with transfer stamps (if necessary) affixed, and with such proof of
the authenticity of signature as the Corporation or its transfer agent may
reasonably require.
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SECTION 3. RECORD HOLDERS. Except as may otherwise be required by law,
by the Certificate or by these By-laws, the Corporation shall be entitled to
treat the record holder of stock as shown on its books as the owner of such
stock for all purposes, including the payment of dividends and the right to vote
with respect thereto, regardless of any transfer, pledge or other disposition of
such stock, until the shares have been transferred on the books of the
Corporation in accordance with the requirements of these By-laws.
It shall be the duty of each stockholder to notify the Corporation of
his or her post office address and any changes thereto.
SECTION 4. RECORD DATE. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix a record date, which record
date shall not precede the date upon which the resolution fixing the record date
is adopted by the Board of Directors, and which record date: (a) in the case of
determination of stockholders entitled to vote at any meeting of stockholders,
shall, unless otherwise required by law, not be more than sixty nor less than
ten days before the date of such meeting and (b) in the case of any other
action, shall not be more than sixty days prior to such other action. If no
record date is fixed: (i) 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 day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held and (ii) the record date for determining stockholders
for any other purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto.
SECTION 5. REPLACEMENT OF CERTIFICATES. In case of the alleged loss,
destruction or mutilation of a certificate of stock, a duplicate certificate may
be issued in place thereof, upon such terms as the Board of Directors may
prescribe.
ARTICLE V
INDEMNIFICATION
SECTION 1. DEFINITIONS. For purposes of this Article:
(a) "Director" means any person who serves or has served the
Corporation as a director on the Board of Directors of the Corporation.
(b) "Officer" means any person who serves or has served the Corporation
as an officer appointed by the Board of Directors of the Corporation;
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(c) "Non-Officer Employee" means any person who serves or has served as
an employee of the Corporation, but who is not or was not a Director or Officer;
(d) "Proceeding" means any threatened, pending or completed action,
suit, arbitration, alternate dispute resolution mechanism, inquiry,
investigation, administrative hearing or other proceeding, whether civil,
criminal, administrative, arbitrative or investigative;
(e) "Expenses" means all reasonable attorneys' fees, retainers, court
costs, transcript costs, fees of expert witnesses, private investigators and
professional advisors (including, without limitation, accountants and investment
bankers), travel expenses, duplicating costs, printing and binding costs, costs
of preparation of demonstrative evidence and other courtroom presentation aids
and devices, costs incurred in connection with document review, organization,
imaging and computerization, telephone charges, postage, delivery service fees,
and all other disbursements, costs or expenses of the type customarily incurred
in connection with prosecuting, defending, preparing to prosecute or defend,
investigating, being or preparing to be a witness in, settling or otherwise
participating in, a Proceeding;
(f) "Corporate Status" describes the status of a person who (i) in the
case of a Director, is or was a director of the Corporation and is or was acting
in such capacity, (ii) in the case of an Officer, is or was an officer, employee
or agent of the Corporation or is or was a director, officer, employee or agent
of any other corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise which such Officer is or was serving at the request of
the Corporation, and (iii) in the case of a Non-Officer Employee, is or was an
employee of the Corporation or is or was a director, officer, employee or agent
of any other corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise which such Non- Officer Employee is or was serving at
the request of the Corporation. For purposes of subsection (ii) of this Section
1(f), an officer or director of the Company who is serving as a director,
partner, trustee, officer, employee or agent of a Subsidiary shall be deemed to
be serving at the request of the Company;
(g) "Disinterested Director" means, with respect to each Proceeding in
respect of which indemnification is sought hereunder, a Director of the
Corporation who is not and was not a party to such Proceeding; and
(h) "Subsidiary" shall mean any corporation, partnership, limited
liability company, joint venture, trust or other entity of which the Corporation
owns (either directly or through or together with another Subsidiary of the
Corporation) either (i) a general partner, managing member or other similar
interest or (ii) (A) 50% or more of the voting power of the voting capital
equity interests of such corporation, partnership, limited liability company,
joint venture or other entity, or (B) 50% or more of the outstanding voting
capital stock or other voting equity interests of such corporation, partnership,
limited liability company, joint venture or other entity.
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SECTION 2. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Subject to the
operation of Section 4 of this Article V of these By-laws, each Director and
Officer shall be indemnified and held harmless by the Corporation to the fullest
extent authorized by the DGCL, as the same exists or may hereafter be amended
(but, in the case of any such amendment, only to the extent that such amendment
permits the Corporation to provide broader indemnification rights than such law
permitted the Corporation to provide prior to such amendment) against any and
all Expenses, judgments, penalties, fines and amounts reasonably paid in
settlement that are incurred by such Director or Officer or on such Director's
or Officer's behalf in connection with any threatened, pending or completed
Proceeding or any claim, issue or matter therein, which such Director or Officer
is, or is threatened to be made, a party to or participant in by reason of such
Director's or Officer's Corporate Status, if such Director or Officer acted in
good faith and in a manner such Director or Officer reasonably believed to be in
or not opposed to the best interests of the Corporation and, with respect to any
criminal proceeding, had no reasonable cause to believe his or her conduct was
unlawful. The rights of indemnification provided by this Section 2 shall
continue as to a Director or Officer after he or she has ceased to be a Director
or Officer and shall inure to the benefit of his or her heirs, executors,
administrators and personal representatives. Notwithstanding the foregoing, the
Corporation shall indemnify any Director or Officer seeking indemnification in
connection with a Proceeding initiated by such Director or Officer only if such
Proceeding was authorized by the Board of Directors of the Corporation, unless
such Proceeding was brought to enforce an Officer or Director's rights to
Indemnification under these By-laws.
SECTION 3. INDEMNIFICATION OF NON-OFFICER EMPLOYEES. Subject to the
operation of Section 4 of this Article V of these By-laws, each Non-Officer
Employee may, in the discretion of the Board of Directors of the Corporation, be
indemnified by the Corporation to the fullest extent authorized by the DGCL, as
the same exists or may hereafter be amended, against any or all Expenses,
judgments, penalties, fines and amounts reasonably paid in settlement that are
incurred by such Non-Officer Employee or on such Non-Officer Employee's behalf
in connection with any threatened, pending or completed Proceeding, or any
claim, issue or matter therein, which such Non-Officer Employee is, or is
threatened to be made, a party to or participant in by reason of such
Non-Officer Employee's Corporate Status, if such Non-Officer Employee acted in
good faith and in a manner such Non-Officer Employee reasonably believed to be
in or not opposed to the best interests of the Corporation and, with respect to
any criminal proceeding, had no reasonable cause to believe his or her conduct
was unlawful. The rights of indemnification provided by this Section 3 shall
exist as to a Non- Officer Employee after he or she has ceased to be a
Non-Officer Employee and shall inure to the benefit of his or her heirs,
personal representatives, executors and administrators. Notwithstanding the
foregoing, the Corporation may indemnify any Non-Officer Employee seeking
indemnification in connection with a Proceeding initiated by such Non-Officer
Employee only if such Proceeding was authorized by the Board of Directors of the
Corporation.
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SECTION 4. GOOD FAITH. Unless ordered by a court, no indemnification
shall be provided pursuant to this Article V to a Director, to an Officer or to
a Non-Officer Employee unless a determination shall have been made that such
person acted in good faith and in a manner such person reasonably believed to be
in or not opposed to the best interests of the Corporation and, with respect to
any criminal Proceeding, such person had no reasonable cause to believe his or
her conduct was unlawful. Such determination shall be made by (a) a majority
vote of the Disinterested Directors, even though less than a quorum of the Board
of Directors, (b) a committee comprised of Disinterested Directors, such
committee having been designated by a majority vote of the Disinterested
Directors (even though less than a quorum), (c) if there are no such
Disinterested Directors, or if a majority of Disinterested Directors so directs,
by independent legal counsel in a written opinion, or (d) by the stockholders of
the Corporation.
SECTION 5. ADVANCEMENT OF EXPENSES TO DIRECTORS PRIOR TO FINAL
DISPOSITION. The Corporation shall advance all Expenses incurred by or on behalf
of any Director in connection with any Proceeding in which such Director is
involved by reason of such Director's Corporate Status within 10 days after the
receipt by the Corporation of a written statement from such Director requesting
such advance or advances from time to time, whether prior to or after final
disposition of such Proceeding. Such statement or statements shall reasonably
evidence the Expenses incurred by such Director and shall be preceded or
accompanied by an undertaking by or on behalf of such Director to repay any
Expenses so advanced if it shall ultimately be determined that such Director is
not entitled to be indemnified against such Expenses.
SECTION 6. ADVANCEMENT OF EXPENSES TO OFFICERS AND NON-OFFICER
EMPLOYEES PRIOR TO FINAL DISPOSITION.
(a) ADVANCEMENT TO OFFICERS. The Corporation may, at the discretion of
the Board of Directors of the Corporation, advance any or all Expenses incurred
by or on behalf of any Officer in connection with any Proceeding in which such
is involved by reason of such Officer's Corporate Status upon the receipt by the
Corporation of a statement or statements from such Officer requesting such
advance or advances from time to time, whether prior to or after final
disposition of such Proceeding. Such statement or statements shall reasonably
evidence the Expenses incurred by such Officer and shall be preceded or
accompanied by an undertaking by or on behalf of such to repay any Expenses so
advanced if it shall ultimately be determined that such Officer is not entitled
to be indemnified against such Expenses.
(b) ADVANCEMENT TO NON-OFFICER EMPLOYEES. The Corporation may, at the
discretion of the Board of Directors or of any Officer who is authorized to act
on behalf of the Corporation, advance any or all Expenses incurred by or on
behalf of any Non-Officer Employee in connection with any Proceeding in which
such Non-Officer Employee is involved by reason of such Non-Officer Employee's
Corporate Status upon the receipt by the Corporation of a statement or
statements from such Non-Officer Employee requesting such advance or advances
from time to time, whether prior to or after final disposition of such
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Proceeding. Such statement or statements shall reasonably evidence the Expenses
incurred by such Non-Officer Employee and shall be preceded or accompanied by an
undertaking by or on behalf of such Non-Officer Employee to repay any Expenses
so advanced if it shall ultimately be determined that such Non-Officer Employee
is not entitled to be indemnified against such Expenses.
SECTION 7. CONTRACTUAL NATURE OF RIGHTS. The foregoing provisions of
this Article V shall be deemed to be a contract between the Corporation and each
Director and Officer entitled to the benefits hereof at any time while this
Article V is in effect, and any repeal or modification thereof shall not affect
any rights or obligations then existing with respect to any state of facts then
or theretofore existing or any Proceeding theretofore or thereafter brought
based in whole or in part upon any such state of facts. If a claim for
indemnification or advancement of Expenses hereunder by a Director or Officer is
not paid in full by the Corporation within (a) 60 days after receipt by the
Corporation's of a written claim for indemnification, or (b) in the case of a
Director, 10 days after receipt by the Corporation of documentation of Expenses
and the required undertaking, such Director or Officer may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim, and if successful in whole or in part, such Director or Officer shall
also be entitled to be paid the expenses of prosecuting such claim. The failure
of the Corporation (including its Board of Directors or any committee thereof,
independent legal counsel, or stockholders) to make a determination concerning
the permissibility of such indemnification or, in the case of a Director,
advancement of Expenses, under this Article V shall not be a defense to the
action and shall not create a presumption that such indemnification or
advancement is not permissible.
SECTION 8. NON-EXCLUSIVITY OF RIGHTS. The rights to indemnification and
advancement of Expenses set forth in this Article V shall not be exclusive of
any other right which any Director, Officer, or Non-Officer Employee may have or
hereafter acquire under any statute, provision of the Certificate or these
By-laws, agreement, vote of stockholders or Disinterested Directors or
otherwise.
SECTION 9. INSURANCE. The Corporation may maintain insurance, at its
expense, to protect itself and any Director, Officer or Non-Officer Employee
against any liability of any character asserted against or incurred by the
Corporation or any such Director, Officer or Non-Officer Employee, or arising
out of any such person's Corporate Status, whether or not the Corporation would
have the power to indemnify such person against such liability under the DGCL or
the provisions of this Article V.
ARTICLE VI
MISCELLANEOUS PROVISIONS
SECTION 1. FISCAL YEAR. Except as otherwise determined by the Board of
Directors, the fiscal year of the Corporation shall end on the last day of
September of each year.
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SECTION 2. SEAL. The Board of Directors shall have power to adopt and
alter the seal of the Corporation.
SECTION 3. EXECUTION OF INSTRUMENTS. All deeds, leases, transfers,
contracts, bonds, notes and other obligations to be entered into by the
Corporation in the ordinary course of its business without director action may
be executed on behalf of the Corporation by the Chairman of the Board, if one is
elected, the President or the Treasurer or any other officer, employee or agent
of the Corporation as the Board of Directors or Executive Committee may
authorize.
SECTION 4. VOTING OF SECURITIES. Unless the Board of Directors
otherwise provides, the Chairman of the Board, if one is elected, the President
or the Treasurer may waive notice of and act on behalf of this Corporation, or
appoint another person or persons to act as proxy or attorney in fact for this
Corporation with or without discretionary power and/or power of substitution, at
any meeting of stockholders or shareholders of any other corporation or
organization, any of whose securities are held by this Corporation.
SECTION 5. RESIDENT AGENT. The Board of Directors may appoint a
resident agent upon whom legal process may be served in any action or proceeding
against the Corporation.
SECTION 6. CORPORATE RECORDS. The original or attested copies of the
Certificate, By-laws and records of all meetings of the incorporators,
stockholders and the Board of Directors and the stock transfer books, which
shall contain the names of all stockholders, their record addresses and the
amount of stock held by each, may be kept outside the State of Delaware and
shall be kept at the principal office of the Corporation, at the office of its
counsel or at an office of its transfer agent or at such other place or places
as may be designated from time to time by the Board of Directors.
SECTION 7. AMENDMENT OF BY-LAWS.
(a) AMENDMENT BY DIRECTORS. Except as provided otherwise by law, these
By-laws may be amended or repealed by the Board of Directors by the affirmative
vote of a majority of the directors then in office.
(b) AMENDMENT BY STOCKHOLDERS. These By-laws may be amended or repealed
at any Annual Meeting, or special meeting of stockholders called for such
purpose, by the affirmative vote of at least two-thirds of the shares present in
person or represented by proxy at such meeting and entitled to vote on such
amendment or repeal, voting together as a single class; provided, however, that
if the Board of Directors recommends that stockholders approve such amendment or
repeal at such meeting of stockholders, such amendment or repeal shall only
require the affirmative vote of the majority of the shares present in person or
represented by proxy at such meeting and entitled to vote on such amendment or
repeal, voting together as a single class.
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Adopted ______________, 1999 and effective as of September __, 1999.
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INTERSPEED, INC.
1999 STOCK OPTION AND GRANT PLAN
SECTION 1. GENERAL PURPOSE OF THE PLAN; DEFINITIONS
The name of the plan is the Interspeed, Inc. 1999 Stock Option and
Grant Plan (the "Plan"). The purpose of the Plan is to encourage and enable the
officers, employees, Independent Directors and other key persons (including
consultants) of Interspeed, Inc. (the "Company") and its Subsidiaries upon whose
judgment, initiative and efforts the Company largely depends for the successful
conduct of its business to acquire a proprietary interest in the Company. It is
anticipated that providing such persons with a direct stake in the Company's
welfare will assure a closer identification of their interests with those of the
Company, thereby stimulating their efforts on the Company's behalf and
strengthening their desire to remain with the Company.
The following terms shall be defined as set forth below:
"ACT" means the Securities Exchange Act of 1934, as amended.
"ADMINISTRATOR" is defined in Section 2(a).
"AWARD" or "AWARDS," except where referring to a particular category of
grant under the Plan, shall include Incentive Stock Options, Non-Qualified Stock
Options, Stock Appreciation Rights, Deferred Stock Awards, Restricted Stock
Awards, Unrestricted Stock Awards, Performance Share Awards and Dividend
Equivalent Rights.
"BOARD" means the Board of Directors of the Company.
"CHANGE OF CONTROL" is defined in Section 17.
"CODE" means the Internal Revenue Code of 1986, as amended, and any
successor Code, and related rules, regulations and interpretations.
"COMMITTEE" means the Committee of the Board referred to in Section 2.
"COVERED EMPLOYEE" means an employee who is a "Covered Employee" within
the meaning of Section 162(m) of the Code.
"DEFERRED STOCK AWARD" means Awards granted pursuant to Section 8.
"DESIGNATED EXECUTIVES" means those officers, employees or key persons
of the Company designated by the Administrator from time to time as Designated
Executives.
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"DIVIDEND EQUIVALENT RIGHT" means Awards granted pursuant to
Section 12.
"EFFECTIVE DATE" means the date on which the Plan is approved by
stockholders as set forth in Section 19.
"FAIR MARKET VALUE" of the Stock on any given date means the fair
market value of the Stock determined in good faith by the Administrator;
provided, however, that (i) if the Stock is admitted to quotation on the
National Association of Securities Dealers Automated Quotation System
("NASDAQ"), NASDAQ National System or a national securities exchange, the
determination shall be made by reference to market quotations. If there are no
market quotations for such date, the determination shall be made by reference to
the last date preceding such date for which there are market quotations.
"INCENTIVE STOCK OPTION" means any Stock Option designated and
qualified as an "incentive stock option" as defined in Section 422 of the Code.
"INDEPENDENT DIRECTOR" means a member of the Board who is not also an
employee of the Company or any Subsidiary.
"NON-QUALIFIED STOCK OPTION" means any Stock Option that is not an
Incentive Stock Option.
"OPTION" or "STOCK OPTION" means any option to purchase shares of Stock
granted pursuant to Section 5.
"PERFORMANCE SHARE AWARD" means Awards granted pursuant to Section 10.
"PERFORMANCE CYCLE" means one or more periods of time, which may be of
varying and overlapping durations, as the Administrator may select, over which
the attainment of one or more performance criteria will be measured for the
purpose of determining a participant's right to and the payment of a Performance
Share Award, Restricted Stock Award or Deferred Stock Award.
"RESTRICTED STOCK AWARD" means Awards granted pursuant to Section 7.
"STOCK" means the Common Stock, par value $.01 per share, of the
Company, subject to adjustments pursuant to Section 3.
"STOCK APPRECIATION RIGHT" means any Award granted pursuant to
Section 6.
"SUBSIDIARY" means any corporation or other entity (other than the
Company) in any unbroken chain of corporations or other entities beginning with
the Company if each of the
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corporations or entities (other than the last corporation or entity in the
unbroken chain) owns stock or other interests possessing 50 percent or more of
the economic interest or the total combined voting power of all classes of stock
or other interests in one of the other corporations or entities in the chain.
"UNRESTRICTED STOCK AWARD" means any Award granted pursuant to
Section 9.
SECTION 2. ADMINISTRATION OF PLAN; ADMINISTRATOR AUTHORITY TO
SELECT PARTICIPANTS AND DETERMINE AWARDS
(a) COMMITTEE. The Plan shall be administered by either the Board or a
committee of not less than two Independent Directors (in either case, the
"Administrator").
(b) POWERS OF ADMINISTRATOR. The Administrator shall have the power and
authority to grant Awards consistent with the terms of the Plan, including the
power and authority:
(i) to select the individuals to whom Awards may from time to time
be granted;
(ii) to designate individuals from time to time as Designated
Executives;
(iii) to determine the time or times of grant, and the extent, if
any, of Incentive Stock Options, Non-Qualified Stock Options, Stock
Appreciation Rights, Restricted Stock Awards, Deferred Stock Awards,
Unrestricted Stock Awards, Performance Share Awards and Dividend
Equivalent Rights, or any combination of the foregoing, granted to any
one or more participants;
(iv) to determine the number of shares of Stock to be covered by any
Award;
(v) to determine and modify from time to time the terms and
conditions, including restrictions, not inconsistent with the terms of
the Plan, of any Award, which terms and conditions may differ among
individual Awards and participants, and to approve the form of written
instruments evidencing the Awards;
(vi) to accelerate at any time the exercisability or vesting of all
or any portion of any Award;
(vii) subject to the provisions of Section 5(a)(ii), to extend at
any time the period in which Stock Options may be exercised;
(viii) to determine at any time whether, to what extent, and under
what circumstances distribution or the receipt of Stock and other
amounts payable with respect to an Award shall be deferred either
automatically or at the election of the
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participant and whether and to what extent the Company shall pay or
credit amounts constituting interest (at rates determined by the
Administrator) or dividends or deemed dividends on such deferrals; and
(ix) at any time to adopt, alter and repeal such rules, guidelines
and practices for administration of the Plan and for its own acts and
proceedings as it shall deem advisable; to interpret the terms and
provisions of the Plan and any Award (including related written
instruments); to make all determinations it deems advisable for the
administration of the Plan; to decide all disputes arising in
connection with the Plan; and to otherwise supervise the administration
of the Plan.
All decisions and interpretations of the Administrator shall be binding
on all persons, including the Company and Plan participants.
(c) DELEGATION OF AUTHORITY TO GRANT AWARDS. The Administrator, in its
discretion, may delegate to the Chief Executive Officer of the Company all or
part of the Administrator's authority and duties with respect to the granting of
Awards at Fair Market Value, to individuals who are not subject to the reporting
and other provisions of Section 16 of the Act or "covered employees" within the
meaning of Section 162(m) of the Code. Any such delegation by the Administrator
shall include a limitation as to the amount of Awards that may be granted during
the period of the delegation and shall contain guidelines as to the
determination of the exercise price of any Stock Option or Stock Appreciation
Right, the conversion ratio or price of other Awards and the vesting criteria.
The Administrator may revoke or amend the terms of a delegation at any time but
such action shall not invalidate any prior actions of the Administrator's
delegate or delegates that were consistent with the terms of the Plan.
SECTION 3. STOCK ISSUABLE UNDER THE PLAN; MERGERS; SUBSTITUTION
(a) STOCK ISSUABLE. The maximum number of shares of Stock reserved and
available for issuance under the Plan shall be 1,012,868 shares; provided that
not more than 125,000 shares shall be issued in the form of Unrestricted Stock
Awards , Restricted Stock Awards, or Performance Share Awards except to the
extent such Awards are granted in lieu of cash compensation or fees. For
purposes of this limitation, the shares of Stock underlying any Awards which are
forfeited, cancelled, reacquired by the Company, satisfied without the issuance
of Stock or otherwise terminated (other than by exercise) shall be added back to
the shares of Stock available for issuance under the Plan. Subject to such
overall limitation, shares of Stock may be issued up to such maximum number
pursuant to any type or types of Award; provided, however, that Stock Options or
Stock Appreciation Rights with respect to no more than 125,000 shares of Stock
may be granted to any one individual participant during any calendar year
period. The shares available for issuance under the Plan may be authorized but
unissued shares of Stock or shares of Stock reacquired by the Company and held
in its treasury.
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(b) CHANGES IN STOCK. If, as a result of any reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split or other similar change in the Company's capital stock, the outstanding
shares of Stock are increased or decreased or are exchanged for a different
number or kind of shares or other securities of the Company, or additional
shares or new or different shares or other securities of the Company or other
non-cash assets are distributed with respect to such shares of Stock or other
securities, the Administrator shall make an appropriate or proportionate
adjustment in (i) the maximum number of shares reserved for issuance under the
Plan, (ii) the number of Stock Options or Stock Appreciation Rights that can be
granted to any one individual participant, (iii) the number and kind of shares
or other securities subject to any then outstanding Awards under the Plan, and
(iv) the price for each share subject to any then outstanding Stock Options and
Stock Appreciation Rights under the Plan, without changing the aggregate
exercise price (i.e., the exercise price multiplied by the number of Stock
Options and Stock Appreciation Rights) as to which such Stock Options and Stock
Appreciation Rights remain exercisable. The adjustment by the Administrator
shall be final, binding and conclusive. No fractional shares of Stock shall be
issued under the Plan resulting from any such adjustment, but the Administrator
in its discretion may make a cash payment in lieu of fractional shares.
The Administrator may also adjust the number of shares subject to
outstanding Awards and the exercise price and the terms of outstanding Awards to
take into consideration material changes in accounting practices or principles,
extraordinary dividends, acquisitions or dispositions of stock or property or
any other event if it is determined by the Administrator that such adjustment is
appropriate to avoid distortion in the operation of the Plan, provided that no
such adjustment shall be made in the case of an Incentive Stock Option, without
the consent of the participant, if it would constitute a modification, extension
or renewal of the Option within the meaning of Section 424(h) of the Code.
(c) MERGERS AND OTHER SALE EVENTS. In the case of (i) the dissolution
or liquidation of the Company, (ii) the sale of all or substantially all of the
assets of the Company on a consolidated basis to an unrelated person or entity,
(iii) a merger, reorganization or consolidation in which the holders of the
Company's outstanding voting power immediately prior to such transaction do not
own a majority of the outstanding voting power of the surviving or resulting
entity immediately upon completion of such transaction, (iv) the sale of all of
the Stock of the Company to an unrelated person or entity or (v) any other
transaction in which the owners of the Company's outstanding voting power prior
to such transaction do not own at least a majority of the outstanding voting
power of the relevant entity after the transaction, regardless of the form
thereof (in each case, a "Sale Event"), 100% of all unvested Options, Stock
Appreciation Rights and other Awards held by non-employee directors and
Designated Executives which are not vested as of the effective date of such Sale
Event shall become vested as of such effective date, except as the Committee may
otherwise specify with respect to particular Awards. Upon the effectiveness of
the Sale Event, the Plan and all outstanding Options, Stock Appreciation Rights,
Dividend Equivalent Rights and Performance Share Awards ("Contractual Awards")
granted hereunder shall terminate (and stock Awards
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may be subject to repurchase), except as the Committee may otherwise specify
with respect to particular Awards, unless provision is made in connection with
the Sale Event for the assumption of Awards, the continuation of Awards by the
Company as survivor or the substitution of such Awards with new Awards of the
successor entity or parent thereof, with appropriate adjustment as to the number
and kind of shares and, if appropriate, the per share exercise prices, as
provided in Section 3(b) above. The Committee may provide with respect to
particular Awards that in the event of such termination, a grantee shall be
permitted to exercise for a period of at least 15 days prior to the date of such
termination all outstanding Options held by such grantee which are then
exercisable or become exercisable upon the effectiveness of the Sale Event. The
treatment of Restricted Stock Awards, Deferred Stock Awards and Unrestricted
Stock Awards in connection with any such transaction shall be as specified in
the relevant agreement relating to such Award.
(d) SUBSTITUTE AWARDS. The Administrator may grant Awards under the
Plan in substitution for stock and stock based awards held by employees of
another corporation who become employees of the Company or a Subsidiary as the
result of a merger or consolidation of the employing corporation with the
Company or a Subsidiary or the acquisition by the Company or a Subsidiary of
property or stock of the employing corporation. The Administrator may direct
that the substitute awards be granted on such terms and conditions as the
Administrator considers appropriate in the circumstances. Any substitute Awards
granted under the Plan shall not count against the share limitation set forth in
Section 3(a).
SECTION 4. ELIGIBILITY
Participants in the Plan will be such full or part-time officers and
other employees, Independent Directors and key persons (including consultants
and prospective employees) of the Company and its Subsidiaries as are selected
from time to time by the Administrator in its sole discretion.
SECTION 5. STOCK OPTIONS
Any Stock Option granted under the Plan shall be in such form as the
Administrator may from time to time approve.
Stock Options granted under the Plan may be either Incentive Stock
Options or Non-Qualified Stock Options. Incentive Stock Options may be granted
only to employees of the Company or any Subsidiary that is a "subsidiary
corporation" within the meaning of Section 424(f) of the Code. To the extent
that any Option does not qualify as an Incentive Stock Option, it shall be
deemed a Non-Qualified Stock Option.
No Incentive Stock Option shall be granted under the Plan after June
17, 2009.
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(a) STOCK OPTIONS GRANTED TO EMPLOYEES AND KEY PERSONS. The
Administrator in its discretion may grant Stock Options to eligible employees
and key persons of the Company or any Subsidiary. Stock Options granted pursuant
to this Section 5(a) shall be subject to the following terms and conditions and
shall contain such additional terms and conditions, not inconsistent with the
terms of the Plan, as the Administrator shall deem desirable. If the
Administrator so determines, Stock Options may be granted in lieu of cash
compensation at the participant's election, subject to such terms and conditions
as the Administrator may establish.
(i) EXERCISE PRICE. The exercise price per share for the Stock
covered by a Stock Option granted pursuant to this Section 5(a) shall
be determined by the Administrator at the time of grant but shall not
be less than 100 percent of the Fair Market Value on the date of grant
in the case of Incentive Stock Options, or 85 percent of the Fair
Market Value on the date of grant, in the case of Non-Qualified Stock
Options (other than options granted in lieu of cash compensation). If
an employee owns or is deemed to own (by reason of the attribution
rules of Section 424(d) of the Code) more than 10 percent of the
combined voting power of all classes of stock of the Company or any
parent or subsidiary corporation and an Incentive Stock Option is
granted to such employee, the option price of such Incentive Stock
Option shall be not less than 110 percent of the Fair Market Value on
the grant date.
(ii) OPTION TERM. The term of each Stock Option shall be fixed by
the Administrator, but no Stock Option shall be exercisable more than
ten years after the date the option is granted. If an employee owns or
is deemed to own (by reason of the attribution rules of Section 424(d)
of the Code) more than 10 percent of the combined voting power of all
classes of stock of the Company or any parent or subsidiary
corporation and an Incentive Stock Option is granted to such employee,
the term of such option shall be no more than five years from the date
of grant.
(iii) EXERCISABILITY; RIGHTS OF A STOCKHOLDER. Stock Options
shall become exercisable at such time or times, whether or not in
installments, as shall be determined by the Administrator at or after
the grant date; provided, however, that Stock Options granted in lieu
of compensation shall be exercisable in full as of the grant date. The
Administrator may at any time accelerate the exercisability of all or
any portion of any Stock Option. An optionee shall have the rights of
a stockholder only as to shares acquired upon the exercise of a Stock
Option and not as to unexercised Stock Options.
(iv) METHOD OF EXERCISE. Stock Options may be exercised in whole
or in part, by giving written notice of exercise to the Company,
specifying the number of shares to be purchased. Payment of the
purchase price may be made by one or more of the following methods to
the extent provided in the Option Award agreement:
(A) In cash, by certified or bank check or other instrument
acceptable to the Administrator;
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(B) Through the delivery (or attestation to the ownership)
of shares of Stock that have been purchased by the optionee on
the open market or that have been beneficially owned by the
optionee for at least six months and are not then subject to
restrictions under any Company plan. Such surrendered shares
shall be valued at Fair Market Value on the exercise date;
(C) By the optionee delivering to the Company a properly
executed exercise notice together with irrevocable instructions
to a broker to promptly deliver to the Company cash or a check
payable and acceptable to the Company for the purchase price;
provided that in the event the optionee chooses to pay the
purchase price as so provided, the optionee and the broker shall
comply with such procedures and enter into such agreements of
indemnity and other agreements as the Administrator shall
prescribe as a condition of such payment procedure; or
(D) By the optionee delivering to the Company a promissory
note if the Board has expressly authorized the loan of funds to
the optionee for the purpose of enabling or assisting the
optionee to effect the exercise of his Stock Option; provided
that at least so much of the exercise price as represents the par
value of the Stock shall be paid other than with a promissory
note.
Payment instruments will be received subject to collection. The
delivery of certificates representing the shares of Stock to be
purchased pursuant to the exercise of a Stock Option will be
contingent upon receipt from the optionee (or a purchaser acting in
his stead in accordance with the provisions of the Stock Option) by
the Company of the full purchase price for such shares and the
fulfillment of any other requirements contained in the Stock Option or
applicable provisions of laws. In the event an optionee chooses to pay
the purchase price by previously-owned shares of Stock through the
attestation method, the number of shares of Stock transferred to the
optionee upon the exercise of the Stock Option shall be net of the
number of shares attested to.
(v) ANNUAL LIMIT ON INCENTIVE STOCK OPTIONS. To the extent
required for "incentive stock option" treatment under Section 422 of
the Code, the aggregate Fair Market Value (determined as of the time
of grant) of the shares of Stock with respect to which Incentive Stock
Options granted under this Plan and any other plan of the Company or
its parent and subsidiary corporations become exercisable for the
first time by an optionee during any calendar year shall not exceed
$100,000. To the extent that any Stock Option exceeds this limit, it
shall constitute a Non-Qualified Stock Option.
(b) RELOAD OPTIONS. At the discretion of the Administrator, Options
granted under the Plan may include a "reload" feature pursuant to which an
optionee exercising an option by the delivery of a number of shares of Stock in
accordance with Section 5(a)(iv)(B) hereof would automatically be granted an
additional Option (with an exercise price equal to the Fair
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Market Value of the Stock on the date the additional Option is granted and with
such other terms as the Administrator may provide) to purchase that number of
shares of Stock equal to the sum of (i) the number delivered to exercise the
original Option and (ii) the number withheld to satisfy tax liabilities, with an
Option term equal to the remainder of the original Option term unless the
Administrator otherwise determines in the Award agreement for the original
Option grant.
(c) STOCK OPTIONS GRANTED TO INDEPENDENT DIRECTORS.
(i) GRANT OF OPTIONS. The Administrator, in its discretion, may
grant NonQualified Stock Options to Independent Directors. Any such
grant may vary among individual Independent Directors.
(ii) EXERCISE; TERMINATION.
(A) Unless otherwise determined by the Administrator, an
Option granted under Section 5(c) shall be exercisable in full as
of the grant date. An Option issued under this Section 5(c) shall
not be exercisable after the expiration of ten years from the
date of grant.
(B) Options granted under this Section 5(c) may be exercised
only by written notice to the Company specifying the number of
shares to be purchased. Payment of the full purchase price of the
shares to be purchased may be made by one or more of the methods
specified in Section 5(a)(iv). An optionee shall have the rights
of a stockholder only as to shares acquired upon the exercise of
a Stock Option and not as to unexercised Stock Options.
(d) NON-TRANSFERABILITY OF OPTIONS. No Stock Option shall be
transferable by the optionee otherwise than by will or by the laws of descent
and distribution and all Stock Options shall be exercisable, during the
optionee's lifetime, only by the optionee, or by the optionee's legal
representative or guardian in the event of the optionee's incapacity.
Notwithstanding the foregoing, the Administrator, in its sole discretion, may
provide in the Award agreement regarding a given Option that the optionee may
transfer his Non-Qualified Stock Options to members of his immediate family, to
trusts for the benefit of such family members, or to partnerships in which such
family members are the only partners, provided that the transferee agrees in
writing with the Company to be bound by all of the terms and conditions of this
Plan and the applicable Option.
SECTION 6. STOCK APPRECIATION RIGHTS.
(a) NATURE OF STOCK APPRECIATION RIGHTS. A Stock Appreciation Right is
an Award entitling the recipient to receive an amount in cash or shares of Stock
or a combination thereof having a value equal to the excess of the Fair Market
Value of the Stock on the date of exercise
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over the exercise price Stock Appreciation Right, which price shall not be less
than 85 percent of the Fair Market Value of the Stock on the date of grant (or
more than the option exercise price per share, if the Stock Appreciation Right
was granted in tandem with a Stock Option) multiplied by the number of shares of
Stock with respect to which the Stock Appreciation Right shall have been
exercised, with the Administrator having the right to determine the form of
payment.
(b) GRANT AND EXERCISE OF STOCK APPRECIATION RIGHTS. Stock Appreciation
Rights may be granted by the Administrator in tandem with, or independently of,
any Stock Option granted pursuant to Section 5 of the Plan. In the case of a
Stock Appreciation Right granted in tandem with a Non-Qualified Stock Option,
such Stock Appreciation Right may be granted either at or after the time of the
grant of such Option. In the case of a Stock Appreciation Right granted in
tandem with an Incentive Stock Option, such Stock Appreciation Right may be
granted only at the time of the grant of the Option.
A Stock Appreciation Right or applicable portion thereof granted in
tandem with a Stock Option shall terminate and no longer be exercisable upon the
termination or exercise of the related Option.
(c) TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS. Stock
Appreciation Rights shall be subject to such terms and conditions as shall
be determined from time to time by the Administrator, subject to the
following:
(i) Stock Appreciation Rights granted in tandem with Options
shall be exercisable at such time or times and to the extent that the
related Stock Options shall be exercisable.
(ii) Upon exercise of a Stock Appreciation Right, the applicable
portion of any related Option shall be surrendered.
(iii) All Stock Appreciation Rights shall be exercisable during
the participant's lifetime only by the participant or the
participant's legal representative.
SECTION 7. RESTRICTED STOCK AWARDS
(a) NATURE OF RESTRICTED STOCK AWARDS. A Restricted Stock Award is an
Award entitling the recipient to acquire, at par value or such other higher
purchase price determined by the Administrator, shares of Stock subject to such
restrictions and conditions as the Administrator may determine at the time of
grant ("Restricted Stock"). Conditions may be based on continuing employment (or
other business relationship) and/or achievement of pre-established performance
goals and objectives. The grant of a Restricted Stock Award is contingent on the
participant executing the Restricted Stock Award agreement. The terms and
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conditions of each such agreement shall be determined by the Administrator, and
such terms and conditions may differ among individual Awards and participants.
(b) RIGHTS AS A STOCKHOLDER. Upon execution of a written instrument
setting forth the Restricted Stock Award and payment of any applicable purchase
price, a participant shall have the rights of a stockholder with respect to the
voting of the Restricted Stock, subject to such conditions contained in the
written instrument evidencing the Restricted Stock Award. Unless the
Administrator shall otherwise determine, certificates evidencing the Restricted
Stock shall remain in the possession of the Company until such Restricted Stock
is vested as provided in Section 7(d) below, and the participant shall be
required, as a condition of the grant, to deliver to the Company a stock power
endorsed in blank.
(c) RESTRICTIONS. Restricted Stock may not be sold, assigned,
transferred, pledged or otherwise encumbered or disposed of except as
specifically provided herein or in the Restricted Stock Award agreement. If a
participant's employment (or other business relationship) with the Company and
its Subsidiaries terminates for any reason, the Company shall have the right to
repurchase Restricted Stock that has not vested at the time of termination at
its original purchase price, from the participant or the participant's legal
representative.
(d) VESTING OF RESTRICTED STOCK. The Administrator at the time of grant
shall specify the date or dates and/or the attainment of pre-established
performance goals, objectives and other conditions on which the
non-transferability of the Restricted Stock and the Company's right of
repurchase or forfeiture shall lapse. Subsequent to such date or dates and/or
the attainment of such pre-established performance goals, objectives and other
conditions, the shares on which all restrictions have lapsed shall no longer be
Restricted Stock and shall be deemed "vested." Except as may otherwise be
provided by the Administrator either in the Award agreement or, subject to
Section 15 below, in writing after the Award agreement is issued, a
participant's rights in any shares of Restricted Stock that have not vested
shall automatically terminate upon the participant's termination of employment
(or other business relationship) with the Company and its Subsidiaries and such
shares shall be subject to the Company's right of repurchase as provided in
Section 7(c) above.
(e) WAIVER, DEFERRAL AND REINVESTMENT OF DIVIDENDS. The Restricted
Stock Award agreement may require or permit the immediate payment, waiver,
deferral or investment of dividends paid on the Restricted Stock.
SECTION 8. DEFERRED STOCK AWARDS
(a) NATURE OF DEFERRED STOCK AWARDS. A Deferred Stock Award is an Award
of phantom stock units to a participant, subject to restrictions and conditions
as the Administrator may determine at the time of grant. Conditions may be based
on continuing employment (or other business relationship) and/or achievement of
pre-established performance goals and objectives. The grant of a Deferred Stock
Award is contingent on the participant executing the
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Deferred Stock Award agreement. The terms and conditions of each such agreement
shall be determined by the Administrator, and such terms and conditions may
differ among individual Awards and participants. At the end of the deferral
period, the Deferred Stock Award, to the extent vested, shall be paid to the
participant in the form of shares of Stock.
(b) ELECTION TO RECEIVE DEFERRED STOCK AWARDS IN LIEU OF COMPENSATION.
The Administrator may, in its sole discretion, permit a participant to elect to
receive a portion of the cash compensation or Restricted Stock Award otherwise
due to such participant in the form of a Deferred Stock Award. Any such election
shall be made in writing and shall be delivered to the Company no later than the
date specified by the Administrator and in accordance with rules and procedures
established by the Administrator. The Administrator shall have the sole right to
determine whether and under what circumstances to permit such elections and to
impose such limitations and other terms and conditions thereon as the
Administrator deems appropriate.
(c) RIGHTS AS A STOCKHOLDER. During the deferral period, a participant
shall have no rights as a stockholder; provided, however, that the participant
may be credited with Dividend Equivalent Rights with respect to the phantom
stock units underlying his Deferred Stock Award, subject to such terms and
conditions as the Administrator may determine.
(d) RESTRICTIONS. A Deferred Stock Award may not be sold, assigned,
transferred, pledged or otherwise encumbered or disposed of during the deferral
period.
(e) TERMINATION. Except as may otherwise be provided by the
Administrator either in the Award agreement or, subject to Section 15 below, in
writing after the Award agreement is issued, a participant's right in all
Deferred Stock Awards that have not vested shall automatically terminate upon
the participant's termination of employment (or cessation of business
relationship) with the Company and its Subsidiaries for any reason.
SECTION 9. UNRESTRICTED STOCK AWARDS
GRANT OR SALE OF UNRESTRICTED STOCK. The Administrator may, in its sole
discretion, grant (or sell at par value or such higher purchase price determined
by the Administrator) an Unrestricted Stock Award to any participant pursuant to
which such participant may receive shares of Stock free of any restrictions
("Unrestricted Stock") under the Plan. Unrestricted Stock Awards may be granted
or sold as described in the preceding sentence in respect of past services or
other valid consideration, or in lieu of cash compensation due to such
participant.
SECTION 10. PERFORMANCE SHARE AWARDS
(a) NATURE OF PERFORMANCE SHARE AWARDS. A Performance Share Award is an
Award entitling the recipient to acquire shares of Stock upon the attainment of
specified performance goals. The Administrator may make Performance Share Awards
independent of
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or in connection with the granting of any other Award under the Plan. The
Administrator in its sole discretion shall determine whether and to whom
Performance Share Awards shall be made, the performance goals, the periods
during which performance is to be measured, and all other limitations and
conditions.
(b) RIGHTS AS A STOCKHOLDER. A participant receiving a Performance
Share Award shall have the rights of a stockholder only as to shares actually
received by the participant under the Plan and not with respect to shares
subject to the Award but not actually received by the participant. A participant
shall be entitled to receive a stock certificate evidencing the acquisition of
shares of Stock under a Performance Share Award only upon satisfaction of all
conditions specified in the Performance Share Award agreement (or in a
performance plan adopted by the Administrator).
(c) TERMINATION. Except as may otherwise be provided by the
Administrator either in the Award agreement or, subject to Section 15 below, in
writing after the Award agreement is issued, a participant's rights in all
Performance Share Awards shall automatically terminate upon the participant's
termination of employment (or cessation of business relationship) with the
Company and its Subsidiaries for any reason.
(d) ACCELERATION, WAIVER, ETC. At any time prior to the participant's
termination of employment (or other business relationship) by the Company and
its Subsidiaries, the Administrator may in its sole discretion accelerate, waive
or, subject to Section 15, amend any or all of the goals, restrictions or
conditions applicable to a Performance Share Award.
SECTION 11. PERFORMANCE-BASED AWARDS TO COVERED EMPLOYEES
Notwithstanding anything to the contrary contained herein, if any
Restricted Stock Award, Deferred Stock Award or Performance Share Award granted
to a Covered Employee is intended to qualify as "Performance-based Compensation"
under Section 162(m) of the Code and the regulations promulgated thereunder (a
"Performance-based Award"), such Award shall comply with the provisions set
forth below:
(a) PERFORMANCE CRITERIA. The performance criteria used in performance
goals governing Performance-based Awards granted to Covered Employees may
include any or all of the following: (i) the Company's return on equity, assets,
capital or investment, (ii) pre-tax or after-tax profit levels of the Company or
any Subsidiary, a division, an operating unit or a business segment of the
Company, or any combination of the foregoing; (iii) cash flow, funds from
operations or similar measure; (iv) total shareholder return; (v) changes in the
market price of the Stock; (vi) sales or market share; or (vii) earnings per
share.
(b) GRANT OF PERFORMANCE-BASED AWARDS. With respect to each
Performance-based Award granted to a Covered Employee, the Committee shall
select, within the first 90 days of a Performance Cycle (or, if shorter, within
the maximum period allowed under Section 162(m)
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of the Code) the performance criteria for such grant, and the achievement
targets with respect to each performance criterion (including a threshold level
of performance below which no amount will become payable with respect to such
Award). Each Performance-based Award will specify the amount payable, or the
formula for determining the amount payable, upon achievement of the various
applicable performance targets. The performance criteria established by the
Committee may be (but need not be) different for each Performance Cycle and
different goals may be applicable to Performance-based Awards to different
Covered Employees.
(c) PAYMENT OF PERFORMANCE-BASED AWARDS. Following the completion of a
Performance Cycle, the Committee shall meet to review and certify in writing
whether, and to what extent, the performance criteria for the Performance Cycle
have been achieved and, if so, to also calculate and certify in writing the
amount of the Performance-based Awards earned for the Performance Cycle. The
Committee shall then determine the actual size of each Covered Employee's
Performance-based Award, and, in doing so, may reduce or eliminate the amount of
the Performance-based Award for a Covered Employee if, in its sole judgment,
such reduction or elimination is appropriate.
(d) MAXIMUM AWARD PAYABLE. The maximum Performance-based Award payable
to any one Covered Employee under the Plan for a Performance Cycle is 125,000
Shares (subject to adjustment as provided in Section 3(b) hereof).
SECTION 12. DIVIDEND EQUIVALENT RIGHTS
(a) DIVIDEND EQUIVALENT RIGHTS. A Dividend Equivalent Right is an Award
entitling the recipient to receive credits based on cash dividends that would
have been paid on the shares of Stock specified in the Dividend Equivalent Right
(or other award to which it relates) if such shares had been issued to and held
by the recipient. A Dividend Equivalent Right may be granted hereunder to any
participant as a component of another Award or as a freestanding award. The
terms and conditions of Dividend Equivalent Rights shall be specified in the
grant. Dividend equivalents credited to the holder of a Dividend Equivalent
Right may be paid currently or may be deemed to be reinvested in additional
shares of Stock, which may thereafter accrue additional equivalents. Any such
reinvestment shall be at Fair Market Value on the date of reinvestment or such
other price as may then apply under a dividend reinvestment plan sponsored by
the Company, if any. Dividend Equivalent Rights may be settled in cash or shares
of Stock or a combination thereof, in a single installment or installments. A
Dividend Equivalent Right granted as a component of another Award may provide
that such Dividend Equivalent Right shall be settled upon exercise, settlement,
or payment of, or lapse of restrictions on, such other award, and that such
Dividend Equivalent Right shall expire or be forfeited or annulled under the
same conditions as such other award. A Dividend Equivalent Right granted as a
component of another Award may also contain terms and conditions different from
such other award.
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<PAGE>
(b) INTEREST EQUIVALENTS. Any Award under this Plan that is settled in
whole or in part in cash on a deferred basis may provide in the grant for
interest equivalents to be credited with respect to such cash payment. Interest
equivalents may be compounded and shall be paid upon such terms and conditions
as may be specified by the grant.
(c) TERMINATION. Except as may otherwise be provided by the
Administrator either in the Award agreement or, subject to Section 15 below, in
writing after the Award agreement is issued, a participant's rights in all
Dividend Equivalent Rights or interest equivalents shall automatically terminate
upon the participant's termination of employment (or cessation of business
relationship) with the Company and its Subsidiaries for any reason.
SECTION 13. TAX WITHHOLDING
(a) PAYMENT BY PARTICIPANT. Each participant shall, no later than the
date as of which the value of an Award or of any Stock or other amounts received
thereunder first becomes includable in the gross income of the participant for
Federal income tax purposes, pay to the Company, or make arrangements
satisfactory to the Administrator regarding payment of, any Federal, state, or
local taxes of any kind required by law to be withheld with respect to such
income. The Company and its Subsidiaries shall, to the extent permitted by law,
have the right to deduct any such taxes from any payment of any kind otherwise
due to the participant. The Company's obligation to deliver stock certificates
to any participant is subject to and conditioned on tax obligations being
satisfied by the participant.
(b) PAYMENT IN STOCK. Subject to approval by the Administrator, a
participant may elect to have such tax withholding obligation satisfied, in
whole or in part, by (i) authorizing the Company to withhold from shares of
Stock to be issued pursuant to any Award a number of shares with an aggregate
Fair Market Value (as of the date the withholding is effected) that would
satisfy the withholding amount due, or (ii) transferring to the Company shares
of Stock owned by the participant with an aggregate Fair Market Value (as of the
date the withholding is effected) that would satisfy the withholding amount due.
SECTION 14. TRANSFER, LEAVE OF ABSENCE, ETC.
For purposes of the Plan, the following events shall not be deemed a
termination of employment:
(a) a transfer to the employment of the Company from a Subsidiary or
from the Company to a Subsidiary, or from one Subsidiary to another; or
(b) an approved leave of absence for military service or sickness, or
for any other purpose approved by the Company, if the employee's right to
re-employment is guaranteed either by a statute or by contract or under the
policy pursuant to which the leave of absence was granted or if the
Administrator otherwise so provides in writing.
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<PAGE>
SECTION 15. AMENDMENTS AND TERMINATION
The Board may, at any time, amend or discontinue the Plan and the
Administrator may, at any time, amend or cancel any outstanding Award for the
purpose of satisfying changes in law or for any other lawful purpose, but no
such action shall adversely affect rights under any outstanding Award without
the holder's consent. If and to the extent determined by the Administrator to be
required by the Code to ensure that Incentive Stock Options granted under the
Plan are qualified under Section 422 of the Code or to ensure that compensation
earned under Awards qualifies as performance-based compensation under Section
162(m) of the Code, if and to the extent intended to so qualify, Plan amendments
shall be subject to approval by the Company stockholders entitled to vote at a
meeting of stockholders. Nothing in this Section 15 shall limit the
Administrator's authority to take any action permitted pursuant to Section 3(c).
SECTION 16. STATUS OF PLAN
With respect to the portion of any Award that has not been exercised
and any payments in cash, Stock or other consideration not received by a
participant, a participant shall have no rights greater than those of a general
creditor of the Company unless the Administrator shall otherwise expressly
determine in connection with any Award or Awards. In its sole discretion, the
Administrator may authorize the creation of trusts or other arrangements to meet
the Company's obligations to deliver Stock or make payments with respect to
Awards hereunder, provided that the existence of such trusts or other
arrangements is consistent with the foregoing sentence.
SECTION 17. CHANGE OF CONTROL PROVISIONS
Upon the occurrence of a Change of Control as defined in this
Section 17:
(a) Except as otherwise provided in the applicable Award agreement,
each outstanding Stock Option and Stock Appreciation Right held by non-employee
directors and Designated Executives shall automatically become fully
exercisable.
(b) Except as otherwise provided in the applicable Award Agreement,
conditions and restrictions on each outstanding Restricted Stock Award, Deferred
Stock Award and Performance Share Award held by non-employee directors and
Designated Executives which relate solely to the passage of time and continued
employment will be removed. Performance or other conditions (other than
conditions and restrictions relating solely to the passage of time and continued
employment) will continue to apply unless otherwise provided in the applicable
Award Agreement.
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(c) "CHANGE OF CONTROL" shall mean the occurrence of any one of the
following events:
(i) any "PERSON," as such term is used in Sections 13(d) and
14(d) of the Act (other than the Company, any of its Subsidiaries, or
any trustee, fiduciary or other person or entity holding securities
under any employee benefit plan or trust of the Company or any of its
Subsidiaries), together with all "affiliates" and "associates" (as
such terms are defined in Rule 12b-2 under the Act) of such person,
shall become the "beneficial owner" (as such term is defined in Rule
13d-3 under the Act), directly or indirectly, of securities of the
Company representing 50 percent or more of the combined voting power
of the Company's then outstanding securities having the right to vote
in an election of the Company's Board of Directors ("Voting
Securities") (in such case other than as a result of an acquisition of
securities directly from the Company); or
(ii) persons who, as of the Effective Date, constitute the
Company's Board of Directors (the "Incumbent Directors") cease for any
reason, including, without limitation, as a result of a tender offer,
proxy contest, merger or similar transaction, to constitute at least a
majority of the Board, provided that any person becoming a director of
the Company subsequent to the Effective Date shall be considered an
Incumbent Director if such person's election was approved by or such
person was nominated for election by either (A) a vote of at least a
majority of the Incumbent Directors or (B) a vote of at least a
majority of the Incumbent Directors who are members of a nominating
committee comprised, in the majority, of Incumbent Directors; but
provided further, that any such person whose initial assumption of
office is in connection with an actual or threatened election contest
relating to the election of members of the Board of Directors or other
actual or threatened solicitation of proxies or consents by or on
behalf of a PERSON other than the Board, including by reason of
agreement intended to avoid or settle any such actual or threatened
contest or solicitation, shall not be considered an Incumbent
Director; or
(iii) the stockholders of the Company shall approve (A) any
consolidation or merger of the Company where the stockholders of the
Company, immediately prior to the consolidation or merger, would not,
immediately after the consolidation or merger, beneficially own (as
such term is defined in Rule 13d-3 under the Act), directly or
indirectly, shares representing in the aggregate more than 50 percent
of the voting shares of the corporation issuing cash or securities in
the consolidation or merger (or of its ultimate parent corporation, if
any), (B) any sale, lease, exchange or other transfer (in one
transaction or a series of transactions contemplated or arranged by
any party as a single plan) of all or substantially all of the assets
of the Company or (C) any plan or proposal for the liquidation or
dissolution of the Company.
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Notwithstanding the foregoing, a "Change of Control" shall not be
deemed to have occurred for purposes of the foregoing clause (i) solely as the
result of an acquisition of securities by the Company which, by reducing the
number of shares of Voting Securities outstanding, increases the proportionate
number of shares of Voting Securities beneficially owned by any person to 50
percent or more of the combined voting power of all then outstanding Voting
Securities; PROVIDED, HOWEVER, that if any person referred to in this sentence
shall thereafter become the beneficial owner of any additional shares of Voting
Securities (other than pursuant to a stock split, stock dividend, or similar
transaction or as a result of an acquisition of securities directly from the
Company), then a "CHANGE OF CONTROL" shall be deemed to have occurred for
purposes of the foregoing clause (i).
SECTION 18. GENERAL PROVISIONS
(a) NO DISTRIBUTION; COMPLIANCE WITH LEGAL REQUIREMENTS. The
Administrator may require each person acquiring Stock pursuant to an Award to
represent to and agree with the Company in writing that such person is acquiring
the shares without a view to distribution thereof.
No shares of Stock shall be issued pursuant to an Award until all
applicable securities law and other legal and stock exchange or similar
requirements have been satisfied. The Administrator may require the placing of
such stop-orders and restrictive legends on certificates for Stock and Awards as
it deems appropriate.
(b) DELIVERY OF STOCK CERTIFICATES. Stock certificates to participants
under this Plan shall be deemed delivered for all purposes when the Company or a
stock transfer agent of the Company shall have mailed such certificates in the
United States mail, addressed to the participant, at the participant's last
known address on file with the Company.
(c) OTHER COMPENSATION ARRANGEMENTS; NO EMPLOYMENT RIGHTS. Nothing
contained in this Plan shall prevent the Board from adopting other or additional
compensation arrangements, including trusts, and such arrangements may be either
generally applicable or applicable only in specific cases. The adoption of this
Plan and the grant of Awards do not confer upon any employee any right to
continued employment with the Company or any Subsidiary.
(d) TRADING POLICY RESTRICTIONS. Option exercises and other Awards
under the Plan shall be subject to such Company's insider trading policy, as in
effect from time to time.
SECTION 19. EFFECTIVE DATE OF PLAN
This Plan shall become effective upon approval by the holders of a
majority of the votes cast at a meeting of stockholders at which a quorum is
present. Subject to such approval by the stockholders and to the requirement
that no Stock may be issued hereunder prior to such
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<PAGE>
approval, Stock Options and other Awards may be granted hereunder on and after
adoption of this Plan by the Board.
SECTION 20. GOVERNING LAW
This Plan and all Awards and actions taken thereunder shall be governed
by, and construed in accordance with, the laws of the State of Delaware, applied
without regard to conflict of law principles.
DATE APPROVED BY BOARD OF DIRECTORS: June 1999
DATE APPROVED BY STOCKHOLDERS: June 1999
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<PAGE>
INTERSPEED, INC. EMPLOYEE STOCK PURCHASE PLAN
The purpose of the Interspeed, Inc. Employee Stock Purchase Plan ("the
Plan") is to provide eligible employees of Interspeed, Inc. (the "Company") and
certain of its subsidiaries with opportunities to purchase shares of the
Company's common stock, par value $.01 per share (the "Common Stock").
Two-hundred thousand (200,000) shares of Common Stock in the aggregate have been
approved and reserved for this purpose. The Plan is intended to constitute an
"employee stock purchase plan" within the meaning of Section 423(b) of the
Internal Revenue Code of 1986, as amended (the "Code"), and shall be interpreted
in accordance with that intent.
1. ADMINISTRATION. The Plan will be administered by the person or
persons (the "Administrator") appointed by the Company's Board of Directors (the
"Board") for such purpose. The Administrator has authority to make rules and
regulations for the administration of the Plan, and its interpretations and
decisions with regard thereto shall be final and conclusive. No member of the
Board or individual exercising administrative authority with respect to the Plan
shall be liable for any action or determination made in good faith with respect
to the Plan or any option granted hereunder.
2. OFFERINGS. The Company will make one or more offerings to eligible
employees to purchase Common Stock under the Plan ("Offerings"). Unless
otherwise determined by the Administrator, the initial Offering will begin on
the effective date of the Company's first underwritten public offering and will
end on March 31, 2000 (the "Initial Offering"). Thereafter, unless otherwise
determined by the Administrator, an Offering will begin on the first business
day occurring on or after each October 1 and April 1 and will end on the last
<PAGE>
business day occurring on or before the following March 31 and September 30,
respectively. The Administrator may, in its discretion, designate a different
period for any Offering, provided that no Offering shall exceed six months in
duration or overlap any other Offering.
3. ELIGIBILITY. All employees of the Company (including employees who
are also directors of the Company) and all employees of each Designated
Subsidiary (as defined in Section 11) are eligible to participate in any one or
more of the Offerings under the Plan, provided that as of the first day of the
applicable Offering (the "Offering Date") they are customarily employed by the
Company or a Designated Subsidiary for more than twenty (20) hours a week.
4. PARTICIPATION. An employee eligible on any Offering Date may
participate in such Offering by submitting an enrollment form to his appropriate
payroll location at least fifteen (15) business days before the Offering Date
(or by such other deadline as shall be established for the Offering). The form
will (a) state a whole percentage to be deducted from his Compensation (as
defined in Section 11) per pay period, (b) authorize the purchase of Common
Stock for him in each Offering in accordance with the terms of the Plan and (c)
specify the exact name or names in which shares of Common Stock purchased for
him are to be issued pursuant to Section 10. An employee who does not enroll in
accordance with these procedures will be deemed to have waived his right to
participate. Unless an employee files a new enrollment form or withdraws from
the Plan, his deductions and purchases will continue at the same percentage of
Compensation for future Offerings, provided he remains
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<PAGE>
eligible. Notwithstanding the foregoing, participation in the Plan will neither
be permitted nor be denied contrary to the requirements of the Code.
5. EMPLOYEE CONTRIBUTIONS. Each eligible employee may authorize payroll
deductions at a minimum of one percent (1%) up to a maximum of ten percent (10%)
of his Compensation for each pay period. The Company will maintain book accounts
showing the amount of payroll deductions made by each participating employee for
each Offering. No interest will accrue or be paid on payroll deductions.
6. DEDUCTION CHANGES. Except as may be determined by the Administrator
in advance of an Offering, an employee may not increase or decrease his payroll
deduction during any Offering, but may increase or decrease his payroll
deduction with respect to the next Offering (subject to the limitations of
Section 5) by filing a new enrollment form at least fifteen (15) business days
before the next Offering Date (or by such other deadline as shall be established
for the Offering). The Administrator may, in advance of any Offering, establish
rules permitting an employee to increase, decrease or terminate his payroll
deduction during an Offering.
7. WITHDRAWAL. An employee may withdraw from participation in the Plan
by delivering a written notice of withdrawal to his appropriate payroll
location. The employee's withdrawal will be effective as of the next business
day. Following an employee's withdrawal, the Company will promptly refund to him
his entire account balance under the Plan (after payment for any Common Stock
purchased before the effective date of withdrawal). Partial withdrawals are not
permitted. The employee may not begin participation again during the
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<PAGE>
remainder of the Offering, but may enroll in a subsequent Offering in accordance
with Section 4.
8. GRANT OF OPTIONS. On each Offering Date, the Company will grant to
each eligible employee who is then a participant in the Plan an option
("Option") to purchase on the last day of such Offering (the "Exercise Date"),
at the Option Price hereinafter provided for, (a) a number of shares of Common
Stock, which number shall not exceed the number of whole shares which is less
than or equal to $12,500 divided by the closing price per share of Common Stock
on the Offering Date, or (b) such other lesser maximum number of shares as shall
have been established by the Administrator in advance of the Offering. The
purchase price for each share purchased under such Option (the "Option Price")
will be 85% of the Fair Market Value of the Common Stock on the Offering Date or
the Exercise Date, whichever is less.
Notwithstanding the foregoing, no employee may be granted an option
hereunder if such employee, immediately after the option was granted, would be
treated as owning stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Company or any
Parent or Subsidiary (as defined in Section 11). For purposes of the preceding
sentence, the attribution rules of Section 424(d) of the Code shall apply in
determining the stock ownership of an employee, and all stock which the employee
has a contractual right to purchase shall be treated as stock owned by the
employee. In addition, no employee may be granted an Option which permits his
rights to purchase stock under the Plan, and any other employee stock purchase
plan of the Company and its Parents and Subsidiaries,
4
<PAGE>
to accrue at a rate which exceeds $25,000 of the fair market value of such stock
(determined on the option grant date or dates) for each calendar year in which
the Option is outstanding at any time. The purpose of the limitation in the
preceding sentence is to comply with Section 423(b)(8) of the Code.
9. EXERCISE OF OPTION AND PURCHASE OF SHARES. Each employee who
continues to be a participant in the Plan on the Exercise Date shall be deemed
to have exercised his Option on such date and shall acquire from the Company
such number of whole shares of Common Stock reserved for the purpose of the Plan
as his accumulated payroll deductions on such date will purchase at the Option
Price, subject to any other limitations contained in the Plan. Any amount
remaining in an employee's account at the end of an Offering solely by reason of
the inability to purchase a fractional share will be carried forward to the next
Offering; any other balance remaining in an employee's account at the end of an
Offering will be refunded to the employee promptly.
10. ISSUANCE OF CERTIFICATES. Certificates representing shares of
Common Stock purchased under the Plan may be issued only in the name of the
employee, in the name of the employee and another person of legal age as joint
tenants with rights of survivorship, or in the name of a broker authorized by
the employee to be his, or their, nominee for such purpose.
11. DEFINITIONS.
The term "Compensation" means the amount of total cash compensation,
prior to salary reduction pursuant to either Section 125 or 401(k) of the Code,
including base pay, overtime, commissions, and incentive or bonus awards, but
excluding allowances and reimbursements
5
<PAGE>
for expenses such as relocation allowances or travel expenses, income or gains
on the exercise of Company stock options, and similar items.
The term "Designated Subsidiary" means any present or future Subsidiary
(as defined below) that has been designated by the Board to participate in the
Plan. The Board may so designate any Subsidiary, or revoke any such designation,
at any time and from time to time, either before or after the Plan is approved
by the stockholders.
The term "Fair Market Value of the Common Stock" means (i) if the
Common Stock is admitted to trading on a national securities exchange or the
Nasdaq National Market, the closing price reported for the Common Stock on such
exchange or system for such date or, if no sales were reported for such date,
for the next preceding date for which a sale was reported, or (ii) if clause (i)
does not apply but the Common Stock is admitted to quotation on the National
Association of Securities Dealers Automated Quotation System ("NASDAQ"), the
average of the highest bid and lowest asked prices reported for the Common Stock
on NASDAQ for such date or, if no bid and asked prices were reported for such
date, for the next preceding date for which such prices were reported; provided
that, in the case of the initial Offering Date under the Plan, the term "Fair
Market Value of the Common Stock" means the offering price to the public of the
Common Stock on such date.
The term "Parent" means a "parent corporation" with respect to the
Company, as defined in Section 424(e) of the Code.
The term "Subsidiary" means a "subsidiary corporation" with respect to
the Company, as defined in Section 424(f) of the Code.
6
<PAGE>
12. RIGHTS ON TERMINATION OF EMPLOYMENT. If a participating employee's
employment terminates for any reason before the Exercise Date for any Offering,
no payroll deduction will be taken from any pay due and owing to the employee
and the balance in his account will be paid to him or, in the case of his death,
to his designated beneficiary as if he had withdrawn from the Plan under Section
7. An employee will be deemed to have terminated employment, for this purpose,
if the corporation that employs him, having been a Designated Subsidiary, ceases
to be a Subsidiary, or if the employee is transferred to any corporation other
than the Company or a Designated Subsidiary.
13. SPECIAL RULES. Notwithstanding anything herein to the contrary, the
Administrator may adopt special rules applicable to the employees of a
particular Designated Subsidiary, whenever the Administrator determines that
such rules are necessary or appropriate for the implementation of the Plan in a
jurisdiction where such Designated Subsidiary has employees; provided that such
rules are consistent with the requirements of Section 423(b) of the Code. Such
special rules may include (by way of example, but not by way of limitation) the
establishment of a method for employees of a given Designated Subsidiary to fund
the purchase of shares other than by payroll deduction, if the payroll deduction
method is prohibited by local law or is otherwise impracticable. Any special
rules established pursuant to this Section 13 shall, to the extent possible,
result in the employees subject to such rules having substantially the same
rights as other participants in the Plan.
14. OPTIONEES NOT STOCKHOLDERS. Neither the granting of an Option to an
employee nor the deductions from his pay shall constitute such employee a holder
of the shares of
7
<PAGE>
Common Stock covered by an Option under the Plan until such shares have been
purchased by and issued to him.
15. RIGHTS NOT TRANSFERABLE. Rights under the Plan are not transferable
by a participating employee other than by will or the laws of descent and
distribution, and are exercisable during the employee's lifetime only by the
employee.
16. APPLICATION OF FUNDS. All funds received or held by the Company
under the Plan may be combined with other corporate funds and may be used for
any corporate purpose.
17. ADJUSTMENT IN CASE OF CHANGES AFFECTING COMMON STOCK. In the event
of a subdivision of outstanding shares of Common Stock, or the payment of a
dividend in Common Stock, the number of shares approved for the Plan, and the
share limitation set forth in Section 8, shall be increased proportionately, and
such other adjustment shall be made as may be deemed equitable by the
Administrator. In the event of any other change affecting the Common Stock, such
adjustment shall be made as may be deemed equitable by the Administrator to give
proper effect to such event.
18. AMENDMENT OF THE PLAN. The Board may at any time, and from time to
time, amend the Plan in any respect, except that without the approval, within
twelve (12) months of such Board action, by the holders of a majority of the
shares of stock of the Company present or represented and entitled to vote at a
meeting of stockholders, no amendment shall be made increasing the number of
shares approved for the Plan or making any other change that would require
stockholder approval in order for the Plan, as amended, to qualify as an
"employee stock purchase plan" under Section 423(b) of the Code.
8
<PAGE>
19. INSUFFICIENT SHARES. If the total number of shares of Common Stock
that would otherwise be purchased on any Exercise Date plus the number of shares
purchased under previous Offerings under the Plan exceeds the maximum number of
shares issuable under the Plan, the shares then available shall be apportioned
among participants in proportion to the amount of payroll deductions accumulated
on behalf of each participant that would otherwise be used to purchase Common
Stock on such Exercise Date.
20. TERMINATION OF THE PLAN. The Plan may be terminated at any time by
the Board. Upon termination of the Plan, all amounts in the accounts of
participating employees shall be promptly refunded.
21. GOVERNMENTAL REGULATIONS. The Company's obligation to sell and
deliver Common Stock under the Plan is subject to obtaining all governmental
approvals required in connection with the authorization, issuance, or sale of
such stock.
The Plan shall be governed by Delaware law except to the extent that
such law is preempted by federal law.
22. ISSUANCE OF SHARES. Shares may be issued upon exercise of an Option
from authorized but unissued Common Stock, from shares held in the treasury of
the Company, or from any other proper source.
23. TAX WITHHOLDING. Participation in the Plan is subject to any
required tax withholding on income of the participant in connection with the
Plan. Each employee agrees, by entering the Plan, that the Company and its
Subsidiaries shall have the right to deduct any
9
<PAGE>
such taxes from any payment of any kind otherwise due to the employee, including
shares issuable under the Plan.
24. NOTIFICATION UPON SALE OF SHARES. Each employee agrees, by
entering the Plan, to give the Company prompt notice of any disposition of
shares purchased under the Plan where such disposition occurs within two
years after the date of grant of the Option pursuant to which such shares
were purchased.
25. EFFECTIVE DATE AND APPROVAL OF SHAREHOLDERS. The Plan shall take
effect on the effective date of the Company's first underwritten public
offering, subject to approval by the holders of a majority of the shares of
stock of the Company present or represented and entitled to vote at a meeting
of stockholders, which approval must occur within twelve (12) months of the
adoption of the Plan by the Board.
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CONFIDENTIAL TREATMENT REQUESTED AS TO CERTAIN
INFORMATION CONTAINED IN THIS EXHIBIT
Exhibit 10.4
TRANSITION SERVICES AGREEMENT
BY AND BETWEEN
BROOKTROUT, INC.
AND
INTERSPEED, INC.
DATED AS OF
-----------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE 1. SERVICES TO BE PERFORMED; TERM; PERFORMANCE AND COOPERATION............................ 1
ARTICLE 2. PAYMENT ............................................................................... 3
ARTICLE 3. RELATIONSHIP OF PARTIES................................................................ 3
ARTICLE 4. CERTAIN PROVISIONS .................................................................... 3
ARTICLE 5. MISCELLANEOUS ......................................................................... 4
</TABLE>
Schedules
<TABLE>
<S> <C> <C>
Schedule A - Payroll Processing and Administration
Schedule B - Human Resources Information System
Schedule C - Benefits
Schedule D - Marketing
Schedule E - Information Technology and Telecommunications
Schedule F - Accounts Receivable
Schedule G - Accounting and Finance
Schedule H - Order Entry
Schedule I - Use of Interspeed Name on Forms
</TABLE>
Tables
<TABLE>
<S> <C>
Table 1 - Transition Services Fees
</TABLE>
(i)
<PAGE>
TRANSITION SERVICES AGREEMENT
THIS TRANSITION SERVICES AGREEMENT ("Agreement") is made as of _____,
1999, by and between Brooktrout, Inc., a Massachusetts corporation
("Brooktrout") and Interspeed, Inc., a Delaware corporation ("Interspeed").
RECITALS
WHEREAS, Interspeed plans to consummate its initial public offering
on _____________, 1999, as per the Form S-1 Registration Statement dated
______, 1999, for its business located principally at 39 High Street, North
Andover, MA 01845, the date and time at which the closing of the initial
public offering occurred being referred to herein as the "Closing Date";
WHEREAS, in further consideration of the initial public offering and
related transactions, Interspeed will require Brooktrout's assistance to manage
certain operations of the Business during periods specified herein following the
Closing Date; and
WHEREAS, in connection with and as a condition precedent to the closing
of the initial public offering, Brooktrout has agreed to provide certain
services to Interspeed following the Closing Date and Interspeed desires to
avail themselves of such services on the terms and conditions as hereinafter
provided.
NOW THEREFORE, in consideration of the mutual agreements and covenants
herein contained and intending to be legally bound hereby, the parties hereto
hereby agree as follows:
ARTICLE 1. SERVICES TO BE PERFORMED; TERM; PERFORMANCE AND COOPERATION.
(a) In accordance with the terms and provisions of this
Agreement, Brooktrout agrees to perform for Interspeed the services described
in Schedules A through K hereto (collectively, the "Services") in the amounts
and to the extent specified with respect to each such Service in the
applicable Schedule. Brooktrout shall have no obligation to provide any
Services requiring any change or addition to their hardware, software,
systems, training or personnel requirements other than those necessary prior
to the Closing Date, and as outlined in this agreement for the transition
period.
(b) This Agreement shall become effective as of the Closing
Date and shall terminate with respect to each Service on the date specified for
such Service or as determined in accordance with the applicable Schedule hereto.
(c) Notwithstanding anything to the contrary contained herein,
this Agreement may be terminated, in whole or in part, at any time:
(i) by the mutual consent of Interspeed and Brooktrout;
(ii) by Interspeed in the event of any material breach or
default by Brooktrout of any obligations under this
Agreement and the failure of Brooktrout, as
appropriate, to cure, or to take substantial steps
towards the curing of, such breach or default within
thirty days after receipt of
<PAGE>
written notice from Interspeed requesting such breach
or default to be cured; or
(iii) by Brooktrout in the event of any material breach or
default by Interspeed's obligations under this
Agreement and the failure of Interspeed to cure, or
to take substantial steps towards the curing of, such
breach or default within thirty days after receipt of
notice from Brooktrout requesting such breach or
default to be cured.
(d) "Commercially reasonable efforts" or similar variations
thereof when used in this Agreement, mean that the obligated party is required
to make a diligent, reasonable and good faith effort to accomplish the
applicable objective. Such obligation, however, does not require an expenditure
of funds or the incurrence of a liability on the part of the obligated party,
nor does it require that the obligated party act in a manner that would be
contrary to normal commercial practices in order to accomplish the objective.
The fact that the objective is not actually accomplished is no indication that
the obligated party did or did not in fact utilize its reasonable commercial
efforts in attempting to accomplish the objective.
(e) Brooktrout shall use commercially reasonable efforts, as
defined in section (d) above, in the timely provision of the Services and
Interspeed shall use such commercially reasonable efforts to cooperate with
Brooktrout in connection with the provision of the Services. Such cooperation
shall include exchanging information, providing electronic access to data
systems used in connection with Services, performing true-ups and adjustments,
and obtaining all consents, licenses, sublicenses or approvals necessary or
desirable to permit each party to perform its obligations hereunder. In the
event there are any costs associated with obtaining such consents, licenses,
sublicenses or approvals, and if an acceptable arrangement concerning the
payment of such amounts cannot be agreed to by Brooktrout and Interspeed, then
Brooktrout shall not be required to continue providing the Service with respect
to which such consent, license, sublicense or approval is being obtained, except
as provided in Article 1(g) hereof.
(f) Brooktrout shall provide Services consistent with such
entity's past practices and at substantially the same level and quality as
provided by such entity as of the Closing Date. Brooktrout shall provide
Services in a time frame consistent with such entity's past practice and such
that Services respond to new developments in a timely manner, consistent with
such entity's past practice. Notwithstanding the foregoing, Brooktrout makes no
warranties of any kind, express or implied, with respect to any Services
provided hereunder. As needed from time to time during the period during which
Services are provided, and upon termination of the provision of any Services,
Brooktrout will provide Interspeed with all records (in any format, electronic
or otherwise) related to the provision of Services under this Agreement,
including, but not limited to, billing and other Business related records.
(g) The parties will consult with each other in good faith, as
required, with respect to the furnishing of and payment for special or
additional services, extraordinary items and the like, and will establish
pre-approval routines to the extent reasonably feasible.
(h) If Brooktrout reasonably believes it is unable to provide
any Service or, in the case of data systems, to support the function which the
data system relates, notwithstanding the use by Brooktrout of commercially
reasonable efforts as defined in section (d) above, to provide such Service
2
<PAGE>
or to support such function, the parties shall cooperate to determine the best
alternative approach. Until such alternative approach is found or the problem is
otherwise resolved to the satisfaction of the parties, Brooktrout shall (i) use
commercially reasonable efforts to continue providing the Service or, (ii) in
the case of data systems, support the function to which the data system relates
or permit Interspeed to have access to the data system so Interspeed can support
the function itself. To the extent an agreed upon alternative approach requires
payment above and beyond that which is included in Brooktrout's charge for the
Service in question, Interspeed shall be responsible for such payment in an
amount of Brooktrout's direct costs.
ARTICLE 2. PAYMENT. In consideration for the Services to be provided by
Brooktrout hereunder, Interspeed shall pay to Brooktrout such fees and costs as
set forth in Schedules A through H, and Table 1, hereto. Brooktrout shall not be
entitled to any other payments in respect of the Services to be provided to
Interspeed hereunder.
The fees for the Services shall be payable monthly in arrears.
Brooktrout shall forward to Interspeed separate invoices for the Services,
listing the services provided hereunder and listing the fees for such Services.
Invoices shall be payable within 30 days after receipt by Interspeed.
Interspeed shall additionally be responsible for the payment of any
applicable sales taxes relating to the provision of goods or services received
with respect to Services provided by Brooktrout hereunder, but not any taxes
attributable to Brooktrout's income.
ARTICLE 3. RELATIONSHIP OF PARTIES.
(a) All employees and representatives of Brooktrout
providing Services hereunder to Interspeed under this Agreement shall be
deemed for purposes of all compensation and employee benefits to be employees
or representatives solely of Brooktrout, as appropriate, and not to be
employees or representatives of Interspeed. In performing their respective
duties hereunder, all such employees and representatives of Brooktrout shall
be under the direction, control and supervision of Brooktrout (and not of
Interspeed) and Brooktrout shall have the sole right to exercise all
authority with respect to the employment (including termination of
employment), assignment and compensation of such employees and
representatives.
(b) The parties hereto are independent contractors, and neither
party nor its employees or agents will be deemed to be employees or agents of
the other for any purpose or under any circumstances. No partnership, joint
venture, alliance, fiduciary or any relationship other than that of independent
contractors is created hereby, expressly or by implication.
ARTICLE 4. CERTAIN PROVISIONS.
(a) SPECIFIC PERFORMANCE. Upon a breach of this Agreement by
Brooktrout, Interspeed shall, in addition to all other remedies (other than
indirect or consequential damages, which shall not be available), whether at law
or in equity, be entitled to specific performance and any other available
equitable remedy.
(b) INDEMNITY.
3
<PAGE>
(i) Brooktrout shall be liable, responsible and
accountable for damages, losses, liabilities, claims,
costs or expenses (including reasonable attorneys'
fees) only for gross negligence, willful misconduct
or willful refusal to act in the provision of
Services to Interspeed. Brooktrout shall not be
liable, responsible or accountable for damages
losses, liabilities, claims, costs or expenses
(including reasonable attorneys' fees) under this
Agreement except as expressly set forth in the
immediately preceding sentence.
(ii) Interspeed shall indemnify, defend, and hold harmless
Brooktrout and its respective directors, officers,
shareholders, employees, agents and controlling
persons from and against any and all losses, claims,
damages, liabilities, costs and expenses (including
any investigatory, legal and other expenses incurred
in connection with, and any amounts paid in, any
settlement) resulting from a demand, claim, lawsuit,
action or proceeding relating to any such person's
conduct in connection with the provision of Services
to Interspeed under this Agreement, provided that
such conduct did not constitute gross negligence,
willful misconduct, willful refusal to act or breach
of this Agreement by Brooktrout.
(c) NO CONSEQUENTIAL DAMAGES. NOTWITHSTANDING ANYTHING
CONTAINED IN THIS AGREEMENT TO THE CONTRARY, IN NO EVENT SHALL EITHER PARTY BE
LIABLE FOR INCIDENTAL, SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES
(INCLUDING LOST PROFITS OR LOST REVENUES) OF THE OTHER PARTY, ITS SUCCESSORS,
ASSIGNS OR THEIR RESPECTIVE AFFILIATES, AS A RESULT OF OR ARISING FROM THIS
AGREEMENT, REGARDLESS OF WHETHER SUCH LIABILITY ARISES IN TORT, CONTRACT, BREACH
OF WARRANTY, INDEMNIFICATION OR OTHERWISE.
ARTICLE 5. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement shall be deemed a
contract made under the laws of the Commonwealth of Massachusetts and,
together with the rights and obligations of the parties hereunder, shall be
construed under and governed by the law of the Commonwealth of Massachusetts,
without regard to the conflicts of law provisions thereof.
(b) FORCE MAJEURE. Neither party will have any liability for
damages or delay due to fire, explosion, lightning, pest damage, power failure
or surges, strikes or labor disputes, water or flood, acts of God, the elements,
war, civil disturbances, acts of civil or military authorities or the public
enemy, acts or omissions of communications or other carriers, or any other cause
beyond a party's reasonable control, whether or not similar to the foregoing.
(c) SUBCONTRACTING AND ASSIGNMENT.
(i) Brooktrout may subcontract any or all of the
functions or Services to be performed by either
entity under this Agreement with the consent of
Interspeed, which consent shall not be unreasonably
withheld, but will retain responsibility for all
matters subcontracted.
4
<PAGE>
(ii) This Agreement and all the provisions hereof shall be
binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted
assigns, but neither this Agreement nor any of the
rights, interests or obligations hereunder shall be
assignable or transferable by either party without
the prior written consent of the other party hereto,
and any such unauthorized assignment or transfer will
be void. Notwithstanding the foregoing Interspeed may
assign this Agreement to any direct or indirect
affiliate of such entity.
(d) ENTIRE AGREEMENT; MODIFICATION. This Agreement and the
Schedules attached hereto constitute the entire agreement between the parties
with respect to the subject matter hereof and shall supersede all previous
negotiation, commitments and writings with respect to Services. This Agreement
and the Schedules attached hereto may not be altered, modified or amended except
by a written instrument signed by all affected parties.
(e) NO DUTY OF VERIFICATION. In the absence of actual knowledge
to the contrary, Brooktrout shall have no responsibility for verifying the
correctness of any information given to it by or on behalf of Interspeed for the
purpose of providing the Services.
(f) WAIVERS. The failure of any party to require the
performance or satisfaction of any term or obligation of this Agreement, or the
waiver by any party of any breach of this Agreement, shall not prevent
subsequent enforcement of such term or obligation or be deemed a waiver of any
subsequent breach.
(g) SEVERABILITY. In the event that any court having
jurisdiction shall determine that any restrictive covenant or other provision
contained in this Agreement shall be unreasonable or unenforceable in any
respect, then such covenant or other provision shall be deemed limited to the
extent that such court deems it reasonable and enforceable, and so limited shall
remain in full force and effect. In the event that such court shall deem any
such covenant or other provision wholly unenforceable, the remaining covenants
and other provisions of this Agreement shall nevertheless remain in full force
and effect.
(h) NOTICES. Any notice, request, demand or other communication
required or permitted hereunder shall be in writing and shall be deemed to have
been given if delivered or sent by facsimile transmission, upon receipt, or if
sent by registered or certified mail or by a nationally recognized commercial
carrier, upon the sooner of the date on which receipt is acknowledged or the
expiration of three days after deposit in United States post office facilities
properly addressed with postage prepaid. All notices to a party will be sent to
the addresses set forth below or to such other address or person as such party
may designate by notice to each other party hereunder:
TO BROOKTROUT: BROOKTROUT, INC.
410 First Avenue
Needham, MA 02494
ATTENTION: Eric R. Giler, President
Facsimile No.: (781) 449-2025
5
<PAGE>
With a copy to Goodwin Procter & Hoar LLP
Exchange Place
Boston, MA 02109
Attn: H. David Henken, P.C.
Thomas P. Storer, P.C.
Facsimile No.: (617) 523-1231
TO INTERSPEED: INTERSPEED, INC.
39 High Street
North Andover, MA 01845
ATTENTION: Stephen A. Idle, President
Facsimile No.: (978) 668-4798
with a copy to: Goodwin Procter & Hoar LLP
Exchange Place
Boston, MA 02109
Attn: H. David Henken, P.C.
Thomas P. Storer, P.C.
Facsimile No.: (617) 523-1231
Any notice given hereunder may be given on behalf of any party by his
counsel or other authorized representatives.
(i) DISPUTES. Except with respect to matters as to which
injunctive relief is being sought, any dispute arising out of or relating to
this Agreement that has not been settled within thirty (30) days by good faith
negotiation between the parties to this Agreement shall be submitted to the
JAMS/Endispute, Inc. for final and binding arbitration pursuant to the
JAMS/Endispute, Inc.'s Arbitration Rules. Any such arbitration shall be
conducted in Boston, Massachusetts.
(j) SURVIVAL OF OBLIGATIONS. The obligations of the parties
under Articles 2, 4(b), 4(c), 5(a), 5(d), 5(g), 5(h), and 5(i) shall survive the
expiration of this Agreement.
(k) TITLE AND HEADINGS. Titles and headings to sections herein
are inserted for convenience of reference only and are not intended to be part
of or to affect the meaning or interpretation of this Agreement.
(l) EXECUTION IN COUNTERPARTS. This Agreement may be executed
in any number of counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
6
<PAGE>
IN WITNESS WHEREOF, both Brooktrout and Interspeed have caused this
Agreement to be duly executed on its behalf by its duly authorized officer as of
the date first written above.
BROOKTROUT, INC.
By:
----------------------------
Name:
-----------------------
Title:
----------------------
INTERSPEED, INC.
By:
----------------------------
Name:
-----------------------
Title:
----------------------
7
<PAGE>
SCHEDULE A
PAYROLL PROCESSING AND ADMINISTRATION
Scope: Brooktrout will provide payroll processing and administration
services for Interspeed comparable to those provided prior to
the Closing Date. Such services include calculation of
payroll, disbursement of paychecks and making direct deposits,
and collecting and forwarding payroll taxes and other
deductions, all on behalf of and for the account of
Interspeed.
1) During the period beginning on , 1999 through the end of
the Term described below, Brooktrout will pay the employees of
Interspeed, net of any taxes or other deductions such as
employee contributions to Flexible Spending Reimbursement
Accounts described on Schedule C hereof. Brooktrout will
deduct the gross payroll cost directly from Interspeed's cash
account.
2) Brooktrout will not make deductions with respect to the Brooktrout
401(k) Plan on or after , 1999, however, deductions will be made and
credited to a new Interspeed 401(k) Plan immediately upon adoption of
such Plan by Interspeed.
3) Brooktrout will provide Interspeed with a schedule showing the exact
nature of payments and deductions made by Brooktrout on behalf of
Interspeed.
4) The fees for set up of Interspeed hourly payroll charged by an
outside payroll processor will be directly billed to Interspeed, in
addition to payroll processing fees charged by the provider for such
hourly payroll processing.
Term: Terminates after the October 31, 1999 payroll has been processed,
although Interspeed may request an earlier termination.
Fees: Reimbursement by Interspeed for payroll processing and
administration services is outlined in Table 1. Interspeed
will reimburse Brooktrout for any payroll paid on behalf of
Interspeed for any period following the Closing Date within
two days after receipt of information from Brooktrout.
i
<PAGE>
SCHEDULE B
HUMAN RESOURCES
Scope: INFORMATION SYSTEMS:
Brooktrout will maintain the Interspeed human resources
database, process changes to such database and provide
Interspeed with current access methods. Brooktrout will
provide the following employee information from the database
via an Excel format: social security number, first, middle and
last names, address, city, state, zip codes, position titles,
marital status, date of birth, date of hire, gender, race
codes, exempt/non-exempt status, hourly or annual salary rates
(dependent upon exemption status), next review dates, federal
marital status, tax code, federal and state exemption numbers.
PERSONNEL FILES:
Brooktrout will transfer the personnel files to Interspeed at
the end of the transition services period.
RECRUITING AND HIRING:
Brooktrout will provide a reasonable level (up to 15 hours per
week) of recruiting and hiring support as needed by
Interspeed. Should the recruiting needs increase, Brooktrout
will provide assistance in hiring a contract recruiter.
Term: Terminates on October 31, 1999, although Interspeed may
request an earlier termination.
Fees: Reimbursement by Interspeed for human resources services is
outlined in Table 1.
ii
<PAGE>
SCHEDULE C
BENEFITS
Scope: Brooktrout will permit all active employees of Interspeed as of
the Closing Date and their dependents, if applicable, to remain
in all welfare benefit plans maintained by Brooktrout for the
employees of Interspeed as of the Closing Date, including, but
not limited to, the following welfare benefits:
INSURANCE PLANS:
medical insurance
dental insurance
short-term disability insurance, long-term disability insurance
accidental death and dismemberment insurance, travel insurance
life insurance
With respect to the foregoing benefits, Brooktrout will provide
coverage, process changes in participation (including new hires
and terminations), and process claims under all policies.
WORK AND FAMILY PROGRAM:
employee assistance program
FLEXIBLE SPENDING REIMBURSEMENT ACCOUNTS:
health care
dependent care
With respect to the foregoing benefits, Brooktrout will provide
deduction, disbursement and plan administration services; and
will work with the Flexible Spending Reimbursement Accounts
provider to transfer ending account balances to the new
employer's plan.
"COBRA" CONTINUATION HEALTH CARE COVERAGE:
Brooktrout will provide continuation health care coverage as
required under Section 4980B of the Code and Sections 601
through 607 of ERISA as of the Closing Date ("COBRA") to those
employees of Interspeed incurring COBRA qualifying events who
become eligible for COBRA continuation coverage on or after the
Closing Date but before November 1, 1999 (or such earlier date
specified by Interspeed).
iii
<PAGE>
401(K) PLAN ADMINISTRATION As noted in Schedule A, Brooktrout
will not make deductions with respect to the Brooktrout 401(k)
on or after , 1999. The assets of the 401(k) participants will
be transferred into the new employer's plan.
Term: Insurance Plans, Work and Family Programs, Flexible Spending
Reimbursement Accounts, and COBRA Continuation Health Care
Coverage terminates on the date that payroll services terminate
pursuant to Schedule A.
Fees: Interspeed will reimburse Brooktrout for its cost of providing
such benefits at a per capita rate for the actual time coverage
is in effect at the actual provider rates. Reimbursement by
Interspeed for benefits services is outlined in Table 1.
iv
<PAGE>
SCHEDULE D
MARKETING
Scope: Brooktrout will provide a reasonable level of Corporate
Marketing and management support, consistent with the level of
support provided to Interspeed prior to the Closing Period.
Marketing support services include advertising, promotions, web
site maintenance, collateral, public relations, and trade shows.
Term: Terminates on December 31, 1999, although Interspeed may request
an earlier termination.
Fees: Spending commitments will be pre-approved by Interspeed and all
marketing program costs will be paid to Brooktrout by
Interspeed at actual amounts incurred. Reimbursement by
Interspeed for marketing services is outlined in Table 1.
v
<PAGE>
SCHEDULE E
INFORMATION TECHNOLOGY AND TELECOMMUNICATIONS
Scope: Brooktrout will continue to support Interspeed with information
technology and systems support to a reasonable level, similar to
that provided prior to the Closing Date. Support includes
general Oracle system support, WAN service support, voice system
support as needed, and support of software, hardware, systems
and maintenance related to the following:
SYSTEMS SUPPORTED:
Oracle
Saleslogix
Equity Edge
FAS (fixed asset tracking)
HRIS (human resource information system)
HARDWARE AND MAINTENANCE:
Delphi
Oracle system maintenance
Pangea (Oracle maintenance contractor)
Saleslogix maintenance
In order to provide adequate support on a timely basis,
Interspeed must coordinate with Brooktrout all changes or
enhancements made to their network, so as to ensure that the
above listed systems remain operable. Additional support
required to remedy the above systems due to network changes will
be invoiced separately and are not quoted in this agreement.
At the termination of this Transition Services Agreement,
Brooktrout will provide all of the data requested by Interspeed
from the above referenced systems, in reasonable format such
that Interspeed can import such data into their systems at
termination of this agreement.
Term: Terminates on December 31, 1999, but Interspeed may request an
earlier termination.
Fees: Reimbursement by Interspeed for information technology and
telecommunications services is outlined in Table 1. The cost of
an outside consultant contracted with mutual agreement of both
parties to download data to files for import by Interspeed will
be paid by Interspeed at actual invoice cost.
vi
<PAGE>
SCHEDULE F
ACCOUNTS RECEIVABLE
Scope: Brooktrout's accounts receivable department will accept,
deposit and apply all checks and wire transfers received on
behalf of Interspeed. Collections will be wired weekly to an
account designated by Interspeed, and all documentation will
be sent weekly via overnight mail to Interspeed.
Term: Terminates on December 31, 1999, but Interspeed may request an
earlier termination.
Fees: Reimbursement by Interspeed of out of pocket expenses as
incurred (e.g., bank fees and delivery charges). Reimbursement
by Interspeed for accounts receivable services is outlined in
Table 1.
vii
<PAGE>
SCHEDULE G
ACCOUNTING AND FINANCE
Scope: Brooktrout will continue to support Interspeed with Accounting
and Finance support to a reasonable level, similar to that
provided prior to the Closing Date.
ACCOUNTING AND FINANCE SERVICES PROVIDED:
Accounts payable vouchering
Cash disbursements
Customer credit analysis
Customer invoicing
General ledger
Cost accounting
Fixed Assets
Month end closings
Financial reporting
Tax
RECORDS
Brooktrout will transfer accounting and finance records to
Interspeed at the end of the transition services period. Records
include:
(a) Paid suppliers invoices
(b) Customer invoices and supporting documentation
(purchase orders, packing slips)
(c) Customer credit files
Term: Terminates on December 31, 1999, but Interspeed may request an earlier
termination.
Fees: Actual invoice amounts, where invoices are processed by Brooktrout on
behalf of Interspeed, will be paid by Interspeed. Reimbursement by
Interspeed for accounting and finance services is outlined in Table 1.
viii
<PAGE>
SCHEDULE H
ORDER ENTRY
Scope: Brooktrout will continue to support Interspeed order entry services
similar to that provided prior to the Closing Date.
Term: Terminates on December 31, 1999, but Interspeed may request an earlier
termination.
Fees: Reimbursement by Interspeed for order entry services is outlined in
Table 1 .
ix
<PAGE>
SCHEDULE I
USE OF INTERSPEED NAME ON FORMS
Scope: During the transition period, Brooktrout will continue to use
Interspeed forms in the support services provided on behalf of
Interspeed. At the end of the transition period, Brooktrout will
transfer remaining forms to Interspeed. Documents include the
following:
(a) Invoices
(b) Checks
(c) Letterhead
Term: Transfer of the remaining forms will be done as the respective
supporting services are terminated by Brooktrout as outlined in this
Agreement.
Fees: None for existing stock; additional stock, if needed, will be purchased
by Interspeed.
x
<PAGE>
*** This Information has
been omitted pursuant to a
Request For Confidential
Treatment, and has been
filed with the
Securities and Exchange
Commission
TABLE 1: TRANSITION SERVICES FEES
<TABLE>
<CAPTION>
SCHEDULE ADMINISTRATIVE HOURS ADMINISTRATIVE FEE
REFERENCE DESCRIPTION PER MONTH PER MONTH
<S> <C> <C> <C>
A Payroll Processing and *** ***
Administration Services
B Human Resources administration *** ***
and database management
B Recruiting support by Brooktrout *** ***
staff
B Recruiting support by Brooktrout As requested
contract recruiter; $70/hour by Interspeed
C Benefits Related Services *** ***
D Corporate Marketing and *** ***
Management
E Information Technology and *** ***
Telecommunications
F Accounts Receivable *** ***
G Accounting and Finance Services *** ***
H Order Entry *** ***
I Use of Interspeed Name on Forms Not Applicable -
</TABLE>
MONTHLY TRANSITION SERVICE FEE ***
---------
<TABLE>
<CAPTION>
SCHEDULE BASE RATE
REFERENCE DESCRIPTION OTHER COSTS PER HOUR OH%
<S> <C> <C> <C> <C>
A Payroll Processing and Gross payroll costs; outside *** ***
Administration Services payroll processing fees,
including set up of an
hourly payroll for
Interspeed hourly
employees.
B Human Resources administration *** ***
and database management
B Recruiting support by Brooktrout Agency fees; hiring ads *** ***
staff
B Recruiting support by Brooktrout Out of pocket expenses *** ***
contract recruiter; $70/hour
C Benefits Related Services Per capital actual costs of *** ***
insurance as invoiced by
providers.
D Corporate Marketing and Marketing program costs at actual *** ***
Management amounts invoiced.
E Information Technology and Sprint WAN service actual cost; *** ***
Telecommunications contracted consultant to download
data for import to Interspeed
systems (or ***/hour if provided
by Brooktrout); and internet
access fees, all billed at actual
invoice cost.
F Accounts Receivable Out of pocket costs (e.g., Bank *** ***
fees, delivery charges)
G Accounting and Finance Services Actual invoice costs *** ***
H Order Entry *** ***
I Use of Interspeed Name on Forms Cost of additional forms, if
needed.
</TABLE>
Note: Unless otherwise noted in this Transition Services Agreement,
Brooktrout will invoice fees monthly and Interspeed will send
payment for Brooktrout's receipt within 30 days of the invoice
date. Where Interspeed is responsible for reimbursement of other
actual costs incurred by Brooktrout on behalf of Interspeed,
Interspeed will send payment for Brooktrout's receipt within 10
days of receiving supporting documentation of the costs incurred
by Brooktrout.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED AS TO CERTAIN
INFORMATION CONTAINED IN THIS EXHIBIT
EX 10.5
INTERSPEED, INC.
601 SOUTH UNION STREET
LAWRENCE, MA 01843
U.S.A.
AUTHORIZED RESELLER AGREEMENT
Reseller Name: Cabletron Systems, Inc.
----------------------------------------------------------------
Effective Date:
----------------------------------------------------------------
This Authorized Reseller Agreement ("Agreement") states the agreement between
Interspeed, Inc. and the Reseller named above, Cabletron Systems, Inc., a
Delaware corporation with principal offices at 35 Industrial Way, Rochester,
New Hampshire 03867, hereinafter "Cabletron" with respect to said CABLETRON's
purchase and resale of certain Products of Interspeed as described herein. In
Consideration of the mutual promises contained herein, the parties agree as
follows:
Section 1. DEFINITIONS
For the purposes of this Agreement, the terms defined below shall have the
meanings indicated:
1.1 Interspeed - Interspeed, Inc. a Massachusetts corporation and its
affiliates. A Brooktrout Company.
1.2 Interspeed Product - a product as to which Interspeed is the
manufacturer or supplier as indicated on Schedule A.
1.3 Discount Schedule - Interspeed's established Cabletron Discount Schedule
as set forth in Schedule C, as such Cabletron Discount Schedule may be
changed by Interspeed from time to time upon thirty (30) days prior
written notice to Cabletron.
1.4 Effective Date - the effective date of this Agreement as set forth above.
1.5 Embedded Software - computer software or firmware in object code form,
which is delivered with a Hardware Product as a component thereof.
1.6 End User - an individual, corporation, partnership or other legal entity
("person") who uses Products only for such Person's personal or internal
business use, and not for resale or other distribution.
1.7 End User License - a license granted by Interspeed or a Third Party
Supplier to an End User to use a Software Product or Embedded Software,
including any "shrink wrap" or similar license accompanying a Software
Product or a Hardware Product which includes Embedded Software.
1.8 Hardware Products - Products which are not Software Products, as
identified on Schedule A. Hardware Products may include components of
Embedded Software.
1.9 Licensed Marks - those specific trademarks, service marks, product names
and trade names of Interspeed which are identified in Schedule D, and any
other such proprietary marks which Interspeed may authorize Cabletron in
writing to use.
1.10 List Price - the list price of any Product as set forth in Schedule B,
as such list prices may be changed by Interspeed from time to time upon
thirty (30) days prior written notice to Cabletron.
1.11 Minimum Quantity - the minimum quantity of Products measured by the Net
Discounted Price (as defined in Section 4.1), to be purchased by
Cabletron for purposes of Section 4.2, as set forth in Schedule A.
1.12 Products - those hardware, software and related products identified on
Schedule A.
1.13 Cabletron - the Reseller named above, as further identified on
Schedule A.
1.14 Term - the period commencing on the Effective Date and ending on the
expiration or termination of this Agreement for any reason.
1.15 Term Year - the initial term or any renewal term of this Agreement as
provided in Section 2.3.
1.16 Territory - the geographical area described in Schedule A.
1.17 Third Party Product - a Product as to which a Person other than
Interspeed is the manufacturer, licensor or supplier, as indicated on
Schedule A.
1.18 Third Party Supplier - the manufacturer, licensor or supplier of a
Third Party Product.
1.19 Update - a modification to a Software Product, which may include
corrections to errors in the prior release and may include minor changes
to functionality or user interface, but does not include any new features
or substantial changes to functionality.
1.20 Upgrade - any modification to a Product, which is not an Update.
<PAGE>
Section 2. DISTRIBUTION RIGHTS
2.1 By this Agreement, Interspeed makes, and Cabletron accepts the
appointment of Cabletron as an authorized non-exclusive Reseller of
Product(s) solely in accordance with the terms and conditions of this
Agreement to third parties on a worldwide basis. Cabletron reserves the
right to market the Products to any customer in any location, directly
or indirectly, through other resellers, and other distribution channels,
including, without limitation, distributors and OEM's.
2.2 Territory--Cabletron is authorized to sell, lease or otherwise
distribute the Products only in the Territory. Without Interspeed's
prior written consent, Cabletron shall not solicit customers outside of
the Territory or sell the Products to any customer for use outside of
the Territory.
2.3 Term--The Term of this Agreement shall commence on the Effective Date
and shall extend initially until the end of the calendar quarter in
which the first anniversary of the Effective Date occurs. Thereafter,
the term of this Agreement shall be automatically extended for successive
renewal terms of one calendar year, unless terminated in accordance with
Section 11.
2.4 Treatment of Software Products--In the case of software Products and
Embedded Software, Cabletron's rights hereunder include and are limited
to the right to distribute copies of such Software Products in the form
distributed by Interspeed, including the accompanying End User Licenses
with respect to such Software Products as embodied in such copies. In
certain cases, Interspeed may specify other procedures, to protect its
rights in Software Products and Embedded Software distributed by
Cabletron. Cabletron shall comply with Interspeed's instructions with
respect to such procedures and shall not take or encourage any action,
which might tend to defeat their purpose. As applied to Software
Products and Embedded Software, "sell," "resell" and similar terms shall
be deemed to refer to the transfer for consideration of such copies and
End User Licenses, without any transfer of ownership rights in the
underlying Software Product or Embedded Software.
2.5 Product Changes and New Products--This Agreement applies to the Products
specifically identified in Schedule A as they may be modified by
Interspeed from time to time. Interspeed reserves the right to make
changes in the Interspeed Products and Third Party Products are
expressly agreed by Interspeed. Interspeed shall be under no obligation
to appoint Cabletron as a reseller of any new or additional products
which may be sold or introduced by Interspeed. Interspeed shall exercise
reasonable best efforts to provide Cabletron with any enhancements or
improvements to the Interspeed Product, as soon as is practicable when
they become commercially available.
Section 3. MARKETING
3.1 Sales Efforts--Cabletron agrees to use its commercially reasonable best
efforts to promote the Products in the Territory. To assist Cabletron in
this regard, Interspeed will make available to Cabletron a supply of
sales brochures and technical documentation for the marketing and
promotion of the Products, which may be ordered by Cabletron at the
prices then in effect. Interspeed further will make available to
Cabletron the opportunity for its personnel to participate in sales and
technical training relating to the Products as offered by Interspeed
from time to time at prices then in effect. Cabletron shall be
responsible for the travel and other expenses of its personnel
attending such training.
Notwithstanding the above, Interspeed shall provide to Cabletron one (1)
set of technical documentation and one (1) set of user manuals for each
Interspeed Product, and twenty-five (25) sets of marketing brochures.
Interspeed agrees to furnish and update Product descriptions at no
charge for the initial order under this Agreement. Interspeed also
agrees to furnish and update at no charge technical documentation to
support Cabletron's planning, installation, testing, maintenance, and
operation of the Products, for the initial order under this Agreement.
Cabletron may make copies of Interspeed's Product description required
in response to prospects/customers' requests for proposal. Prior to or
contemporaneous with the delivery of Products, Interspeed shall provide
Cabletron with respect to each individual Product one (1) set of
documentation that addresses installation and maintenance of the Product.
Initial technical and sales training and information with respect to
installation and service of the Product, including training on any
special tools or test equipment, will be provided to Cabletron at no
cost for up to ten (10) people during the first six (6) months of this
Agreement. The training shall take place at a mutually agreed upon time
and location.
3.2 Licensed Marks--Cabletron is authorized to use the Licensed Marks in
connection with Cabletron's marketing and distribution of Products in
the Territory, solely in accordance with the terms of this Agreement,
including without limitation Section 10.2 and such reasonable
instructions and guidelines as Interspeed may establish in writing from
time to time.
3.3 Sales Information--Cabletron agrees to provide to Interspeed from time
to time, information with regard to Cabletron's customers, prospects and
marketing programs and plans, all in accordance with Interspeed's
reasonable requests and guidelines issued from time to time. All
information provided by Cabletron shall be deemed confidential unless
otherwise specified.
Section 4. PRICING & PAYMENT
4.1 Price--The price for units of the Products sold to Cabletron hereunder
("Net Discounted Price") shall be the product of (x) the list price of
the Product as in effect from time to time and (y) the Cabletron
Discount Level set forth in Schedule A, subject to adjustment as set
forth in Section. The current list price for the Products is set forth
in Schedule B. Cabletron acknowledges that the initial Cabletron
Discount Level as set forth in Schedule A has been determined on the
basis of the Minimum Quantity set forth in Schedule A. Cabletron
represents to Interspeed that it is Cabletron's best estimate and
expectation that it will purchase a quantity of Products at least equal
to such Minimum Quantity during the first Term Year under this
Agreement. Interspeed represents that the price charged for the Products
purchased hereunder by Cabletron are, when viewed as a whole, comparable
to the lowest prices charged by Interspeed to buyers of a class similar
to Cabletron purchasing in comparable quantities and circumstances and
under similar terms and conditions.
<PAGE>
4.2 Minimum Commitments--The Cabletron Discount level for the Products is
contingent upon Cabletron purchasing Products having a total Net
Discounted Price at least equal to the Minimum Quantity during each Term
Year. If Cabletron's actual amount of purchases of Products (measured by
Net Discount Price) for any Term Year exceeds the Minimum Quantity
applicable to a higher Discount Level, the Cabletron Discount Level
shall be increased for the next Term Year to the rate determined in
accordance with the Discount Schedule. Conversely, if Cabletron fails to
achieve the Minimum Quantity for any Term Year, Interspeed shall have
the right to reduce the Cabletron Discount Level for the next Term Year
in accordance with the Discount Schedule. Notwithstanding the foregoing,
Interspeed reserves the right to review the rate of actual purchases of
Products during any Term Year and increase or decrease the Cabletron
Discount Level applicable to such Term Year if the rate of actual
purchases varies substantially from the anticipated rate of purchases
during such Term Year.
4.3 Price Changes--Interspeed reserves the right, in its sole discretion, to
change prices applicable to the Products by written notice to Cabletron
no less than thirty (30) days prior to the effective date of such
change. All purchase orders which have been received by Interspeed prior
to the expiration of said 30 days for Products which are to be shipped
within 30 days from order receipt date shall be at the prices which were
in effect prior to the price change notification.
4.4 Payment--Except as otherwise set forth herein, any sum due to Interspeed
pursuant to this Agreement shall be payable within thirty (30) days from
the date of invoice from Interspeed to Cabletron. A "correct" invoice
shall contain (i) Interspeed's name and invoice date, (ii) the specific
Purchase Order Number, (iii) description, price and quantity of the
Products or Services actually delivered, and (iv) complete mailing
address of where payment is to be sent. A correct invoice must be
submitted to the appropriate invoice address listed on the Purchase
Order. Failure by Cabletron to make payments when due may result in
delay of other scheduled shipments.
4.5 Taxes--Cabletron shall pay to Interspeed any tax on the Products or use
thereof, however designated, levied or based by any taxing authority,
except any tax based on or measured by the net income of Interspeed.
4.6 Currency--All monetary amounts in this Agreement are in U.S. dollars and
payments are to be made in U.S. dollars.
Section 5. ORDERS & SHIPMENT
5.1 Orders--Cabletron shall order units of the Products by submitting its
authorized written purchase order(s) containing such information as may
be required by Interspeed from time to time. All orders for units of the
Products placed by Cabletron shall be subject only to the terms and
conditions of this Agreement, and no contrary or additional terms stated
on Cabletron's purchase order or otherwise presented by Cabletron shall
have any effect. Orders shall become binding upon acceptance by
Interspeed provided that any order shall be deemed accepted unless
Interspeed provides notice of rejection to Cabletron within ten (10)
working days after receipt of such order.
5.2 Initial Order--Upon signing this Agreement, Cabletron shall place an
initial order with Interspeed for the number of units of Products set
forth in Schedule A.
5.3 Delivery--Units of the Products are delivered by Interspeed F.O.B.
Interspeed's point of shipment. Although Interspeed shall use reasonable
efforts to ship the units of Products ordered by Cabletron according to
the requested ship date on Cabletron's orders, delivery shall be subject
to availability of materials and other factors that may affect shipment,
and Interspeed shall not be liable for any delays in delivery for any
reason. Interspeed shall select the carrier. Cabletron assumes all risk
of loss upon delivery of units of the Products to the carrier by
Interspeed. Units of the Products shall be deemed accepted by Cabletron
upon delivery.
5.4 Delivery Charges--Unless otherwise directed by Cabletron, Interspeed
shall prepay the freight and invoice Cabletron for the transportation
charges. Insurance shall be provided by Interspeed at Cabletron's
expense, on units of the Products while in transit unless otherwise
instructed by Cabletron. Cabletron shall be responsible for all storage,
rigging and other charges at Cabletron's delivery site.
5.5 Cancellation and Rescheduling--The initial order for seventy-five (75)
Product (Systems) under this Agreement shall be firm and may not be
canceled or rescheduled and delivery shall be taken no later than
December 31, 1999. For additional Products, beyond the initial order of
seventy-five (75) described above, the following provisions shall apply:
Cabletron may cancel a purchase order or any portion thereof at any time
up to twenty (20) business days prior to the scheduled delivery date of
the Products specified in such purchase order. In the event Cabletron
cancels a purchase order or any portion thereof within twenty (20)
business days of the scheduled delivery date Cabletron agrees to pay to
Interspeed a restocking charge equal to fifteen percent (15%) of the
total amount of order canceled or rescheduled.
Section 6. PRODUCTS
6.1 Interspeed Hardware Product Warranty--Interspeed warrants to Cabletron
that all Hardware Products which are Interspeed Products and are sold in
accordance with this Agreement shall be free from defects in materials
and workmanship under normal and proper use for a period of one year
from date of delivery to Cabletron. This warranty does not include
expendable components. Interspeed further warrants that all Products
will comply with all applicable federal, state and other governmental
safety regulations in effect at the time of manufacture, and will be
listed with Underwriter's Laboratory (UL) if so required. Interspeed
further will exercise reasonable best efforts in conjunction with
Cabletron to have the Products comply with other certification
requirements on a country by country basis. Interspeed further warrants
that all Products will comply with current rules and regulations of the
Federal Communications Commission (FCC) concerning Electromagnetic
Interference, including, without limitation, equipment labeling and
instruction manual information requirements. Interspeed further warrants
that the Products have passed all applicable governmental or commercial
safety, quality, emission, and other appropriate U.S. product standards,
including UL, CSA and UDF. Interspeed further warrants and represents
that (i) Interspeed is the sole and exclusive owner of all
<PAGE>
right, title and interest in and to the Products, has the full power,
right and authority to enter into this Agreement, carry out its
obligations under this Agreement and grant the rights granted to
Cabletron hereunder.
6.2 Software Products and Embedded Software--Interspeed has the right, as
owner or licensee to distribute and license the use of the Software
Products and the Embedded Software. All rights and obligations with
respect to the Software Products shall be directly between Interspeed or
the applicable Third Party Supplier and End Users of the Software
Products, in accordance with the terms of the End User License agreement
included with the Software Products or otherwise. Except as authorized
in writing by Interspeed, Cabletron shall not modify, enhance, or
otherwise change or supplement the Software Products. Cabletron shall
have no right to distribute any Embedded Software except in connection
with the sale or lease of the Hardware Product of which it is a
component.
6.3 Interspeed Software Product Warranty--Interspeed warrants to Cabletron
that (a) the diskettes or other tangible media in which Interspeed
Software Products are embodied shall be free from defects in materials
and workmanship, and (b) the functionality of the Software Products
shall substantially conform to the published Product documentation
delivered therewith, each for a period of ninety (90) days from date of
delivery to Cabletron. Cabletron understands that Interspeed does not
provide any warranty with respect to the performance, suitability,
reliability or error free condition of any Interspeed Software Product,
and shall not make any contrary representation or warranty to any End
User.
6.4 Warranty Service Procedure--In the event of a warranty claim under
Section 6.1 or 6.3, Cabletron may return the defective Interspeed
Product pursuant to the Interspeed Return Material Authorization process
to Interspeed for repair or replacement, at Interspeed's option. For
warranty service, Cabletron shall pay all freight costs to Interspeed
and Interspeed shall pay all return freight costs to Cabletron. All
freight costs in connection with Products not covered under warranty
services are the responsibility of Cabletron.
6.5 Customer Support--Cabletron shall be primarily responsible for
providing sales and technical support to Cabletron's End Users. Except
in the case of Products governed by Section 6.6, Interspeed shall
provide without charge telephone inquiry support and such other support
as Interspeed deems appropriate to assist Cabletron personnel in
resolving End User problems regarding Interspeed Products which
Cabletron is not able to resolve through its own personnel, subject to
Interspeed's normal product support guidelines and procedure. Cabletron
agrees to become sufficiently knowledgeable about the Products and
related user manuals and marketing literature in order to be able to
respond to product inquiries made by End Users. Cabletron shall maintain
an adequately trained staff and telephone service to provide prompt
telephone support to End-Users. Interspeed will refer to Cabletron any
request for support or inquiries made directly by Cabletron's End Users,
and Cabletron shall not refer any such requests or inquiries to
Interspeed without Interspeed's prior approval.
6.6 Maintenance Services--Interspeed reserves the right to provide
maintenance services for certain Interspeed products under programs for
which a fee is charged, including without limitation those particular
maintenance programs identified in Schedule F. Schedule F sets forth the
terms and prices of maintenance programs currently applicable to the
Interspeed Products, which are subject to change from time to time by
written notice from Interspeed. Maintenance fees under any such
maintenance program shall be due and payable in advance with respect to
each Term Year.
6.7 Software Updates and Upgrades--From time to time Interspeed or a Third
Party Supplier may make available Updates of Software Products or
Embedded Software. Any such Updates with respect to Interspeed Products
shall be made available to Cabletron for distribution to its End Users
without charge. Cabletron shall resell only the most recent Update,
which has been made available to it for any Software Product. In the
case of Upgrades with respect to Interspeed Products, Interspeed may, in
its sole discretion, either make such Upgrades available to Cabletron's
End Users for no charge or at a special Upgrade price, or treat such
Upgrade as a new Product which will be made available only on normal sale
terms.
6.8 Millennium Requirements--Interspeed represents and warrants that the
Products supplied to Cabletron under the terms of this Agreement on or
after January 1, 2000 A.D. ("Millennial Dates") will not adversely
affect the licensed materials performance with respect to date and
date-dependent data, computations, output, or other functions, including
calculating, comparing and sequencing. Interspeed further represents and
warrants that the licensed materials will (i) create, store, process,
and output information related to or including Millennial Dates without
error or omission, and will (ii) accurately process date and
date-dependent data, including calculating, comparing and sequencing
from, into, and between the twentieth and twenty-first centuries,
including leap year calculations, when used in accordance with the
documentation accompanying the licensed materials. Interspeed will
provide written evidence sufficient to demonstrate adequate testing and
conversion of the Products to meet the foregoing requirements prior to
execution of this Agreement, upon the request of Cabletron. In the event
that a problem attributed to a failure to correctly process date data as
set forth above is discovered which severely impacts Cabletron's
business, this problem shall be treated as a Severity Level 1 problem.
This Severity Level 1 problem shall require that Interspeed diligently
work on such problem until the error is corrected. For purposes of this
Agreement, Severity Level 1 shall mean that Interspeed shall work on a
continuous twenty-four (24) hour basis to resolve such problem until
corrected, at no additional cost to Cabletron.
6.9 Disclaimer of Warranties--NEITHER INTERSPEED NOR ANY THIRD PARTY
SUPPLIER MAKES ANY REPRESENTATION OR WARRANTY, EITHER EXPRESS OR IMPLIED,
INCLUDING WITHOUT LIMITATION ANY REPRESENTATIONS OR WARRANTIES AS TO
MERCHANTIBILITY OR FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT TO
ANY PRODUCT OR SERVICE PROVIDED HEREUNDER OR ANY OTHER MATTER RELATED TO
THIS AGREEMENT.
<PAGE>
Section 7. INDEMNIFICATION
7.1 Infringement Indemnification--Interspeed shall defend or settle any
suit or proceeding brought against Cabletron based upon a claim that any
Interspeed Product constitutes an infringement of any existing United
States patent, copyright or trade secret rights provided that Interspeed
is notified promptly in writing and is given complete authority to
control the defense and is provided all information required for the
defense. Interspeed shall pay all damages and costs awarded against
Cabletron, but shall not be responsible for any cost, expense or
compromise incurred or made by Cabletron without Interspeed's prior
written consent or for any lost profits or other damage or loss suffered
by Cabletron. If any Interspeed Product is in the opinion of Interspeed
likely to or does become the subject of a claim for infringement,
Interspeed may, at its sole option, procure for Cabletron the right to
continue using such Interspeed Product or modify it to become
non-infringing. If Interspeed is not reasonably able to modify or
otherwise secure for Cabletron the right to continue using and reselling
such Interspeed Product, Interspeed may terminate this Agreement and,
upon return to it of any items of such Interspeed Product purchased,
unused, and unsold by Cabletron hereunder, refund to Cabletron the
amounts paid for such items. Notwithstanding anything herein to the
contrary, Interspeed shall have no liability for any claim of
infringement based upon (1) use of any version or release other then the
latest unmodified version or release of an Interspeed Product, (2) use or
combination of an Interspeed Product with any other products, (3) use of
an Interspeed Product in any manner other than its intended use as set
forth in its documentation, or (4) use of an Interspeed Product after
having been given notice, or having reason to believe, that such
Interspeed Product infringes a proprietary right of a third party.
Interspeed also agrees to indemnify Cabletron and hold it harmless,
against any loss or damage that may be suffered by Cabletron, and any
claims that may be related to personal injury or property damage as a
result of use of the Products supplied hereunder or any breach of
Interspeed's covenants and agreements herein, not to exceed the payments
previously made by Cabletron for the Product with respect to which such
damage arose.
7.2 Indemnification By Cabletron. Except with respect to matters for which
Interspeed is liable pursuant to Sections 6.1, 6.3 or 7.1 Cabletron
hereby agrees to indemnify Interspeed, and hold it harmless, against any
loss or damage that may be suffered by Interspeed and any claims that
may be made against Interspeed by any person directly related to
personal injury or property damage, as a direct or indirect result of
the sale by Cabletron of units of the Products or the use thereof by
Cabletron's direct or indirect customers, or any breach of Cabletron's
covenants and agreements herein not to exceed the payments previously
made by Cabletron for the Product with respect to which such claim arose.
7.3 Insurance--Interspeed shall maintain adequate Product liability and
general liability insurance as it deems necessary and shall provide
Cabletron with evidence of or a Certificate of Insurance upon the
written request of Cabletron.
Section 8. LIMITATION OF LIABILITY
8.1 Limitation of Liability--IN NO EVENT SHALL EITHER PARTY OR ANY THIRD
PARTY SUPPLIER BE LIABLE FOR ANY LOSS OF PROFITS OR DIRECT, INDIRECT,
SPECIAL, CONSEQUENTIAL, INCIDENTAL OR OTHER DAMAGES ARISING OUT OF ANY
BREACH OF THIS AGREEMENT OR THE OBLIGATIONS OF THIS AGREEMENT. EITHER
PARTY'S SOLE REMEDY AND EITHER PARTY'S TOTAL LIABILITY, IN CONTRACT,
TORT OR OTHERWISE, ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS
AGREEMENT OR ANY OF THE PRODUCTS, SHALL BE THE CORRECTION, REPAIR OR
REPLACEMENT OF ANY DEFECTIVE INTERSPEED PRODUCT OR, AT EITHER PARTY'S
OPTION, THE PAYMENT OF ACTUAL DIRECT DAMAGES NOT TO EXCEED THE PAYMENTS
PREVIOUSLY MADE BY CABLETRON FOR THE ITEM OF PRODUCT WITH RESPECT TO
WHICH SUCH DAMAGES AROSE.
8.2 Third Party Products--Interspeed makes no representation for warranty
with respect to any Third Party Products and shall have no liability
with respect thereto. Including without limitation any liability with
respect to any defects in such Third Party Products or any infringement
by such Third Party Products or any patent, copyright, trademark,
service mark, trade secret or other intellectual property right of any
Person. To the extent permitted by Interspeed's agreement with the
supplier or licensor of any such Third Party Product, Interspeed hereby
assigns to Cabletron and/or its End Users the benefit of any warranties
or indemnification rights provided by the supplier or licensor of such
Third Party Product. Cabletron and its end Users shall be responsible
for dealing directly with such suppliers and licensors with respect to
such warranties and indemnification rights, and Interspeed shall have no
obligation or liability with respect thereto.
Section 9. SECURITY INTEREST
Title to the Products shall vest in Cabletron upon the date of shipment
to Cabletron. Interspeed shall retain a security interest in the
Products until the entire balance of the price for such Products and all
other monies payable hereunder are paid in full. Cabletron shall
execute, upon request by Interspeed, financing statements deemed
necessary or desirable by Interspeed to protect its security interest in
the Product. Cabletron authorizes Interspeed to file a copy of this
Security Agreement or a financing statement with the appropriate state
authorities at any time thereafter as a financing statement in order to
perfect Interspeed's security interest.
Section 10. PROPRIETARY RIGHTS AND CONFIDENTIALITY
10.1 Proprietary Rights--The rights owned by Interspeed (including without
limitation, those rights licensed to Interspeed by Third Party
Suppliers) in the Products and Confidential Information (as defined in
Section 10.3), including, without any limitation, any and all patents,
copyrights, author's rights, trademarks, trade names, know-how and any
rights under the trade secret laws of any jurisdiction with respect
thereto, irrespective of whether such rights arise under U.S. or
international intellectual property, unfair competition or trade secret
laws ("Proprietary Rights") shall be and remain at all times the
property of Interspeed, and Cabletron and its End Users shall have no
right, title or interest therein
<PAGE>
except as expressly provided herein. Cabletron understands and
acknowledges that the Software Products and Embedded Software are subject
to protection as copyrighted works of authorship of Interspeed or the
applicable Third Party Supplier under the United States Copyright Act
and applicable foreign and international copyright laws and treaties.
Cabletron shall not in any way remove or alter any of Interspeed's or any
Third Party Supplier's notices or in connection with any Product
respecting copyright, trademark, or other proprietary rights.
10.2 Use of Licensed Marks--Cabletron shall use the Licensed Marks only in
connection with the Products, and not in connection with any other
product or services of any Person. Cabletron may not modify any of the
Licensed Marks or combine them with any other marks of any Person.
Cabletron shall not use or distribute any such marketing materials
without Interspeed's initial written approval and any such use shall be
only in accordance with the samples or designs provided to Interspeed
in connection with such approval. After such initial written approval,
Interspeed may, at its option, require prior written approval,
Interspeed may, at its option, require prior written approval of any
marketing materials as to substance, form and style used by Cabletron
in its advertising. Cabletron shall not file any application for
registration in any jurisdiction with respect to any Licensed Mark, or
any mark or name confusing similar thereto. Except to the extent
authorized in writing by Interspeed. Cabletron shall not modify,
enhance or otherwise change or supplement the packaging of the
Products, except to add labels to indicate that such Products have
been distributed by Cabletron, provided that such labels or affixation
thereof on such packaging shall not obscure, alter or hide the Licensed
Marks. Upon termination of this Agreement for any reason, Cabletron
shall immediately cease all use of the Licensed Marks and, at
Cabletron's election, destroy or deliver to Interspeed all such
materials in Cabletron's control or possession that bear any Licensed
Marks, including any and all sales literature.
10.3 Confidentiality--Both parties acknowledges that, in the course of
dealings between the parties, each party will acquire information about
the other, its business activities and operations, and its mechanical
information and trade secrets, of a highly confidential and proprietary
nature ("Confidential Information"). For purposes of this Agreement,
Confidential Information shall include all design information and
related technical information with respect to the Products, including
the design and programming methods and techniques, architectures,
algorithms and other technology embodied in the Embedded Software or
Software Products, and all information with respect to either party's
product development and marketing plans. Both parties shall keep
confidential, shall not incorporate in its products or otherwise use in
any manner other than in furtherance of the purposes of this Agreement,
and shall protect from unauthorized use or disclosure by its employees
and agents, the Confidential Information and all copies or physical
embodiments thereof in its possession, and shall limit access to the
Confidential Information to those of its personnel who require such
access in connection with either party's use thereof as permitted by
this Agreement. Both parties shall secure and protect the Confidential
Information and any and all copies and other physical embodiments
thereof in its possession in a manner consistent with the maintenance
of each party's rights and interest therein. Both parties shall take
appropriate action by instruction or agreement with its employees who
are permitted access to the Confidential Information or any copy or other
physical embodiment thereof to satisfy each party's obligations
hereunder. Upon termination of this agreement for any reason, each party
shall immediately return to the other party or, if authorized by the
other party destroy all documents, files, and other materials embodying
any of the Confidential Information and shall certify to the other
party that such return or destruction has taken place. Cabletron
shall not attempt to obtain the source code to any Software Products or
Embedded Software by decompilation, disassembly or other means, and
shall not make any copies of the Software Products except as
specifically authorized. The obligations of this Section 10.2 shall
survive any termination of this Agreement.
Section 11. TERMINATION
11.1 Termination--Either party may terminate this Agreement as of the end
of any Term Year upon sixty (60) days prior written notice to the other
party. Interspeed may terminate this Agreement in whole or in part by
written notice to Cabletron, in the event of the occurrence of any of
the following: (a) if Cabletron has not ordered, as of the end of any
term Year, the Minimum Quantity applicable to such Term Year as set
forth on Schedule A; (b) if Cabletron fails to pay any amount due
hereunder within ten (10) days after written demand by Interspeed for
payment thereof; (c) if either party fails to observe or perform any
term or condition of this Agreement and does not cure such failure
within ten (10) days after written demand by the other party; (d) if
either party makes a general assignment for the benefit of creditors or
files a voluntary petition in bankruptcy or for reorganization or
arrangement under the bankruptcy laws, or if a petition in bankruptcy is
file against either party and is not dismissed within thirty (30) days
after the filing, or if a receiver or trustee is appointed for all or
any part of the property or assets of either party, or (e) as provided
in Section 7.1.
11.2 Effect of Termination--Upon any termination of this Agreement, all
rights and obligations of the parties under this Agreement shall cease
except for: (i) the obligations of both parties with respect to orders
made by Cabletron prior to termination of this Agreement that
Interspeed does not elect to terminate; (ii) Cabletron's obligations to
make all payments with respect to deliveries made by Interspeed prior
to termination; and (iii) the rights and obligations of the parties
under Sections 7.8, 10 and this Section 11.
Section 12. GENERAL
12.1 Entire Agreement--Each party acknowledged that it has read this
Agreement, fully understands it, and agrees to be bound by its terms
and further agrees that it is the complete and exclusive statement of the
agreement between the parties, which supersedes and merges all prior
proposals, understandings and all other agreements, oral and written,
between the parties relating to the subject matter of this Agreement.
This Agreement cannot be modified or altered except by a written
instrument duly executed by both parties. No additional or conflicting
terms or conditions, whether contained in Cabletron's purchase order,
shipping release, or elsewhere, shall be binding upon Interspeed.
12.2 Relationship of Parties--The relationship of the parties hereto shall be
that of buyer and seller. Nothing herein shall be construed to create
any partnership, joint
<PAGE>
venture, agency or similar relationship or to subject the parties to any
implied duties or obligations respecting the conduct of their affairs, which
are not expressly stated herein. Neither party shall have any right or
authority to assume or create any obligation or responsibility, either
express or implied, on behalf of or in the name of the other party, or to
bind the other party in any matter or thing whatsoever.
12.3 Governing Law--This Agreement and performance hereunder shall be
governed by and construed in accordance with the laws of The
Commonwealth of Massachusetts without regard to conflict of laws and
without reference to the 1980 United Nations Convention on Contracts or
the Sale of Goods and any amendments thereto.
12.4 Severability--If any provision of this Agreement shall be held to be
invalid, illegal, or unenforceable, the validity, legality, and
enforceability of the remaining provisions shall in no way be affected
or impaired thereby. Further, the provision that is held to be invalid,
illegal or unenforceable shall remain in effect as far as possible in
accordance with the intention of the parties.
12.5 No Waiver--The failure of either party to exercise in any respect any
right provided for herein shall not be deemed a waiver of any right
hereunder.
12.6 Assignment--Cabletron may not assign this Agreement in whole or in part
without the prior written consent of Interspeed. Interspeed may assign
its rights and obligations under this agreement without the written
consent of Cabletron to a corporation succeeding to substantially all
the assets and business of Interspeed relating to the Products by merger
or purchase, which corporation shall expressly assume all of
Interspeed's obligations under this agreement by a writing delivered to
Cabletron, and may assign its rights to receive payments hereunder
without limitation. Notwithstanding the above, Cabletron may assign its
rights and obligations under this Agreement without the written consent
of Interspeed to a corporation succeeding to substantially all the
assets and business of Cabletron, which corporation shall expressly
assume all of Cabletron's obligations under this Agreement by a written
notice delivered to Interspeed.
12.7 Notices--Notices to either party under or relating to this Agreement
shall be in writing to the address indicated on Schedule A of this
Agreement or to such subsequent address as either party may specify by
notice to the other and shall be deemed effective when received if
delivered in hand or by telefax "with written confirmation of receipt,
or on the second day following the date of postmark if sent by prepaid
certified mail, return receipt requested.
12.8 Force Majeure--Neither party shall be responsible for delays or
failures in performance resulting from causes beyond the control of
such party. Such causes shall include, but not be limited to, inability
to obtain export licenses or import authorization, acts of God,
strikes, lockouts, riots, acts of war, epidemics, government
regulations imposed after the fact, fire, communications line failures,
equipment failures, power failures or earthquakes.
12.9 Export Control--To the extent that the Territory is within the United
States, Cabletron acknowledges that Interspeed shall deliver the
Products to Cabletron in the United States and Cabletron shall not
export the Products except as permitted by all applicable laws and
regulations, including the Export Administration Act and the
regulations issued thereunder by the United States Department of
Commerce, Offices of Export Administration.
12.10 Compliance with Laws--Cabletron shall be responsible for ensuring
compliance with all applicable laws and regulations in the Territory,
including but not limited to labeling and language requirements.
Cabletron shall not sell or lease any Products which are not in
compliance with such laws and regulations.
12.11 Conflict of Interest--During the term of this Agreement, Interspeed
shall not knowingly solicit from or propose new or repeat business,
including maintenance, to Cabletron's commercial customers for whom
Interspeed is providing Products, software and/or services pursuant to
this Agreement.
12.12 Packaging--Products shall be packaged and packed at no additional
charge for shipment in suitable boxes, reels, bundles, pieces or coils,
etc., which will provide protection against damage during domestic
shipment, handling, and storage in reasonably dry, unheated quarters.
Corrugated shipping containers shall comply with requirements of Rule
41 of the Uniform Freight Classification. Containers of any type that
are too heavy or too large to be palletized shall be skidded to
facilitate fork truck and/or mechanical handling.
12.13 Toxic Substances and Hazardous Products--Interspeed warrants to
Cabletron that, except as expressly stated elsewhere in this Agreement,
all Products furnished hereunder or in performance of purchase orders
placed hereunder, is safe for its normal use, is non-toxic.
12.14 Records and Audit--Interspeed shall maintain complete and accurate
records of all amounts billable to and payments made by Cabletron under
this Agreement in accordance with generally accepted accounting
practices. Interspeed shall retain such records for a period of three
(3) years from the date of final payment for Products. Within thirty
(30) days after Cabletron provides written notification to Interspeed
of an invoice dispute, Interspeed shall provide Cabletron documentation
evidencing the propriety of its position and the correctness of its
invoice charges.
12.15 Continuing Availability of Products and Replacement and Repaired
Parts--Interspeed agrees to offer for sale to Cabletron for a period of
four (4) years after the termination/expiration date of this Agreement,
maintenance and replacement of Products and parts for Products provided
under this Agreement.
<PAGE>
Executed as a document under seal as of the date first set forth above by the
duly authorized representative of the parties hereto.
INTERSPEED, INC. CABLETRON:
----------------------
By: /s/ Christopher Whalen By: /s/ David Kirkpatrick
------------------------------ ------------------------------
Name: Christopher Whalen Name: David Kirkpatrick
---------------------------- ----------------------------
Title: VP Sales and Marketing Title: VP of Finance and CFO
--------------------------- ---------------------------
<PAGE>
*** This Information has been
omitted pursuant to a
Request For Confidential
Treatment, and has been
filed separately with the
Securities and Exchange
Commission
Interspeed, Inc.
601 South Union Street
Lawrence, MA 01843
SCHEDULE A
1. Reseller Name: Cabletron Systems, Inc.
2. Reseller Address: 36 Industrial Way, Rochester, New Hampshire 03867
Country: USA
3: Territory: Locations which Cabletron currently sells and supports
products.
4. Products:
System 500 16 Port SDSL Platform
System 500 32 Port SDSL Platform
System 500 48 Port SDSL Platform
5. Reseller Discount Level: ***
6. Minimum Quantity: ***
Interspeed and Cabletron confirm that this is the Schedule A referred to in
the above-referenced Reseller Agreement.
Interspeed, Inc. Cabletron Systems, Inc.
By: /s/ Christopher Whalen By: /s/ David Kirkpatrick
-------------------- ---------------------
Name: Christopher Whalen Name: David Kirkpatrick
------------------ --------------------
Title: VP Sales and Marketing Title: VP of Finance and CFO
---------------------- ---------------------
Date: May 21, 1999 Date: May 20, 1999
------------ ------------
<PAGE>
*** This Information has been
omitted pursuant to a
Request For Confidential
Treatment, and has been
filed separately with the
Securities and Exchange
Commission
Interspeed, Inc.
601 South Union Street
Lawrence, MA 01843
Authorized Cabletron Agreement
Schedule B
----------
Price List
----------
LM01 SDSL LINE MODULE PACKAGE PART #: 610-00012 LIST PRICE: ***
- ------------------------------------------------------------------------------
Includes:
***
***
***
***
PM01 Power Module Assembly Part #: 610-00013 List Price: ***
- -----------------------------------------------------------------------------
***
***
SPARE/MISCELLANEOUS PARTS
- -----------------------------------------------------------------------------
*** Part #: 940-00010 List Price: ***
*** Part #: 605-00012 List Price: ***
*** Part #: 530-00010 List Price: ***
*** Part #: 605-00013 List Price: ***
*** Part #: 530-00011 List Price: ***
*** Part #: 605-00015 List Price: ***
*** Part #: 605-00014 List Price: ***
*** Part #: 605-00010 List Price: ***
*** Part #: 605-00011 List Price: ***
*** Part #: 510-00010 List Price: ***
*** Part #: 810-00010 List Price: ***
*** Part #: 810-00011 List Price: ***
*** Part #: TBD List Price: ***
*** Part #: TBD List Price: ***
***
*** Part #: 605-00019 List Price: ***
*** Part #: 605-00020 List Price: ***
*** Part #: 610-00014 List Price: ***
***
***
*** Part #: TBD List Price: ***
*** Part #: TBD List Price: ***
*** Part #: TBD List Price: ***
*** Part #: TBD List Price: ***
*** Part #: TBD List Price: ***
*** Part #: TBD List Price: ***
<PAGE>
Interspeed, Inc.
601 South Union Street
Lawrence, MA 01843
U.S.A.
Authorized Cabletron Agreement
SCHEDULE C
CABLETRON DISCOUNT SCHEDULE
<PAGE>
Interspeed, Inc.
601 South Union Street
Lawrence, MA 01843
Authorized Cabletron Agreement
SCHEDULE D
LICENSED MARKS
<PAGE>
Interspeed, Inc.
601 South Union Street
Lawrence, MA 01843
U.S.A.
Authorized Cabletron Agreement
SCHEDULE E
RUN-TIME LICENSE AGREEMENT
<PAGE>
Interspeed, Inc.
601 South Union Street
Lawrence, MA 01843
U.S.A.
Authorized Cabletron Agreement
SCHEDULE F
MAINTENANCE SUPPORT SERVICE-TERMS AND PRICES
<PAGE>
STOCKHOLDER RIGHTS AGREEMENT
THIS STOCKHOLDER RIGHTS AGREEMENT (the "Agreement") is dated as of this
9th day of August, 1999, by and between Interspeed, Inc., a Delaware corporation
(the "Company"), and Brooktrout, Inc. ("Brooktrout").
WHEREAS, Brooktrout has agreed to enter into a Transition Services
Agreement, dated as of the effective date of the Company's initial public
offering of its common stock, with Brooktrout to provide the Company with
certain transition services through December 31, 1999 in connection with
Interspeed becoming a more autonomous entity; and
WHEREAS, the execution of this Agreement is an inducement and a
condition precedent to Brooktrout providing the transition services;
NOW, THEREFORE, in consideration of the premises, as an inducement to
Brooktrout to provide the transition services and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
Company and Brooktrout hereby covenant and agree with each other as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following
terms shall have the following respective meanings:
"COMMISSION" shall mean the United States Securities and
Exchange Commission, or any other federal agency administering the Securities
Act and the Exchange Act at the time;.
"COMMON STOCK" shall mean (i) the Company's common stock, par
value $0.01 per share, as authorized on the date of this Agreement, (ii) any
other capital stock of any class or classes (however designated) of the Company,
authorized on or after the date hereof, the holders of which shall have the
right, without limitation as to amount per share, either to all or to a share of
the balance of current dividends and liquidating distributions after the payment
of dividends and distributions on any shares entitled to preference in the
payment thereof, and the holders of which shall ordinarily, in the absence of
contingencies, be entitled to vote for the election of directors of the Company
(even though the right so to vote has been suspended by the happening of such a
contingency), and (iii) any other securities into which or for which any of the
securities described in (i) or (ii) above may be converted or exchanged pursuant
to a plan of recapitalization, reorganization, merger, sale of assets or
otherwise.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended, or any similar successor federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall be in effect at
the time.
1
<PAGE>
"PERSON" shall mean an individual, a corporation, a
partnership, a joint venture, a trust, an unincorporated organization, a limited
liability company or partnership, a government and any agency or political
subdivision thereof.
"REGISTRABLE SECURITIES" shall mean (i) any shares of Common
Stock held by Brooktrout at any time, and (ii) any other securities issued and
issuable with respect to any such shares described in clauses (i) and (ii) above
by way of a stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization (it
being understood that for purposes of this Agreement, a Person will be deemed to
be a holder of Registrable Securities whenever such Person has the right to then
acquire or obtain from the Company any Registrable Securities, whether or not
such acquisition has actually been effected).
"REGISTRATION EXPENSES" shall mean the expenses so described
in Section 6 hereof.
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, or any similar successor federal statute, and the rules and regulations
of the Commission thereunder, all as the same shall be in effect at the time.
2. DEMAND REGISTRATION.
(a) At any time after the initial public offering of the
Company's Common Stock pursuant to an effective registration under the
Securities Act, the holders of at least ten percent (10%) of the Registrable
Securities may notify the Company that they intend to offer or cause to be
offered for public sale all or any portion of their Registrable Securities in
the manner specified in such request. The Company will use its best efforts to
expeditiously effect the registration of all Registrable Securities to the
extent provided for in the following provisions of this Agreement.
Notwithstanding anything to the contrary contained herein, no request may be
made under this Section 2 within ninety (90) days after the effective date of a
registration statement filed by the Company covering a firm commitment
underwritten public offering in which the holders of Registrable Securities
shall have been entitled to join pursuant to Section 4 and in which there shall
have been effectively registered all Registrable Securities as to which
registration shall have been requested (or in the event of an initial public
offering, 180 days after the date of the final prospectus filed with the
Commission pursuant to Rule 424(b) of the Securities Act or if no filing under
Rule 424(b) is made, the date of the final prospectus included in the Form S-1
when declared effective under the Securities Act).
(b) If a requested registration involves an underwritten
public offering and the managing underwriter of such offering determines in good
faith that the number of securities sought to be offered should be limited due
to market conditions, then the number of securities to be included in such
underwritten public offering shall be reduced to a number deemed satisfactory by
such managing underwriter, PROVIDED that the shares to be excluded shall be
determined in the following order of priority: (i) securities held by any other
Persons (other than the holders of Registrable Securities) having a contractual,
incidental "piggy back" right to
2
<PAGE>
include such securities in the registration statement, (ii) Registrable
Securities of holders who did not make the original request for registration
and, if necessary, (iii) Registrable Securities of holders who requested such
registration pursuant to Section 2(a). If there is a reduction of the number of
Registrable Securities pursuant to clauses (ii) or (iii), such reduction shall
be made on a pro rata basis (based upon the aggregate number of Registrable
Securities held by such holders).
(c) With respect to a request for registration pursuant to
Section 2(a) which is for an underwritten public offering, the managing
underwriter shall be chosen by the holders of a majority of the Registrable
Securities to be sold in such offering (which approval will not be unreasonably
withheld or delayed). The Company may not cause any other registration of
securities for sale for its own account (other than a registration effected
solely to implement an employee benefit plan or a transaction to which Rule 145
of the Securities Act is applicable) to become effective within one hundred
twenty (120) days following the effective date of any registration required
pursuant to this Section 2.
3. FORM S-3.
(a) After the first public offering of its securities
registered under the Securities Act, the Company shall use its best efforts to
qualify and remain qualified to register securities on Form S-3 (or any
successor form) under the Securities Act. At any time that the Company is so
qualified, the holders of at least ten percent (10%) of the Registrable
Securities shall have the right to request any number of registrations on Form
S-3 (or any successor form) for the Registrable Securities held by such
requesting holders, including registrations for the sale of such Registrable
Securities on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act. Such requests shall be in writing and shall state the number of
shares of Registrable Securities to be disposed of and the intended method of
disposition of such shares by such holder or holders.
(b) In the case of a registration for the sale of Registrable
Securities on a delayed or continuous basis pursuant to Rule 415 of the
Securities Act (a "Shelf Registration Statement"), upon receipt of any notice (a
"Suspension Notice") from the Company of the happening of any event which makes
any statement made in the Shelf Registration Statement or related prospectus
untrue or which requires the making of any changes in such Shelf Registration
Statement or prospectus so that they will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein in light of the circumstances under
which they were made not misleading, each holder of Registrable Securities
registered under such Shelf Registration Statement shall forthwith discontinue
disposition of such Registrable Securities pursuant to such Shelf Registration
Statement until such holder's receipt of the copies of the supplemented or
amended prospectus or until it is advised in writing (the "Advice") by the
Company that the use of the prospectus may be resumed, and has received copies
of any additional or supplemental filings which are incorporated by reference in
the prospectus; PROVIDED, HOWEVER, that the Company shall not give a Suspension
Notice until after the Shelf Registration Statement has been declared effective
and shall not give more than one Suspension Notice during any period of twelve
(12) consecutive
3
<PAGE>
months and in no event shall the period from the date on which any holder of
Registrable Securities receives a Suspension Notice to the date on which any
such holder receives either the Advice or copies of the supplemented or amended
prospectus (the "Suspension Period") exceed sixty (60) days. In the event that
the Company shall give any Suspension Notice, the Company shall use its best
efforts and take such actions as are reasonably necessary to render the Advice
and end the Suspension Period as promptly as practicable.
4. PIGGYBACK REGISTRATION. If the Company at any time after the
initial public offering of the Company's Common Stock pursuant to an effective
registration under the Securities Act, proposes to register any of its
securities under the Securities Act for sale to the public (except pursuant to a
demand under Section 2 hereof and except with respect to registration statements
on Forms S-4, S-8 or another form not available for registering the Registrable
Securities for sale to the public), each such time it will give written notice
at the applicable address of record to each holder of Registrable Securities of
its intention to do so. Upon the written request of any of such holders of the
Registrable Securities, given within twenty (20) days after receipt by such
Person of such notice, the Company will, subject to the limits contained in this
Section 4, use its best efforts to cause all such Registrable Securities of said
requesting holders to be registered under the Securities Act and qualified for
sale under any state blue sky law, all to the extent required to permit such
sale or other disposition of said Registrable Securities; PROVIDED, HOWEVER,
that if the Company is advised in writing in good faith by any managing
underwriter of the Company's securities being offered in a public offering
pursuant to such registration statement that the amount to be sold by persons
other than the Company (collectively, "Selling Stockholders") is greater than
the amount which can be offered without adversely affecting the offering, the
Company may reduce the amount offered for the accounts of Selling Stockholders
(including such holders of shares of Registrable Securities) to a number deemed
satisfactory by such managing underwriter; and PROVIDED FURTHER, that the shares
to be excluded shall be determined in the following order of priority: (i)
securities held by any Persons not having any such contractual, incidental
registration rights, (ii) securities held by any Persons having contractual,
incidental registration rights pursuant to an agreement which is not this
Agreement, and (iii) the Registrable Securities sought to be included by the
holders thereof as determined on a pro rata basis (based upon the aggregate
number of Registrable Securities held by such holders).
5. REGISTRATION PROCEDURES. If and whenever the Company is required by
the provisions of this Agreement to use its best efforts to effect the
registration of any of its securities under the Securities Act, the Company
will, as expeditiously as possible:
(a) use its best efforts diligently to prepare and file with
the Commission a registration statement on the appropriate form under the
Securities Act with respect to such securities, which form shall comply as to
form in all material respects with the requirements of the applicable form and
include all financial statements required by the Commission to be filed
therewith, and use its best efforts to cause such registration statement to
become and remain effective until completion of the proposed offering;
4
<PAGE>
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective and
to comply with the provisions of the Securities Act with respect to the sale or
other disposition of all securities covered by such registration statement
whenever the seller or sellers of such securities shall desire to sell or
otherwise dispose of the same, but only to the extent provided in this
Agreement;
(c) furnish to each selling holder and the underwriters, if
any, such number of copies of such registration statement, any amendments
thereto, any documents incorporated by reference therein, the prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as such selling holder may reasonably
request in order to facilitate the public sale or other disposition of the
securities owned by such selling holder;
(d) use every reasonable effort to register or qualify the
securities covered by such registration statement under such other securities or
state blue sky laws of such jurisdictions as each selling holder shall
reasonably request, and do any and all other acts and things which may be
necessary under such securities or blue sky laws to enable such selling holder
to consummate the public sale or other disposition in such jurisdictions of the
securities owned by such selling holder, except that the Company shall not for
any such purpose be required to qualify to do business as a foreign corporation
in any jurisdiction wherein it is not so qualified;
(e) within a reasonable time before each filing of the
registration statement or prospectus or amendments or supplements thereto with
the Commission, furnish to counsel selected by the holders of Registrable
Securities copies of such documents proposed to be filed, which documents shall
be subject to the reasonable approval of such counsel;
(f) promptly notify each selling holder of Registrable
Securities, such selling holders' counsel and any underwriter and (if requested
by any such Person) confirm such notice in writing, of the happening of any
event which makes any statement made in the registration statement or related
prospectus untrue or which requires the making of any changes in such
registration statement or prospectus so that they will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein in the light of the
circumstances under which they were made not misleading; and, as promptly as
practicable thereafter, prepare and file with the Commission and furnish a
supplement or amendment to such prospectus so that, as thereafter deliverable to
the purchasers of such Registrable Securities, such prospectus will not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading;
(g) use its best efforts to prevent the issuance of any order
suspending the effectiveness of a registration statement, and if one is issued
use its best efforts to obtain the withdrawal of any order suspending the
effectiveness of a registration statement at the earliest possible moment;
5
<PAGE>
(h) if requested by the managing underwriter or underwriters
(if any), any selling holder, or such selling holder's counsel, promptly
incorporate in a prospectus supplement or post-effective amendment such
information as such Person requests to be included therein, including, without
limitation, with respect to the securities being sold by such selling holder to
such underwriter or underwriters, the purchase price being paid therefor by such
underwriter or underwriters and with respect to any other terms of an
underwritten offering of the securities to be sold in such offering, and
promptly make all required filings of such prospectus supplement or
post-effective amendment;
(i) make available to each selling holder, any underwriter
participating in any disposition pursuant to a registration statement, and any
attorney, accountant or other agent or representative retained by any such
selling holder or underwriter (collectively, the "Inspectors"), all financial
and other records, pertinent corporate documents and properties of the Company
(collectively, the "Records"), as shall be reasonably necessary to enable them
to exercise their due diligence responsibility, and cause the Company's
officers, directors and employees to supply all information requested by any
such Inspector in connection with such registration statement;
(j) enter into any reasonable underwriting agreement required
by the proposed underwriter(s) for the selling holders, if any, and use its best
efforts to facilitate the public offering of the securities;
(k) furnish to each prospective selling holder a signed
counterpart, addressed to the prospective selling holder, of (A) an opinion of
counsel for the Company, dated the effective date of the registration statement,
and (B) a "comfort" letter signed by the independent public accountants who have
certified the Company's financial statements included in the registration
statement, covering substantially the same matters with respect to the
registration statement (and the prospectus included therein) and (in the case of
the accountants' letter) with respect to events subsequent to the date of the
financial statements, as are customarily covered (at the time of such
registration) in opinions of the Company's counsel and in accountants' letters
delivered to the underwriters in underwritten public offerings of securities;
(l) use its best efforts to cause the securities covered by
such registration statement to be listed on the securities exchange or quoted on
the quotation system on which the Common Stock of the Company is then listed or
quoted (or if the Common Stock is not yet listed or quoted, then on such
exchange or quotation system as the selling holders of Registrable Securities
and the Company shall determine);
(m) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission and make generally available
to its security holders, in each case as soon as practicable, but not later than
45 days after the close of the period covered thereby, an earnings statement of
the Company which will satisfy the provisions of Section 11(a) of the Securities
Act and Rule 158 thereunder (or any comparable successor provisions); and
6
<PAGE>
(n) otherwise cooperate with the underwriter(s), the
Commission and other regulatory agencies and take all actions and execute and
deliver or cause to be executed and delivered all documents necessary to effect
the registration of any securities under this Agreement.
6. EXPENSES. All reasonable expenses incurred in effecting the
registrations provided for in Sections 2, 3 and 4, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for the Company, underwriting expenses (other than
fees, commissions or discounts), expenses of any audits incident to or required
by any such registration and expenses of complying with the securities or blue
sky laws of any jurisdictions pursuant to Section 5(d) hereof (all of such
expenses referred to as "Registration Expenses"), shall be paid by the Company.
7. INDEMNIFICATION.
(a) The Company shall indemnify and hold harmless the selling
holder of Registrable Securities, each underwriter (as defined in the Securities
Act), and each other Person who participates in the offering of such securities
and each other Person, if any, who controls (within the meaning of the
Securities Act) such seller, underwriter or participating Person (individually
and collectively, the "Indemnified Person") against any losses, claims, damages
or liabilities (collectively, the "liability"), joint or several, to which such
Indemnified Person may become subject under the Securities Act or any other
statute or at common law, insofar as such liability (or action in respect
thereof) arises out of or is based upon (i) any untrue statement or alleged
untrue statement of any material fact contained, on the effective date thereof,
in any registration statement under which such securities were registered under
the Securities Act, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereto, or (ii) any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading. Except as otherwise
provided in Section 7(d), the Company shall reimburse each such Indemnified
Person in connection with investigating or defending any such liability;
PROVIDED, HOWEVER, that the Company shall not be liable to any Indemnified
Person in any such case to the extent that any such liability arises out of or
is based upon any untrue statement or alleged untrue statement or omission or
alleged omission made in such registration statement, preliminary or final
prospectus, or amendment or supplement thereto in reliance upon and in
conformity with information furnished in writing to the Company by such Person
specifically for use therein, or upon such statement or omission therein based
on the authority of an expert within the meaning of that term as defined in the
Securities Act (but only if the Company had no reasonable ground to believe, and
did not believe, that the statements made on the authority of an expert were
untrue or that there was an omission to state a material fact); and PROVIDED
FURTHER, that the Company shall not be required to indemnify any Person against
any liability arising from any untrue or misleading statement or omission
contained in any preliminary prospectus if such deficiency is corrected in the
final prospectus or for any liability which arises out of the failure of any
Person to deliver a prospectus as required by the Securities Act regardless of
any investigation made by or on behalf of such Indemnified Person and shall
survive transfer of such securities by such seller.
7
<PAGE>
(b) Each selling holder of any securities included in such
registration being effected shall indemnify and hold harmless each other selling
holder of any securities, the Company, its directors and officers, each
underwriter and each other Person, if any, who controls the Company or such
underwriter (individually and collectively also the "Indemnified Person"),
against any liability, joint or several, to which any such Indemnified Person
may become subject under the Securities Act or any other statute or at common
law, insofar as such liability (or actions in respect thereof) arises out of or
is based upon (i) any untrue statement or alleged untrue statement of any
material fact contained, on the effective date thereof, in any registration
statement under which securities were registered under the Securities Act at the
request of such selling holder, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereto, or (ii) any omission
or alleged omission by such selling holder to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in the case of (i) and (ii) to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or omission or alleged
omission was made in such registration statement, preliminary or final
prospectus, amendment or supplement thereto in reliance upon and in conformity
with information furnished in writing to the Company by such selling holder
specifically for use therein, and then only to the extent that such untrue
statement or alleged untrue statement or omission or alleged omission by the
selling holder was not based on the authority of an expert as to which the
selling holder had no reasonable ground to believe, and did not believe, that
the statement made on the authority of such expert was untrue or that there was
an omission to state a material fact. Such selling holder shall reimburse any
Indemnified Person for any legal fees incurred in investigating or defending any
such liability; PROVIDED, HOWEVER, that such selling holder's obligations
hereunder shall be limited to an amount equal to the proceeds to such selling
holder of the securities sold in any such registration; and PROVIDED FURTHER,
however, that no selling holder shall be required to indemnify any Person
against any liability arising from any untrue or misleading statement or
omission contained in any preliminary prospectus if such deficiency is corrected
in the final prospectus or for any liability which arises out of the failure of
any Person to deliver a prospectus as required by the Securities Act.
(c) Indemnification similar to that specified in Sections 7(a)
and (b) shall be given by the Company and each selling holder (with such
modifications as may be appropriate) with respect to any required registration
or other qualification of their securities under any federal or state law or
regulation of governmental authority other than the Securities Act.
(d) In the event the Company, any selling holder or other
Person receives a complaint, claim or other notice of any liability or action,
giving rise to a claim for indemnification under Sections 7(a), (b) or (c)
above, the Person claiming indemnification under such paragraphs shall promptly
notify the Person against whom indemnification is sought of such complaint,
notice, claim or action, and such indemnifying Person shall have the right to
investigate and defend any such loss, claim, damage, liability or action. The
Person claiming indemnification shall have the right to employ separate counsel
in any such action and to participate in the defense thereof but the fees and
expenses of such counsel shall not be at the expense of the Person against whom
indemnification is sought (unless the indemnifying party fails to promptly
defend, in which case the fees and expenses of such separate counsel shall be
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borne by the Person against whom indemnification is sought). In no event shall a
Person against whom indemnification is sought be obligated to indemnify any
Person for any settlement of any claim or action effected without the
indemnifying Person's prior written consent.
8. COMPLIANCE WITH RULE 144. In the event that the Company (i)
registers a class of securities under Section 12 of the Exchange Act or (ii)
shall commence to file reports under Section 13 or 15(d) of the Exchange Act,
the Company will use its best efforts thereafter to file with the Commission
such information as is required under the Exchange Act for so long as there are
holders of Registrable Securities; and in such event, the Company shall use its
best efforts to take all action as may be required as a condition to the
availability of Rule 144 under the Securities Act (or any comparable successor
rules). The Company shall furnish to any holder of Registrable Securities upon
request a written statement executed by the Company as to the steps it has taken
to comply with the current public information requirement of Rule 144 (or such
comparable successor rules). After the occurrence of the first underwritten
public offering of Common Stock of the Company pursuant to an offering
registered under the Securities Act on Form S-1 or Form SB-1 (or any comparable
successor forms), subject to the limitations on transfers imposed by this
Agreement, the Company shall use its best efforts to facilitate and expedite
transfers of Registrable Securities pursuant to Rule 144 under the Securities
Act, which efforts shall include timely notice to its transfer agent to expedite
such transfers of Registrable Securities.
9. AMENDMENTS. The provisions of this Agreement may be amended,
and the Company may take any action herein prohibited or omit to perform any act
herein required to be performed by it, only if the Company has obtained the
written consent of the holders of at least a majority of the Registrable
Securities.
10. TRANSFERABILITY OF REGISTRATION RIGHTS. The registration
rights set forth in this Agreement are transferable to each transferee of
Registrable Securities, other than a transferee whose activities, products or
services are competitive with the activities, products or services of the
Company as of the date of such transfer; provided however, that the registration
rights set forth in this Agreement shall not be transferable to a transferee of
Registrable Securities if such securities are freely transferable. Each
subsequent holder of Registrable Securities must consent in writing to be bound
by the terms and conditions of this Agreement in order to acquire the rights
granted pursuant to this Agreement.
11. RIGHTS WHICH MAY BE GRANTED TO SUBSEQUENT INVESTORS. Other
than permitted transferees of Registrable Securities under Section 10 hereof,
the Company shall not, without the prior written consent of holders of at least
a majority of the Registrable Securities, (a) allow purchasers of the Company's
securities to become a party to this Agreement or (b) grant any other
registration rights to any third parties.
12. DAMAGES. The Company recognizes and agrees that each holder of
Registrable Securities will not have an adequate remedy if the Company fails to
comply with the terms and provisions of this Agreement and that damages will not
be readily ascertainable, and the Company expressly agrees that, in the event of
such failure, it shall not oppose an application by
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any holder of Registrable Securities or any other Person entitled to the
benefits of this Agreement requiring specific performance of any and all
provisions hereof or enjoining the Company from continuing to commit any such
breach of this Agreement.
13. CONTROL PERSON INDEMNIFICATION.
(a) The Company shall, to the full extent permitted by law,
and in addition to any such rights which any Indemnified Person (as defined
herein) may have pursuant to statute, the Company's charter, the Company's
by-laws, or otherwise, indemnify and hold harmless Brooktrout (including its
respective directors, officers, partners, employees and agents) and each person
(a "Controlling Person" and collectively with Brooktrout, the "Brooktrout
Indemnified Parties") who controls Brooktrout within the meaning of Section 15
of the Securities Act, or Section 20 of the Exchange Act, from and against any
and all losses, claims, damages, expenses and liabilities, joint or several,
including any investigation, legal and other expenses incurred in connection
with the investigation, defense, settlement or appeal of, and any amount paid in
settlement of, any action, suit or proceeding or any claim asserted ("Losses" or
"Loss"), to which they, or any of them, may become subject by reason of their
status as a director, agent, representative or controlling person of the Company
(including, without limitation, any and all Losses under the Securities Act, the
Exchange Act or other federal or state statutory law or regulation, at common
law or otherwise, relating directly or indirectly to any fiduciary or other
obligation owed to the Company, its stockholders or any purchasers of its
securities as a result of Brooktrout's ownership of any securities of the
Company or sale of any of the Company's securities or their status as a control
person); PROVIDED, HOWEVER, that the Company will not be liable to the extent
that such Loss (i) arises out of or as a result of the gross negligence or
willful misconduct of any Brooktrout Indemnified Party or (ii) arises from and
is based on an untrue statement or omission or alleged untrue statement or
omission in a registration statement or prospectus which is made in reliance on
and in conformity with written information furnished to the Company in an
instrument duly executed by or on behalf of such Brooktrout Indemnified Party
specifically stating that it is for use in the preparation thereof. The
indemnification and contribution provided for in this Section 13 will remain in
full force and effect regardless of any investigation made by or on behalf of
the Brooktrout Indemnified Parties or any officer, director, employee, agent or
Controlling Person of the Brooktrout Indemnified Parties.
(b) If the indemnification provided for in Section 13(a) above
for any reason is held by a court of competent jurisdiction to be unavailable to
a Brooktrout Indemnified Party in respect of any Losses referred to therein,
then the Company, in lieu of indemnifying the Brooktrout Indemnified Party
thereunder, shall contribute to the amount paid or payable by such Brooktrout
Indemnified Party as a result of such Losses (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company and
Brooktrout, or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company and Brooktrout in connection with the action or inaction
which resulted in such Losses, as well as any other relevant equitable
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considerations. In connection with the registration of the Company's securities,
the relative benefits received by the Company and Brooktrout shall be deemed to
be in the same respective proportions that the net proceeds from the offering
(before deducting expenses) received by the Company and Brooktrout, in each case
as set forth in the table on the cover page of the applicable prospectus, bear
to the aggregate public offering price of the securities so offered. The
relative fault of the Company and Brooktrout shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or Brooktrout and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The Company and Brooktrout agree that it would not be just and
equitable if contribution pursuant to this Section 13(b) were determined by pro
rata or per capita allocation or by any other method of allocation which does
not take account of the equitable considerations referred to in the immediately
preceding paragraph. In connection with the registration of the Company's
securities, in no event shall Brooktrout be required to contribute any amount
under this Section 13(b) in excess of the lesser of (i) that proportion of the
total of such Losses indemnified against equal to the proportion of the total
securities sold under such registration statement which is being sold by
Brooktrout or (ii) the proceeds received by Brooktrout from its sale of
securities under such registration statement. No person found guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
found guilty of such fraudulent misrepresentation.
(c) Any Brooktrout Indemnified Party that proposes to assert
the right to be indemnified under this Section 13 will, promptly after receipt
of notice of commencement of any claim or action against such party in respect
of which a claim is to be made against the Company under this Section 13, notify
the Company of the commencement of such action, enclosing a copy of all papers
served, but the omission so to notify the Company will not relieve the Company
from any liability that the Company may have to any Brooktrout Indemnified Party
under the foregoing provisions of this Section 13 unless, and only to the extent
that, such omission results in the forfeiture of substantive rights or defenses
by the Company. Subject to the rights of or duties to any insurer or other third
person having liability therefor, the Company shall have the right promptly
after receipt of such notice to assume the control of such defense, compromise
or settlement of any such action, including, at its own expense, employment of
counsel reasonably satisfactory to the Brooktrout Indemnified Party.
Notwithstanding the preceding sentence, in any such matter described in the
preceding sentence, the Brooktrout Indemnified Party shall have the right to
retain its own separate counsel, but the fees and expenses of such counsel shall
be at the Brooktrout Indemnified Party's expense unless (a) the Brooktrout
Indemnified Party and the Company have agreed to the contrary, (b) the Company
has failed within a reasonable time to retain counsel reasonably satisfactory to
the Brooktrout Indemnified Party or (c) representation of both the Brooktrout
Indemnified Party and the Company by the same counsel could be inappropriate due
to actual or potential differing interests between them. In any matter described
above where the
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Brooktrout Indemnified Party has obtained counsel to represent it in addition to
the counsel obtained by the Company, counsel selected by the Company shall be
required to cooperate fully with counsel selected by the Brooktrout Indemnified
Party in such matter. The Company shall not settle any action or claim for which
indemnification is sought under this Section 13 without the prior written
consent of the Brooktrout Indemnified Party.
14. LOCK-UP AGREEMENT. All of Brooktrout's rights under
Sections 2,3 and 4 of this Agreement are subject to the lock-up agreement
entered into by between Brooktrout and U.S. Bancorp Piper Jaffray, Warburg
Dillon Read LLC and Tucker Anthony Cleary Gull, as representatives of the
several underwriters in connection with Interspeed's initial public offering.
15. MISCELLANEOUS.
(a) All notices, requests, demands and other communications
provided for hereunder shall be in writing and mailed (by first class registered
or certified mail, postage prepaid), telegraphed, sent by express overnight
courier service or electronic facsimile transmission (with a copy by mail), or
delivered to the applicable party at the addresses indicated below:
IF TO THE COMPANY:
Interspeed, Inc.
39 High Street
North Andover, Massachusetts 01845
Attention: Stephen A. Ide
Telecopy No.: (978) 688-4798
WITH A COPY TO:
Goodwin, Procter & Hoar LLP
Exchange Place
53 State Street
Boston, MA 02109
Attention: Thomas P. Storer, P.C.
Telecopy No.: (617) 523-1231
IF TO BROOKTROUT:
Brooktrout Technology, Inc.
410 First Avenue
Needham, MA 02194
Attention: Robert C. Leahy
Telecopy No.: (781) 449-2025
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WITH A COPY TO:
Goodwin, Procter & Hoar LLP
Exchange Place
53 State Street
Boston, MA 02109
Attention: Thomas P. Storer, P.C.
Telecopy No.: (617) 523-1231
IF TO ANY OTHER HOLDER OF REGISTRABLE SECURITIES:
At such Person's address for notice as set forth in the books
and records of the Company
or, as to each of the foregoing, at such other address as shall be designated by
such Person in a written notice to other parties complying as to delivery with
the terms of this subsection (a). All such notices, requests, demands and other
communications shall, when mailed, telegraphed or sent, respectively, be
effective (i) two days after being deposited in the mails or (ii) one day after
being delivered to the telegraph company, deposited with the express overnight
courier service or sent by electronic facsimile transmission, respectively,
addressed as aforesaid.
(b) This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without giving effect to
conflict of laws principles thereof. Except with respect to matters as to which
injunctive relief is being sought, any dispute arising out of or relating to
this Agreement that has not been settled within thirty (30) days by good faith
negotiation between the parties to this Agreement shall be submitted to the
JAMS/Endispute, Inc. for final and binding arbitration pursuant to the
JAMS/Endispute, Inc.'s Arbitration Rules. Any such arbitration shall be
conducted in Boston, Massachusetts.
(c) 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.
(d) If any provision of this Agreement shall be held to be
illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability shall attach only to such provision and shall not in any manner
affect or render illegal, invalid or unenforceable any other provision of this
Agreement, and this Agreement shall be carried out as if any such illegal,
invalid or unenforceable provision were not contained herein.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have caused this Registration
Rights Agreement to be duly executed as of the date first set forth above.
INTERSPEED, INC.
By: /s/ Stephen A. Ide
--------------------------------
Name: Stephen A. Ide
Title: President
BROOKTROUT, INC.
By: /s/ Eric R. Giler
--------------------------------
Name: Eric R. Giler
Title: President
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
<PAGE>
CAPITALIZATION AGREEMENT
This Recapitalization Agreement is entered into this 23rd day of July,
1999 by and between BROOKTROUT, INC. ("Brooktrout"), a Massachusetts
corporation, and INTERSPEED, INC. ("Interspeed"), a Delaware corporation.
In consideration of the mutual covenants herein contained and for other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereby agree as follows:
1. BACKGROUND. Interspeed anticipates making a public offering of its
common stock (the "Public Offering"), in which Brooktrout will participate as a
selling stockholder, pursuant to a Registration Statement on Form S-1 of the
Securities and Exchange Commission (the "Registration Statement"). Brooktrout,
as the principal stockholder of Interspeed, has heretofore provided to
Interspeed advances, in the form of payment of expenses on behalf of Interspeed
and otherwise, in an amount which totaled approximately $10,887,000 as of June
30, 1999 and has increased and is expected to continue to increase up to the
consummation of the Public Offering (collectively, the "Brooktrout Advances").
This Agreement is being entered into to set forth the agreement of Brooktrout
and Interspeed with respect to the disposition of these advances in connection
with the Public Offering and otherwise.
2. CONTRIBUTION TO CAPITAL. Upon effectiveness of the Registration
Statement, Brooktrout shall contribute to the capital of Interspeed, and
Interspeed shall accept as a contribution to its capital, the full amount of the
Brooktrout Advances made up to the date of such effectiveness.
3. EXTENSION OF PAYMENT. In any event, Brooktrout agrees that it shall
not seek repayment of the Brooktrout Advances, in whole or in part, at any time
prior to October 1, 2000.
4. DISCLAIMER. It is hereby acknowledged and agreed that Brooktrout
shall make no further advances to Interspeed following effectiveness of the
Registration Statement, and that Brooktrout has committed to make further
advances as needed to Interspeed through the date of effectiveness of the
Registration Statement.
5. COUNTERPARTS. This Agreement may be executed in any number of
counterparts with the same effect as if all parties had signed the same
document, and all counterparts shall be construed together and shall constitute
the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed on their respective behalves by their officers thereunto duly
authorized, as of the date and year first set forth above.
BROOKTROUT, INC.
By: /s/ ROBERT C. LEAHY
-------------------------------
Robert C. Leahy
Vice President, Finance and Operations
INTERSPEED, INC.
By: /s/ STEPHEN A. IDE
-------------------------------
Stephen A. Ide
President
<PAGE>
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
The Board of Directors and Stockholders of
Interspeed, Inc.:
We consent to the use in this Amendment No. 2 to Registration Statement No.
333-81071 of Interspeed, Inc. on Form S-1 of our report dated July 23, 1999
appearing in the Prospectus, which is a part of such Registration Statement, and
to the reference to us under the heading "Experts" in such Prospectus.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Boston, Massachusetts
August 10, 1999
