<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
---------------
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NUMBER 0-27401
------------------------
INTERSPEED, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 04-3333365
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
39 HIGH STREET 01845
NORTH ANDOVER, MASSACHUSETTS (Zip Code)
(Address of Principal Executive
Offices)
</TABLE>
(978) 688-6164
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former Name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of May 10, 2000, 10,848,148 shares of $0.01 par value common stock of the
registrant were outstanding.
Page 1 of 23 Total Pages
(Exhibit Index appears on Page 22)
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
1. Condensed Balance Sheets as of March 31, 2000 (unaudited) and
September 30, 1999.................................................... 3
2. Condensed Statements of Operations (unaudited) for the three and
six months
ended March 31, 2000 and 1999......................................
4
3. Condensed Statements of Cash Flows (unaudited) for the six months
ended
March 31, 2000 and 1999............................................
5
4. Notes to Condensed Financial Statements........................... 6-8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS....................................... 9-20
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK... 20
PART OTHER INFORMATION
II......
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS................... 21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................ 22
SIGNATURE PAGE........................................................ 23
</TABLE>
Page 2 of 23 Total Pages
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTERSPEED, INC.
CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
2000 1999
----------- -------------
(UNAUDITED)
<S> <C> <C>
Assets
Current assets:
Cash........................................................ $10,011 $21,227
Accounts receivable, net.................................... 5,117 808
Inventory................................................... 3,909 2,445
Prepaid expenses and other.................................. 354 168
------- -------
Total current assets........................................ 19,391 24,648
Property and equipment, net................................. 1,720 1,178
Other assets................................................ 26 54
------- -------
Total assets................................................ $21,137 $25,880
======= =======
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable............................................ $ 2,141 $ 2,789
Accrued expenses............................................ 712 662
Short-term note payable--due Brooktrout..................... -- 129
Payable to Brooktrout....................................... 70 --
Deferred revenue............................................ 38 26
------- -------
Total current liabilities................................... 2,961 3,606
Deferred rent............................................... 141 104
Stockholders' equity:
Common stock, $.01 par value, 30,000,000 shares authorized,
10,823,896 and 10,702,658 shares issued and outstanding 108 107
Additional paid-in capital.................................. 43,554 41,995
Accumulated deficit......................................... (22,223) (15,825)
Deferred compensation....................................... (3,404) (4,107)
------- -------
Total stockholders' equity.................................. 18,035 22,170
------- -------
Total liabilities and stockholders' equity.................. $21,137 $25,880
======= =======
</TABLE>
The Condensed Balance Sheet as of September 30, 1999 has been summarized
from the Company's audited Balance Sheet as of that date.
See notes to condensed financial statements.
Page 3 of 23 Total Pages
<PAGE>
INTERSPEED, INC.
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED MARCH 31, ENDED MARCH 31,
---------------------- ----------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue before sales discounts--warrants............ $ 4,003 $ 327 $ 7,155 $ 391
Sales discounts--warrants........................... (439) -- (439) --
------- ------- ------- -------
Net revenue......................................... 3,564 327 6,716 391
Cost of revenue..................................... 2,193 276 3,962 312
------- ------- ------- -------
Gross profit........................................ 1,371 51 2,754 79
Operating expenses:
Research and development............................ 1,940 1,139 3,592 2,412
Selling, general and administrative................. 2,304 576 4,394 922
Stock compensation and warrant charges.............. 1,135 62 1,552 94
------- ------- ------- -------
Loss from operations................................ (4,008) (1,726) (6,784) (3,349)
Interest income..................................... 156 -- 386 --
------- ------- ------- -------
Loss before income taxes............................ (3,852) (1,726) (6,398) (3,349)
Income tax expense.................................. -- -- -- --
------- ------- ------- -------
Net loss............................................ $(3,852) $(1,726) $(6,398) $(3,349)
======= ======= ======= =======
Net loss per share-basic and diluted................ $ (0.36) $ (0.22) $ (0.60) $ (0.42)
======= ======= ======= =======
Shares used to compute net loss per Share--basic and
diluted........................................... 10,781 8,000 10,744 8,000
======= ======= ======= =======
</TABLE>
See notes to condensed financial statements.
Page 4 of 23 Total Pages
<PAGE>
INTERSPEED, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
----------------------
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................... $(6,398) $(3,349)
Adjustments to reconcile net loss to cash used by
operating activities:
Depreciation and amortization........................... 412 293
Amortization of stock compensation and warrant
charges............................................... 1552 94
Sales discounts--warrants............................... 439 --
Increase (decrease) in cash from:
Accounts receivable..................................... (4,309) (347)
Inventory............................................... (1,464) 151
Prepaid expenses and other.............................. (158) (301)
Accounts payable........................................ (648) 272
Accrued expenses........................................ 50 361
Payable to Brooktrout................................... (59) --
Deferred revenue........................................ 12 30
Deferred rent........................................... 37 15
------- -------
Net cash used for operating activities...................... (10,534) (2,781)
------- -------
Cash flows used for investing activities:
Purchases of property and equipment......................... (954) (419)
------- -------
Cash flows from financing activities:
Proceeds from the issuance of common stock.................. 272 --
Proceeds from long-term debt due Brooktrout................. -- 3,129
------- -------
Net cash provided by financing activities................... 272 3,129
------- -------
Net decrease in cash........................................ (11,216) (71)
Cash, beginning of period................................... 21,227 132
------- -------
Cash, end of period......................................... $10,011 $ 61
======= =======
</TABLE>
See notes to condensed financial statements.
Page 5 of 23 Total Pages
<PAGE>
INTERSPEED, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared
by Interspeed, Inc. (the "Company") pursuant to the rules and regulations of the
Securities and Exchange Commission regarding interim financial reporting. They
should be read in conjunction with the audited financial statements included in
the Company's Annual Report on Form 10-K/A for the year ended September 30,
1999.
In the opinion of management, the accompanying unaudited condensed financial
statements have been prepared on the same basis as the audited financial
statements and include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the interim periods presented.
The operating results for the interim periods presented are not necessarily
indicative of the results which could be expected for the full year.
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 11,858,000, 11,775,000, 9,248,000, and 9,205,000 for the three and
six months ended March 31, 2000 and 1999, respectively.
INCOME TAXES
The Company's quarterly effective tax rate is based on the estimated tax
rate for the fiscal year.
COMPREHENSIVE INCOME
There was no difference between the Company's net loss and its total
comprehensive loss for any of the periods presented.
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, multi-tenant units ("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 March 31, 2000, approximately 96% of
the receivable balance was comprised of balances due from three 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.
Page 6 of 23 Total Pages
<PAGE>
INTERSPEED, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
INVENTORY
Inventory consisted of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
2000 1999
--------- -------------
<S> <C> <C>
Raw material.......................................... $2,137 $1,622
Work in process....................................... 138 5
Finished goods........................................ 1,634 818
------ ------
Total................................................. $3,909 $2,445
====== ======
</TABLE>
SIGNIFICANT CUSTOMER AND GEOGRAPHIC INFORMATION
The Company currently targets its sales efforts to data communications
service providers, MTUs, and other service organizations to both public and
private network providers and users across four related market segments. For the
three months and six months ended March 31, 2000, gross sales to United States'
customers amounted to $3,887,000 and $6,854,000, and export sales for the same
periods amounted to $116,000 and $301,000, respectively. For the three months
ended March 31, 2000, three customers accounted for approximately 50%, 23%, and
20% of gross revenue. For the six months ended March 31, 2000, the same three
customers accounted for approximately 51%, 31% and 11% of gross revenues.
RELATED PARTY TRANSACTIONS
From its inception through the completion of its initial public offering on
September 24, 1999 ("IPO"), the Company's operations were funded through
contributions of capital and loans from Brooktrout, Inc. ("Brooktrout"), its
parent company. At September 24, 1999, in connection with the Company's IPO,
Brooktrout contributed $13,598,000, the majority of the outstanding note
balance, to the capital of the Company.
The Company and Brooktrout entered into a Transition Services Agreement (the
"Agreement") which expired on December 31, 1999. The Agreement outlined certain
services that would continue to be performed on behalf of the Company by
Brooktrout through December 31, 1999. The Agreement required that these services
be phased out over a period beginning on October 1999 to December 1999. The
services included payroll processing and administration, human resources,
benefits, marketing, information technology and telecommunications, accounts
receivable, accounting and finance and order entry. The fees for such services
were on an "as used" basis and were included in the Agreement. During the three
months ended December 31, 1999, fees for services totaled $43,000.
WARRANTS
In consideration for entering into certain long-tern reseller agreements,
the Company granted to the customers vested warrants to purchase 55,000 shares
of the Company's common stock at the market price of the Company's common stock
on the dates the warrants were granted. The value of the warrants was calculated
by applying the Black-Scholes option pricing model using the fair market value
of the Company's common stock on the date the agreements were executed. The
value of the warrants has been charged to expense as a component of stock
compensation and warrant charges in the condensed statement of operations.
The Company also granted to the customers warrants to purchase up to 150,000
shares of the Company's common stock that vest installments as the customers
attain certain revenue milestones over
Page 7 of 23 Total Pages
<PAGE>
INTERSPEED, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
the terms of the agreements. The Company is accounting for these warrants as a
sales discount. As revenue is recognized on sales to these customers, the
Company is recording a sales discount based on the relationship of sales to date
to the customer to the specified revenue milestone. The amount of the discount
is being estimated by valuing the warrants using the Black-Scholes option
pricing model at the end of each fiscal period. The value of the warrants is
being adjusted in each fiscal period until the revenue levels are attained and
the warrants vest. The exercise price of the warrants is the fair market value
of the Company's common stock on the date that the warrants vest.
Page 8 of 23 Total Pages
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS OF OUR FINANCIAL CONDITION AND RESULTS
OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE CONDENSED FINANCIAL
STATEMENTS AND NOTES TO THOSE STATEMENTS INCLUDED ELSEWHERE IN THIS QUARTERLY
REPORT. THIS DOCUMENT CONTAINS CERTAIN STATEMENTS THE ARE "FORWARD-LOOKING
STATEMENTS" AS THAT TERM IS DEFINED UNDER THE PRIVATE SECURITIES LEGISLATION
REFORM ACT OF 1995 AND RELEASES ISSUED BY THE SECURITIES AND EXCHANGE
COMMISSION. THE WORDS "BELIEVE," EXPECT," "ANTICIPATE," "INTEND," "ESTIMATE,"
AND OTHER EXPRESSIONS, WHICH ARE PREDICTIONS OF OR INDICATE FUTURE EVENTS AND
TRENDS AND WHICH DO NOT RELATE TO HISTORICAL MATTERS, IDENTIFY FORWARD-LOOKING
STATEMENTS. FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS,
UNCERTAINTIES AND OTHER FACTORS, WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE
OR ACHIEVEMENTS OF THE COMPANY TO DIFFER MATERIALLY FROM THE ANTICIPATED FUTURE
RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD
LOOKING STATEMENTS. SOME OF THE FACTORS DESCRIBED UNDER "RISK FACTORS" MAY
RESULT IN THESE DIFFERENCES. THE READER SHOULD CAREFULLY REVIEW ALL OF THESE
FACTORS, AND SHOULD BE AWARE THAT THERE MAYBE OTHER FACTORS THAT COULD CAUSE
THESE DIFFERENCES. WE DO NOT UNDERTAKE TO UPDATE ANY FORWARD-LOOKING STATEMENTS
TO REFLECT CHANGES IN UNDERLYING ASSUMPTIONS OR FACTORS, NEW INFORMATION, FUTURE
EVENTS OR OTHER CHANGES.
OVERVIEW
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.
SALES DISCOUNTS--WARRANTS. The Company granted to customers warrants to
purchase up to 150,000 shares of the Company's common stock that vest
installments as the customers attain certain revenue milestones over the terms
of the agreements. The Company is accounting for these warrants as a sales
discount. As revenue is recognized on sales to these customers, the Company is
recording a sales discount based on the relationship of sales to date to the
customer to the specified revenue milestone. The amount of the discount is being
estimated by valuing the warrants using the Black-Scholes option pricing model
at the end of each fiscal period. The value of the warrants is being adjusted in
each fiscal period until the revenue levels are attained and the warrants vest.
The exercise price of the warrants is the fair market value of the Company's
common stock on the date that the warrants vest.
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 affected 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
Page 9 of 23 Total Pages
<PAGE>
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, human resources and transaction
processing.
STOCK COMPENSATION AND WARRANT CHARGES. Stock options have been granted
with exercise prices that were less than the estimated fair value of the
Company's common stock. Compensation cost associated with these options is the
difference between the fair value of the stock and the exercise price.
In consideration for entering into certain long-term reseller agreements,
the Company granted to the customers vested warrants to purchase 55,000 shares
of the Company's common stock at the market value of the Company's stock on the
dates the warrants were granted The value of the warrants was calculated by
applying the Black-Scholes option pricing model using the fair market value of
the Company's common stock on the date the agreements were executed. The value
of the warrants has been charged to expense as a component of stock compensation
and warrant charges in the condensed statement of operations.
INCOME TAX EXPENSE. Prior to our IPO, we had 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.
We are no longer to 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.
RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED MARCH 31, 2000 AND 1999
GROSS REVENUE. Gross revenue for the three and six months ended March 31,
2000 was $4,003,000 and $7,155,000, compared to $327,000 and $391,000 for the
same three and six month period in fiscal year 1999, which represented increases
of $3,676,000 and $6,764,000, respectively. These increases are attributable to
the comparatively low level of revenue during the first six months in fiscal
1999. We recognized our first sale in the quarter ended December 31, 1998 after
our product successfully completed beta testing, and commenced commercial
operations and the general release of our products in February 1999.
SALES DISCOUNT--WARRANTS. During the three months ended March 31, 2000, the
Company recognized $439,000 of sales discounts related to warrants granted to
certain customers. Since these equipment purchase contracts were executed during
the three months ended March 31, 2000, no such sales discounts were recorded in
any prior fiscal periods.
COST OF REVENUE. Cost of revenue was $2,193,000 and $3,962,000, or
approximately 55% of gross revenue, for the three and six months ended
March 31, 2000, compared to $276,000 and $312,000 for the three and six months
ended March 31, 1999. The significantly higher cost of revenue in the fiscal
periods of 2000 is due to the increased revenue volume.
GROSS PROFIT. Gross profit on gross revenue was $1,810,000 and $3,193,000,
and gross profit percentage on gross revenue was approximately 45%, for the
three months and six months ended March 31, 2000, compared to gross profit of
$51,000 and $79,000 for the three and six months ended March 31, 2000. This
increases were due to the substantially greater revenue recognized during the
fiscal periods of 2000.
Page 10 of 23 Total Pages
<PAGE>
RESEARCH AND DEVELOPMENT. Research and development expenses increased by
approximately 70% and 49% to $1,940,000 and $3,592,000, respectively, during the
three months and six months ended March 31, 2000 from $1,139,000 and $2,412,000
for the three and six months ended March 31, 1999. These increases were due
primarily to increases in payroll related expenses from growth in the number of
engineering employees from year-to-year, and to significantly increased
consulting expenses for specific development projects during the three and six
months of fiscal 2000.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses for the three and six months ended March 31, 2000 were $2,304,000 and
$4,394,000, compared to $576,000 and $922,000 for the three and six months ended
December 31, 1998, which represented increases of $1,728,000 and $3,472,000,
respectively. These increases were due primarily to payroll-related expenses,
travel, advertising/marketing and trade show expenses associated with the
build-up in sales and marketing staff and activities, as well as expenses
relating to the implementation of internal Year 2000 compliant systems.
STOCK COMPENSATION AND WARRANT CHARGES. In prior periods, stock options
have been granted with exercise prices that were less than the estimated fair
value of our common stock. Compensation cost associated with such options was
determined as the difference between the fair value of the stock and the
exercise price. Stock compensation costs increased to $286,000 and $703,000 for
the three and six months ended March 31, 2000, from $62,000 and $94,000 for the
three and six months ended March 31, 2000, as the compensation cost is being
charged to expenses over the option vesting period.
During the three months ended March 31, 2000, the Company recognized
$849,000 in warrant charges related to certain long-term reseller agreements.
Since the equipment purchase contracts containing the warrant grant provisions
were executed during the three months ended March 31, 2000, no such charges were
recorded in any prior fiscal periods.
INCOME TAX EXPENSE. Prior to our IPO, we had been included in Brooktrout's
consolidated income tax filings and the losses associated with the Company 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 taxes. Accordingly, we have not recorded any benefit
related to these prior losses. We have not recognized any benefit in the current
quarter for the losses generated for the three and six months ended March 31,
2000 as we believe that it is more likely than not that such benefits will not
be recoverable. We will continually evaluate the recoverability of net loss
carryforwards.
NET LOSS. Net losses for the three and six months ended March 31, 2000 were
$3,852,000 and $6,398,000 compared to net losses of $1,726,000 and $3,349,000
for the three and six months ended March 31, 2000, which represented increases
of $2,126,000 and $3,049,000, respectively. These increased net losses are due
primarily to the increases in operating expenses, stock compensation and
warrant-related charges, as described above, that more than offset the increase
in gross profit from increased revenue resulting from the shipment of our
product during the three and six months ended March 31, 2000.
LIQUIDITY AND CAPITAL RESOURCES
From inception through the IPO, our operations had been funded through
contributions of capital and loans from Brooktrout. Subsequent to the IPO, our
operations have been funded through the proceeds from the IPO.
Cash decreased by $11,216,000 to $10,011,000 at March 31, 2000 from
$21,227,000 at September 30, 1999. The decrease in cash is due primarily to a
$4,309,000 increase in accounts receivable, a $1,464,000 increase in inventory,
and the net loss for the six months ended March 31, 2000 of $6,398,000.
The increase in accounts receivable was due to substantially higher gross
revenue billings during the first six months of fiscal 2000, while the increase
in inventory was due to the expectation of increased
Page 11 of 23 Total Pages
<PAGE>
shipment volumes during subsequent quarters. For the six months ended March 31,
2000 and 1999, we purchased fixed assets of approximately $954,000 and $419,000,
respectively. We currently have no material commitments for additional capital
expenditures.
We believe that the remaining net proceeds will be sufficient to meet our
anticipated cash needs for working capital and capital expenditures at least
until September 30, 2000. Thereafter, if cash generated from operations is
insufficient to satisfy our liquidity requirements, we may 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 that 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.
We do not believe that inflation has had a significant effect on our
operations to date.
Page 12 of 23 Total Pages
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS AND THE OTHER
INFORMATION IN THIS QUARTERLY REPORT. OUR BUSINESS, FINANCIAL CONDITION OR
RESULTS OF OPERATIONS COULD BE HARMED BY ANY OF THE FOLLOWING RISKS.
WE HAVE A HISTORY OF LOSSES AND ANTICIPATE FUTURE LOSSES
We have accumulated losses of approximately $22.2 million since inception in
October 1996 through March 31, 2000 and expect to incur net losses in the
future. Losses were approximately $10.5 million for the year ended
September 30, 1999 and approximately $6.4 million for the first six months of
fiscal 2000. 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
- 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.
Page 13 of 23 Total Pages
<PAGE>
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 continuing to develop
these sales channels and expect to expend significant resources in this area. As
of May 10, 2000, we had a total of 21 employees responsible for direct sales,
marketing and sales engineering in the United States and international markets.
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 digital
subscriber line, or 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 digital subscriber line, or 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.
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;
Page 14 of 23 Total Pages
<PAGE>
- 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 DSL access
routers, or DSLARs, 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 have a
material adverse effect our business, financial condition and results of
operations.
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. 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.
Page 15 of 23 Total Pages
<PAGE>
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. Until the end of December 1999, we relied upon
Brooktrout, our parent company, to provide us with administrative and support
services, including accounting, human resources and computer systems. Since
then, we have implemented systems that provide the functions and services that
were previously 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 of operations.
INTENSE COMPETITION IN THE MARKET FOR HIGH SPEED DATA ACCESS EQUIPMENT 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 acquired by Lucent Technologies Inc.;
Copper Mountain Networks, Inc.; Diamond Lane, which was 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 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;
Page 16 of 23 Total Pages
<PAGE>
- 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 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
Page 17 of 23 Total Pages
<PAGE>
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, this 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 the 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 regulatory changes could have a material adverse effect on our business,
financial condition or results of operations.
CONTROL BY BROOKTROUT MAY LIMIT STOCKHOLDERS' ABILITY TO INFLUENCE THE OUTCOME
OF MATTERS REQUIRING STOCKHOLDER APPROVAL
At March 31, 2000, Brooktrout owned approximately 56% of the outstanding
shares of common stock. 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 our common
stock or prevent our stockholders from realizing a premium over the market
prices for their shares of common stock.
Page 18 of 23 Total Pages
<PAGE>
SUBSTANTIAL FUTURE SALES OF OUR COMMON STOCK IN THE PUBLIC MARKET COULD CAUSE
OUR STOCK PRICE TO FALL
The market price of our common stock could fall as a result of future sales
of a large number of shares of our common stock in the public market. As of
May 10, 2000, we had approximately 10,848,148 shares of common stock
outstanding, of which approximately 3,973,388 shares are freely transferable
without restriction or registration under the Securities Act of 1933, unless
such shares are held by our affiliates. The remaining 6,847,760 shares of common
stock held by existing stockholders and 247,070 shares subject to outstanding
options vested as of May 10, 2000, of which 170,234 shares 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 and 76,836
shares are freely transferable without restriction or registration under the
Securities Act of 1933. As of March 23, 2000, under specified circumstances and
subject to customary conditions, Brooktrout has the right, with respect to
6,075,000 shares of common stock, to require us to register its 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 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;
- 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 OUR IPO, OUR MANAGEMENT WILL HAVE THE DISCRETION TO ALLOCATE THE NET PROCEEDS
OF OUR IPO TO USES THE STOCKHOLDERS MAY NOT DEEM DESIRABLE
Although we expect to use the net proceeds of our IPO for general corporate
purposes such as working capital, product development and sales and marketing,
we currently have no other specific plan for any significant portion of the net
proceeds of our IPO. As a consequence, our management will have the discretion
to allocate the net proceeds of our IPO 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 our IPO 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.
Page 19 of 23 Total Pages
<PAGE>
WE DO NOT INTEND TO PAY DIVIDENDS
To date, we have never declared or 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the potential change in a financial instrument's value caused
by fluctuations in interest and currency exchange rates and equity and commodity
prices. Our operating activities expose us to many risks that are continually
monitored, evaluated, and managed. Proper management of these risks helps reduce
the likelihood of earnings volatility. At March 31, 2000, we were not a party to
any derivative arrangement and we do not engage in trading, market-making or
other speculative activities in the derivatives markets. We do not engage in
regular hedging activities to minimize the impact of foreign currency
fluctuations. At March 31, 2000, we had no short-term or long-term debt
obligations.
Page 20 of 23 Total Pages
<PAGE>
PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) The Company completed its IPO in September 1999. The IPO was made pursuant
to a registration statement on Form S-1, originally filed with the
Securities and Exchange Commission on June 18, 1999, as amended (Commission
File No. 333-81071), which was declared effective on September 23, 1999. The
IPO commenced on September 24, 1999 and terminated shortly thereafter after
the sale into the public market of all of the registered shares of common
stock.
The shares of common stock sold in the IPO were offered for sale by a
syndicate of underwriters represented by U.S. Bancorp Piper Jaffray, Warburg
Dillon Read LLC, Tucker Anthony Cleary Gull and DLJdirect Inc.
The Company registered an aggregate of 3,500,000 shares of common stock
(including 1,500,000 sold by Brooktrout as a selling shareholder) in the IPO at
a per share price of $12.00, for an aggregate offering price of $42,000,000. As
of the date of the filing of this report, 3,925,000 registered shares (including
425,000 shares previously owned by Brooktrout that were sold upon the exercise
of the underwriters' overallotment option) have been sold at an aggregate
offering price of $47,100,000. Of the 3,925,000 shares sold in the IPO,
2,000,000 shares were registered for the Company's account.
The Company incurred the following expenses in connection with the IPO:
<TABLE>
<S> <C>
Underwriting discounts and commissions...................... $1.68 million
Other expenses.............................................. 1.53 million
-------------
Total expenses.............................................. $3.21 million
=============
</TABLE>
After deducting the expenses set forth above, the Company received
$20,790,000 in net proceeds for the IPO. From the period commencing on
September 23, 1999 through March 31, 2000, the Company has used approximately
$11.2 million of the net proceeds, of which approximately $10.5 million was used
to fund operating activities including the net loss for the second fiscal
quarter of 2000, and approximately $950,000 which was used to purchase
equipment.
(b) Recent Sales of Unregistered Securities
(1) In January 2000, the Company granted a warrant to purchase 50,000 shares
of the common stock to a customer at an exercise price of $18.75 per
share in reliance upon the exemption from registration under
Section 4(a) of the Securities Act of 1933. The warrant can be exercised,
subject to certain conditions, from January 27, 2001 through January 27,
2005.
(2) In February 2000, the Company granted a warrant to purchase 5,000 shares
of the common stock to a customer at an exercise price of $21.25 per
share in reliance upon the exemption from registration under
Section 4(a) of the Securities Act of 1933. The warrant can be exercised,
subject to certain conditions, from February 2, 2001 through February 2,
2005.
Page 21 of 23 Total Pages
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<C> <S>
3.1 The Amended and Restated Certificate of Incorporation of the
Company is incorporated herein by reference to Exhibit 3.1
to the Company's Annual Report on Form 10-K, filed with the
Securities and Exchange Commission on December 29, 1999
("10-K").
3.2 The Amended and Restated By-Laws of the Company are
incorporated herein by reference to Exhibit 3.2 to the 10-K.
*10.1 Product Reseller Agreement, dated February 1, 2000, by and
between Interspeed and Cabletron Systems, Inc..
*10.2 Letter Agreement, dated as of February 8, 2000, by and
between the Company and Solunet, Inc.
27.1 Financial Data Schedule
</TABLE>
* Confidential treatment requested as to certain portions, which portions are
omitted and filed separately with the Securities and Exchange Commission.
(b) Reports on Form 8-K during the quarter ended March 31, 2000. The registrant
filed no Reports on Form 8-K during the quarter ended March 31, 2000.
Page 22 of 23 Total Pages
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
<TABLE>
<S> <C> <C>
INTERSPEED, INC.
Dated: May 15, 2000 By: /s/ Stephen A. Ide
------------------------------------
Stephen A. Ide
President
(Principal Executive Officer)
Dated: May 15, 2000 By: /s/ William J. Burke
------------------------------------
William J. Burke
Chief Financial Officer, Senior Vice
President-Finance, and Treasurer
(Principal Financial Officer)
</TABLE>
Page 23 of 23 Total Pages
<PAGE>
Exhibit 10.1
[CABLETRON LOGO]
CABLETRON PRODUCT RESELLER AGREEMENT
The terms contained herein, along with the attachments and exhibits constitute
an "Agreement" made this 1st day of February, 2000. (the "Effective Date")
between Cabletron Systems, Inc., a Delaware corporation with its principal place
of business at 35 Industrial Way, Rochester, New Hampshire, U.S.A., and its
subsidiaries (collectively "Cabletron") and Interspeed, Inc., a Delaware
corporation, with its principle place of business at 39 High Street, North
Andover, Massachusetts 01845, ("Supplier").
1. DEFINITIONS:
1.1. Business Days shall mean week days excluding the United States holidays of
Martin Luther King Day, Presidents' Day, Memorial Day, Labor Day, Columbus
Day and Thanksgiving Day and the days of January 1st, July 4th and
December 25th when those days are on or are celebrated on weekdays.
1.2. End User shall mean the ultimate customer that purchases Products for its
internal use from Cabletron or a Reseller.
1.3. Exhibits - The Exhibits to this Agreement are:
Exhibit A Products & Prices
Exhibit B Product Quality and Test Specifications
Exhibit C Technical Support Guidelines
Exhibit D Service Support Plan
1.4. Hardware Products shall mean Supplier's hardware offered to Cabletron for
resale to End-Users. Hardware Products consisting of so-called "firmware"
shall not be deemed sold by Cabletron or Resellers, but shall be subject
to a license to use the same.
1.5. Intellectual Property Rights shall mean all patents, copyrights,
trademarks, mask works and other intellectual property rights relating to
a Product.
1.6. Leap Year shall mean a calendar year that is evenly divisible by 4. If the
year is evenly divisible by 100 (known as a century year), it is not a
leap year. However, if the century year is evenly divisible by 400, then
it is a leap year.
1.7. Licensed Software shall mean Supplier software, together with related
documentation and media that is supplied separately from a Hardware
Product.
1.8. Orders shall mean purchase orders for Products submitted to Supplier by
Cabletron under the terms of this Agreement.
1.9. Parties shall mean Supplier and Cabletron.
1.10. Products shall mean the Supplier Hardware Products and Licensed Software
that are eligible for purchase and resale by Cabletron and listed on
Exhibit A to this Agreement.
1.11. Product Specifications shall mean Supplier's published specifications for
the Supplier product current on date Supplier accepts Cabletron's Order
and any additional specifications agreed to by the Parties in writing.
1.12. Resellers shall mean entities authorized by Cabletron to resell Products.
1.13. Return Material Authorization or "RMA" shall have the meaning set forth in
Section 8.3.
1.14. Software shall mean Licensed Software and software (firmware) incorporated
in Hardware Products.
1.15. Software Updates shall mean corrective patches, fixes, error and other
corrections not constituting new versions of Software.
1.16. Software Upgrades shall mean new versions of Software with enhanced
features or performance characteristics.
1.17. Territory - Unless otherwise specified or agreed by the Parties, the
Territory is worldwide.
1.18. Warranty Period -- Unless otherwise specified by agreed by the Parties,
the Warranty Period shall be the shorter of twelve (12) months from the
date the Product is delivered to the End User or thirteen (13) months from
the date the Product is shipped to Cabletron. [PLEASE PROVIDE PRODUCT
WARRANTY STATEMENT.]
- --------------------------------------------------------------------------------
Cabletron Proprietary Information Page 1
Product Reseller Agreement (Draft 12/29/99)
Contract Number 99-OEMB-1206-1930
<PAGE>
1.19. Year 2000 Compliant shall mean, with respect to information technology,
that the information technology, where applicable, accurately processes
date/time data (including, but not limited to, calculating, comparing, and
sequencing), from, into, and between the twentieth and twenty-first
centuries, and the years 1999 and 2000 and Leap Year calculations, to the
extent that other information technology, used in combination with the
information technology being acquired, properly exchanges date/time data
with it. This Year 2000 Compliant definition is based on the definition
set forth in the U.S. Government's Federal Acquisition Regulation (FAR),
Subpart 39.002.
2. RELATIONSHIP:
2.1. Appointment - Supplier appoints Cabletron as a non-exclusive reseller of
the Supplier products sold to End Users under the terms of this Agreement.
The Products eligible for purchase and resale or license by Cabletron
under this Agreement are listed on Exhibit A.
2.2 Relationship Reviews -- Supplier and Cabletron will conduct reviews of
their relationship and performance under this Agreement at least quarterly
each year following the Effective Date.
2.3 Channel Conflict Mitigation -- In order to ensure that Supplier's and
Cabletron's sales forces do not work at cross-purposes, and to reward
cooperative pursuit of sales opportunities between Supplier and Cabletron,
Supplier agrees that for any Product sold by Cabletron pursuant to this
Agreement, Supplier's sales force in the territory in which the Product is
sold shall be compensated fully through ordinary commission and revenue
retirement for such Product sale, as though it had been made by Supplier's
sales force.
3. SUPPLIER'S INVENTORY COMMITMENT:
3.1. Inventory -- Supplier shall at all times hold in inventory an amount of
each Product sufficient to satisfy an order by Cabletron equal to the
then-current next month's forecast of expected Product demand. Supplier
shall in particular keep on hand a sufficient supply of Products or parts
thereof identified by Cabletron as "long lead-time" materials to meet
Cabletron's orders for such Products or parts, and upon request shall at
all times hold in inventory an amount of such Products or parts equal to
twice the then-current next month's forecast of expected demand.
3.2. Cabletron Forecasts -- Cabletron shall provide to Supplier during the
first week of each calendar month a forecast of its expected demand for
Products for the six-month period beginning thirty days following the
forecast. Such forecast shall create no obligation on Cabletron's part to
submit a firm order for Products.
4. PRODUCTS AND PRICING:
4.1. Products -- Products shall include any product introduced by Supplier
during any term of this Agreement that enhances or is the functional
replacement for any Product. All Products shall be manufactured by
Supplier using new components and other materials.
4.2. New Products - New products may be added or deleted to Exhibit A and
become Products by written agreement of the Parties
4.3. Withdrawal of Products - Supplier may cease production and withdraw any
Product from Exhibit A, provided Supplier gives Cabletron a written
"Product Withdrawal Notice" at least one hundred eighty (180) days prior
to the effective date of the withdrawal. Cabletron may, within one hundred
eighty (180) days after receipt of a Product Withdrawal Notice, submit a
single, non-cancelable "Last Buy" Order for an unlimited quantity of the
affected Product for delivery within the subsequent six (6) months.
4.4. Right to Manufacture -- In the event of any such Product Withdrawal or
termination of this Agreement, Cabletron may require Supplier, without
obligation or charge to Cabletron, to provide Cabletron the technical
information, assistance, and support, as well as license to Cabletron all
patent and other rights necessary to enable Cabletron to manufacture or
have manufactured such Products or parts. Supplier shall continue to
provide support for all such withdrawn Products for five (5) years
following their withdrawal, pursuant to the terms of this Agreement. In
addition, Seller agrees to sell or lease to Cabletron, if Cabletron
desires, and based on its then fair market value, all tooling owned or
controlled by Seller and necessary for such manufacture of the Products
and parts. Technical information includes, by example and not by way of
limitation: (i) manufacturing drawings and specifications of raw materials
and components comprising such parts; (ii) manufacturing drawings and
specifications covering special tooling and the
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operation thereof; (iii) a detailed list of all commercially available
parts and components purchased by Seller on the open market disclosing the
part number, name and location of the supplier, and price lists for the
purchase thereof; and (iv) one (1) complete copy of the then current
source code used in the preparation of any Software licensed or otherwise
acquired by Cabletron from Seller hereunder.
4.5. Software and Firmware -- All Software shall be provided to Cabletron and
its customers subject to a use license. Supplier shall provide Software
Upgrades, Software Updates and all other necessary technical support at no
additional Charge.
4.6. Product Specifications: - Supplier shall provide to Cabletron the Product
Specifications for all Products listed in Exhibit A, and for Products
which may be added to this Agreement.
4.7. Product Modifications - All Product modifications shall be subject to the
provisions of Exhibit B. In the event Supplier intends to modify a Product
Specification affecting its form, fit, interoperability or function,
Supplier shall notify Cabletron of the modification in writing no later
than one hundred and eighty (180) days prior to the effective date of the
modification. Based upon information from Cabletron, Supplier will use its
best efforts to mitigate the impact of any modification on Cabletron,
including consideration of changes to the modification and allowing
Cabletron to make a final purchase of the unmodified Products, provided
that the final Order for unmodified Products shall be placed at least
thirty (30) days prior to the effective date of the modification for
delivery within ninety (90) days.
4.8. Documentation and Materials -- Supplier agrees to provide hard and
electronic copies of all specifications, user instructions, manuals and
other documentation for Products ("User Documentation") and all
instructions, manuals and other documentation relating to the
installation, operation and maintenance of Products ("Maintenance
Documentation") to Cabletron without charge. Cabletron shall have the
right to use, modify, translate, reproduce and distribute User
Documentation and Maintenance Documentation in connection with Cabletron's
use, marketing, resale, distribution and support of Products.
4.9. Marketing Materials -- Supplier shall provide Cabletron, upon request,
sales material to be used in the promotion and sale of the Products at no
charge.
4.10. Export Licensing -- Supplier will provide all necessary assistance in
order that Cabletron may obtain export license approval for the Products
from any and all relevant governmental entities, upon Cabletron's request
and at no additional charge.
4.11. Prices -- During the first year after the Effective Date, Cabletron may
purchase Products at prices no greater than those described in Exhibit A
to this Agreement. All dollar amounts referred to in this Agreement are
United States dollars.
4.12. Most Favored Customer Pricing - Supplier agrees that should it agree to
supply any Product or product substantially equivalent to any Product to
any competitor of Cabletron at a prices less than the relevant prices
established by this Agreement, Supplier shall reduce the price under this
Agreement to the lower level as of the date that Supplier agreed to offer
the lower price to the third party. The lower price shall apply to all
Orders not delivered as of that date and all subsequent Orders for the
affected Product.
4.13. Price Changes -- Upon the written request of Cabletron, Parties shall meet
within ten (10 ) Business Days of the request, to consider and negotiate
in good faith requested changes in Product prices. Additionally, the
Parties shall review Product pricing no less frequently than every six (6)
months in order to assure compliance with the terms of this Agreement,
including specifically this Article 4.
4.14. Price Decreases -- In the event Supplier determines to lower the price of
a Product, the price decrease shall apply to Orders for the Products not
delivered as of the effective date of the decrease and all subsequent
Orders for the affected Product.
4.15. Price Terms - Prices for all Products are F.O.B. Cabletron's designated
facility with Supplier responsible for all costs of transportation,
insurance, taxes, customs duties, landing, storage and handling fees, and
documents or certificates required for exportation or importation.
4.16. Quality Assurance and First Article and Facility Inspection -- Products
shall be manufactured by or for Supplier in facilities that meet EN ISO
9001 or
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EN ISO 9002 standards. Supplier agrees to allow Cabletron to review and
inspect, during regular business hours and following reasonable notice to
Supplier, Supplier's manufacturing facilities and quality control
procedures, both prior to first Product deliveries and periodically
thereafter for quality control and assurance purposes. Supplier will
provide Cabletron upon request and reasonable notice with copies of its
quality control test documents for each Product for Cabletron's review.
Supplier will provide Cabletron with three (3) units of each Product
("First Articles"), without charge, for inspection and testing to verify
the Product's workmanship and conformance to its functional specifications
and any test specifications set forth in Exhibit B to this Agreement.
Within thirty (30) days after its receipt of each First Article, Cabletron
shall either: (i) provide Supplier written notice of approval for volume
shipment; or (ii) return the First Articles and provide Supplier with a
detailed failure report. In the event of a failure, Supplier will use
commercially reasonable effort to correct any problems found and provide
Cabletron with an upgraded First Articles for inspection and testing
pursuant to this Section. After Cabletron has approved volume shipment,
any Product failure shall be dealt with pursuant to the terms of Article 8
of this Agreement. All Products delivered to Cabletron under this
Agreement shall achieve Cabletron's quality standards. In the event that
any such Products fail to meet said quality standards, or that Supplier's
physical facilities, quality control procedures, or are determined by
Cabletron in good faith to be insufficient to insure consistent acceptable
Product quality, Supplier agrees to modify or correct the Products,
facilities, or procedures to meet said quality standards, and shall
provide to Cabletron for its review documentation setting forth the
corrective action to be implemented in order to bring the Products within
Cabletron's quality standards. In the event that Supplier fails to effect
a correction within thirty (30) days, Cabletron may terminate this
Agreement and cancel all then-outstanding orders for Products without
liability.
5. ORDERING & SHIPMENT:
5.1. Purchase Orders -- All Product Orders from Cabletron shall be dated and
reference the contract number of this Agreement. No additional or
different terms on the face or reverse side of any purchase order, or in
any written communications from Cabletron shall supersede or amend the
terms of this Agreement, unless such terms are agreed upon in advance, set
forth in writing and signed by an authorized representative of each Party.
5.2. Issuance and Acceptance -- Each Order shall contain: (i) a complete list
of the Products to be purchased specifying quantity, type, description and
price; (ii) shipment and delivery instructions; and (iii) any special
terms and conditions agreed to in writing by the Parties. Supplier agrees
to receive Orders placed by Cabletron via electronic document transfer,
facsimile, or hard copy only. Verbal or telephone orders must be followed
promptly by one of the transmission means described above. The Supplier
must accept all Orders that are within Cabletron's most recent forecast.
5.3. Right to Cancel or Reschedule -- Cabletron may cancel any Order or
reschedule the date of the shipment of any Order without penalty provided
that Supplier receives written notice at least ten (10) Business Days
prior to the scheduled shipment date.
5.4. Delivery Schedule -- Cabletron shall receive good title, and Supplier
shall deliver all Products free and clear of all liens, encumbrances and
claims. Supplier will use its best efforts to deliver all Products on the
Product delivery date specified in Cabletron's Order. If Supplier is
unable to deliver Products within five (5) Business Days of the delivery
date specified in the Order, Supplier shall be responsible for payment of
any express delivery charges required to deliver the Product by the
fastest available method of delivery. If Supplier fails to deliver
Products within fifteen (15) Business Days of the delivery date specified
in the Order, Cabletron may, at is sole option, either (i) cancel the
Order or (ii) accept delivery and receive a credit equal to twenty (20%)
of the value of the Order.
5.5. Partial Shipments and Allocations - Supplier shall not make partial
shipments without Cabletron's express written consent. When Products or
component parts are in short supply, or on an industry wide allocation,
Supplier will allocate its available inventory and make deliveries on an
equitable basis.
5.6. Carrier & Risk of Loss - Products will be shipped by the carrier
designated in writing by Cabletron. In the absence of specific shipping
instructions from Cabletron, Supplier may designate the carrier. Title to
Products and risk of loss shall pass to
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Cabletron upon Supplier's delivery to the designated carrier.
5.7. Packing -- Unless otherwise provided in the Product Specification,
Products shipped by Supplier will be packed and packaged according to
Supplier's then current packaging methods for comparable products.
6. SOFTWARE LICENSE TERMS:
6.1. License Grant -- Supplier hereby grants Cabletron a nontransferable,
nonexclusive license to use and distribute Software solely for use by End
Users in and in connection with their use of Products.
6.2. Distribution of Software Product - Licensed Software may only be
distributed subject to appropriate End-User software license terms and
conditions which accompanies the Product.
7. PAYMENT:
7.1. Payment Terms - Supplier's payment terms are net sixty (60) days from the
date of Supplier's invoice. Cabletron shall promptly pay all invoices and
amounts due and maintain satisfactory credit arrangements with Supplier.
All payments shall be made in United States dollars.
8. WARRANTY TERMS:
8.1. Product Warranty -- Supplier warrants that Products purchased under this
Agreement: (i) comply with all applicable federal, state, and local laws,
rules, regulations and codes; (ii) are free of defects in materials and
workmanship and will conform to the Product Specifications applicable as
of the date of Cabletron's Order throughout the Warranty Period; and (iii)
are Year 2000 Compliant. Software Upgrades and Software Updates released
by the Supplier during the relevant Products Warranty Period shall be
available to Cabletron for license to the End User without charge.
8.2. Repair or Replacement -- Supplier shall repair or replace, at Supplier's
expense, all Products that fail to meet the applicable Product
Specifications or other requirements of the foregoing warranty during the
Warranty Period. Supplier shall at all times keep on hand spare or
replacement Products and parts in amounts sufficient to repair fully or to
replace Cabletron's Product forecast for that month as referenced in
Paragraph 3.2 of this Agreement.
8.3. Return, Repair or Replacement Procedures--Products shall be returned for
repair or replacement as follows:
8.3.1. Supplier will pay all transportation charges for Product returned
to Supplier under these Product Warranty terms back to Cabletron,
its Reseller or End User.
8.3.2. The return of all Products shall be controlled under a Return
Material Authorization ("RMA") system maintained by Supplier.
Cabletron must obtain an RMA number prior to returning any Products
to Supplier and supply Supplier with the following information: (a)
End User identification; (b) Product serial number; and (c)
information relating to the failure, including product configuration
and other failure details.
8.3.3. Returned Products will be packaged and shipped to Supplier using
packing materials sufficient to prevent either accidental opening of
the carton or damage to the Product resulting from normal handling
during shipment. Supplier will pay shipping costs and bear the risk
of loss of returning repaired or replaced Products to Cabletron.
8.3.4. If it is not possible to repair or rework the returned Products
within ten (10) Business Days, a replacement Product will be shipped
to End-User, Reseller or Cabletron without cost as instructed.
8.4. Epidemic Failures - At any time after Cabletron's acceptance of First
Articles and the commencement of volume shipments of a Product, Cabletron
may, at its option, inspect and test purchased Products to confirm that
they meet the applicable Product warranty. With regard to any Product, in
the event that inspection and testing, whether alone or in conjunction
with related warranty claims, indicates that the same defect has occurred
in more than five percent (5%) of the Products manufactured within a one
(1) month period, or in more than two percent (2%) of the Products
manufactured within a two (2) month period, the defect shall be considered
an "Epidemic Failure." In the event that either Party has evidence of an
Epidemic Failure, Supplier shall promptly (i) correct the cause on all
Products to be shipped thereafter, and (ii) repair or replace all Products
shipped within the previous three (3)
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<PAGE>
years, or alternatively pay Cabletron its costs of remedying such
noncompliance.
8.5. Warranty Disclaimer -- EXCEPT AS EXPRESSLY PROVIDED HEREIN, NO OTHER
WARRANTY, EXPRESS OR IMPLIED SHALL APPLY. SUPPLIER SPECIFICALLY DISCLAIMS
ANY IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE.
9. SERVICE:
9.1. End User Support -- Cabletron shall provide all first level End User
customer support for Products, as defined below, in the same manner
Cabletron provides similar support for other products. Supplier will
provide second and third level support, according to the Technical Support
Guidelines set forth in Exhibit C without additional charge. As used
herein: (i) First Level Support shall mean services responsive to the End
User's initial notification that a suspected problem exists with the
Product, including call logging, validation, determining whether a
solution is given in User Documentation or Maintenance Documentation, and
a review of known resolutions for the reported problem; (ii) Second Level
Support shall mean First Level Support plus services performed in order to
attempt to reproduce the suspected problem and correct it by means of a
"fix," or work-around, or in determining that the problem cannot be
reproduced; and (iii) Third Level Support shall mean services provided to
the End User to resolve problems that are determined to be or to be likely
to be the result of one or more design or manufacturing defects or
interaction between the Product and other materials, and that cannot be
resolved by the End User. During the first twelve (12) months following
shipment, this Support as well as Software Updates/Upgrades as specified
in Section 8.1 and the Services specified in Section 9.2 will be provided
at no cost. Subsequent to the initial twelve (12) month period following
shipment, supplier shall provide End User Support and Software
Updates/Upgrades based on an annual support fee of two percent (2%) of the
Transfer price only for those Products subject to a Supplier support and
maintenance agreement sold by Cabletron. The fee will be invoiced
quarterly in arrears effective January 1, 2000. In the event on-site
support is required to resolve Customer problems, Supplier shall bare its
costs of travel and related expenses and such on-site service shall be at
no additional charge.
9.2. Technical Information and Training -- Supplier will provide, without
charge, technical information and training upon request for Cabletron
employees with regard to each Product to allow Cabletron and its employees
to become familiar with the Products, and their market, the installation
of the Products, and enable Cabletron to provide Level One Support. All
training shall take place at Cabletron's designated facility. Supplier
shall provide initial Technical Training for up to four (4) Product and
post sales Training classes, each for North America (East and West coast),
Europe and PACRIM for up to fifteen (15) students per class. Four (4)
additional classes will be scheduled within the following six (6) month
period. Initial Technical Training shall be offered for each future
Product release at no additional charge. Supplier shall offer additional
Technical Training classes at Supplier's standard raters, as more fully
described in Exhibit A. Supplier shall provide all of the equipment and
documentation necessary to provide Technical Training not described in
this section 9.2. Any equipment necessary to provide Technical Training
not described in this section 9.2 shall be the responsibility of
Cabletron.
9.3. Additional Support -- Supplier shall negotiate in good faith to provide
Cabletron with additional maintenance services and support not covered
under this Agreement pursuant to a separate agreement between the Parties
upon Cabletron's request.
9.4. Support Plan -- The Parties agree to the "Support Plan," as outlined in
Exhibit D. .The Support Plan includes but is not limited to, procedures
for handling support calls, problem escalation, problem information
exchange, management of repair services, training and presale technical
support. Separate Support Plans may be implemented for training, and
presales technical support.
9.5. Non-Warranty Repair -- Non-warranty repair services for Products may be
provided by Supplier at a designated Supplier facility on a time and
materials basis under Supplier's then standard prices, terms and
conditions.
9.6. Post Warranty Service Agreements - At Cabletron's request, Supplier may
agree to offer post-warranty service agreements for Products to End Users
on terms and conditions comparable to those in service agreements Supplier
provides on comparable Supplier branded products.
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10. INTELLECTUAL PROPERTY:
10.1. Ownership - Unless expressly stated, nothing in this Agreement shall grant
Cabletron a license to use or any other right, title or interest in any
Supplier Intellectual Property Right, and all such Intellectual Property
Rights shall remain the exclusive property of Supplier.
11. DURATION AND TERMINATION:
11.1. Term - The initial term of this Agreement shall be the two (2) year period
commencing on the Effective Date and terminating on the date exactly two
(2) years after the Effective Date unless earlier terminated pursuant to
the terms of this Agreement. This Agreement shall automatically renew for
additional one (1) year periods upon the same terms and conditions as set
forth herein unless, within not less than thirty (30) days prior to the
expiration of the then current term, either party should notify the other
of its intent not to so renew.
11.2. Termination for Cause - This Agreement may be terminated upon the
occurrence of any of the following events: (i) by Supplier, immediately
upon written notice, should Cabletron fail to pay any sums due hereunder
within thirty (30) days of the due date thereof; or (ii) by either Party
should the other Party commit a material breach of any obligation under
this Agreement not specifically set out in this Section or any other
Agreement between the parties and fail to cure such material breach within
thirty (30) days after written notice to the defaulting party (hereinafter
the "Default Notice"); or (iii) by either Party, immediately, upon the
insolvency of the other party, the appointment of a liquidator, receiver,
administrative receiver or administrator for the other party, or an
assignment by the other party for the benefit of creditors.
11.3. Termination for Convenience -- Cabletron may terminate this Agreement for
any reason by providing Supplier with at least ninety (90) days prior
written notice.
11.4. Effects of Termination - Upon any termination of this Agreement, Cabletron
shall: (i) refrain from submitting additional Product Orders; (ii)
promptly pay for any Products which Cabletron has received but has not yet
paid Supplier; and (iii) at its option, offer Supplier the ability to
repurchase at the original invoice price all or any portion of the
Products in Cabletron's inventory.
11.5. Limits of Liability for Termination - In the event this Agreement is
terminated, NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR COMPENSATION,
REIMBURSEMENT OR DAMAGES ON ACCOUNT OF THE LOSS OF PROSPECTIVE PROFITS OR
ANTICIPATED SALES, OR ON ACCOUNT OF EXPENDITURES, INVESTMENTS, LEASES OR
COMMITMENTS IN CONNECTION WITH THE BUSINESS OR GOOD WILL OF SUPPLIER OR
CABLETRON, OR FOR ANY OTHER REASON RELATING TO OR ARISING FROM SUCH
TERMINATION.
11.6. Post Termination Support - The termination of this Agreement shall not
relieve Supplier of its Warranty obligations under Article 8 of this
Agreement with regard to Products sold by Cabletron to End Users prior to
the date of termination, and Supplier shall continue to provide the
technical support described in Article 9 of this Agreement for five (5)
years following the date of termination.
12. CONFIDENTIAL AND PROPRIETARY INFORMATION:
12.1. Disclosure of Information - It is expected that Supplier and Cabletron may
each disclose to the other proprietary or confidential information. For
purposes of the following, the Party disclosing the Confidential
Information is the "Discloser" and the Party receiving the Confidential
Information is the "Recipient".
12.2. Confidential Information - "Confidential Information" shall mean any and
all information of the Discloser that is not generally known by others
with whom it competes or does business, and any and all information,
publicly known in whole or in part or not, which, if disclosed would
assist in competition against Discloser. Confidential Information includes
without limitation such information relating to: (i) the technical
specifications of the Products; (ii) the development, research, testing,
marketing and financial activities of the Discloser; (iii) the identity
and special needs of the customers or suppliers of the Discloser; and (iv)
the people and organizations with whom the Discloser has business
relationships and those relationships.
12.3. Ownership and Non-Disclosure - All Confidential Information acquired by
Recipient or its employees or agents shall remain Discloser's exclusive
property, and Recipient shall use its best efforts
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(which in any event shall not be less than the efforts Recipient takes to
ensure the confidentiality of its own proprietary and other confidential
information) to keep, and have its employees and agents keep, any and all
such information and data confidential, and shall not copy or publish or
disclose it to others, or authorize its employees, or agents or anyone
else to copy, publish, or disclose it to others, without Discloser's prior
written approval, and shall return such information and data to Discloser
at its request. Recipient shall only use any Confidential Information in
connection with its performance under this Agreement.
12.4. Exception - The confidentiality provisions in this Section will not apply
to information which is or which becomes generally known to the public by
publication or by any means other than a breach of duty by a Party to this
Agreement.
12.5. Disclosure to Agent - Cabletron may disclose Supplier Confidential
Information to third-party agents working under Cabletron's direction,
provided that the agent executes an appropriate non-disclosure agreement
with Cabletron that prohibits further disclosure of Supplier Confidential
Information.
12.6. Post Termination -- Except to the extent necessary to fulfill ongoing
product support obligations or as otherwise provided herein, upon
termination or expiration, Cabletron shall deliver to Supplier all
material furnished by Supplier and pertaining to Products, which is then
in the possession of Cabletron, and shall not retain copies of the same.
Except as provided herein, upon termination or expiration, Supplier shall
deliver to Cabletron all material furnished by Cabletron, which is deemed
confidential hereunder.
13. INDEMNIFICATIONS:
13.1. Indemnification by Supplier - Supplier shall defend, at Supplier's
expense, any claim brought against Cabletron, its employees, agents,
Resellers or End Users (a "Claim Defendant") alleging that any Product
acquired or licensed under this Agreement infringes any patent, copyright,
trademark, mask work right or comparable right (hereinafter a "Claim").
Supplier shall pay all costs and damages awarded or agreed to in
settlement, provided that the Claim Defendant gave Supplier prompt written
notice of the Claim, reasonable assistance and sole authority to defend or
settle the Claim. Supplier shall obtain for the Claim Defendant, the right
to continue using the Product, replace or modify the Product so it becomes
non-infringing. If such remedies are not reasonably available, Supplier
shall refund to Cabletron the price paid for the Product and Cabletron
shall return the Product to Supplier.
13.2. Products Liability - Supplier shall defend, at its expense, any claim
brought against Cabletron, its employees, agents, Resellers or End Users
("Claim Defendant") that arise out of or result from injuries or death to
persons or damage to property directly or indirectly caused by the use of
the Products, including claims that the Products were defective or were
not safe for their intended use, whether such Products or the parts
thereof were furnished by Supplier or its subcontractors ("Products
Liability Claim"), provided that the Claim Defendant gave Supplier prompt
written notice of the Products Liability Claim, reasonable assistance and
sole authority to defend or settle the Products Liability Claim. Supplier
shall carry and maintain general and products liability insurance coverage
in an amount no less than two (2) million dollars ($2,000,000.00)
applicable to the Supplier's obligation under this section.
14. LIMITATION OF LIABILITY:
14.1. Limitation of Liability - IN NO EVENT SHALL EITHER PARTY OR THEIR
AFFILIATES, OFFICERS, DIRECTORS, AGENTS, OR EMPLOYEES BE LIABLE TO THE
OTHER PARTY OR END USERS FOR ANY INDIRECT, INCIDENTAL, OR CONSEQUENTIAL
DAMAGES, INCLUDING WITHOUT LIMITATION, LOSS OF DATA OR PROFITS OR
ATTORNEY'S FEES, WHETHER CLAIMED BY REASON OF BREACH OF WARRANTY, IN TORT
OR OTHERWISE, AND WITHOUT REGARD TO THE FORM OF ACTION IN WHICH SUCH CLAIM
IS MADE. IN ANY EVENT, CABLETRON'S LIABILITY SHALL BE LIMITED TO ONE
MILLION UNITED STATES DOLLARS ($1,000,000) OR THE EQUIVALENT IN FOREIGN
CURRENCY.
15. DISPUTE RESOLUTION:
15.1. Consultation and Review -- The Parties shall make good faith efforts to
resolve all disputes arising under this Agreement through consultations.
If consultations are unsuccessful in resolving any dispute, either Party
may request a senior management review. Within ten (10) Business
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Days of any such request, designated vice presidents of Supplier and
Cabletron will meet in a mutually acceptable fashion to exchange relevant
information and attempt to resolve the dispute.
16. GENERAL TERMS:
16.1. Import and Export - Certain Products may be subject to export or import
control laws and regulations of the U.S. government and other governments.
Cabletron assures that Cabletron and Resellers will comply with those
regulations at their expense whenever they export or re-export controlled
products or technical data obtained from Supplier or any product produced
directly from the controlled technical data. Cabletron shall hold harmless
and indemnify Supplier from any damages, including attorneys' fees, and
any government sanctions resulting to Supplier from a breach of this
Section.
16.2. Assignment - This Agreement may not be assigned or transferred in whole or
in part by either party without the consent of the other, provided that
Cabletron may assign this Agreement without Supplier's consent to any
person or entity that acquires substantially all of the stock of Cabletron
or the assets of Cabletron, or any applicable major division, unit, or
subsidiary of Cabletron.
16.3. Confidentiality of Agreement - The Parties acknowledge and agree that the
terms of this Agreement are confidential, and, except as may be required
by law or in response to valid judicial or administrative process, may not
be provided or disclosed to third parties without the other Party's
consent.
16.4. Waiver and Severability -- A Party's failure to enforce any provision of
this Agreement shall not be deemed a waiver of that or any other provision
of this Agreement. If any provision of this Agreement has been declared
illegal, invalid or unenforceable, the provision shall be construed to be
enforceable to the maximum extent permitted and, if not, shall be deemed
deleted from this Agreement, provided that if such construction or
deletion substantially alters the commercial basis of this Agreement, the
Parties shall negotiate in good faith to amend the provisions of this
Agreement to give effect to their original intent.
16.5. Force Majeure - Neither Party shall be liable for any damages or penalties
for delay in performing its obligations under this when such delay is due
to the elements, acts of God, acts of the other Party, acts of civil or
military authority, fires, or floods, epidemics, quarantine restrictions,
war, riots, strikes, lockouts or other labor disputes, delays in
transportation, delays in delivery by vendors, or any other causes,
without limitation, which are beyond the reasonable control of the delayed
Party.
16.6. Survival -- Appropriate provisions of this Agreement, including but not
limited to the following, shall survive the expiration or termination of
this Agreement: Definitions; Right to Manufacture; Ordering and Shipment;
Software Terms; Payment; Warranty Terms; Service, Intellectual Property;
Duration and Termination; Confidential and Proprietary Information;
Indemnifications; Limitation of Liability; and General Terms.
16.7. Laws -- This Agreement and all Orders shall be governed by the laws of the
State of New Hampshire, U.S.A., regardless of the laws that might
otherwise govern under applicable conflicts and choice of laws principles.
The courts of New Hampshire shall have jurisdiction concerning all matters
pertaining to this Agreement. To the extent not prohibited by applicable
law that cannot be waived, and provided with regard to clause (c) of this
sentence that any suit, action or other proceeding arising out of, based
upon, or relating to this Agreement or the construction, negotiation or
performance of this Agreement (an "Action") in question is pending in one
of the state and federal courts located in New Hampshire (collectively,
the "Courts"), each party waives, and agrees not to assert in any Action:
(a) ANY RIGHT TO TRIAL BY JURY IN RESPECT OF ANY ISSUE OR CLAIM THAT MAY
ARISE IN THE ACTION; (b) any claim or defense that this Agreement or this
relationship is governed by or is subject to any alleged fiduciary duty or
any alleged implied covenant of good faith and fair dealing; and (c) any
claim or defense that the Court in question does not have personal
jurisdiction, may not attach or permit execution upon each party's
property, or is an improper venue or an inconvenient forum. Any Action
against Cabletron must be brought within twelve (12) months after the
cause of action arises.
16.8. Relationship of the Parties - Except as expressly provided in this
Agreement, neither Party shall hold itself out as, the representative,
agent, commission-sales agent, franchisee or employee of the other Party
for any purpose. This Agreement creates no relationship of joint venture,
franchise or partnership, and neither Party has any right or
- --------------------------------------------------------------------------------
Cabletron Proprietary Information Page 9
Product Reseller Agreement (Draft 12/29/99)
Contract Number 99-OEMB-1206-1930
<PAGE>
authority to assume or to create any obligation or responsibility on
behalf of the other Party.
16.9. Entire Agreement - This Agreement, its Exhibits and attachments, including
all documents which are incorporated by reference, constitute the entire
and only understanding between the Parties. Unless otherwise provided
herein, no modifications to this Agreement shall be binding on either
Party unless made in writing and signed by duly authorized representatives
of both Parties. In the event of any conflict between this Agreement, and
any Addendum, Exhibits, or other attachments, the terms of this Agreement
shall govern.
16.10. Notices - Where electronic communication is available, Supplier and
Cabletron may communicate with each other by electronic means. Supplier
and Cabletron agree that when electronic communications are used, they are
the equivalent of written and signed documents except for Notices given
under this Agreement which if transmitted electronically, shall also be
sent via facsimile transmission (with a copy by U.S. mail or overnight
courier (signature required)). Notices shall be deemed effective upon
receipt or refusal to accept delivery. Routine business communications
shall not be deemed to be Notices. All such notices shall be in English
and addressed as follows:
If to Cabletron:
Cabletron Systems, Inc.
35 Industrial Way
Rochester, New Hampshire, USA 03867
Attention:________________________
Facsimile Number: ________________
With a copy to:
Cabletron Systems, Inc.
35 Industrial Way
Rochester, New Hampshire, USA 03867
Attention: Legal Department
Facsimile Number: 603-337-3295
If to Supplier:
____________________________
____________________________
____________________________
Attention: ___________________________
Facsimile Number: ____________________
With a copy to:
____________________________
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by
their duly authorized representatives.
CABLETRON SUPPLIER
By: /s/ Daniel J Harding By: /s/ Stephen A. Ide
-------------------------- --------------------------
Name: Daniel Harding Name: Stephen A. Ide
------------------------ ------------------------
Title: VP of Business Dev. Title: President
----------------------- -----------------------
Date: 2/2/00 Date: 2/2/00
------------------------ ------------------------
- --------------------------------------------------------------------------------
Cabletron Proprietary Information Page 10
Product Reseller Agreement (Draft 12/29/99)
Contract Number 99-OEMB-1206-1930
<PAGE>
CABLETRON PRODUCT RESELLER AGREEMENT
EXHIBIT A -- PRODUCTS AND PRICES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Part Number Description Interspeed list Cabletron Price to Standard Premium
Discount Cabletron Maintenance Maintenance
Price Price
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
600-00012 *** *** *** *** *** ***
- ------------------------------------------------------------------------------------------------------------------------------------
600-00010 *** *** *** *** *** ***
- ------------------------------------------------------------------------------------------------------------------------------------
600-00011 *** *** *** *** *** ***
- ------------------------------------------------------------------------------------------------------------------------------------
600-00013 *** *** *** *** *** ***
- ------------------------------------------------------------------------------------------------------------------------------------
610-00010 *** *** *** *** *** ***
- ------------------------------------------------------------------------------------------------------------------------------------
610-00011 *** *** *** *** *** ***
- ------------------------------------------------------------------------------------------------------------------------------------
610-00016 *** *** *** *** *** ***
- ------------------------------------------------------------------------------------------------------------------------------------
610-00017 *** *** *** *** *** ***
- ------------------------------------------------------------------------------------------------------------------------------------
610-00018 *** *** *** *** *** ***
- ------------------------------------------------------------------------------------------------------------------------------------
610-00013 *** *** *** *** *** ***
- ------------------------------------------------------------------------------------------------------------------------------------
605-00012 *** *** *** *** *** ***
- ------------------------------------------------------------------------------------------------------------------------------------
530-00010 *** *** *** *** *** ***
- ------------------------------------------------------------------------------------------------------------------------------------
605-00013 *** *** *** *** *** ***
- ------------------------------------------------------------------------------------------------------------------------------------
530-00011 *** *** *** *** *** ***
- ------------------------------------------------------------------------------------------------------------------------------------
605-00022 *** *** *** *** *** ***
- ------------------------------------------------------------------------------------------------------------------------------------
605-00011 *** *** *** *** *** ***
- ------------------------------------------------------------------------------------------------------------------------------------
510-00010 *** *** *** *** *** ***
- ------------------------------------------------------------------------------------------------------------------------------------
810-00010 *** *** *** *** *** ***
- ------------------------------------------------------------------------------------------------------------------------------------
810-00011 *** *** *** *** *** ***
- ------------------------------------------------------------------------------------------------------------------------------------
610-00014 *** *** *** *** *** ***
- ------------------------------------------------------------------------------------------------------------------------------------
610-00019 *** *** *** *** *** ***
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
CATEGORY D - ***
***
- --------------------------------------------------------------------------------
*** Page 11
***This information has been omitted pursuant to a request for confidential
treatment, and has been filed separately with the Securities and Exchange
Commission.
<PAGE>
CABLETRON PRODUCT RESELLER AGREEMENT
EXHIBIT B -- PRODUCT QUALITY AND TEST SPECIFICATIONS
1 INTRODUCTION
1.1 Purpose - The purpose of this exhibit is to define the general QA provisions
for Supplier as a Product supplier to Cabletron.
1.2 Scope - The scope of this exhibit is to define requirement and control for
o Quality system for production
o First article qualification
o Acceptable quality level
o Inspection and testing standards
o Inspection and testing procedures
o RMA procedures and controls
o Product traceability
o Corrective action system
o Market (end customer) complaint system
2 QA PROVISIONS
2.1 Quality System for Production
It is required that all products marketed by Cabletron are manufactured under a
quality system in accordance with the international standard EN ISO 9002 (or EN
ISO 9001).
Supplier must supply a valid certificate to Cabletron QA for documentation of
the above requirement and a statement that all products under this Cabletron
Agreement will be produced at the certified manufacturing facility.
2.2 First Article Qualification
Cabletron will perform a 100% qualification of the first production lot shipped
to Cabletron.
The verification will be based on a 100% visual inspection for verification of
workmanship quality and a 100% functional test for verification of the
functional specification. The requirements for visual and functional quality are
specified in the section 2.4 below.
A first article qualification report (FAQ) will be prepared by Cabletron and the
report will be returned to Supplier for indication of the results and, if
required, request for corrective action.
The approval for volume shipment will be granted based on Cabletron QA approval
of the first article lot.
Supplier may be requested for additional regulatory and/or technical
documentation for Cabletron to conclude the FAQ evaluation.
2.3 Acceptable Quality Level
Cabletron shall inspect incoming Products according to the following AQL values
for major/minor errors: 0.25/1.0.
The inspection and testing shall be performed in accordance with MIL-STD 105E,
General Inspection Level 2, using single sampling plans for Normal, Reduced or
Tightened inspection as applicable. Based on the outcome of the inspection and
test Cabletron shall accept or reject the product lot in question.
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Cabletron Proprietary Information Page 12
Product Agreement (Draft 12/29/99)
Contract Number 99-OEMB-1206-1930
<PAGE>
If the lot is rejected under Tightened inspection and based on the rejection
statistics, resulting in a Discontinuation, Cabletron will Discontinue
inspection of the Product and require documented corrective actions initiated
from Supplier in order to resume inspection using Tightened inspection sample
plans.
2.4 Inspection and Testing Standards
QA inspection performed by Cabletron will be covering both a visual and
functional audit of received product lots.
The visual inspection will be performed in accordance with the following
international industry standards:
o IPC-A-610, "Acceptability of Electronic Assemblies', latest version.
o IPC-A-600, "Acceptability of Printed Boards", latest version.
The products are considered as class 2 products ("Dedicated Service Electronics
products") when using the IPC specifications.
Functional test will be performed with test software and test set-up as used and
specified by either Cabletron or Supplier.
If the test set-up and test software is specified by Cabletron then Supplier
shall provide Cabletron with a detailed test set-up specification and test
software for Cabletron review and acceptance, prior to first shipment of
products.
Cabletron shall, in good faith, review and comment the test set-up and test
software for adequacy and completeness prior to acceptance.
Cabletron reserves the right to perform, or contract a third party to perform, a
source inspection of Supplier's manufacturing facilities upon a fourteen (14)
day notice to Supplier. The inspection will not take place during the last week
of Supplier's financial quarter.
2.5 Inspection and testing Procedures
Functional defects identified by Cabletron according to the requirement
standards mentioned above shall be considered as major defects. Visual defects
classified by the IPC standards as "non-conforming defects" shall be considered
as major defects. "Non-conforming process indicators" shall be considered as
minor defects.
If a Product-lot is rejected during inspection, Cabletron must in agreement with
Supplier, select one (1) of the following alternatives for handling of the
rejected lots:
(A): Cabletron returns the entire rejected lot to Supplier at no cost to
Cabletron. Supplier must replace the rejected lot within no more than thirty
(30) days from the date of the rejection notified by letter or telefax.
Furthermore, Supplier will reimburse freight and duty charges as applicable paid
by Cabletron for the transportation of the rejected lot.
(B): Representatives from Supplier must perform 100% inspection and test of all
Products in the rejected lot. The testing will take place at Supplier premises
utilizing, if necessary, Supplier's test equipment at no expense to Cabletron
Systems. All Products failing this test will be returned at Supplier's expense
to Supplier for fault analysis and corrective actions. Supplier must replace the
rejected Products within no more than thirty (30) days from the date of
rejection.
(C): Representatives from Cabletron will perform 100% inspection and test of all
Products in the rejected lot and will charge Supplier for the screening time
used. All Products failing this test will be returned at Supplier' expense to
Supplier for fault analysis and corrective actions. Supplier must replace the
rejected Products within no more than thirty (30) days from the date of
rejection.
- --------------------------------------------------------------------------------
Cabletron Proprietary Information Page 13
Product Agreement (Draft 12/29/99)
Contract Number 99-OEMB-1206-1930
<PAGE>
As one of the three alternatives has been completed, the rejected lot shall
undergo a re-inspection. Cabletron, will at his own discretion, determine
whether re-inspection shall include all types or classes of defects or just the
particular types or classes of defects which caused initial rejection.
Re-inspection will be performed using the sample plans used for the proceeding
inspection of the rejected lot.
2.6 Return Material Authorization Procedures
All returned Products shall be controlled under a Return Material Authorization
(RMA) system maintained by Supplier. Cabletron shall obtain an RMA-number prior
to returning any products to Supplier. Supplier shall provide a complete failure
analysis within ten (10) business days.
Cabletron must supply the following RMA information to Supplier
Customer identification
Serial number of the product
Failure information (system setup, failure details, etc.)
Products must be packaged and shipped to Supplier using packing materials
sufficient to prevent either accidental opening of the carton or damage to the
equipment resulting from normal handling during shipment. Cabletron is
responsible for shipping charges to Supplier except as set forth in section 2.5.
Supplier will pay shipping costs and bear the risk of loss of sending such
repaired or replacement equipment back to Cabletron.
Upon receiving the RMA products at Supplier, a credit note must be issued to
Cabletron. If it is not possible to repair/rework the RMA products within five
(5) working days, a replacement shipment must be returned to Cabletron without
any cost related to Cabletron.
Supplier must report the test, debug and repair/rework results to Cabletron as
soon as these data have been collected.
2.7 Product Traceability -- Supplier shall adhere to the product traceability
requirements of Cabletron described below.
Production: Supplier shall establish an internal system to allow traceability of
all units (marked by unique serial number) to specific production lots (or
batches). This will allow Cabletron to trace all units from one (1) production
lot based on one (I) defective unit returned from a customer.
Materials: Supplier shall have established an internal system to allow
traceability from production lots to material lots used in that production lot,
This will allow traceability of specific defective materials reported from a
customer or identified elsewhere.
Shipment: Supplier shall include production lot and serial number documentation
with all shipments to Cabletron. Individual shipments shall be divided by
production lot and thus enable Cabletron to segregate Supplier production lots
warehouse wise. All shipments received at Cabletron will be identified by a
unique Cabletron batch number.
2.8 Corrective Action System
Supplier shall have a corrective action system established in order to handle
request from Cabletron in regard to e.g. production quality, test problems, RMA
products or other related quality problems related to the product. The
corrective actions should be taken within the time frames specified below
depending on the severity of the issue.
Severity/Category 1 - 48 hours
Severity/Category 2 - 5 days
Severity/Category 3 - 10 days
Supplier shall allocate adequate resources to handle this task. The names of the
contact persons available to Supplier are listed in Exhibit C of this Agreement.
- --------------------------------------------------------------------------------
Cabletron Proprietary Information Page 14
Product Agreement (Draft 12/29/99)
Contract Number 99-OEMB-1206-1930
<PAGE>
2.9 Market (Customer) Complaints
In cases of customer complaints from the market, Cabletron request that Supplier
allocates resources (i.e. a contact person) in order to initiate root cause
analysis and to implement corrective actions, if required, in consultation and
cooperation with Cabletron.
Cabletron will be responsible for all contact with the customer. Cabletron will
be responsible for all corrective actions and related tasks to be performed in
that regard.
2.10 Engineering Change Order (ECO) Control
All products will be under strict ECO control by Cabletron Systems.
Supplier must submit all proposed ECOs and Product deviations to Cabletron for
review and approval.
Cabletron will either approve or deny all submitted ECOs in writing within
fourteen (14) days from the date of receipt of all materials associated with the
ECO.
Supplier may not implement any ECO or deviation to the affected Product(s)
unless it receives written approval from Cabletron Systems.
In case of a mandatory ECO to the rebranded Product, it is Supplier's
responsibility to initiate, organize and perform any necessary product call
backs from the field. It is also Supplier's responsibility to perform all rework
necessary on all affected units in stock or called back.
- --------------------------------------------------------------------------------
Cabletron Proprietary Information Page 15
Product Agreement (Draft 12/29/99)
Contract Number 99-OEMB-1206-1930
<PAGE>
CABLETRON PRODUCT RESELLER AGREEMENT
EXHIBIT C -- TECHNICAL SUPPORT GUIDELINES
Nature of Technical Support - During the term of this Agreement, Supplier will
assist Cabletron in the identification and resolution of Product performance
problems and errors. Supplier's technical support shall be Level 2 and 3 Support
to Cabletron in connection with its support of its Resellers and End Users.
Level 1 Support and Level 2 Support shall be the sole and exclusive
responsibility of Cabletron and its Resellers. Level 2 and 3 Support shall be
provided by Supplier only to engineering personnel designated by Cabletron who
are trained in the technical operation of the Product. Supplier's support will
be provided in accordance with the following guidelines:
1. Technical Support
1.1 Availability - Supplier shall provide non-emergency Level 2 and 3 Support
via telephone, facsimile and electronic during the hours of 8:00 AM to
8:00 PM EST, Monday through Friday, In addition, Supplier agrees to
provide emergency technical support via telephone, facsimile, or pager
access twenty-four hours (24) per day, seven (7) days per week.
1.2 End User - Cabletron shall use reasonable efforts to attempt to resolve
End User support requirements for the Products. If Cabletron cannot
successfully resolve an issue within a reasonable period of time,
Supplier's technical support staff will provide assistance. Supplier will
provide an initial response to all Cabletron support requests within two
(2) hours, and Cabletron and Supplier will mutually agree, in good faith,
what additional information or documentation will be required for
resolution of the problem. Supplier will provide a problem report form for
Cabletron's use in reporting problems.
2. Error Correction
2.1. Error Definitions - "Error" means a reproducible that causes a Product not
to function substantially in conformance with its specifications. Errors
are classified as follows:
Category 1: End User's network segment or management application is down
or experiencing a consistent, measurable performance impact with no
immediate resolution available.
Category 2: End User is experiencing intermittent failure, performance
degradation, or functionality of network or management applications.
Category 3: Issues that do not affect customer's normal network or
management application operation or questions concerning Product
functionality or usage.
2.2. Non-Emergency Technical Support - For End User or Reseller problems not
deemed by Cabletron to be an emergency, Supplier will use its best efforts
to address and resolve the problems as quickly as practicable during
business hours. If a particular problem is not resolved within two (2)
Business Days following the initial call to Supplier, technical support
managers and engineers for each Party, will discuss and work in good faith
to devise and implement a satisfactory resolution. Problems regarded as
non-emergencies include: (i) installation and operation problems, i.e.
routine questions that can be resolved by following documentation; and
(ii) deviations from documentation, omissions and known workarounds, i.e.
problems that cannot be resolved by following the documentation or result
from reasonable misinterpretation of the documentation.
2.3. Emergency Technical Support - Supplier acknowledges that Category I and
Category 2 Errors should be resolved quickly. During the applicable
Warranty Period, Supplier shall replace any defective Products or correct
Errors promptly following receipt of notice from Cabletron, not to exceed
the following:
o Supplier shall provide an initial response to Errors reported by
Cabletron during business hours within two (2) hours and Cabletron
and Supplier shall promptly agree in good faith to any additional
information and documentation that may be required to permit
Supplier to resolve such errors. The error correction period begins
after Cabletron has enough information to profile the error and can
recreate the error or has access to a facility where the error can
be
- --------------------------------------------------------------------------------
Cabletron Proprietary Information Page 16
Product Agreement (Draft 12/29/99)
Contract Number 99-OEMB-1206-1930
<PAGE>
recreated.
o Supplier shall use its best efforts to resolve Category I Errors
within two (2) working days of receipt of notice of such Error.
o Supplier shall use its best efforts to resolve Category 2 Errors
within five (5) working days of receipt of notice of such Error.
o Supplier shall use its best efforts to resolve Category 3 Errors
within fifteen (15) working days of receipt of notice of such Error.
The prescribed Error correction periods above may be extended by agreement
of the Parties, e.g., if resolution of problem requires hardware
certification or test, or if resolution represents significant risk to the
primary Product functions.
2.4. Support Reports and Evaluation - Supplier shall provide a reporting
mechanism by which Cabletron will regularly receive a detailed list of the
status of all Errors reported and resolved, including a list of
workarounds and bug-fixes. At least once during each calendar quarter, the
Parties shall hold management-level meetings to discuss improvements in
support.
3. Technical Support Hotline
Cabletron shall make all requests for technical support to the following hotline
telephone or facsimile number, or via the Internet to the address indicated:
Supplier Technical Hotline contacts as follows:
Telephone No. ___________________________
Facsimile No. ___________________________
Electronic Mail: _______________________@________________________
Designated Senior Support Manager:_______________________________
Supplier may change contact telephone numbers, facsimile numbers, or Internet
addresses on ten days' notice.
- --------------------------------------------------------------------------------
Cabletron Proprietary Information Page 17
Product Agreement (Draft 12/29/99)
Contract Number 99-OEMB-1206-1930
<PAGE>
CABLETRON PRODUCT RESELLER AGREEMENT
EXHIBIT D -- SERVICE SUPPORT
1.0 Purpose -- The purpose of this Exhibit is to define the Service and
Support Plan
2.0 Scope -- The scope of this Exhibit is to define requirements and control
for
o Standard Support Service
o Premium Support Service
o Out of Warranty Service
o On-site Support
o On-site Product Installation and Setup
o Product Documentation
o Customer Training
o Service and Support Pricing
3.0 Standard Support Service-- included with purchase of product
o 1-year hardware warranty
- Expedited, next day replacement -- first 90 days
- Repair or replace with guaranteed 10 day turnaround -- after 90 days
(and renewals)
o 1-year software warranty
- All new software releases, including feature enhancements -- first
90 days
- Best efforts defect correction -- after 90 days (and renewals)
o 1-year remote technical support -- level 2 and level 3
- Phone support with guaranteed 1-hour response during normal hours
(Monday-Friday 8:00 AM -- 5:00 PM EST). Next business day AM
response after hours.
- E-mail support ([email protected]) with guaranteed next
business day response
- Secure support Web site offering downloadable software updates,
product bulletins, full "pdf" product documentation, frequently
asked questions, solution database, etc.
o Renewable on an annual basis thereafter
4.0 Premium Support Service- offered as first year upgrade, subsequent
year option
o 1-year remote technical support -- level 2 and level 3
- Toll free phone support with guaranteed 1-hour response during
normal hours (Monday-Friday 8:30 AM -- 5:30 PM EST, 2-hour best
efforts response after hours
- Remote configuration assistance after initial installation
- E-mail support ([email protected]) with guaranteed next
business day response
- Secure support Web site offering downloadable software updates,
product bulletins, full "pdf" product documentation, frequently
asked questions, solution database, etc.
o 1-year software warranty
- All new software releases, including feature enhancements
o 1-year hardware warranty
- Expedited, next day replacement
o *** on-site support and installation
o Renewable on an annual basis
5.0 Out of Warranty Service -- offers full lifetime support on a "time and
materials" payment basis
o Hardware repairs at *** of prevailing List Price for 30-day turnaround,
*** of prevailing List for next day replacement. Repaired parts carry a -
year warranty
o New software releases available -- priced individually based on value of
enhancements
o Toll free phone support available at prevailing hourly rate for problem
isolation, research, and resolution
o E-mail support ([email protected]) with best efforts response, not to
exceed second business day, at no charge
- --------------------------------------------------------------------------------
Cabletron Proprietary Information Page 18
Product Agreement (Draft 12/29/99)
Contract Number 99-OEMB-1206-1930
***This information has been omitted pursuant to a request for confidential
treatment, and has been filed separately with the Securities and Exchange
Commission.
<PAGE>
6.0 On-Site Support
o In the unlikely event that remote technical support is not sufficient to
allow a customer to diagnose and correct product-related problems, an
Interspeed technician will be available on a best efforts basis to travel
to the customer's site and resolve the problem.
o This support will be billed on a time and expenses basis.
7.0 On-Site Product installation and Setup
o Although documentation and remote support should be sufficient to allow
most customers to successfully install our products, Interspeed
installation technicians will be available on a scheduled basis to travel
to the customer's site for installation and configuration of the units.
o Installation will be billed either on a time and expenses basis, or at a
fixed price (based on product configuration) and expenses basis.
8.0 Product Documentation
o Additional hardcopy documentation can be purchased at any time at the
prevailing List Price.
o On-line "pdf"-formatted product documentation will be available to all
customers covered by Standard or Premium Support Services.
9.0 Customer Training
o Customer training on installation, configuration, maintenance, and
troubleshooting of Interspeed products will be offered on a periodic basis
at Interspeed's headquarters.
o An Interspeed trainer will also be available to deliver the training
course at a customer's location
- A flat fee, plus expenses, will be charged, with a maximum class
size of 12 students
10.0 Support Service Pricing
In order to provide uniform service to a customer with a minimum of
administrative overhead, we will require that each customer select a single
support service level for all the Interspeed equipment in their inventory, that
is, Standard, Premium, or none. Pricing will be based on a percentage of the
purchase price of all the equipment previously purchased. Two invoicing
strategies will be utilized:
o First year upgrade to Premium Support Service will be invoiced
with the initial purchase.
o Renewal support will be calculated and invoiced annually,
coincident with the anniversary of the first equipment
purchased by the customer.
- --------------------------------------------------------------------------------
1.1 First Year 1.2 Annual Renewal
-------------- ------------------
- --------------------------------------------------------------------------------
1.3 Standard Support *** ***
- --------------------------------------------------------------------------------
1.4 Premium Support *** ***
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
1.5 Additional Services 1.6 Price to Cabletron
- ----------------------- ----------------------
- ----------------------------------------------------------------------------------------------
<S> <C>
Hardware Repairs -- next day replacement ***
- ----------------------------------------------------------------------------------------------
Hardware Repairs -- 30 day turnaround ***
- ----------------------------------------------------------------------------------------------
On-Site Support ***
- ----------------------------------------------------------------------------------------------
On-Site Product Installation and Setup ***
- ----------------------------------------------------------------------------------------------
Customer Training at Interspeed ***
- ----------------------------------------------------------------------------------------------
Customer Training On-site ***
- ----------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Cabletron Proprietary Information Page 19
Product Agreement (Draft 12/29/99)
Contract Number 99-OEMB-1206-1930
***This information has been omitted pursuant to a request for confidential
treatment, and has been filed separately with the Securities and Exchange
Commission.
<PAGE>
RIDER
TO
CABLETRON PRODUCT RESELLER AGREEMENT
BETWEEN
CABLETRON SYSTEMS, INC.
AND
INTERSPEED, INC.
This Rider to Cabletron Product Reseller Agreement (the "Agreement") dated
as of the 1st day of February, 2000, by and between INTERSPEED, INC.
("Supplier") and CABLETRON SYSTEMS, INC. ("Cabletron").
Any capitalized terms defined in the Agreement, when used herein, shall
have the same meanings as are ascribed to them in the Agreement, except as
otherwise defined herein.
Section 2. of the Agreement entitled "Relationship" is hereby amended by
adding the following new Section 2.4 immediately following Section 2.3 of said
Section: "Supplier licenses Cabletron to use its trademarks in conjunction with
the resale of Products. Cabletron must resell products under Supplier's name and
not any other name provided (a) Cabletron shall make no modification of
Suppliers mark, and shall make no use of it in combination with other material
so as to create a compound mark; (b) all use by Cabletron accrues to Suppliers
benefit; (c) Cabletron shall not register suppliers mark in any jurisdiction;
(d) all marketing and advertising materials featuring Suppliers mark shall be
submitted to Supplier for prior approval; (e) Supplier's mark can be used only
in resale of Suppliers products, and shall not be associated with any other
products in any way."
Section 2.3 of the Agreement entitled "Channel Conflict Mitigation" is
hereby amended by deleting therefrom the phrase "sold by Cabletron pursuant to
this Agreement. Supplier's sales force in the territory in which the Product is
sold shall be compensated fully through ordinary commission and revenue
retirement for such Product sale, as though it had been made by Supplier's sales
force" and by substituting therefore the phrase "orders placed pursuant to this
Agreement as a result of such cooperative sales efforts in existing Cabletron
accounts or as a result of a Cabletron lead, shall be fulfilled through
Cabletron".
Section 3.1 of the Agreement entitled "inventory" is hereby amended by
deleting therefrom the phrase "twice" where it appears in the second sentence of
said Section.
Section 4,4 of the Agreement entitled "Right to Manufacture" is hereby
deleted in its entirety and amended by substituting the following new paragraph:
"If Supplier:
(a) implements a Product withdrawal without making available a functionally
equivalent or superior product, on reasonable commercial terms, that is required
by Cabletron to support expansion of networks deployed by its
customers/end-users in which Products are already in use;
(b) is consistently and unreasonably unable or unwilling to deliver to Cabletron
the quantities of Contractual Products forecasted and ordered by Cabletron as
provided for in this Agreement and accepted
- --------------------------------------------------------------------------------
Cabletron Proprietary Information Page 1
Rider to Cabletron Product Reseller Agreement
Contract No. 99-OEMB-1206-1903
<PAGE>
by Supplier as provided for in this Agreement within sixty (60) days of the
delivery dates set out in section 5 of this Agreement;
(c) ceases or is unwilling, without a cause attributable to wrongful acts of
Cabletron under this agreement, to provide commercially adequate support or
maintenance for the products in accordance with the terms and conditions of this
Agreement;
(d) is sold and its successor is (i) a Direct Competitor of Cabletron and (ii)
does not provide Cabletron with acknowledgement that it continues to be bound
by, and shall duly and punctually perform, all of the provisions of this
Agreement. "Direct Competitor" shall mean an individual, partnership, limited
partnership, corporation, company, trust, unincorporated organization,
governmental unit or agency or any political subdivision thereof or any other
entity whatsoever (other than Cabletron) that engages in the sale of principally
the same or similar hardware products required for the local area network and
wide area network applications, parts, related software, documentation and/or
related products manufactured, produced and/or distributed by Cabletron or its
affiliates;
(e) ceases doing business as a going concern; has a receiver, administrator or
manager of its property, assets or undertakings appointed; takes advantage of
the insolvency laws of any jurisdiction; makes an assignment in bankruptcy or is
adjudicated a bankrupt; makes a general assignment for the benefits of its
creditors; is ordered by any court of competent jurisdiction to be wound up; or
become insolvent or makes a sale in bulk of a substantial portion of its assets;
provided that this clause (e) shall apply in any case only if the action
referred to occurs in such circumstances as would substantially affect
Cabletron's continuing supply or use of the Product in accordance with this
Agreement;
Provided that Supplier has not terminated this Agreement due to default or cause
of Cabletron and an event described above (at (a) through (e)) has occurred,
then:
Cabletron may place purchase orders for Products directly with Supplier's
manufacturer. Supplier shall direct such manufacturer to accept such purchase
orders and provide the Products to Cabletron, or Supplier will, upon request
from Cabletron, grant the rights to manufacture Product(s) to Cabletron.
Cabletron shall have the right to sublicense this grant to a third party
manufacturer. Supplier shall provide such other manufacturer with all necessary
rights, information and materials (but not tooling or machinery) in order to
permit them to manufacture the Product(s) within their own manufacturing
facilities. Such information includes, by example and not by way of limitation:
(i) manufacturing drawings and specifications of raw materials and components
comprising such parts; (ii) manufacturing drawings and specifications covering
special tooling and the operation thereof; (iii) a detailed list of all
commercially available parts and components purchased by Seller on the open
market disclosing the part number, name and location of the supplier, and price
lists for the purchase thereof; and (iv) one (I) complete copy of the then
current source or binary code used in the preparation of any Software licensed
or otherwise acquired by Cabletron from Supplier hereunder. Such manufacturer
will enter into appropriate confidentiality agreements with its employees,
contractors/suppliers and Cabletron. Supplier shall assist Cabletron in
obtaining any required assignment of rights to Third Party Technology in the
Product(s).
No transfer fee or other amounts would be payable for Product(s) so manufactured
and distributed. Instead, Cabletron will be responsible for payment of any
royalties required for the use of third party technology and pay Supplier a
royalty often percent (10%) of the Transfer Price for such Product under this
Agreement in the event either condition (a), (b), (c) or (e) occur. In the event
condition (d) occurs, Cabletron shall pay Supplier a royalty of five percent
(5%) of the Transfer Price. "Transfer Price" shall mean the current price paid
for Products by Cabletron prior to invoking this section 4.4 and more fully
described in Exhibit A."
- --------------------------------------------------------------------------------
Cabletron Proprietary Information Page 2
Rider to Cabletron Product Reseller Agreement
Contract No. 99-OEMB-1206-1903
<PAGE>
Section 4.5 of the Agreement entitled "Software and Firmware" is deleted
and amended by substituting the following new paragraph: "All Software shall be
provided to Cabletron and its customers subject to a use license. Within the
Warranty period, or as part of a maintenance agreement. Supplier shall provide
Software Updates, and Software Upgrades at no additional charge. Supplier shall
provide Cabletron a Not-For-Resale copy of each new Software release.
Section 4.8 of the Agreement entitled "Documentation and Materials" is
hereby amended by adding the following to the end of the last line of the said
Section: "provided Supplier reviews and approves any changes as they relate to
the representations of Supplier products and services"
Section 4.9 of the agreement entitled "Marketing Materials" is hereby
amended by adding the following between the words "Cabletron" and "upon" where
they appear in the paragraph of said Section: "Product Management".
Section 4.10 of the Agreement entitled "Export Licensing" is hereby
deleted in its entirety and amended by substituting the following new
paragraphs:
"4.10.1 In the event that Cabletron proposes to sell any Products
outside of the United States, Cabletron shall be responsible for
obtaining any required export licenses, if any, from the U.S.
Department of Commerce. Supplier will provide all reasonable
assistance to Cabletron in Cabletron's efforts to obtain any such
required export licenses, provided that Supplier shall not be
required to incur any substantial out-of-pocket expense in
connection with such assistance.
4.10.2 Supplier shall have the sole right to apply for and seek to
obtain any approvals from foreign telecommunications or other
foreign regulatory agencies that may be required for the legal sale
and use of Products in specific foreign jurisdictions. Attached
hereto as Exhibit A is a listing of such foreign telecommunications
and regulatory approvals now held by Supplier with respect to the
products identified on said list. In the event that Cabletron
desires to pursue or make a sale of a Product in a foreign
jurisdictions which is not covered by a currently available
approval, Supplier agrees to discuss with Cabletron and consider the
advisability of applying for and seeking such approval in order that
Cabletron may pursue such sale. It is understood and agreed that
obtaining foreign approvals can be an expensive process which must
be approached with an eye toward the relative costs and benefits.
Accordingly, the final decision as to whether to pursue a particular
foreign approval shall be in Supplier's sole discretion."
Section 4.15 of the Agreement entitled "Price Terms" is hereby deleted in
its entirety and amended by substituting the following new sentence: "Price
terms for all Products shall be F.O.B. Supplier's shipping point."
Section 4.16 of the Agreement entitled "Quality Assurance and First
Article and Facility Inspection" is hereby amended by deleting the phrase
"thirty (30)" where it appears in the last sentence of the paragraph of said
Section and by substituting therefor the phrase "forty-five (45)".
- --------------------------------------------------------------------------------
Cabletron Proprietary Information Page 3
Rider to Cabletron Product Reseller Agreement
Contract No. 99-OEMB-1206-1903
<PAGE>
adding a new Section 5.8 as follows:
Section 5.8 of the Agreement entitled "Ordering & Shipment is hereby
amended by adding a new Section 5.8 as follows:
***
***
- --------------------------------------------------------------------------------
Cabletron Proprietary Information Page 4
Rider to Cabletron Product Reseller Agreement
Contract No. 99-OEMB-1206-1903
***This information has been omitted pursuant to a request for confidential
treatment, and has been filed separately with the Securities and Exchange
Commission.
<PAGE>
automatically upon consummation of the Acquisition with actual payments of the
exercise price and (b) the proceeds to Cabletron with respect to the Acquisition
on account of the shares of common stock of Supplier acquired upon such exercise
of the Accelerated Warrants in excess of the exercise price of the Accelerated
Warrants ("Net Proceeds") shall be held in escrow pending the purchase and
payment of the Product covered by the Accelerated Order. If and as Product
covered by the Accelerated Order is actually purchased and paid by Cabletron, a
proportionate amount of the Net Proceeds shall be delivered to Cabletron out of
escrow."
Section 6.2 of the Agreement entitled "Distribution of Software Product"
is hereby amended by deleting therefrom the phrase "terms and conditions which
accompanies the Product and by substituting therefor the phrase "in the form
supplied by Supplier and attached hereto ad Exhibit C"
Section 7.1 of the Agreement entitled "Payment Terms" is hereby amended by
deleting therefrom the phrase "sixty (60)" and by substituting therefor the
phrase "forty-five (45)".
Section 8.2 of the Agreement entitled "Repair or Replacement", is hereby
amended by deleting therefrom the phrase "sufficient" where it appears in the
second sentence and by substituting therefor the phrase "equal to fifteen
percent (15%) of the average monthly product purchases".
Section 8.3 of the Agreement entitled "Return, Repair or Replacement
Procedure", paragraph 8.3.1 a hereby deleted in its entirety and amended by
substituting the following new paragraph:
"Supplier will pay all transportation charges for Product returned to Supplier
under these Product Warranty Terms from the End User; provided that Supplier
shall be responsible only for the costs of a single shipment from the End User
to Supplier's designated repair facility by the least expensive appropriate
means of transportation in accordance with Supplier's warranty service policies.
In any case where Supplier determines after testing that the returned item was
not defective, Supplier reserves the right to charge the End User all costs of
shipment both ways."
Section 8.4 of the Agreement entitled "Epidemic Failures" is hereby
amended by deleting therefrom the phrase "three (3) years" where it appears
in the third sentence and by substituting therefor the phrase "six (6) months".
Section 8.5 of the Agreement entitled "Warranty Disclaimer" is hereby
amended by deleting therefrom the phrase "AND FITNESS FOR A PARTICULAR PURPOSE"
and by substituting therefor the phrase ",FITNESS FOR A PARTICULAR PURPOSE AND
NONINFRINGEMENT".
Section 9.1 of the Agreement entitled "End User Support" is hereby amended
by deleting the phrase "without additional charge" at the end of the first
sentence and replacing is with "and the Support Plan set forth in Exhibit D."
Section 9.1 of the Agreement entitled "End User Support" is hereby amended
by deleting therefrom the final three sentences of said Section and replacing
them with "Subsequent to the
- --------------------------------------------------------------------------------
Cabletron Proprietary Information Page 5
Rider to Cabletron Product Reseller Agreement
Contract No. 99-OEMB-1206-1903
<PAGE>
initial twelve (12) month period following shipment, Supplier shall provide End
User Support and Software Updates/Upgrades for the fee and on the terms
specified in the Support Plan attached as Exhibit D."
Section 12.3 of the Agreement entitled "Ownership and Non-Disclosure" is
hereby amended by adding the following at the end of the last sentence of said
Section: "and shall not knowingly disclose such Confidential Information to any
End User or service provider or their affiliates who are manufacturers of dsl
equipment."
Section 12.4 of the Agreement entitled "Exception" is hereby amended by
deleting the paragraph in its entirety and substituting the following new
paragraph: "The foregoing shall not prevent either party from disclosing
confidential information which belongs to such party or is (1) already known by
the Recipient without an obligation of confidentiality, (2) publicly known or
becomes publicly known through no unauthorized act of the Recipient, (3)
rightfully received without restriction of confidentiality from a third party,
(4) independently developed by the Recipient without use of the other party's
confidential Information, (5) approved by the other party for disclosure, or (6)
required to be disclosed pursuant to a requirement of a governmental agency or
law so long as the disclosing party provides the other party with notice of such
requirement prior to any such disclosure."
Section 12 of the Agreement entitled "Confidential and Proprietary
Information" in hereby amended by adding Section 12.7 immediately following
Section 12.6 of said Section: "All information disclosed hereunder shall remain
confidential for a period of five (5) years from the date of termination of the
Agreement".
Section 13.1 of the Agreement entitled "Indemnification by Supplier" a
hereby amended by adding the following between the words "any" and "patent"
where they appear in the first sentence of said Section "North American.
European or Japanese".
Section 13.1 of the Agreement entitled "Indemnification by Supplier" is
hereby amended by adding the following phrase to the end of said Section
"Cabletron, may submit a written request to Supplier to expand the
indemnification provided herein to additional countries or geographical regions
and such indemnification shall not be unreasonably withheld".
Section 13.1 of the Agreement entitled "Indemnification by Supplier" is
hereby amended by adding the following phrase to the beginning of the third
sentence: "In the event any Claim Defendant's use of the Product is enjoined,
either temporarily or permanently".
Section 13.1 of the Agreement entitled "Indemnification by Supplier" is
hereby amended by deleting the last sentence and by substituting the following
phrase: "Supplier shall refund to Cabletron the price paid for the Product less
depreciation based on a five (5) year useful life and Cabletron shall return the
Product to Supplier."
Section 13.2 of the Agreement entitled "Products Liability" is hereby
amended by adding a new sentence before the last sentence of said Section: "Not
withstanding the foregoing, Supplier shall sot be responsible for claims which
have arisen due to Cabletron's or its agent's [ILLEGIBLE COPY]
<PAGE>
Section 14.1 of the Agreement entitled "Limitation of Liability" is hereby
amended by deleting therefrom the phrase "CABLETRON" and by substituting
therefor the phrase "EXCEPT FOR SUPPLIER'S INDEMNIFICATION OBLIGATIONS SET FORTH
IN ARTICLE 13, EITHER PARTY'S".
Section 16.7 of the Agreement entitled "Laws" is hereby amended by
deleting therefrom the phrase "State of New Hampshire" and by substituting
therefor the phrase "Commonwealth of Massachusetts".
Section 16.7 of the Agreement entitled "Laws" is hereby amended by
deleting therefrom the phrase "Cabletron" where it appears in the last line and
substituting therefor the phrase "either party".
Exhibit B
Section 2.4, Exhibit B of the Agreement entitled "Inspection and Testing
Standards" is hereby amended by adding the following phrase to the end of the
last paragraph of said Section: "In the event Cabletron desires to contract with
a third party to conduct an inspection, Cabletron shall submit for Supplier's
approval the name of such third party. Supplier shall notify Cabletron of
Supplier's approval or rejection within five (5) business days of receipt of
such request. Supplier's approval shall not be unreasonably withheld but in the
event of rejection Supplier shall provide in writing its reasons for such
rejection.
Section 2.10, Exhibit B of the Agreement entitled "Engineering Change
Order (ECO) Control" is hereby amended by deleting the entire section and by
substituting therefor the following new paragraph: "Supplier shall provide
Cabletron with written notice of Product modifications in accordance with
Article 4.7 of the Agreement".
IN WITNESS WHEREOF, the parties have caused this Rider to be executed by their
duly authorized representatives.
CABLETRON SYSTEMS
SALES & SERVICE, INC. INTERSPEED, INC.
By: /s/ Daniel J Harding By: /s/ Stephen A. Ide
----------------------------- --------------------------
Daniel Harding Name: STEPHEN A. IDE
VP of Bus Dev ------------------------
Title: PRESIDENT
Date: 2/2/00 -----------------------
---------------------------- Date: 2/2/00
-------------------------
- --------------------------------------------------------------------------------
Cabletron Proprietary Information Page 7
Rider to Cabletron Product Reseller Agreement
Contract No. 99-OEMB-1206-1903
<PAGE>
Exhibit 10.2
SOLUNET
February 8, 2000
Interspeed, Inc.
39 High Street
North Andover, Massachusetts 01845
RE: RIDER TO RESELLER AGREEMENT
Dear Sirs:
Reference is hereby made to that certain Reseller Agreement, dated as of
October 22, 1999 (the "Agreement"), by and among Interspeed, Inc. (the
"Company") and Solunet, Inc. ("Solunet"). Notwithstanding anything to the
contrary contained in the Agreement, the Company and Solunet hereby enter into
this letter agreement (the "Rider") as an amendment to the Agreement. For the
purposes of this Rider, all capitalized terms that are used herein without
definition shall have the respective meanings ascribed to them in the Agreement.
The Company and Solunet hereby agree to the following:
1. Notwithstanding anything to the contrary in the Agreement, Solunet will
offer Products for resale under the Agreement *** over a twelve (12) month
period commencing on February 8, 2000 and ending on February 7, 2001 (the
"Term"). For each *** of Product that Solunet shall purchase and pay for
during the Term *** set forth above, Solunet will be granted warrants to
purchase *** pursuant to a warrant certificate substantially in the form of
the Warrant Certificate attached hereto as EXHIBIT A. ***
2. In the event that *** there is a merger or consolidation of the Company
with or into another corporation or a sale or transfer of all or
substantially all of the properties and assets of Supplier and its
subsidiaries (an "Acquisition"), ***
<PAGE>
The Accelerated Warrants will also be substantially in the form of EXHIBIT
A attached hereto, except that (a) they will be exercisable immediately,
(b) they will be held in escrow by the Company pending the purchase and
payment of the Product covered by the Accelerated Order (as provided below)
and (c) proceeds to Solunet with respect to the Acquisition on account of
the Accelerated Warrants or shares of common stock of the Company acquired
upon exercise of the Accelerated Warrants in excess of the exercise price
of the Accelerated Warrants ("Net Proceeds") shall be similarly held in
escrow by the Company. As Product covered by the Accelerated Order is
purchased and paid by Solunet, a proportionate amount of Accelerated
Warrants or Net Proceeds, as applicable, shall be delivered to Solunet out
of escrow.
3. This Rider shall be deemed part of the Agreement and shall be binding upon
and inure to the benefit of the respective successors and permitted assigns
(as contemplated by the Agreement) of the Company and Solunet.
Please acknowledge your acceptance of this Agreement by signing below where
indicated.
Sincerely yours,
SOLUNET INC.
By: /s/ Harry V. Ericson
------------------------
Name: Harry V. Ericson
Title: Vice President and Chief
Financial Officer
Agreed and accepted this
8th day of February, 2000
INTERSPEED, INC.
By: /s/ William J. Burke
------------------------
Name: William J. Burke
Title: Chief Financial Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
company's Form 10-Q for the quarter ended 3/31/00 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-1-1999
<PERIOD-END> MAR-31-2000
<CASH> 10,011
<SECURITIES> 0
<RECEIVABLES> 5,117
<ALLOWANCES> 0
<INVENTORY> 3,909
<CURRENT-ASSETS> 19,391
<PP&E> 1,720
<DEPRECIATION> 0
<TOTAL-ASSETS> 21,137
<CURRENT-LIABILITIES> 2,961
<BONDS> 0
108
0
<COMMON> 0
<OTHER-SE> 17,927
<TOTAL-LIABILITY-AND-EQUITY> 21,137
<SALES> 7,155
<TOTAL-REVENUES> 6,716
<CGS> 3,962
<TOTAL-COSTS> 3,962
<OTHER-EXPENSES> 9,538
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (6,398)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,398)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,398)
<EPS-BASIC> (0.60)
<EPS-DILUTED> (0.60)
</TABLE>
