<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION APRIL 20, 2000
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
WIRELESS, INC.
(Exact name of registrant as specified in its charter)
----------------
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DELAWARE 3663 94-3269426
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
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5452 BETSY ROSS DRIVE
SANTA CLARA, CA 95054
(408) 727-8383
(Name and Address, including zip code, and telephone number, including area
code, of the registrant's principal executive offices)
----------------
WILLIAM J. PALUMBO
CHIEF EXECUTIVE OFFICER AND PRESIDENT
WIRELESS, INC.
5452 BETSY ROSS DRIVE
SANTA CLARA, CA 95054
(408) 727-8383
(Address, including zip code, and telephone number, including area code, of
agent for service)
----------------
COPIES TO:
WARREN T. LAZAROW, ESQ. JOHN L. DONAHUE, ESQ.
DAVID G. ODRICH, ESQ. CHRISTINE K. TALARIDES, ESQ.
JONATHAN G. SHAPIRO, ESQ. BLAIR M. WALTERS, ESQ.
BROBECK, PHLEGER & HARRISON LLP PILLSBURY MADISON & SUTRO LLP
TWO EMBARCADERO PLACE 2550 HANOVER STREET
2200 GENG ROAD PALO ALTO, CA 94304
PALO ALTO, CA 94303 (650) 233-4500
(650) 424-0160
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
----------------
If the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
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AMOUNT TO BE AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED REGISTERED (1) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------
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Common Stock, $0.001 par value ........................... $86,250,000 $22,770
======================================================================================================
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(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(o).
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
================================================================================
<PAGE>
********************************************************************************
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE
WHERE THE OFFER OR SALE IS NOT PERMITTED.
********************************************************************************
SUBJECT TO COMPLETION, DATED APRIL 20, 2000
P R O S P E C T U S
SHARES
[LOGO]
COMMON STOCK
$ PER SHARE
-------------------
We are selling shares of our common stock. The underwriters named in this
prospectus may purchase up to additional shares of our common stock
to cover over-allotments.
This is an initial public offering of our common stock. We currently
expect the initial public offering price of the common stock to be between
$ and $ per share and we have applied to have our common
stock included for quotation on the Nasdaq National Market under the symbol
"WLSS."
-------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING
ON PAGE 8.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
-------------------
PER SHARE TOTAL
----------- ----------
Initial Public Offering Price $ $
Underwriting Discount $ $
Proceeds to Wireless, Inc. (before expenses) $ $
The underwriters are offering the shares subject to various conditions.
The underwriters expect to deliver the shares to purchasers on or about
, 2000.
-------------------
SALOMON SMITH BARNEY
CIBC WORLD MARKETS
PRUDENTIAL VOLPE TECHNOLOGY
A UNIT OF PRUDENTIAL SECURITIES
, 2000
<PAGE>
INSIDE FRONT COVER
The page consists of an orange circle, part of which disappears off of
the page to the right, appearing on a light blue background. Inside the circle
is a diagram of several buildings connected by lines. The building in the center
is captioned "Communication Service Provider." Underneath are two groups of
houses. The line between the center building and the first group of three houses
is captioned "Cable Service" in bold and underneath "6 Mbps." The line between
the center building and the second group of two houses is captioned "Digital
Subscriber Service" in bold and underneath "256 Kbps." Beneath all five houses
is the caption "Residential" in bold. Directly to the left of the center
building is a larger building captioned "Small and Medium Businesses" in bold.
The line between the larger building and the center building is captioned "T-1
service" in bold and underneath "1.5 Mbps." Towards the top left corner is a
tall building captioned "Large Businesses." The line between the tall building
and the center building is captioned "Fiber Optic Service" in bold and
underneath "45 Mbps." A cloud appearing above the center building connected to
it by a line contains the words "Internet Applications" and six bullets, reading
"E-commerce," "Large data transfers," "Streaming video and audio,"
"Telecommuting," "Distance learning," and "Web-based conferencing." Below the
diagram inside the circle is the text: "High-speed Internet access within a
broadband service coverage area is limited by existing telephone and cable
facilities, and the expensive installation costs associated with fiber optic and
T-1 technology." At the inside left edge of the circle are the words "Wired
broadband service coverage boundary." Outside the orange circle on the light
blue background to the lower left are eight houses amongst which appears the
word "Residential" in bold and 4 larger buildings in the middle of which is the
caption "Small & Medium Businesses" in bold. Centered between the larger
buildings and the houses but outside the orange circle are the words "Dial-up
Access Only" in bold and underneath "56 Kbps." At the lower right corner of the
page is the text: "High-speed Internet access services are unavailable outside a
limited coverage area." In the top left corner of the page on the light blue
background is the Wireless logo, which consists of the word "Wireless" with the
first four letters in black and the last four in blue, multi-colored dots
appearing above the "i", "r" and "e", the capital letters "INC" in the top right
corner, the letters "TM" in the lower right corner and a semi-circular blue line
underneath. Underneath the logo are the words "Broadband without Boundaries."
GATEFOLD
The gatefold consists of three large columns stretching across both pages
of the gatefold with text appearing over the columns on the left top of the
page. The text reads: "Key benefits of our broadband wireless access solution:"
underneath which are five bullets reading "Cost-effective design and
implementation," "Rapid installation," "Scalable design," "Remote management"
and "Network compatibility." To the left of the text is the Wireless logo, which
consists of the word "Wireless" with the first four letters in black and the
last four in blue, multi-colored dots appearing above the "i," "r" and "e," the
capital letters "INC." in the top right corner, the letters "TM" in the lower
right corner and a semi-circular blue line underneath.
The first column is split in half. The heading for the top half contains
the words "WaveNet Access" in bold and underneath, the words
"point-to-multipoint," all on a blue background, below which is a diagram
consisting of five small buildings, four of which are labeled "Insurance,"
"Office Supply," "Bank," "Retailer" and the fifth of which is not labeled. Red
dots emanate from a Wireless product on the top of each building to a large
telephone pole at the right of the column on which a Wireless device is mounted.
Under the dots are the words "4-5 Mbps." Below the diagram are the words
"WaveNet Access" in bold and underneath the words "A point-to-multipoint system
that transports voice and data traffic to multiple end-users within a local
area."
The heading for the bottom half of the first column contains the word
"StarPort" in bold and underneath, the words "Point-to-multipoint," all on a
yellow background, below which is a diagram consisting of four houses and a
personal computer below the first house. There is a personal computer visible
inside the first house as well. Both personal computers are connected to a small
Wireless device. Red dots emanate from a Wireless product within each building
to a large telephone pole at the right of the column on which a Wireless device
is mounted. Under the dots are the words "4-5 Mbps." Below the diagram is the
word "StarPort" in bold and underneath the words "A point-to-multipoint system
that provides Internet access to multiple end-users at DSL rates."
The heading for the second column contains the words "WaveNet Link" in
bold and underneath the words "Point-to-point," all on a red background. A line
connects the large pole on the right side of the upper half of the first column
to a large pole on the left side of the second column on which another Wireless
device appears. Above
<PAGE>
this pole are the words "WaveNet Link 4X" in bold. A caption over the line
connecting the two poles reads "Voice and data traffic" in bold. A second line
connects the pole on the right side of the lower half of the first column to
another pole on the left side of the second column. Above this pole are the
words "WaveNet Link EX" in bold. A caption over the line connecting the two
poles reads "Internet traffic." Red dots emanate from both poles on the left
side of the second column to two poles on the right side of the second column,
on which are mounted Wireless devices. Under the red dots between the pole
coming from the upper half of the first column are the words "16 Mbps" and under
the dots between the pole coming from the lower half of the first column are the
words "16 Mbps." In the center of the second column are the words "WaveNet
Link," in bold and underneath the words "A point-to-point system that transports
voice and data between two locations."
The heading for the third column contains the words "WaveNet Transport" in bold
and underneath the words "High-capacity transport," all on an orange background.
Two lines connect the two poles on the right side of the second column to a
large box on the left side of the third column out of which a pole emerges with
a microwave antenna at the top. Below the box are the words "Interconnection
Node" in bold. Red dots emanate from the microwave antenna to another similar
antenna on top of a building in the center of the third column. The words
"Service Provider" in bold appear below the building. A thick red line connects
the building to a blue cloud on the right side of the column, inside of which
are the words "Telecommunication Network or Internet" in bold. A caption over
and under the red line reads "IP or ATM."
<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT
MAKING AN OFFER OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT
PERMITTED. YOU SHOULD NOT ASSUME THAT THE INFORMATION PROVIDED BY THIS
PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THIS
PROSPECTUS.
-------------------
TABLE OF CONTENTS
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PAGE
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Prospectus Summary................................................................................... 4
Risk Factors......................................................................................... 8
Forward-Looking Statements........................................................................... 20
Use of Proceeds...................................................................................... 21
Dividend Policy...................................................................................... 21
Capitalization....................................................................................... 22
Dilution............................................................................................. 23
Selected Financial Data.............................................................................. 24
Management's Discussion and Analysis of Financial Condition and Results of Operations................ 26
Business............................................................................................. 33
Management........................................................................................... 44
Executive Compensation and Other Information......................................................... 48
Certain Transactions................................................................................. 55
Principal Stockholders............................................................................... 60
Description of Capital Stock......................................................................... 62
Material United States Federal Income and Estate Tax Consequences to Non-United States Holders....... 66
Shares Available for Future Sale..................................................................... 68
Underwriting......................................................................................... 70
Legal Matters........................................................................................ 72
Experts.............................................................................................. 72
Additional Information............................................................................... 72
Index to Financial Statements........................................................................ F-1
</TABLE>
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Until ________________________ , 2000, all dealers that buy, sell or
trade the common stock, whether or not participating in this offering, may be
required to deliver a prospectus. This is in addition to the dealers' obligation
to deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
3
<PAGE>
PROSPECTUS SUMMARY
BECAUSE THIS IS ONLY A SUMMARY, IT DOES NOT CONTAIN ALL OF THE
INFORMATION THAT MAY BE IMPORTANT TO YOU. YOU SHOULD READ THE ENTIRE PROSPECTUS,
INCLUDING "RISK FACTORS," AND THE CONSOLIDATED FINANCIAL STATEMENTS AND THE
NOTES THERETO, BEFORE DECIDING TO INVEST IN OUR COMMON STOCK.
OUR COMPANY
We are a global provider of broadband wireless access solutions that
enable Internet and communication service providers, telephone operating
companies and private network operators to deliver voice and high-speed data
services to their customers. We provide a portfolio of wireless systems that
connect end-users to public and private telecommunication networks in domestic
and international markets. Our systems allow an Internet or communication
service provider or enterprise to rapidly install high-speed communications
throughout a service area at a lower cost than a comparable wired network. More
than 200 customers in over 50 countries have purchased and installed our
systems.
Our portfolio of systems allows end-users to transmit voice and data
simultaneously via Internet protocol, or IP, or asynchronous transfer mode, or
ATM, architectures, two leading industry standards for telecommunication
transport. Our broadband wireless access solutions address a wide range of
applications in different markets, including:
o enabling Internet service providers to offer direct Internet access;
o rapidly installing new networks for communication service providers;
o supplementing telephone operating companies' existing wired networks;
o establishing communication networks in regions without existing
infrastructures; and
o establishing private corporate networks.
Our systems are available in a broad range of frequency assignments,
enabling us to address the different regulatory requirements of multiple
geographic markets. We have systems installed and operating in Argentina,
Brazil, Chile, China, Mexico, Panama, the Philippines, Poland and the United
States. In 1999, 83% of our revenues were derived internationally. Our global
service organization provides customer support 24 hours per day, 7 days a week
and offers network design and installation services as part of our wireless
solution.
As the Internet and public and private communication networks have become
essential for communication, e-commerce and information exchange, the volume of
voice and high-speed data traffic worldwide has increased dramatically. In
addition, user applications, such as electronic mail, telecommuting and
business-to-business exchanges have further increased the amount of network
traffic. This increase in network traffic has resulted in a demand for greater
transmission capacity, or bandwidth, and high-speed, or broadband services to
support it. Bandwidth limitations between service providers' central offices and
end-users, often referred to as the last mile bottleneck, have constrained
service providers from delivering broadband services to end-users. We believe
that traditional dial-up modem technology is insufficient to support the growth
in network traffic and demand for high-speed data transmission. Although wired
access network infrastructures using cable, digital subscriber line, or DSL, and
fiber optic systems can deliver greater bandwidth than that provided by dial-up
modem technology, these systems are not universally available to end-users. This
last mile bottleneck is frustrating a broad base of business, residential and
small office/home office users, many of whom require high-speed access to data.
Broadband wireless access technology can solve many of the problems
imposed by wired networks. Broadband wireless technology enables rapid
implementation of high-speed network access in a cost-effective manner relative
to wired networks. We believe that wireless network providers will be able to
gain a greater share of the network access market because, unlike wired network
providers, they are not required by federal law to share their wireless networks
with competing service providers. A broadband wireless network is often the best
option for high-speed communication in remote areas and in many developing
countries due to the lack of an existing wired infrastructure. In these regions,
wireless technologies provide clear advantages over wired networks, including
lower cost, faster installation, greater flexibility and increased reliability.
4
<PAGE>
We believe our WAVENET BROADBAND WIRELESS ACCESS portfolio of systems
provides our customers with the following key benefits:
o cost-effective design and implementation;
o rapid installation;
o scalability;
o remote management; and
o network compatibility.
Our goal is to be the global broadband wireless access solution of choice
for Internet and communication service providers, telephone operating companies
and private network operators. Our strategy for achieving this goal includes the
following core elements:
o introducing new wireless access technologies;
o leveraging strategic relationships;
o expanding global market presence;
o emphasizing research and development; and
o continuing to deliver high-quality customer service and support.
As part of our strategy, we are expanding our product line. We are
currently testing in the field a new system called STARPORT which we intend to
commercially introduce during 2000. STARPORT is a point-to-multipoint broadband
wireless access system that does not require a line of sight between
transmission and reception points and supports high-speed Internet traffic.
STARPORT can be installed by the consumer without requiring a communication
service provider to supply a professional technician. STARPORT is designed as a
cost-effective alternative to wire-based cable, DSL and fiber optic
technologies, and is intended to allow a service provider to rapidly supply
services, such as high-speed Internet access, throughout a service area.
STARPORT is specifically designed for the residential, small office and home
office markets. We expect that the consumer will be able to connect an interface
cable from STARPORT to a personal computer and then automatically receive
broadband service at data rates that are comparable to typical DSL service.
We have entered into a strategic relationship with TRW, Inc. which
provides us with technology that we use in our STARPORT system. This technology
was originally developed by TRW Systems and Information Technology Group for
military communications. TRW is an international company that provides advanced
technology products and services. The principal businesses of TRW and its
subsidiaries are the design, manufacture and sale of products and the
performance of systems engineering, research and technical services for industry
and the United States Government in the automotive, aerospace and information
systems markets. As part of this initiative, TRW acquired approximately 18% of
our capital stock outstanding prior to this offering.
Despite our accomplishments, we face many challenges and risks. For
example, we have not achieved, and may never achieve, profitability. In
addition, we expect to incur net losses in the future and these losses may be
substantial. Accordingly, you should carefully consider the information set
forth under the caption "Risk Factors" before deciding to purchase our common
stock.
OUR BACKGROUND
Wireless, Inc. was incorporated on May 7, 1997 in California and in
August 1998 purchased Multipoint Networks, Inc., a California corporation
engaged in the manufacturing of point-to-multipoint data products. We plan to
reincorporate in Delaware prior to the commencement of this offering. References
in this prospectus to "Wireless," "we," "our" and "us" refer to Wireless, Inc.,
a Delaware corporation and its California predecessor and not to the
underwriters. Our principal executive offices are located at 5452 Betsy Ross
Drive, Santa Clara, CA 95054 and our telephone number is (408) 727-8383. Our web
site can be found at www.wire-less-inc.com. Information contained in our web
site is not a prospectus and does not constitute a part of this prospectus.
5
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OUR TRADEMARKS
Our trademarks and service marks include WIRELESS, WAVENET, WAVENET
ACCESS, WAVENET LINK, WAVENET TRANSPORT, STARPORT and RAN with the accompanying
design and the Wireless logo. Each trademark, trade name or service mark of any
other company appearing in this prospectus belongs to its holder.
THE OFFERING
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Common stock offered................................. Shares
Common stock to be outstanding
after the offering................................... Shares
Use of proceeds...................................... For general corporate purposes, including working
capital and capital expenditures. $2.5 million of the
proceeds will be paid to TRW in connection with the
license of certain technology. We may also use a
portion of the proceeds for possible acquisitions. See
"Use of Proceeds."
Proposed Nasdaq National Market symbol............... "WLSS"
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-------------------
Unless otherwise indicated all information in this prospectus:
o assumes no exercise of the underwriters' over-allotment option;
o reflects the conversion of all of our outstanding preferred stock into
common stock upon the effectiveness of the registration statement; and
o reflects our reincorporation into Delaware before the commencement of
this offering.
See "Description of Capital Stock" and "Underwriting."
EXCEPT WHERE OTHERWISE NOTED, REFERENCES IN THIS PROSPECTUS TO 1998 AND
1999 REFER TO THE TWELVE MONTHS ENDING DECEMBER 31, 1998 AND DECEMBER 31, 1999,
RESPECTIVELY, AND REFERENCES TO THE PERIOD FROM INCEPTION TO DECEMBER 31, 1997
REFER TO THE PERIOD BEGINNING MAY 7, 1997 AND ENDING DECEMBER 31, 1997.
6
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SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following tables set forth our summary financial, operating and
balance sheet data. You should read this information together with the financial
statements and the related notes included elsewhere in this prospectus, as well
as the information set forth under the captions "Selected Financial Data,"
"Capitalization" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
The pro forma financial data presented below reflects:
o the issuance of 3,000,000 shares of Series F Preferred Stock in January
2000;
o the conversion of all outstanding shares of preferred stock into
common stock;
o the exercise of outstanding warrants to purchase 68,000 shares of
preferred stock at a weighted-average exercise price of $1.62 per
share and the conversion of such shares into 68,662 shares of common
stock;
o the exercise of outstanding warrants to purchase 160,000 shares of
common stock at a weighted-average exercise price of $3.06 per share,
which by their terms expire or automatically convert within 30 days of
the completion of this offering; and
o the issuance of 3,429,352 shares of common stock valued at $5.00 per
share in January 2000 in connection with a Purchase and License
Agreement.
The pro forma, as adjusted balance sheet data presented below reflects the
above factors as well as the estimated net proceeds from the sale of
___________ shares of common stock at an assumed initial public offering price
of $ _______ per share after deducting estimated underwriting discounts and
commissions and our estimated offering expenses. See Note 1 of Notes to
Financial Statements for a detailed explanation of the determination of the
shares used to compute actual and pro forma basic and diluted net loss per
share.
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PERIOD FROM
MAY 7, 1997
INCEPTION) TO YEARS ENDED DECEMBER 31,
(DECEMBER 31, ----------------------------------
1997 1998 1999
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STATEMENT OF OPERATIONS DATA:
Revenue....................................................... $ 201 $ 11,172 $ 21,296
Gross profit (loss)........................................... (220) 2,081 5,502
Total operating expenses...................................... 3,438 9,267 18,774
Operating loss................................................ (3,658) (7,186) (13,272)
Net loss....................................................... $ (3,644) $ (7,476) $ (13,699)
================ ================ ================
Basic and diluted net loss per share........................... $ -- $ (6.18) $ (4.30)
================ ================ ================
Basic and diluted weighted average shares used in computation
of net loss per share....................................... 1,210,364 3,187,334
Pro forma basic and diluted net loss per share ................ $ (0.84)
================
Pro forma basic and diluted weighted average shares used in
computation of net loss per share .......................... 16,302,544
</TABLE>
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AS OF DECEMBER 31, 1999
----------------------------------------------------
PRO FORMA,
ACTUAL PRO FORMA AS ADJUSTED
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BALANCE SHEET DATA:
Cash and cash equivalents...................................... $ 1,140 $ 16,742
Working capital................................................ 5,122 20,724
Total assets................................................... 17,038 49,785
Long-term liabilities ......................................... 239 239
Total stockholders' equity..................................... 9,412 42,160
</TABLE>
7
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RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS AND UNCERTAINTIES DESCRIBED BELOW
AND THE OTHER INFORMATION IN THIS PROSPECTUS BEFORE DECIDING WHETHER TO INVEST
IN SHARES OF OUR COMMON STOCK. IF ANY OF THE FOLLOWING RISKS OCCUR, OUR BUSINESS
AND FINANCIAL RESULTS MAY SUFFER. IN THAT CASE, THE TRADING PRICE OF OUR COMMON
STOCK COULD DECLINE AND YOU MAY LOSE PART OR ALL OF YOUR INVESTMENT.
RISKS RELATING TO OUR COMPANY
OUR PROSPECTS ARE DIFFICULT TO EVALUATE BECAUSE WE HAVE ONLY BEEN OPERATING OUR
BUSINESS SINCE MAY 1997.
We were incorporated in May 1997 and did not ship our first wireless
access product until September 1998. We have limited meaningful historical
financial data upon which to base projected revenues and planned operating
expenses and upon which investors may evaluate us and our prospects. In
addition, our operating expenses are largely based on anticipated revenue trends
and a high percentage of our expenses are and will continue to be fixed. You
should consider the risks and difficulties frequently encountered by companies
like ours in a new and rapidly evolving market. Our ability to sell products and
the level of success we achieve depends on the level of demand for broadband
wireless access and networking products, which is a new and rapidly evolving
market.
WE HAVE A HISTORY OF LOSSES, EXPECT FUTURE LOSSES AND MAY NEVER ACHIEVE OR
SUSTAIN PROFITABILITY.
As of December 31, 1999, we had an accumulated deficit of $24.8 million,
and we expect to continue to incur net losses. We anticipate continuing to incur
significant sales and marketing and general and administrative expenses and
significantly increasing our research and development expenses as a result of
products under development. As a result, we will need to generate significantly
higher revenues to achieve or sustain profitability and we cannot be certain
that we will be able to generate these revenues. We incurred net losses of $3.6
million, $7.5 million and $13.7 million in 1997, 1998 and 1999, respectively. We
expect to continue to incur net losses for the foreseeable future.
FLUCTUATIONS IN OUR OPERATING RESULTS MAY ADVERSELY AFFECT THE TRADING PRICE OF
OUR COMMON STOCK.
Our operating results have varied in the past and are likely to vary in
the future. It is possible that our revenues and operating results may be below
the expectations of securities analysts or investors in future quarters. If we
fail to meet or surpass the expectations of securities analysts or investors,
the market price of our stock will most likely fall. Fluctuations in our
operating results could be caused by a number of factors, including:
o the timing and cancellation of customer orders;
o our ability to introduce new systems and technologies on a timely
basis;
o market acceptance of our systems and our customers' services;
o introduction of products and systems by our competitors;
o our ability to respond to fluctuations in customer order levels;
o the timing of our investments in research and development;
o the timing and provision of returns from our distributors;
o whether our customers buy from a distributor, an original equipment
manufacturer or directly from us;
o cost and availability of components and subassemblies;
o competitive pressures on selling prices;
o finished system availability and quality;
o general economic conditions; and
o changes in system mix.
Given that any one or more of those factors could have an adverse effect
on our business, the prediction of future operating results is difficult and
uncertain. In addition, some of our operating expenses are relatively fixed
8
<PAGE>
and, as a result, we may not be able to reduce our operating costs in response
to unanticipated reductions in our revenues or the demand for our systems.
WE DEPEND UPON TECHNOLOGY LICENSED FROM THIRD PARTIES, AND IF WE DO NOT MAINTAIN
THESE LICENSE ARRANGEMENTS, OUR BUSINESS WILL BE SERIOUSLY HARMED.
We license technology that is used in our broadband wireless access
systems from third parties under agreements with a limited duration and we may
not be able to maintain these license arrangements. If we fail to maintain these
license arrangements or we are unable to maintain these licenses on affordable
terms, we would not be able to ship our systems for the broadband wireless
access market, and our business would be seriously harmed.
OUR BUSINESS MODEL DEPENDS UPON OBTAINING AND PROTECTING OUR INTELLECTUAL
PROPERTY, AND IF WE FAIL TO PROTECT OUR PROPRIETARY RIGHTS, OUR BUSINESS COULD
BE HARMED.
Our ability to compete depends substantially upon our internally
developed technology, and, in particular, upon our ability to obtain and
preserve patent and other intellectual property rights covering our systems and
development and testing tools. Our efforts to obtain patent, trade secret,
copyright and other intellectual property rights in connection with our products
are likely to be expensive, may not be effective and may have unpredictable
consequences. If we are not successful in protecting our intellectual property,
our business could be substantially harmed.
OUR PENDING PATENTS MAY NEVER BE ISSUED, AND EVEN IF ISSUED, MAY PROVIDE
US WITH LITTLE PROTECTION.
We regard the protection of patentable inventions as important to our
future opportunities. We currently hold two U.S. patents and have two patent
applications pending before the U.S. Patent and Trademark Office relating to our
point-to-multipoint wireless networking technology. We also share ownership of
two patent applications pending before the U.S. Patent and Trademark Office,
obtained under a Purchase and License Agreement with TRW, relating to our
STARPORT point-to-multipoint wireless networking technology. In addition, under
the Purchase and License Agreement with TRW, we obtained rights in technology in
the field of wireless communications systems that may lead to additional patent
applications. However, none of our technology is patented outside of the United
States nor do we currently have any international patent applications pending.
We cannot assure you that:
o patents will be issued from our currently pending or future
applications;
o our existing patents or any new patents will be sufficient in scope to
provide meaningful protection or any commercial advantage to us;
o an issued patent will not be successfully challenged by one or more
third parties, resulting in our loss of the right to prevent others
from exploiting the inventions claimed in the patents;
o foreign intellectual property laws will protect our intellectual
property rights; or
o others will not independently develop similar or superior products,
duplicate our products or design around any patents issued to us.
TO PROTECT OUR PROPRIETARY RIGHTS, WE RELY UPON TRADEMARKS, COPYRIGHTS
AND TRADE SECRETS, WHICH ARE ONLY OF LIMITED VALUE.
We rely on a combination of laws, such as copyright, trademark and trade
secret laws, and contractual restrictions, such as confidentiality agreements
and licenses, to establish and protect our proprietary rights. We currently have
registered trademarks for the marks "WAVENET," and "RAN" and applications
pending before the United States Patent and Trademark Office for additional
marks, including "STARPORT," and the Wireless logo. However, none of our
trademarks are registered outside of the United States, nor do we have any
trademark applications pending outside of the United States. Moreover, despite
any precautions which we have taken:
o laws and contractual restrictions may not be sufficient to prevent
misappropriation of our technology or deter others from developing
similar technologies;
o other companies may claim common law trademark rights based upon state
or foreign law which precede our federal registration of such marks;
and
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o policing unauthorized use of our systems and trademarks is difficult,
expensive and time-consuming and, therefore, we are unable to determine
the extent to which piracy of our systems and trademarks may occur,
particularly overseas.
The establishment of trade secrets, proprietary know-how and copyright
rights used in our business relies upon confidentiality and other provisions in
agreements with employees, consultants and other contracting parties. Such
contracting parties may not comply with the terms of their agreements with us
and we may not be able to adequately enforce our rights or, if enforceable, the
remedies may be inadequate. In contracts with our suppliers, customers and
others, we usually include indemnification provision concerning intellectual
property matters. We cannot assure you that the indemnification that we receive
will be adequate nor that the indemnification that we give will not harm our
business.
See "Business--Intellectual Property and Proprietary Rights."
WE MAY BECOME INVOLVED IN COSTLY AND TIME CONSUMING LITIGATION OVER PROPRIETARY
RIGHTS.
Substantial litigation regarding intellectual property rights exists in
our industry. Intellectual property rights are uncertain and involve complex
legal and factual questions. We expect that software and hardware in our
industry may be increasingly subject to third-party infringement claims as the
number of competitors grows and the functionality of products in different
industry segments overlaps. Third parties may currently have, or may eventually
be issued, patents that would be infringed by our products or technology. We
cannot be certain that any of these third parties will not make a claim of
infringement against us with respect to our products and technology.
In particular, our STARPORT system under development relies upon direct
sequence spread spectrum technology. There are a number of patents relating to
this technology held by different companies which may impact our STARPORT
system. If our STARPORT system infringes any of these patents and we are unable
to negotiate a license, then we may be required to redesign the STARPORT system
or we may not be able to sell it.
Any litigation, brought by us or others, could result in the expenditure
of significant financial resources and the diversion of management's time and
efforts. In addition, litigation in which we are accused of infringement may
cause product shipment delays, require us to develop non-infringing technology
or require us to enter into royalty or license agreements even before the issue
of infringement has been decided on the merits. If any litigation were not to be
resolved in our favor, we could become subject to substantial damage claims and
be enjoined from the continued use of the technology at issue without a royalty
or license agreement. These royalty or license agreements, if required, might
not be available on acceptable terms, or at all, and could harm our business. If
a successful claim of infringement were made against us and we could not develop
non-infringing technology or license the infringed or similar technology on a
timely and cost-effective basis, our business could be significantly harmed.
WE CURRENTLY SELL A LIMITED NUMBER OF SYSTEMS. OUR SUCCESS DEPENDS ON SALES OF
THOSE SYSTEMS AND THE DEVELOPMENT AND SALE OF FUTURE SYSTEMS.
Our future growth depends on the commercial success of our line of
WAVENET broadband wireless access networking systems and the development and
sale of our WAVENET ACCESS 3500 and STARPORT system lines. Our WAVENET ACCESS
2400, WAVENET ACCESS 2458, WAVENET LINK, WAVENET TRANSPORT, and RAN systems and
those systems that we resell are the only systems that have been shipped to our
customers. We may experience design or manufacturing difficulties that could
delay or prevent our development, introduction or marketing of new systems and
enhancements of existing systems. Any of these difficulties could cause us to
incur unexpected expenses or lose revenue. We cannot assure you that we will
successfully complete the development or introduction of these systems. Failure
of our current or planned systems to operate as expected could delay or prevent
their adoption. If our target customers do not adopt, purchase, and successfully
install our current and planned systems, our revenues will not grow.
IF THE DEVELOPMENT OF OUR STARPORT SYSTEM IS MATERIALLY DELAYED OR FAILS TO
PERFORM TO CUSTOMER EXPECTATIONS, OUR BUSINESS WILL BE SUBSTANTIALLY HARMED AND
WE MAY LOSE OUR EXCLUSIVE LICENSE TO THE TECHNOLOGY.
We obtained an exclusive license from TRW in January 2000 to use the
technology employed by our STARPORT system in base stations configured for
outdoor use. If we do not offer a commercial version of a product containing
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the STARPORT technology for sale by July 14, 2001, unless the delay is the fault
of TRW or attributable to specified reasons, we will lose our exclusivity with
respect to the license. Our future growth depends on the success of our STARPORT
system and we are committed to spending substantial amounts of money to develop
and commercialize products based upon STARPORT technology. If we fail to
successfully commercialize products containing STARPORT technology our prospects
will be severely diminished. Moreover, if we were to lose our exclusivity with
TRW or if our STARPORT system did not perform to customer expectations once we
completed development, our business would be substantially harmed. See
"Business--Strategic Relationship with TRW" and "Certain Transactions--Strategic
Relationship with TRW."
IF THE RADIO FREQUENCY IN WHICH OUR WAVENET ACCESS 3500 SYSTEM OPERATES IS
REASSIGNED, OR IF THE COMMERCIAL RELEASE OF THIS SYSTEM IS DELAYED, OUR BUSINESS
WILL BE SUBSTANTIALLY HARMED.
We have expended significant resources to design our WAVENET ACCESS 3500
system to operate in this band. We cannot assure you that this frequency band
will remain available for use by point-to-multipoint broadband wireless access
systems by the time we develop and launch this system. The reassignment of the
3.5 GHz frequency band to services other than broadband wireless access
technology would significantly harm our business. Moreover, if the WAVENET
ACCESS 3500 system does not satisfy our customers' expectations or if its
release is materially delayed, our business would be substantially harmed.
IF OUR BROADBAND WIRELESS ACCESS SYSTEMS UNDER DEVELOPMENT DO NOT FUNCTION WELL,
WE COULD LOSE SALES OPPORTUNITIES, SUFFER INJURY TO OUR REPUTATION, OR
EXPERIENCE WARRANTY CLAIMS.
To date, our broadband wireless access systems under development,
including STARPORT and WAVENET ACCESS 3500, are currently undergoing, or will
soon undergo, trial deployments. These broadband wireless access systems may
contain undetected or unresolved errors when they are first introduced or as a
result of changes we make to reduce manufacturing costs. In addition, these
broadband wireless access systems are integrated with other network elements and
there may be incompatibilities between these elements and our broadband wireless
access systems under development that adversely affect the service provider or
its subscribers. If these broadband wireless access systems fail, or do not
function adequately, we could experience:
o delays in, or losses of, sales opportunities;
o diversion of development resources;
o injury to our reputation; and
o increased service, warranty and replacement costs.
In addition, these broadband wireless access systems may contain
undetected or unresolved errors when they are first introduced or as a result of
changes we make to reduce manufacturing costs. These broadband wireless access
systems are integrated with other network elements. There may be
incompatibilities between these elements and our broadband wireless access
systems under development that adversely affect the service provider or its
subscribers.
OUR INTERNATIONAL OPERATIONS MAY BE ADVERSELY AFFECTED BY ADDITIONAL RISKS
UNIQUE TO THOSE MARKETS.
Revenues from customers outside North America accounted for 83% of our
total revenues for 1999. We anticipate that revenues from customers outside
North America will continue to account for a significant portion of our total
revenues for the foreseeable future. Expansion of our international operations
has required, and will continue to require, significant management attention and
resources. In addition, we remain heavily dependent on distributors to market,
sell and support our systems internationally. Our international operations are
subject to additional risks, which could harm our results of operations,
including the following:
o difficulties of staffing and managing foreign operations;
o longer customer payment cycles and greater difficulties in collecting
accounts receivable;
o unexpected changes in regulatory requirements, telecommunications
standards, exchange rates, trading policies, tariffs and other
barriers;
o uncertainties of laws and enforcement relating to the protection of
intellectual property;
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o language barriers;
o potential adverse tax consequences; and
o political and economic instability.
We currently sell broadband wireless access systems to customers in over
50 countries on 6 continents. During 1999, system sales to Mexico totaled $7.6
million or 35.9% of total revenues. System sales to the Philippines totaled $3.0
million or 13.9% of total revenues. One customer in Mexico represented $3.0
million or 13.9% of total revenues in 1999. These countries have recently
experienced significant problems with their economies, which have adversely
affected the value of their currency, availability of credit and their ability
to engage in foreign trade in general. If their economies do not improve, our
ability to collect payments and gain future revenue opportunities may suffer.
Although all of our sales are currently denominated in U.S. Dollars, we
cannot accurately predict the impact that any future fluctuations in foreign
currency exchange rates may have on our operating results and financial
condition.
WE DEPEND ON CONTRACT MANUFACTURERS AND SOLE-SOURCE SUPPLIERS. IF THESE
MANUFACTURERS OR SUPPLIERS ARE UNABLE TO FILL OUR ORDERS ON A TIMELY BASIS, WE
MAY BE UNABLE TO DELIVER PRODUCTS TO MEET CUSTOMER ORDERS.
We depend on contract manufacturers and sole-source suppliers to
manufacture our broadband wireless access systems. We operate on a purchase
order basis and do not have long-term supply contracts with our contract
manufacturers. We manufacture only small quantities of products at our own
facilities. If our manufacturers are unable or unwilling to continue
manufacturing our components in required volumes or in the event of a reduction
or interruption of supply or a degradation of quality, we would have to identify
and train acceptable alternate manufacturers, which could take as long as six
months and cause our results of operations to suffer.
In addition, many of our key components have long lead times, are
purchased from sole-source vendors for which alternate sources are not currently
available, and are complex to manufacture. In the event of an interruption of
supply, or a degradation in quality, as many as six months could be required
before we would begin receiving adequate supplies from alternate suppliers, if
any. As a result, shipments could be delayed and our revenues and results of
operations would suffer. It is possible that a source supplier may not be
available when needed, and we may not be able to satisfy our production
requirements at acceptable prices and on a timely basis, if at all. Any
significant interruption in supply would affect the allocation of our systems to
customers, which in turn could cause us to lose customers and harm our business.
BECAUSE WE DO NOT HAVE LONG-TERM CONTRACTS WITH OUR CUSTOMERS, OUR CUSTOMERS MAY
CEASE PURCHASING OUR SYSTEMS AT ANY TIME.
We do not have long-term contracts with our customers. As a result, our
agreements with our customers do not provide any assurance of future sales. Our
customers can stop purchasing our systems at any time without penalty. Our
customers are free to purchase systems from our competitors. In addition, in
many cases, our customers are not required to make minimum purchases of our
systems. Sales are typically made pursuant to individual purchase orders, often
with extremely short lead times. If we are unable to fulfill these orders in a
timely fashion, we will lose sales and customers and our business will be
significantly harmed.
MANY NETWORKS THAT INCLUDE OUR SYSTEMS REQUIRE SYSTEM INTEGRATION EXPERTISE AND
THIRD-PARTY FINANCING, WHICH WE ARE UNABLE TO PROVIDE. IF SOURCES FOR SYSTEM
INTEGRATION OR FINANCING CANNOT BE OBTAINED AS NEEDED, CUSTOMERS MAY NOT BUY OUR
SYSTEMS.
Some customers using our systems purchase them as a part of a larger
network installation program that can require capital expenditures in the
hundreds of millions of dollars. In some circumstances, these customers require
their equipment vendors to integrate equipment into these larger networks and to
finance the installation. We are unable to provide integration services or
financing and will have to rely on the ability of our system integrators and
third parties to integrate or finance these transactions. In the event that we
are unable to identify distributors and system integrators that are able to
provide integration services or financing on our behalf, we would be unable to
compete for the business of some customer accounts and our business would be
harmed.
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IF WE FAIL TO MANAGE OUR GROWTH, OUR BUSINESS, FINANCIAL CONDITION AND PROSPECTS
COULD BE SERIOUSLY HARMED.
We have expanded our operations in recent years and we anticipate that
further expansion will be required to address potential growth in our customer
base and market opportunities. This expansion has placed, and future expansion
is expected to place, a significant strain on our management, technical,
operational, administrative and financial resources. We have recently hired new
employees, including a number of key managerial and operations personnel, who
have not yet been fully integrated into our operations.
Our current and planned expansion of personnel, systems, procedures and
controls may be inadequate to support our future operations. We may be unable to
attract, retain, motivate and manage required personnel, including finance,
administrative and operations staff, or to successfully identify, manage and
exploit existing and potential market opportunities because of inadequate
staffing. We may also be unable to manage further growth in our relationships
with our distributors and other third parties. If we are unable to manage growth
effectively, our business, financial condition and results of operations could
be harmed.
IF WE ARE UNABLE TO EXPAND OUR DIRECT SALES OPERATION AND OUR DISTRIBUTION
CHANNELS OR SUCCESSFULLY MANAGE OUR EXPANDED SALES ORGANIZATION, OUR ABILITY TO
INCREASE OUR REVENUES WILL BE HARMED.
Historically, we have relied primarily on our direct sales organization to
sell our systems domestically and on a limited number of distributors to sell
our systems internationally. We may not be able to successfully expand our
direct sales organization and the cost of any expansion may exceed the revenue
generated. To the extent that we are successful in expanding our direct sales
organization, we cannot assure you that we will be able to compete successfully
against the significantly larger and well-funded sales and marketing operations
of many of our current or potential competitors. In addition, if we fail to
develop relationships with significant distributors, or if these distributors
are not successful in their sales or marketing efforts, sales of our systems may
decrease and our business would be significantly harmed.
OUR DISTRIBUTORS MAY NOT GIVE PRIORITY TO OUR SYSTEMS WHICH MIGHT RESULT IN
LOWER PRODUCT SALES.
We expect that our distributors will also sell competing systems. These
distributors may not continue, or may not give a high priority to, marketing and
supporting our systems. This and other channel conflicts could result in
diminished sales through the indirect channel and harm our operating results. If
our distributors do not prioritize selling our systems, our business and results
of operations could be harmed.
OUR OPERATING RESULTS WILL SUFFER IF SALES DO NOT INCREASE AS ANTICIPATED TO
SUPPORT THE EXPENSES OF EXPANDING OUR BUSINESS.
Because our operating expenses for personnel, new system development and
inventory continue to increase, we must continue to generate increased sales to
offset these increased expenses. We have limited ability to reduce expenses
quickly in response to any revenue shortfall. In response to anticipated long
lead times to obtain inventory and materials from our contract manufacturers and
suppliers, we have in the past and may continue to need to order in advance of
anticipated customer demand. Advance ordering has and may continue to result in
higher inventory levels. To sell this increasing inventory, we have depended on
and will continue to depend on an increase in customer demand. Any significant
shortfall in customer demand would harm our quarterly and annual operating
results.
CONTROL BY OUR EXISTING STOCKHOLDERS COULD DISCOURAGE POTENTIAL ACQUISITIONS OF
OUR BUSINESS THAT OTHER STOCKHOLDERS MAY CONSIDER FAVORABLE.
Upon completion of this offering, our executive officers, directors and 5%
or greater stockholders and their affiliates will own ______ shares or
approximately ______ % of the outstanding shares of common stock. Acting
together, these stockholders would be able to control all matters requiring
approval by stockholders, including the election of directors. This
concentration of ownership could have the effect of delaying or preventing a
change in our control or otherwise discouraging a potential acquirer from
attempting to obtain control of us, which in turn could harm the market price of
our common stock or prevent our stockholders from realizing a premium over the
market price for their shares of common stock.
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OUR CERTIFICATE OF INCORPORATION AND BYLAWS MAY DISCOURAGE POTENTIAL
ACQUISITIONS OF OUR BUSINESS BY THIRD PARTIES THAT STOCKHOLDERS MAY CONSIDER
FAVORABLE.
Some provisions of our certificate of incorporation and bylaws and of
Delaware law may discourage, delay or prevent a merger or acquisition that
stockholders may consider favorable. This may reduce the market price of our
common stock. A summary of these provisions is included in "Description of
Capital Stock--Anti-Takeover Effects of Provisions of the Certificate of
Incorporation, Bylaws and Delaware Law."
OUR HEADQUARTERS AND MANY OF OUR CONTRACT MANUFACTURERS ARE LOCATED IN NORTHERN
CALIFORNIA WHERE NATURAL DISASTERS MAY OCCUR.
Currently, our corporate headquarters and many of our contract
manufacturers are located in Northern California. Northern California
historically has been vulnerable to natural disasters such as earthquakes, fires
and floods, which at times have disrupted the local economy and posed physical
risks to our and our manufacturers' property. We presently do not have redundant
site capacity in the event of a natural disaster. In the event of a natural
disaster, our business would suffer.
WE MAY HAVE LIABILITY FOR OPTIONS WE GRANTED AND STOCK WE ISSUED IN VIOLATION OF
SECURITIES LAWS.
We granted stock options to various individuals between June 1997 and April
2000 under our 1997 Stock Option/Stock Issuance Plan. A substantial portion of
the shares of our common stock that are subject to the grants were not qualified
or exempted under applicable state securities laws and therefore the options may
have been granted in violation of these laws. As a result, we may have potential
liability under state securities laws to the individuals and entities to whom
the options were granted or who purchase shares of our common stock upon the
exercise of those options. Any liability to the option holders will be in the
form of a rescission offer to them in which they will have the opportunity to
rescind their option grants in return for a cash payment from us based upon a
percentage of the exercise price payable under their options, and any liability
to individuals or entities who actually purchase shares under the options will
be in the form of an offer from us to repurchase those shares for a cash amount
equal to the exercise price paid for the shares, together with interest due to
both the option holders and the stock purchasers who accept the offers which is
to accrue from the date of the option grant and the date of the option exercise,
respectively. We are currently analyzing this matter and cannot, at this time,
ascertain the extent of our potential liability, if any. Nevertheless, the
exercise prices in effect for the options granted prior to this offering range
from $0.05 to $5.00 per share, and accordingly, we do not believe that our
potential liability would exceed $275,000 in the aggregate for any potential
liability associated with those option grants. We do not anticipate that many of
our current employees, who, as of December 31, 1999, held options for 1,706,047
shares, will accept such a rescission offer for their option grants, because the
exercise price of those options is substantially below the price per share in
this offering. In addition, we will apply to the satisfaction of any liability
we determine we have to any option holders who have actually exercised their
options whatever portion we retain of the monies paid to us in connection with
those option exercises.
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RISKS RELATING TO OUR INDUSTRY
SOME OF OUR SYSTEMS HAVE LONG SALES CYCLES, WHICH COULD CAUSE OUR RESULTS OF
OPERATIONS AND STOCK PRICE TO FLUCTUATE.
Some of our systems have sales cycles that are long and unpredictable. As a
result, our revenues may fluctuate from quarter to quarter and fail to
correspond with our expenses. This would cause our operating results and stock
price to fluctuate. Our customers typically perform numerous tests and
extensively evaluate our systems before incorporating them into networks. The
time required for testing, evaluation, design and integration of our systems
into a customer's network typically ranges from two to six weeks. If a customer
decides to supply commercial service using our systems, it can take an
additional six to twelve months before it can commence installation of our
products. Some additional factors that affect the length of our sales cycle
include:
o acquisition of roof rights;
o installation and planning of network infrastructure;
o complexity of a given network;
o scope of a given project;
o availability of radio frequency; and
o regulatory issues.
In addition, the delays inherent in our sales cycle raise additional risks
of customer decisions to cancel or change their product plans. Our business
could be harmed if a significant customer reduces or delays orders or chooses
not to install networks incorporating our systems.
INTENSE COMPETITION IN THE MARKET FOR COMMUNICATIONS EQUIPMENT COULD PREVENT US
FROM INCREASING OR SUSTAINING REVENUES OR ACHIEVING OR SUSTAINING PROFITABILITY.
The market for high-speed, wireless, point-to-point and point-to-multipoint
communications equipment is rapidly evolving and highly competitive. Increased
competition is likely to result in price reductions, shorter product life
cycles, reduced gross margins, longer sales cycles and loss of market share, any
of which would harm our business. As a provider of high-speed wireless
communications equipment, we compete with a number of large communications
equipment suppliers in the point-to-multipoint market, including Adaptive
Broadband Corporation, BreezeCOM, Ltd., Gigabit Wireless, Inc., Lucent
Technologies, Inc., Netro Corporation, and Wavtrace Inc., as well as with
smaller start-up companies. We also compete with communications equipment
suppliers, such as BreezeCom, Digital Microwave Corporation, Lucent and P-Com,
Inc., in the point-to-point market. In addition, well-capitalized companies such
as Ericsson, Inc., Motorola, Inc., Nokia Corporation, QUALCOMM Corporation and
Siemens AG are potential entrants into either market. Our broadband wireless
access technology also competes with wired solutions such as cable, DSL, fiber
optic systems and high-speed lines leased from communication service providers,
such as T-1 lines.
We expect our competitors to continue to improve the performance of their
current systems and to introduce new systems or new technologies that may
supplant or provide lower cost alternatives to our systems. To be competitive,
we must continue to invest significant resources in research and development,
sales and marketing and customer support. We cannot be sure that we will have
sufficient resources to make these investments or that we will be able to make
the technological advances necessary to be competitive. As a result, we may not
be able to compete effectively against our competitors.
WE EXPECT AVERAGE SELLING PRICES OF OUR BROADBAND WIRELESS ACCESS SYSTEMS TO
DECREASE WHICH WOULD REDUCE GROSS MARGINS OR REVENUES, AND, AS A RESULT, WE MUST
CONTINUE TO REDUCE OUR SYSTEM COSTS IN ORDER TO PRICE OUR SYSTEMS COMPETITIVELY.
The market for broadband wireless access systems is characterized by
declining average selling prices resulting from factors such as increased
competition, the introduction of new products and systems and competitive
pressures from traditional wired broadband network access technologies. We
anticipate that average selling prices will decrease in the future in response
to product and system introductions by competitors, or in response to other
factors, including pricing pressures from significant customers. Additionally,
because lower prices are typically
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charged on sales made through indirect channels, increased indirect sales could
adversely affect our average selling prices and result in lower gross margins.
Therefore, we must continue to develop and introduce on a timely basis new
systems that incorporate features that can be sold at higher average selling
prices. Failure to do so would cause our revenues and gross margins to decline,
which would significantly harm our business.
We may be unable to reduce the cost of our systems sufficiently to enable
us to compete with others. Our cost reduction efforts may not allow us to keep
pace with competitive pricing pressures or lead to improved gross margins. In
order to remain competitive, we must continually reduce the cost of
manufacturing our systems through design and engineering changes. We may not be
successful in redesigning our systems or delivering our systems to market in a
timely manner. We cannot assure you that any redesign will result in sufficient
cost reductions to allow us to reduce the price of our systems to remain
competitive or improve our gross margin.
OUR MARKET IS SUBJECT TO RAPID TECHNOLOGICAL CHANGE, AND TO COMPETE EFFECTIVELY,
WE MUST CONTINUALLY INTRODUCE NEW SYSTEMS THAT ACHIEVE MARKET ACCEPTANCE.
The market for broadband wireless access systems is characterized by
rapidly changing technology and evolving industry standards. Our success will
depend to a substantial degree on our ability to develop and introduce in a
timely and cost-effective manner enhancements to our existing systems. Our
success also depends upon introducing new products that meet changing customer
requirements and evolving industry standards. Our technology or our systems may
become obsolete upon the introduction of alternative technologies by larger
competitors with more extensive research and development capabilities. If we
fail to introduce, and achieve market acceptance of, new systems and products in
a timely manner, our business, operating results and financial condition will be
materially harmed.
OUR SUCCESS IS DEPENDENT ON THE CONTINUED DEVELOPMENT OF THE EMERGING BROADBAND
WIRELESS ACCESS MARKET.
The market for broadband wireless access technology has only recently begun
to develop and is rapidly evolving. Because this market is new, it is difficult
to predict its potential size or future growth rate. Our success in generating
revenue in this emerging market will depend, among other things, on the growth
of this market. If the market for broadband wireless access technology fails to
develop or develops more slowly than expected, or if our systems do not achieve
widespread market acceptance in this market, our business would be significantly
harmed.
WE WILL FACE CHALLENGES TO OUR BUSINESS IF OUR TARGET MARKET ADOPTS ALTERNATE
STANDARDS FOR WIRELESS TRANSMISSION, OR IF OUR SYSTEMS FAIL TO COMPLY WITH
EVOLVING INDUSTRY STANDARDS AND GOVERNMENT REGULATIONS.
Broadband wireless access technology is extremely complex, and products
must adhere to a continually changing set of standards and compliance
requirements. Currently, our systems meet the present protocol standards for
data transmission. The protocol definitions for data transmission, however, are
established by standards organizations over which we have no direct influence.
We have invested substantial amounts of engineering resources into developing
interfaces that are compliant with these standards. Should these organizations
change the standards for data transmission or its associated technology, or if
these organizations introduce new and substantially different standards for data
transmission, we may not be able to introduce systems in a timely manner that
meet these new and evolving standards. If we fail to introduce systems that meet
new and evolving data transmission standards, our business would be
significantly harmed.
A MAJORITY OF SERVICE PROVIDERS THAT USE WIRELESS TECHNOLOGIES ARE EMERGING
COMPANIES WITH UNPROVEN BUSINESS MODELS.
Many of our customers are service providers that are using wireless
technologies to attract and retain new end-user customers. Many of these service
providers are emerging companies with a limited degree of success in the
broadband wireless access industry. The broadband wireless access market is
intensely competitive, and the service providers typically are forced to reduce
the monthly access charges they impose upon their subscribers in order to
attract and retain additional subscribers. The reduction in monthly access
charges reduces the amount of capital available for service providers to invest
in additional wireless infrastructure. These service providers may therefore
become under-capitalized and may not be able to remain in business for a
substantial period of time. The failure or loss of these service providers as
customers would significantly harm our business.
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WE NEED TO DEVELOP SYSTEMS THAT WORK IN A VARIETY OF DIFFERENT COUNTRIES WHICH
HAVE DIFFERENT REGULATORY REQUIREMENTS.
Our systems are subject to the rules and regulations of the governing
bodies for radio transmission and telecommunications in the countries in which
our products are designed to operate. In the United States, the Federal
Communications Commission, or FCC, determines the rules, regulations and
procedures under which products must be certified. The FCC is also responsible
for establishing which frequency bands can be allocated for use by systems that
are intended to provide broadband wireless access and networking systems. In the
United States, operation of unlicensed radio communications equipment is subject
to the conditions that no harmful interference is caused to authorized users of
the band, and that interference, including interference that may cause undesired
operation, must be accepted from all other users of the band. This includes
other unlicensed operators, authorized operators such as amateur licensees,
Industrial, Scientific and Medical equipment, and U.S. Government operations.
Unlicensed operators that cause harmful interference to authorized users, or
that exceed permitted radio frequency emission levels, may be required to cease
operations until the condition causing the harmful interference or excessive
emissions has been corrected. If any of our systems interfere with these
authorized operators, or if any authorized operators cause interference
resulting in undesired operation, we may be prevented from operating these
systems and our business may be harmed.
Outside of the United States, our products are subject to the rules and
regulations as set forth by the governing bodies for radio transmission and
telecommunications of the host country. In most cases, the rules and regulations
differ substantially between countries, and radio design is therefore
significantly affected. We are therefore at great risk in entering new markets
when we do not presently have radio technology designed to meet the local rules
and regulations.
THERE MAY BE POTENTIAL HEALTH AND SAFETY RISKS RELATED TO OUR BROADBAND WIRELESS
ACCESS SYSTEMS WHICH COULD NEGATIVELY AFFECT SALES.
There has been recent public concern regarding the potential health and
safety risks of electromagnetic emissions. Our broadband wireless access systems
intentionally emit electromagnetic radiation. If safety or health issues do
arise, our system sales could decline or cease. Even if safety concerns
ultimately prove to be without merit, negative publicity could materially harm
our ability to market our systems. In addition, we may be subject to litigation,
with or without basis in fact, alleging that we are responsible for injuries or
illnesses relating to this radiation. If this litigation were not resolved in
our favor, our results of operation could be materially harmed. Moreover, even
if the litigation were resolved in our favor, the costs of litigating or of
settlement could be significant.
BECAUSE OF INTENSE COMPETITION, WE MAY NOT BE ABLE TO RECRUIT OR RETAIN
QUALIFIED PERSONNEL.
Our growth in operations has placed significant demands on our management,
engineering staff and facilities. Continued growth will require us to hire more
engineering, manufacturing, sales and administrative personnel. We may not be
able to attract and retain the necessary qualified personnel to accomplish our
business objectives and we may experience constraints that could harm our
ability to satisfy customer demand in a timely fashion or to support our
customers and operations. 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 will need
to train new sales and marketing personnel before they achieve full
productivity. The design and installation of broadband wireless access
technology can be complex. Accordingly, we need highly trained professional
services and customer support personnel to service our customers. We cannot be
certain that we will be able to successfully attract and retain additional
qualified personnel. In addition, recently hired employees may not successfully
integrate into our management team. The inability to attract and retain
qualified personnel or to assimilate them into our business could significantly
harm our business.
WE MAY BE HARMED BY DELAYED YEAR 2000 PROBLEMS.
Although the date is now past January 1, 2000, and we have not experienced
immediate harm from the transition to the Year 2000, we cannot provide assurance
that we or our suppliers and customers have not been affected in a manner that
is not yet apparent. In addition, some computer programs that were date
sensitive to the
17
<PAGE>
Year 2000 may not have been programmed to process the Year 2000 as a leap year,
and any negative consequential effects remain unknown. In particular, we are
subject to:
o costs associated with the failure of our products to be year 2000
compliant, including potential warranty or other claims from our
customers, which may result in significant expenses to us;
o business shutdowns or slowdowns as a result of a failure of the
internal management systems we use to run our business, which could
disrupt our business operations;
o interruption of system or component supplies, or a reduction in
product quality, as a result of the failure of systems used by our
suppliers; and
o reductions or deferrals in sales activities as a result of year 2000
compliance issues of our distributors and system integrators.
As a result, we will continue to monitor our Year 2000 compliance and the Year
2000 compliance of our suppliers and customers. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Year 2000
Compliance."
RISKS RELATING TO THIS OFFERING
THERE IS NO PRIOR PUBLIC MARKET FOR OUR COMMON STOCK AND OUR SHARE PRICE MAY
DECLINE AFTER THIS OFFERING.
There has not been a public market for our common stock. We cannot predict
the extent to which investor interest in our common stock will lead to the
development of a trading market or how liquid that market might become. The
initial public offering price for the shares was determined by negotiations
between us and the representatives of our underwriters and may not be indicative
of the prices that will prevail in the trading market. The market price of our
common stock could be subject to wide fluctuations in response to a number of
risk factors, most of which are outside our control. Some of these include:
o quarter-to-quarter variations in our operating results;
o our announcements about the performance of our products and our
competitors' announcements about performance of their products;
o changes in earnings estimates by, or failure to meet the expectations
of, analysts;
o government regulatory action, particularly affecting licensed radio
frequency bands;
o increased price competition;
o developments or disputes concerning intellectual property rights;
o general conditions in the computer and telecommunications industries
in general, and the broadband access industry, in particular;
o economic conditions in international markets in which we do business;
o the ability of our contract manufacturers and sole-source suppliers to
fill our orders on a timely basis; and
o our customers' purchasing decisions and the timing of those decisions.
Furthermore, stock markets have experienced extreme price and volume
fluctuations that have affected and continue to affect the market prices of
equity securities of many technology companies. These fluctuations often have
been unrelated or disproportionate to the historical performance of those
companies. Market fluctuations as well as general economic, political and market
conditions such as recessions, interest rate changes or currency or exchange
rate fluctuations, may negatively impact the market price of our common stock.
SUBSTANTIAL NUMBERS OF SHARES OF OUR COMMON STOCK WILL BECOME AVAILABLE FOR SALE
IN THE PUBLIC MARKET SIMULTANEOUSLY, WHICH COULD CAUSE THE MARKET PRICE OF OUR
STOCK TO DECLINE.
Sales of substantial amounts of common stock in the public market following
this offering, or the appearance that a large number of shares is available for
sale, could cause the market price of our common stock to decline. In
18
<PAGE>
addition to the adverse effect a price decline could have on holders of common
stock, that decline would likely impede our ability to raise capital through the
issuance of additional shares of common stock or other equity securities. Upon
completion of this offering, we will have outstanding ____________ shares of
common stock, based upon shares outstanding as of December 31, 1999, assuming no
exercise of the underwriters' over-allotment option and no exercise of
outstanding options after December 31, 1999. Of these shares, the ___________
shares sold in the offering will be freely tradable. Upon the expiration of
lock-up agreements between our stockholders and us or Salomon Smith Barney Inc.,
another ____________ shares of common stock will become eligible for sale
simultaneously 180 days after the date of the final prospectus relating to this
offering. Salomon Smith Barney may, in its sole discretion and at any time,
release all or any portion of the securities subject to lock-up agreements. The
remaining ___________ shares will be restricted securities that have been held
for less than one year and are not yet salable under Rule 144. See "Shares
Eligible for Future Sale."
After this offering, if certain conditions are met, the holders of
approximately 20,509,837 shares of common stock and the holders of warrants to
purchase up to approximately 552,500 shares of common stock will be entitled to
require us to register their shares under the Securities Act. These shareholders
and holders of an additional 68,662 shares of our common stock issuable upon the
exercise of outstanding warrants also have the right to participate in any
registration of our shares which we undertake on our own. If these shareholders
exercise their registration rights, a large number of our shares may be
registered and sold in the public market. This could adversely affect the
trading price for our shares. If we attempted to raise money through a
registration and sale of our stock and these shareholders forced us to allow
them to participate in the registration, our ability to raise the amount of
money we need to execute our business plan could be adversely affected. See
"Description of Capital Stock--Registration Rights."
YOU WILL NOT HAVE CONTROL OVER MANAGEMENT'S USE OF THE PROCEEDS FROM THIS
OFFERING AND THE PROCEEDS MAY NOT BE APPROPRIATELY USED.
We expect to use the net proceeds from the offering for general corporate
purposes, including working capital, product development and capital
expenditures. $2.5 million of the proceeds will be paid to TRW in connection
with the license of the STARPORT technology. We may use a portion of the
proceeds to invest in complementary businesses or products or to obtain the
right to use complementary technologies. However, we will have broad discretion
in how we use the net proceeds from the offering, and we may ultimately decide
to use the proceeds for purposes other than the above and may not use proceeds
for any one or more of the above purposes. You will not have the opportunity to
evaluate the economic, financial or other information on which we base our
decisions on how to use the net proceeds or to approve these decisions. If our
management uses poor judgment in spending our proceeds, our business will be
harmed.
19
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements which involve risks
and uncertainties. These forward-looking statements are not historical facts but
rather are based on current expectations, estimates and projections about our
industry, our beliefs and assumptions. We use words such as "anticipates,"
"expects," "intends," "plans," "believes," "seeks," "estimates" and variations
of these words and similar expressions to identify forward-looking statements.
These statements are not guarantees of future performance and are subject to
certain risks, uncertainties and other factors, some of which are beyond our
control, are difficult to predict and could cause actual results to differ
materially from those expressed or forecasted in the forward-looking statements.
These risks and uncertainties include those described in "Risk Factors" and
elsewhere in this prospectus. You should not place undue reliance on these
forward-looking statements, which reflect our management's view only as of the
date of this prospectus. We undertake no obligation to update these statements
or publicly release the result of any revision to the forward-looking statements
that we may make to reflect events or circumstances after the date of this
prospectus or to reflect the occurrence of unanticipated events.
20
<PAGE>
USE OF PROCEEDS
Our net proceeds from the sale and issuance of the ______________
shares of common stock offered are estimated to be $______million at an assumed
initial public offering price of $ _______ per share after deducting estimated
underwriting discounts and commissions and estimated offering expenses. If the
underwriters' over-allotment option is exercised in full, our estimated net
proceeds will be $ ________ million. We are conducting this offering primarily
to increase our equity capital, to create a public market for our common stock
and to facilitate our future access to public equity markets. We intend to use
the net proceeds for general corporate purposes, including working capital,
product development and capital expenditures. $2.5 million of the proceeds will
be paid to TRW, Inc. upon completion of this offering in connection with the
license of the STARPORT technology. In addition, we may use a portion of the net
proceeds to acquire or invest in complementary businesses or products or to
obtain the right to use complementary technologies. We currently have no
agreements or commitments with respect to any acquisition or investment, and we
are not involved in any negotiations with respect to any similar transaction.
Pending these uses, we will invest the net proceeds of the offering in
short-term, interest-bearing investment-grade securities. See "Risk Factors--You
will not have control over management's use of the proceeds from this offering"
and "Certain Transactions--Strategic Relationship with TRW."
DIVIDEND POLICY
We have never declared or paid dividends on our capital stock. We intend
to retain any future earnings to finance the operation and expansion of our
business and do not anticipate declaring or paying cash dividends in the
foreseeable future. Payments of future dividends, if any, will be at the
discretion of our board of directors after taking into account various factors,
including our financial condition, operating results, current and anticipated
cash needs and plans for expansion. In addition, our loan agreement with Silicon
Valley Bank prohibits the payment or declaration of dividends without its prior
written consent. Consequently, stockholders will need to sell shares of common
stock in order to realize a return on their investment, if any.
21
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999
on the following three bases:
o on an actual basis;
o on a pro forma basis to give effect to:
o the issuance of 3,000,000 shares of Series F Preferred Stock in
January 2000;
o the conversion of all outstanding shares of preferred stock into
common stock;
o the exercise of outstanding warrants to purchase 68,000 shares
of preferred stock at a weighted-average exercise price of $1.62
per share and the conversion of such shares into 68,662 shares
of common stock;
o the exercise of outstanding warrants to purchase 160,000 shares
of common stock at a weighted-average exercise price of $3.06
per share, which by their terms expire or automatically convert
within 30 days of the completion of this offering; and
o the issuance of 3,429,352 shares of common stock valued at $5.00
per share in January 2000 to TRW in connection with a Purchase
and License Agreement; and
o on a pro forma, as adjusted basis to give effect to the sale of
shares of common stock by us at an assumed initial public
offering price of $ per share after deducting estimated
underwriting discounts and commissions and estimated offering expenses.
You should read this table in conjunction with our financial statements
and the notes to our financial statements appearing elsewhere in this
prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
------------------------------------------
PRO FORMA,
ACTUAL PRO FORMA AS ADJUSTED
------------ ------------ --------------
(IN THOUSANDS, EXCEPT SHARE AND PER
SHARE DATA)
<S> <C> <C> <C>
Capital lease obligations, less current portion........ $ 239 $ 239 $ --
Stockholders' equity:
Convertible Preferred Stock, issuable in series,
$0.001 par value per share, 25,000,000 shares
authorized actual and pro forma; 5,000,000 shares,
$0.001 par value per share, authorized pro forma,
as adjusted; 17,277,858, no shares and no shares
issued and outstanding actual, pro forma and
pro forma as adjusted, respectively............... 22,761 -- --
Common Stock, 100,000,000 shares, $0.001 par value
per share, authorized, actual pro forma and
pro forma, as adjusted; 7,765,538 shares, issued
actual; 31,933,389 shares, issued pro forma;
shares, issued and outstanding
pro forma, as adjusted............................ 8 32
Additional paid-in-capital............................. 17,047 72,531
Note receivable from stockholder....................... (169) (169)
Deferred stock-based compensation...................... (5,415) (5,415)
Accumulated deficit.................................... (24,819) (24,819)
------------ ------------ --------------
TOTAL STOCKHOLDERS' EQUITY...................... 9,412 42,160
------------ ------------ --------------
TOTAL CAPITALIZATION............................ $ 9,651 $ 42,399 $
============ ============ ==============
</TABLE>
The number of shares of common stock to be outstanding after this offering is
based on the number of shares outstanding as of December 31, 1999, and excludes:
o 1,706,047 shares of common stock issuable upon exercise of stock
options outstanding as of December 31, 1999 at a weighted average
exercise price of $0.53 per share;
o 392,460 shares of common stock issuable upon the exercise of
outstanding warrants as of December 31, 1999 at a weighted average
exercise price of $0.79 per share;
o 330,592 shares of common stock issuable upon conversion of an
outstanding convertible promissory note, as of December 31, 1999;
o 8,750,000 shares of common stock reserved for issuance under our 2000
Stock Incentive Plan that incorporates our 1997 Stock Option Plan; and
o 250,000 shares of common stock reserved for issuance under our 2000
Employee Stock Purchase Plan.
For additional information regarding these shares, see "Executive Compensation
and other Information--Employee Benefit Plans," "Description of Capital Stock"
and Note 6 of Notes to Financial Statements.
22
<PAGE>
DILUTION
Dilution is the amount by which the initial public offering price paid by
the purchasers of shares of common stock in the offering exceeds the net
tangible book value per share of common stock after the offering. The pro forma
net tangible book value per share of common stock is determined by subtracting
our total liabilities from the total book value of our tangible assets and
dividing the difference by the number of shares of common stock deemed to be
outstanding on the date of which such book value is determined.
Our pro forma net tangible book value at December 31, 1999, was
approximately $21.8 million, or $0.69 per share. After giving effect to the sale
of the shares of common stock offered by us at the assumed initial public
offering price of $ __________ per share, and after deducting underwriting
discounts and estimated offering expense, our pro forma net tangible book value
at December 31, 1999, would have been $ __________ million, or $ per share.
This represents an immediate increase in net tangible book value of $ _________
per share to existing stockholders and an immediate dilution of $ _________ per
share to new investors purchasing shares of our common stock in this offering.
The following table illustrates this dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............................... $
Pro forma net tangible book value per share at December 31, 1999........... $ 0.69
Pro forma increase per share attributable to new investors.................
---------
Pro forma net tangible book value per share after the offering................
----------
Pro forma dilution per share to new investors................................. $
==========
</TABLE>
The following table summarizes, at December 31, 1999, on a pro forma
basis, the total number of shares and consideration paid to us and the average
price per share paid by existing stockholders and by new investors purchasing
shares of common stock in this offering at an assumed initial public offering
price of $ _______ per share before deducting the estimated underwriting
discounts and commissions and estimated offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------------- ----------------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
-------------- ----------- ---------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Existing stockholders................ 31,933,389 % $ 27,297,972 % $ 0.85
New investors........................
-------------- ----------- ---------------- -----------
Total............................. 100.0% $ 100.0%
============== =========== ================ ===========
</TABLE>
The above computations are based on the number of shares of common stock
outstanding as of December 31, 1999 and excludes:
o 1,706,047 shares of common stock issuable upon exercise of stock
options outstanding as of December 31, 1999 at a weighted average
exercise price of $0.53 per share;
o 392,460 shares of common stock issuable upon the exercise of
outstanding warrants as of December 31, 1999 at a weighted average
exercise price of $0.79 per share;
o 330,592 shares of common stock issuable upon conversion of an
outstanding convertible promissory note, as of December 31, 1999;
o 8,750,000 shares of common stock reserved for issuance under our
2000 Stock Incentive Plan that incorporates our 1997 Stock Option
Plan; and
o 250,000 shares of common stock reserved for issuance under our
2000 Employee Stock Purchase Plan.
To the extent that any of these options or warrants are exercised, there
could be further dilution to new investors. For additional information regarding
these shares, see "Capitalization," "Executive Compensation and other
Information--Employee Benefit Plans," "Description of Capital Stock" and Note 6
of Notes to Financial Statements.
23
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
You should read the following selected financial data in conjunction with
our financial statements and related notes and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this prospectus. The statement of operations data for the period from May 7,
1997 (inception) to December 31, 1997 and the years ended December 31, 1998 and
1999, and the balance sheet data as of December 31, 1998 and 1999, are derived
from the audited financial statements of Wireless, Inc. included elsewhere in
this prospectus. See Note 1 of Notes to Financial Statements for a detailed
explanation of the determination of the shares used to compute actual and pro
forma basic and diluted net loss per share. The historical results are not
necessarily indicative of results to be expected for future periods.
<TABLE>
<CAPTION>
PERIOD FROM
MAY 7, 1997
(INCEPTION),
TO YEARS ENDED DECEMBER 31,
DECEMBER 31, ------------------------------
1997 1998 1999
-------------- -------------- --------------
<S> <C> <C> <C>
Revenue.......................................................... $ 201 $ 11,172 $ 21,296
Cost of revenue.................................................. 421 9,091 15,794
-------------- -------------- --------------
Gross profit (loss)...................................... (220) 2,081 5,502
-------------- -------------- --------------
Operating expenses:
Research and development..................................... 708 2,324 3,221
Sales and marketing.......................................... 902 3,811 7,443
General and administrative................................... 258 1,316 2,689
In-process research and development costs acquired........... -- 817 --
Amortization of intangibles.................................. -- 359 1,102
Impairment of an intangible asset............................ 1,500 -- --
Amortization of deferred stock compensation*................. 69 640 4,319
-------------- -------------- --------------
Total operating expenses................................. 3,438 9,267 18,774
-------------- -------------- --------------
Operating loss................................................... (3,658) (7,186) (13,272)
Interest expense (income), net................................... (14) 290 427
-------------- -------------- --------------
Net loss................................................. $ (3,644) $ (7,476) $ (13,699)
============== ============== ==============
Net loss per share:
Basic and diluted............................................ (**) $ (6.18) $ (4.30)
============== ==============
Weighted average number of shares used in computation........ 1,210,364 3,187,334
Pro forma net loss per share (unaudited):
Pro forma basic and diluted loss............................. $ (0.84)
==============
Weighted average number of shares used in computation........ 16,302,544
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------
1998 1999
------------- -------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................................ $ 358 $ 1,140
Working capital.................................................. (4,174) 5,122
Total assets..................................................... 13,215 17,038
Capital lease obligations net of current portion................. 84 239
Total shareholders' equity....................................... 662 9,412
- -------------------
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------
1997 1998 1999
------------ -------------- ---------------
<S> <C> <C> <C>
(*) Amortization of deferred compensation:
Cost of revenue........................................... $ 13 $ 48 $ 275
Research and development.................................. 14 120 1,657
Sales and marketing....................................... 19 81 560
General and administrative................................ 23 391 1,827
------------- -------------- --------------
Total............................................ $ 69 $ 640 $ 4,319
============= ============== ==============
</TABLE>
24
<PAGE>
(**) net loss per share is not presented in the period from May 7, 1997
(inception) to December 31, 1997 as all common shares as of December 31,
1997 were unvested and subject to repurchase and, accordingly, are not
considered outstanding for the computations of net loss per share.
The pro forma financial data presented above reflects:
o the issuance of 3,000,000 shares of Series F Preferred Stock in
January 2000;
o the conversion of all outstanding shares of preferred stock into
common stock;
o the exercise of outstanding warrants to purchase 68,000 shares of
preferred stock at a weighted-average exercise price of $1.62 per
share and the conversion of the preferred shares into 68,662 shares of
common stock;
o the exercise of outstanding warrants to purchase 160,000 shares of
common stock at a weighted-average exercise price of $3.06 per share,
which by their terms expire or automatically convert upon the
completion of this offering; and
o the issuance of 3,429,352 shares of common stock valued at
$5.00 per share in January 2000 to TRW in connection with a Purchase
and License Agreement.
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF OUR FINANCIAL CONDITION AND RESULTS OF
OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND THE
RELATED NOTES TO THOSE STATEMENTS INCLUDED ELSEWHERE IN THIS PROSPECTUS. THIS
DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THESE FORWARD-LOOKING STATEMENTS INCLUDE, AMONG OTHERS, THOSE
STATEMENTS INCLUDING THE WORDS "EXPECTS," "ANTICIPATES," "INTENDS," "BELIEVES"
AND SIMILAR LANGUAGE. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS,
SUCH AS THOSE SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
We are a global provider of broadband wireless access solutions that
enable Internet and communication service providers, telephone operating
companies and private network operators to deliver voice and high-speed data
services to their customers.
We were incorporated in California on May 7, 1997 to develop advanced
wireless access communications systems for networking and telephony
interconnection solutions. In 1997, under a master distributor agreement with
Innova Corporation, later acquired by Digital Microwave Corporation, we
introduced the ADR series, a family of high capacity digital radios. All of our
1997 revenues and approximately 54% of our 1998 revenues and 25% of our 1999
revenues were derived from this distributor agreement. We subsequently renamed
the ADR series as the WAVENET TRANSPORT DX.
In 1998, we released our ACCESS series of point-to-point spread spectrum
digital radios under a License and Technology Transfer and Manufacturing
Agreement with Wi-LAN, Inc. We also introduced the N2-ACCESS series, a
point-to-point digital radio to offer a smaller, cost-competitive package for
cellular and personal communication services, or PCS, networks. We subsequently
renamed the N2-ACCESS series as the WAVENET LINK series.
On August 26, 1998 we acquired Multipoint Networks, Inc., a California
corporation. The acquisition was accounted for by the purchase method and is
included in our operating results from the date of acquisition forward.
Multipoint developed, manufactured and marketed point-to-point and
point-to-multipoint digital wireless radios for customers connecting lottery
terminals, bank automated teller machines, and point-of-service networks. Just
prior to the acquisition, Multipoint Networks, Inc. designed the WAVENET IP
2400. Initial shipments of the WAVENET IP 2400 were made in early 1998. In May
1999, we introduced the WAVENET IP 2458. We subsequently renamed the WAVENET IP
series as the WAVENET ACCESS series.
We market our products through our direct sales force, complemented by
indirect sales channels consisting of agents, distributors, resellers, system
integrators and value-added resellers. Sales to international markets during
1999 were $17.7 million, or 83% of total sales and $10.2 million, or 91% of
total sales, for 1998. All of our international sales are denominated in U.S.
dollars.
REVENUE. Revenue consists of product and service revenue. Product revenue
is recognized when all of the following occur:
o the product has been shipped;
o title and risk of loss have passed to the customer;
o we have the right to invoice the customer and collection of
receivable is probable; and
o all pre-sales obligations have been fulfilled.
Service revenue is recognized when service obligations have been
completed. Trial sales made directly to the end users are not recognized as
revenue until the trial has been completed and the product has been accepted.
COST OF REVENUE. Cost of revenue consists of materials, manufacturing
labor and overhead, outsourced contract manufacturing costs and cost of
acquiring finished products from original equipment manufacturers.
RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of salaries and related personnel expenses, contract engineering
services, consulting fees, software development tools, and prototype
26
<PAGE>
expenses related to the design, development, testing and enhancement of our
products. All research and development costs are expensed as incurred until
technological feasibility of the product is established. After technological
feasibility is established, material development costs are capitalized. To date,
the period between technological feasibility and general release of the product
has been short and development costs have been insignificant. Accordingly, the
Company has expensed all development costs. We expect these expenses to increase
significantly in the future as we seek to develop new products and enhance
existing products. A significant portion of the increase in research and
development expenses is expected to be in the contracting of independent and
third party research and development vendors in connection with the development
of our STARPORT system. See "Certain Transactions--Strategic Relationship with
TRW."
SALES AND MARKETING. Sales and marketing expenses consist primarily of
salaries, commissions and related personnel expenses of our sales agents and
direct sales force. In addition, sales and marketing expenses consist of travel,
trade show, advertising, promotional and public relations expenses. Also
included are costs related to testing and certifying our products to meet
regulatory requirements in various foreign countries. We intend to pursue sales
and marketing campaigns aggressively and therefore expect these expenses to
increase in the future.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of salaries and related personnel expenses for executive, accounting
and administrative personnel, as well as accounting and legal fees and other
general corporate expenses. As we add personnel and incur additional costs
related to the growth of our business and operating as a public company, we
expect that general and administrative expenses will also increase. We allocate
the total costs for information services and facilities to each functional area
that uses the information services and facilities based on our relative
headcount. These allocated costs include medical insurance premiums,
communication charges and rent and other facility-related costs.
AMORTIZATION OF DEFERRED STOCK COMPENSATION. In connection with granting
stock options to our employees, directors and consultants, we recorded deferred
stock-based compensation totaling approximately $10.3 million through December
31, 1999. This amount represents the total difference between the exercise
prices of stock options and the deemed fair market value of the common stock for
accounting purposes on the date these stock options were granted or other
measurement dates. This amount is included as a component of stockholders'
equity and is being amortized on an accelerated basis over the vesting period of
the options, in accordance with FASB Interpretation No. 28. We have recorded
stock-based compensation expense of $0.6 million during the year ended December
31, 1998, and approximately $4.3 million in 1999, leaving $5.4 million to be
amortized in future periods. Of this amount, $3.7 million will be amortized in
2000, $1.1 million will be amortized in 2001, $0.5 million will be amortized in
2002 and $0.1 million will be amortized in 2003.
INTEREST EXPENSE (INCOME), NET. Interest expense consists primarily of
interest expense paid on bank borrowings, short-term promissory notes from
investors and the $1.0 million convertible note due on September 1, 2004.
Interest income consists of interest earned on excess cash.
INCOME TAXES. We have incurred net losses in each quarter since our
inception. As of December 31, 1999, we had an accumulated deficit of $24.8
million. Our net losses resulted from significantly higher manufacturing,
marketing, selling, service and research and development expenditures relative
to our sales levels. We expect to continue experiencing significant increases in
operating expenses, particularly in research and development and sales and
marketing. As a result, we expect to incur additional losses and continued
negative cash flow from operations for the foreseeable future.
We have not made a provision for federal or California state income taxes
for any period because we have incurred operating losses since inception. As of
December 31, 1999, we had approximately $30.0 million of net loss carryforwards
for federal income tax purposes and approximately $17.0 million of net loss
carryforwards for California state income tax purposes. Utilization of the net
operating loss carryforwards is subject to our ability to generate future
profits and, in addition, may be subject to annual limitations due to an
ownership change as defined in Section 382 of the Internal Revenue Code.
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<PAGE>
RESULTS OF OPERATIONS
The following table presents selected financial data for the periods
indicated as a percentage of total revenue.
<TABLE>
<CAPTION>
PERIOD FROM YEARS ENDED
MAY 7, 1997 DECEMBER 31,
(INCEPTION), TO -------------------
DECEMBER 31, 1997 1998 1999
------------------- -------- --------
STATEMENTS OF OPERATIONS DATA:
<S> <C> <C> <C>
Revenue....................................................... 100% 100% 100%
Cost of revenue............................................... 209.7 81.4 74.2
Gross profit (loss)........................................ (109.7) 18.6 25.8
Operating expenses:
Research and development................................... 352.8 20.8 15.1
Sales and marketing........................................ 449.3 34.1 35.0
General and administrative................................. 128.7 11.8 12.6
In-process research and development costs acquired......... -- 7.3 --
Amortization of intangibles................................ -- 3.2 5.2
Impairment of an intangible asset.......................... 747.3 -- --
Amortization of deferred stock compensation................ 34.4 5.7 20.3
Total operating expenses............................... 1,712.5 82.9 88.2
Operating loss................................................ (1,822.2) (64.3) (62.3)
Interest expense (income), net................................ (6.9) 2.6 2.0
Net loss................................................. (1,815.3)% (66.9)% (64.3)%
</TABLE>
COMPARISON OF PERIOD FROM INCEPTION TO DECEMBER 31, 1997 AND YEARS ENDED
DECEMBER 31, 1998 AND 1999
REVENUE. Total revenue increased from $0.2 million from inception through
December 31, 1997 to $11.2 million in 1998 and $21.3 million in 1999. The
increase in revenue in 1998 reflected the sale of our WAVENET TRANSPORT DX
system to a single large customer, the introduction of our WAVENET LINK series
point-to-point radios in September 1998 and the inclusion of revenue of
Multipoint Networks, Inc. from the date of acquisition on August 26, 1998. The
increase in revenue in 1999 was attributable to higher sales resulting from the
introduction of the WAVENET ACCESS 2458 and the WAVENET LINK series.
COST OF REVENUE. Cost of revenues from inception through December 31,
1997 represented mainly manufacturing overhead and the cost of equipment that we
resold. Cost of revenue increased from $0.4 million in 1997 to $9.1 million in
1998 and $15.8 million in 1999, primarily due to the related increase in
revenue. As a percentage of revenue, cost of revenue decreased from 209.7% to
81.4% and 74.2% during the same period, primarily due to a change in the mix of
products sold, the introduction of our WAVENET ACCESS 2458 and WAVENET LINK
families of systems and the distribution of manufacturing costs over a greater
number of units sold. Cost of revenue in 1999 included a provision of
approximately $1.5 million for inventory obsolescence related to the earlier
legacy products acquired from Multipoint Networks, Inc.
RESEARCH AND DEVELOPMENT. Research and development expenses increased
from $0.7 million from inception through December 31, 1997 to $2.3 million in
1998 and $3.2 million in 1999. The increases in research and development
expenses were primarily attributable to the addition of engineering personnel
and associated support required to expand and enhance our product lines.
Research and development as a percentage of total revenues decreased from 352.8%
in 1997 to 20.8% in 1998 and 15.1% in 1999. We expect our research and
development expenses to increase significantly, both in terms of absolute dollar
amount and as a percentage of total revenue, due to the anticipated increase in
contract engineering expenses and the increase in senior engineering staff to
support our new development projects, including our STARPORT system.
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<PAGE>
SALES AND MARKETING. Sales and marketing expenses increased from $0.9
million from inception through December 31, 1997 to $3.8 million in 1998 and
$7.4 million in 1999. The increase in sales and marketing was related to the
expansion of our sales and marketing organization, trade show expenses and the
increase in commission expenses resulting from higher revenue. Sales and
marketing expense as a percentage of total revenue decreased from 449.3% in 1997
to 34.1% in 1998 and increased to 35.0% in 1999. We expect to continue
increasing our marketing and branding efforts and to recruit additional sales
personnel. Accordingly, we anticipate that sales and marketing expenses will
increase in absolute dollars and will vary as a percentage of total revenue from
year to year.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
from $0.3 million from inception through December 31, 1997 to $1.3 million in
1998 and $2.7 million in 1999 due primarily to increases in salaries and legal,
accounting and consulting expenses. Also included in general and administrative
expenses for 1999 was a one-time building lease termination charge of $0.2
million. We also made a provision for approximately $1.0 million for potential
bad debts in 1999. General and administrative expenses as a percentage of total
revenue decreased from 128.7% in 1997 to 11.8% in 1998 and increased to 12.6% in
1999. We expect that general and administrative expenses will increase in
absolute dollars as we add personnel and incur additional costs relating to the
anticipated growth of our business and our operation as a public company.
However, we expect that these expenses will vary as a percentage of total
revenues from year to year.
IN-PROCESS RESEARCH AND DEVELOPMENT COSTS ACQUIRED. In-process research
and development of $0.8 million was fully expensed in 1998 upon acquisition as a
result of our determination that the acquired technology had not yet achieved
technological feasibility and that the technology did not have an alternative
future use. The in-process research and development related to Multipoint's
WAVENET ACCESS technology. The valuation of the in-process research and
development was based upon the present value of forecasted operating cash flows
that were expected to be generated from the technology. The valuation also took
into account that the technology was approximately 85% complete as of the
acquisition date.
AMORTIZATION OF INTANGIBLES. All recorded intangible assets relate to the
acquisition of Multipoint Networks, Inc. Amortization expense associated with
intangible assets was $0.4 million in 1998 and $1.1 million in 1999. As of
December 31, 1999, the remaining balance to be amortized by the end of 2003 was
$3.1 million.
IMPAIRMENT OF AN INTANGIBLE ASSET. In 1997, we entered into a License and
Technology Transfer and Manufacturing Agreement with Wi-LAN, Inc. Under this
license agreement, Wi-LAN agreed to license and transfer technology to us in
exchange for 3,000,000 shares of our Series A Preferred Stock, valued at $0.50
per share. An asset worth $1.5 million was recorded for the licensed and
transferred technology. In 1997 we determined that the licensed and transferred
technology was not applicable to our needs. As such, we recorded an impairment
charge of $1.5 million related to this acquired technology. On June 3, 1998 the
license agreement was replaced by a new license agreement and a manufacturing
agreement. In February 2000, we terminated the manufacturing agreement due to a
discontinuance of the product line.
AMORTIZATION OF DEFERRED STOCK COMPENSATION. Amortization of deferred
stock compensation increased from $0.1 million from inception through December
31, 1997 to $0.6 million in 1998 and $4.3 million in 1999. As of December 31,
1999, the remaining balance to be amortized by the end of 2003 was $5.4 million.
Of this amount, $3.7 million will be amortized in 2000, $1.1 million will be
amortized in 2001, $0.5 million will be amortized in 2002 and $0.1 million will
be amortized in 2003.
INTEREST EXPENSE (INCOME), NET. Interest expense (income), net changed
from interest income of $14,000 from inception through December 31, 1997 to
interest expense of $0.3 million in 1998 and $0.4 million in 1999 reflecting
increases in various bridge financings from investors as well as utilization of
bank credit facilities.
29
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
Set forth below is our revenue for the eight quarters ended December 31,
1999. This information should be read in conjunction with the consolidated
financial statements and related notes included elsewhere in this prospectus.
The operating results for any quarter are not necessarily indicative of results
for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------------------------
MAR. 31, JUN. 30, SEPT. 30, DEC. 31, MAR. 31, JUN. 30, SEPT. 30, DEC. 31,
1998 1998 1998 1998 1999 1999 1999 1999
---------- ----------------------- ---------------------- ---------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue................$ 997 $ 1,705 $ 4,412 $ 4,059 $6,276 $ 3,489 $ 5,326 $ 6,205
</TABLE>
Revenue for the third quarter of 1998 was $4.4 million, reflecting an
increase over second quarter 1998 principally related to the inclusion of
Multipoint's revenues commencing on August 26, 1998. Revenue for the first
quarter of 1999 was $6.3 million, significantly higher than 1998 fourth quarter
revenue of $4.0 million primarily due to the resale of WAVENET TRANSPORT DX and
other OEM equipment to a single customer. Revenue for the second quarter of
1999 was $3.5 million. The decrease from the first quarter of 1999 relates to a
decrease in sales of our WAVENET TRANSPORT DX product. The increase in revenue
for the third quarter of 1999 compared to the second quarter of 1999 relates to
increases in sales related to our WAVENET LINK series.
Our operating results have in the past, and may in the future, fluctuate
on a quarterly and annual basis as a result of various factors. These factors
include, among others:
o the size, timing and terms of customer orders;
o a decrease in the average selling prices of our systems due to
competition;
o the relatively long sales and development cycles for our systems;
o our ability to develop and market new systems;
o the ability to obtain regulatory approval of system installation
in foreign countries;
o the ability to reach and maintain required production volumes and
quality levels for our systems;
o general domestic and international economic conditions;
o market acceptance of our systems and our customers' services;
o introduction of products and systems by our competitors;
o our ability to respond to fluctuations in customer order levels;
o the timing and provision of returns from our distributors; and
o whether our customers buy from a distributor, an OEM or directly
from us.
Therefore, we believe that period-to-period comparisons of our quarterly
operating results are not necessarily meaningful. You should not rely on them to
predict future performance.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily from sales of
our preferred stock totaling $35.2 million and other financing activities,
including a bank credit facility, convertible notes for working capital and
capital leases for the purchase of equipment.
As of December 31, 1998 and 1999, cash and cash equivalents were $0.4
million and $1.1 million, respectively. The increase in cash and cash
equivalents from 1998 to 1999 is mostly attributable to funds provided by the
sale of equity for $12.7 million, offset by funds used in operations. We have a
$2.0 million bank credit facility secured by substantially all of our assets
which is subject to certain retrictions relating to eligible accounts
receivable. Borrowings under this bank facility accrue interest at the prime
rate plus 2.5%. As of December 31, 1999, we had not drawn against the bank
credit facility and there is no outstanding balance due. Our credit agreement
expires on February 23, 2001. We have recently renegotiated this line to extend
the credit facility to $5.0 million; however, our ability to access the
additional $3.0 million requires us to either consummate an initial public
offering yielding net proceeds of at least $50 million or raise proceeds of
$15.0 million in equity or convertible debentures. We have committed to issue a
warrant to purchase 37,500 shares of our common stock at an exercise
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<PAGE>
price of $4.00 per share in the event that an initial public offering yielding
net proceeds of at least $50 million is not consummated by May 31, 2000. We have
also issued a convertible promissory note for $1.0 million which matures on
September 1, 2004 and bears interest at a fixed rate of 10% per annum. The note
is convertible at the option of the holder into Series E Preferred Stock at
$3.125 per share. If the note is converted, the holder will receive a warrant to
purchase 32,000 shares of common stock at $0.75 per share.
Cash used by operating activities was $2.8 million during 1998 and $11.5
million during 1999. The increase in cash used by operating activities from 1998
to 1999 resulted principally from additional net losses incurred, an increase in
accounts receivable of $3.7 million to $5.9 million, a decrease in accounts
payable from $5.1 million to $3.4 million and an increase in inventory from $3.8
million to $4.4 million. The increase in accounts receivable reflects an
increase in sales. The decrease in accounts payable reflects an increase in cash
payments to suppliers as a result of bringing current our accounts payable. The
increase in inventory levels reflects anticipated higher sales levels. These
increases in cash used by operating activities are partially offset by non-cash
charges such as amortization of deferred stock compensation, amortization of
intangibles and depreciation and amortization of fixed assets.
Cash provided by investing activities in 1998 was $0.1 million. Cash flow
used by investing activities during 1999 was $0.5 million. The decrease in cash
flow from investing activities from 1998 to 1999 was primarily due to purchases
of property and equipment, including computer equipment, furniture,
manufacturing fixtures, testing equipment and leasehold improvements to our new
facility in Santa Clara, California.
Cash provided by financing activities was $2.8 million in 1998 and $12.8
million in 1999. The increase in cash flow provided by financing activities was
primarily the result of $12.7 million in proceeds from the issuance of common
and preferred stock.
We have experienced a substantial increase in our expenditures since our
inception consistent with growth in our operations and personnel. We expect to
devote substantial additional resources to our research and development efforts,
our sales, support, and marketing organizations, establishing additional
facilities worldwide and building the infrastructure necessary to support our
current and future products, including our STARPORT system. We believe that the
net proceeds of this offering, together with cash and cash equivalents and funds
available under existing credit facilities will be sufficient to meet our
working capital requirements for at least the next 12 months. We may require
additional funds to support our working capital requirements or for other
purposes and may seek to raise additional funds through public or private equity
financings or from other sources. We have received $15.0 million in capital
commitments from various strategic investors in the event that we do not
complete an initial public offering with gross proceeds of at least $25 million
by May 31, 2000. We cannot assure you that additional financing will be
available on acceptable terms, if at all. In addition, although there are no
present understandings, commitments or agreements with respect to acquisitions
of other businesses, products or technologies, we may, from time to time
evaluate these acquisitions. In order to consummate potential acquisitions, we
may issue additional securities or need additional equity or debt financing and
any financing we undertake may be dilutive to existing investors.
YEAR 2000 COMPLIANCE
In August 1998, we initiated a Year 2000 compliance program. The program
was directed by our Director of Management Information Systems and included an
intra-company task force with members from each of our principal departments,
including accounting, engineering, manufacturing, sales and marketing. The task
force was charged with identifying areas of potential risk within each
department and making evaluations, modifications, upgrades or replacements, as
appropriate.
With the change of the new year, we experienced no major problems
associated with Year 2000. The Year 2000 task force continued to monitor the
hardware and software systems used until February 2000. After February, the task
force no longer proactively monitored systems and concluded that we met all Year
2000 compliance standards. As an ongoing effort, we will continue to upgrade
hardware and software systems to cut costs and improve performance.
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<PAGE>
Despite our efforts and our experience with Year 2000 so far, we may
discover Year 2000 compliance problems in our systems that will require
substantial revision. In addition, third-party software, hardware and services
incorporated into our information systems may need to be revised or replaced,
all of which could be time-consuming and expensive and result in the following,
any of which could adversely affect our business, financial condition and
results of operations:
o delay or loss of revenue;
o cancellation of customer contracts;
o diversion of development resources;
o damage to our reputation;
o increased service and warranty costs; and
o litigation costs.
Our failure to fix or replace third-party software, hardware or services
on a timely basis could result in lost revenues, increased operating costs, the
loss of customers and other business interruptions.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. For a derivative not
designated as a hedging instrument, changes in the fair value of the derivative
are recognized in earnings in the period of change. This statement will be
effective for all annual and interim periods beginning after January 1, 2001.
Management does not believe the adoption of SFAS No. 133 will have a material
effect on the Company's consolidated financial position or results of
operations.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
We develop products in the United States and sell such products in North,
Central and South America, Africa, Asia and Europe. As a result, our financial
results could be affected by factors such as changes in foreign currency
exchange rates or weak economic conditions in foreign markets. As all sales are
currently made in U.S. dollars, a strengthening of the dollar could make our
products less competitive in foreign markets. We do not use derivative
instruments to hedge our foreign exchange risk. Our interest income is sensitive
to changes in the general level of U.S. interest rates, particularly since the
majority of our investments are in short-term instruments. Due to the nature of
our short-term investments, we have concluded that there is no material market
risk exposure. Therefore, no quantitative tabular disclosures are required.
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<PAGE>
BUSINESS
OVERVIEW
We are a global provider of broadband wireless access solutions that enable
Internet and communication service providers, telephone operating companies and
private network operators to deliver voice and high-speed data services to their
customers. We provide a portfolio of wireless systems that connect end-users to
public and private telecommunication networks in domestic and international
markets. Our systems allow an Internet or communication service provider or
enterprise to rapidly install high-speed communications throughout a service
area at a lower cost than a comparable wired network. More than 200 customers in
over 50 countries have purchased and installed our systems.
Our portfolio of systems allows end-users to transmit voice and data
simultaneously via Internet protocol, or IP, or asynchronous transfer mode, or
ATM, architectures, two leading industry standards for telecommunication
transport. Our broadband wireless access solutions address a wide range of
applications in different markets, including:
o enabling Internet service providers to offer direct Internet access;
o rapidly installing new networks for communication service providers;
o supplementing telephone operating companies' existing wired networks;
o establishing communication networks in regions without existing
infrastructures; and
o establishing private corporate networks.
Our systems are available in a broad range of frequency assignments,
enabling us to address the different regulatory requirements of multiple
geographic markets. We have systems installed and operating in Argentina,
Brazil, Chile, China, Mexico, Panama, the Philippines, Poland and the United
States. In 1999, 83% of our revenues were derived internationally. Our global
service organization provides customer support 24 hours per day, 7 days a week
and offers network design and installation services as part of our wireless
solution.
INDUSTRY BACKGROUND
THE DEMAND FOR HIGH-SPEED NETWORK ACCESS
As the Internet and public and private communication networks have become
essential for communication, e-commerce and information exchange, the volume of
voice and high-speed data traffic worldwide has increased dramatically. In
addition, user applications, such as electronic mail, telecommuting and
business-to-business exchanges have further increased the amount of network
traffic. This increase in network traffic has resulted in a demand for greater
transmission capacity, or bandwidth, and high-speed, or broadband services to
support it.
Bandwidth limitations between service providers' central offices and
end-users, often referred to as the last mile bottleneck, have constrained
service providers from delivering broadband services to the end-user. We believe
that traditional dial-up modem technology is insufficient to support the growth
in network traffic and demand for high-speed data transmission. Although wired
access network infrastructures using cable, digital subscriber line, or DSL, and
fiber optic systems can deliver greater bandwidth than that provided by dial-up
modem technology, these systems are not universally available to end-users. This
last mile bottleneck is frustrating a broad base of business, residential and
small office/home office users, many of whom require high-speed access to data.
WIRED SOLUTIONS
The demand for broadband access continues to accelerate, pressuring service
providers to improve and expand existing wired infrastructures. Wired broadband
access solutions that are intended to address this demand include cable modem
service, DSL and fiber optic technology. Often, these technologies require a
trained installation technician and are characterized by a lengthy
implementation process.
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<PAGE>
COAXIAL CABLE MODEM. Coaxial cable modem technology is currently the most
common wired solution for broadband network access. The cable solution is
limited in its effectiveness, however, because:
o performance deteriorates as more subscribers are added because the
users share a common transmission medium;
o performance difficulties worsen as users transmit more data because
transmission capacity has been allocated primarily to receiving data,
or downstream transmission, and cannot be easily reallocated to
transmitting data, or upstream transmission;
o there are inherent privacy limitations because all users share a
common link rather than using an individual link; and
o the current infrastructure is primarily geared towards residential
service, and is unavailable to most business customers.
DSL. DSL service is delivered over existing copper-based wired
infrastructure and is gaining wide acceptance by both residential and business
markets for high-speed Internet access. However, DSL service is limited in its
effectiveness because:
o the length and quality of available copper wires limit transmission
rates;
o the condition of many of the copper lines between the subscriber and
central office prohibits the use of DSL technology; and
o federally mandated regulations require service providers who upgrade
their copper-based infrastructures to offer competing service
providers access to their upgraded infrastructures. As a result,
service providers are reluctant to upgrade their infrastructures, and
copper wire infrastructures are not keeping pace with the increase in
demand for high-speed Internet access.
FIBER OPTIC. Fiber optic transmission systems offer far greater
transmission rates than either cable modem or DSL service offerings. Although
many wide-area networks have been upgraded to fiber optic cable, fiber optic
technology is not a cost effective last-mile broadband access solution due to
its high installation cost. Similarly, dedicated leased lines providing high
speed Internet access, such as T-1 lines, also have high installation costs that
deter most business customers from pursuing them.
WIRELESS SOLUTIONS
Non-movable, or fixed, broadband wireless access technology can solve many
of the problems imposed by wired networks. Broadband wireless technology enables
rapid implementation of high-speed network access in a cost-effective manner
relative to wired networks. We believe that wireless network providers should be
able to gain a greater share of the network access market because, unlike wired
network providers, they are not required by federal law to share their wireless
networks with competing service providers. A broadband wireless network is often
the best option for high-speed communication in remote areas and in many
developing countries due to the lack of an existing wired infrastructure. In
these regions, wireless technologies provide clear advantages over wired
networks, including lower cost, faster installation, greater flexibility and
increased reliability.
Broadband wireless technologies are classified as either point-to-point or
point-to-multipoint:
POINT-TO-POINT. Point-to-point wireless technology is used to transport
data traffic from one location to another, typically in local distribution
applications. Point-to-point wireless systems can interconnect high-speed
data networks between buildings or facilities within the same metropolitan
area. However, implementing a large wireless network based on
point-to-point technology becomes costly and cumbersome as the number of
locations increases. As a result, this technology is not practical for
interconnecting a large number of buildings or facilities.
POINT-TO-MULTIPOINT. Point-to-multipoint wireless technology is used to
interconnect a large number of facilities in a relatively small geographic
area. Point-to-multipoint wireless technology overcomes the limitations of
point-to-point technology by designating a single radio transceiver as the
central base station. The base station uses a radio protocol to control and
manage end-user devices so that data is transmitted and received among
multiple locations with minimal interference. An area served by a single
base station is often referred to as a cell. In order to serve a larger
geographic region and a larger number of facilities, multiple
34
<PAGE>
cells are interconnected using point-to-point technology. As a result,
point-to-multipoint systems are combined with point-to-point technology to
deliver broadband wireless access service to a large geographic area.
Historically, most broadband wireless manufacturers focused on delivering
either point-to-multipoint or point-to-point systems. Few companies have merged
both technologies to deliver a single broadband wireless access solution for
large geographic areas that meets the needs of business and residential
end-users over the last mile. The absence of a single broadband wireless
solution is magnified internationally, where the lack of wire-based
infrastructure and the prohibitive costs associated with building new wired
infrastructure render wireless broadband technology the economically feasible
alternative for high-speed network access. We believe that in order to serve the
global broadband wireless access market, a network solution must integrate
point-to-multipoint and point-to-point technologies on a cost-effective basis.
In addition, a solution must be certified by the applicable regulatory agencies
for installation domestically and internationally.
OUR SOLUTION
Our WAVENET BROADBAND WIRELESS ACCESS portfolio of systems includes
point-to-multipoint and point-to-point wireless systems that connect end-users
to the Internet and public and private communication networks. Our systems allow
a service provider to offer high-speed network access to the end-user as a
cost-effective alternative to wired services. These systems assure service
providers a quick time-to-market by permitting rapid installation of complete
high-speed communication networks. In addition, we design our systems to be
compliant with domestic and international standards. We incorporate a worldwide
service organization that provides customer support 24 hours a day, 7 days a
week and offers network design and installation services.
The following describes the key benefits of our broadband wireless access
solution:
COST-EFFECTIVE DESIGN AND IMPLEMENTATION. Our systems provide a
cost-effective combination of point-to-multipoint broadband wireless access
and high-speed point-to-point voice and data transmission.
RAPID INSTALLATION. Our systems are shipped off-the-shelf and are easy
to install. We believe that our systems are extremely reliable. Our
license-exempt products do not require frequency coordination or licensing,
eliminating many of the time-consuming processes required in planning,
coordinating and installing traditional radio technology. License-exempt
operation permits rapid installation to meet customer demand for broadband
wireless access.
SCALABILITY. Our systems are scalable. As more users are added to a
network, a central base station that may have initially been equipped with
a single transmitter can be easily upgraded to accommodate up to ten
transmitters.
REMOTE MANAGEMENT. Our standard network management applications include
a simple network management protocol and a secure Web-based browser
interface. These interfaces allow the system to be managed and administered
remotely through the Internet.
NETWORK COMPATIBILITY. Our wireless systems provide built-in routing
and support industry standard protocols that allow data to be transported
at carrier-quality standards.
Our systems address a broad range of applications in different markets.
Examples of these applications include:
o ENABLING INTERNET SERVICE PROVIDERS TO OFFER DIRECT INTERNET ACCESS.
Digital Wireless Communications, a wireless Internet service provider
based in Savannah, Georgia, focuses on delivering high-speed Internet
service to the small office and home office marketplace. Our WAVENET
ACCESS product permits Digital Wireless Communications to establish
direct Internet access for its customers. This eliminates the need to
coordinate line access with the incumbent communication service
provider and ensures faster availability of services to its customers.
o RAPIDLY INSTALLING NEW NETWORKS FOR COMMUNICATION SERVICE PROVIDERS.
Central City Online, also known as EZNET Total Access, an Internet
service provider based in Huntington, West Virginia, uses our WAVENET
wireless systems to provide high-speed Internet access in direct
competition with the incumbent communication service provider. Our
WAVENET systems have enabled EZNET to become a competitive
35
<PAGE>
high-speed wireless Internet service provider in West Virginia. EZNET
is in the process of launching wireless services across nine states
encompassing the mid-Atlantic region.
o SUPPLEMENTING TELEPHONE OPERATING COMPANIES' EXISTING WIRED NETWORKS.
Northern Indiana Telephone Company, or NetNITCO, was unable to meet
customer demand for high-speed Internet access due to limitations in
copper-based DSL. Our WAVENET ACCESS system allowed NetNITCO to
provide high-speed data services to its entire service area thereby
increasing NetNITCO's customer base.
o ESTABLISHING COMMUNICATION NETWORKS IN REGIONS WITHOUT EXISTING
INFRASTRUCTURES. In many parts of the world, communication networks
are incapable of supporting the increasing amount of high-speed data
traffic due to inadequate or poorly maintained equipment. Netcom,
S.A., a communication service provider based in Haiti, determined that
reliable dial-up service was not available in Haiti. By installing our
WAVENET broadband wireless system, Netcom is now able to supply its
Haitian customers with reliable high-speed data services.
o ESTABLISHING PRIVATE CORPORATE NETWORKS. Unibanco, a private banking
enterprise in Brazil, created a dedicated network to meet its branch
banking communications needs. Our WAVENET ACCESS wireless system was
selected because the local service provider could not supply the
network facilities in time to meet Unibanco's requirements. The
resulting network supports voice and high-speed data communications
between Unibanco's headquarters and its branch facilities.
STRATEGY
Our goal is to be the global broadband wireless access solution of choice
for Internet and communication service providers, telephone operating companies
and private network operators. Our strategy for achieving this goal includes the
following core elements:
INTRODUCING NEW BROADBAND WIRELESS ACCESS TECHNOLOGIES. We are devoting
substantial resources to the development of new point-to-multipoint
broadband wireless access technologies. For example, this year we expect to
introduce STARPORT, a broadband access system designed for the residential,
small office and home office markets. Also this year, we expect to begin
shipping the WAVENET ACCESS 3500, a point-to-multipoint system designed
exclusively for use in the licensed spectrum in the international market.
LEVERAGING STRATEGIC RELATIONSHIPS. We have entered into a strategic
relationship with TRW which provides us with technology that we use in our
STARPORT system. We anticipate forming strategic relationships with
additional partners to market and sell STARPORT into the residential, small
office and home office markets. These partners may include Internet and
communication service providers and telephone operating companies. We
intend to leverage these relationships in order to develop a global market
for STARPORT. In the future we may enter into additional strategic
relationships to enhance existing, or develop market opportunities.
EXPANDING GLOBAL MARKET PRESENCE. We intend to add additional direct
sales and sales support resources within the United States and to increase
our direct sales presence in Europe, Asia and Latin America. In addition to
expanding our field sales and systems engineering forces, we intend to
continue to build additional sales channels, both in the United States and
international markets, to expand the distribution of our products. We
expect to continue to establish distribution relationships with service
providers, distributors and value-added resellers to further penetrate our
target markets.
EMPHASIZING RESEARCH AND DEVELOPMENT. We have invested significant
resources in research and development, particularly in the areas of radio
frequency engineering, software and network protocol development. We intend
to increase our investment in research and development substantially in
order to maintain and enhance our technological position. By building on
our expertise in developing broadband wireless access technology, we intend
to develop high-performance product lines that will address the needs of
global wireless broadband markets.
CONTINUING TO DELIVER HIGH-QUALITY CUSTOMER SERVICE AND SUPPORT. We
provide pre- and post-installation support, with 24 hours per day, 7 days a
week coverage on a global basis. We are committed to providing exceptional
service, and we intend to continually enhance our customer service and
support capabilities in order to address the needs of existing and new
markets.
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TECHNOLOGY
We believe that we have industry-leading multidisciplinary expertise in the
development of broadband wireless access solutions and that our products
incorporate several technologies that provide us with advantages relative to our
competitors.
POINT-TO-MULTIPOINT PROTOCOLS. We have applied our software design
expertise to develop robust point-to-multipoint networking protocols that
allow multiple users to have access in a radio environment without
interfering with each other. We have implemented a sophisticated set of
software resources, including digital signal processing, network routing
and network management, to address many of the unique challenges of
wireless environments. Some of these challenges include interference,
signal fading, path obstructions, signal absorption, security, capacity
requirements and shared operations with other radio systems.
SPREAD SPECTRUM TECHNOLOGY. Spread spectrum transmission is a method
whereby the original signal is spread over a wide range of frequencies so
that the original signal is difficult to detect and is very resistant to
interference from other signals. Some of our WAVENET ACCESS systems use a
form of radio transmission technology known as frequency hopping spread
spectrum. In frequency hopping, the transmitter sends at one frequency for
a period of time and then hops to another frequency and sends again with
the original signal being decoded at the receiving end. Our STARPORT system
uses a form of radio transmission technology known as direct sequence
spread spectrum, a technique that combines an information signal with a
pseudo-random signal to produce a final signal significantly greater in
bandwidth than the original information signal, with improved interference
resistance. We believe that our STARPORT system will deliver extremely
reliable operation in situations where other wireless-based technologies
might suffer from degraded performance.
IP-OVER-ATM. Our STARPORT systems employ Internet protocol, or IP, over
asynchronous transfer mode, or ATM, transport. IP is the leading industry
standard for data transmission within the information technology sector and
is typically used by Internet access providers to transmit data over the
Internet. ATM is the preferred telecommunications industry standard for
switching and transmission of voice and data, and is typically used by
telephone operating companies in their networks. IP-over-ATM transport is a
method for carrying IP traffic over ATM networks. We offer solutions based
on IP, ATM and IP-over-ATM transport, allowing us to market our products to
both Internet service providers and telephone operating companies with
minimum disruption to their network architectures.
ROUTER-BASED WIRELESS NETWORKS. We use a router-based architecture for
our WAVENET ACCESS wireless systems, versus many of our competitors who use
bridge-based architectures. The advantages of routing systems include
scalability, control and security. Unlike bridge-based systems where IP
traffic is bridged to all network nodes, in a router-based system, IP
traffic is routed to desired locations eliminating excess broadcast
traffic. By reducing the excess broadcast traffic, our router-based systems
greatly improve the bandwidth efficiency of our networks in comparison to
systems that do not have internal router capability.
DIGITAL COMMUNICATION TECHNOLOGY. Our strategic relationship with TRW
provides us with access to advanced digital communication technology,
including innovative protocols, algorithms and digital signal processing.
Scientific technology licensed to us by TRW as part of the STARPORT
initiative includes direct sequence spread spectrum waveforms, multiple
access control schemes, quality of service mechanisms and element
management interfaces.
WEB-BASED NETWORK MANAGEMENT. Our products come with WIRELESS
NETMANAGER, a secure Web-based network management system that gives our
clients the ability to easily manage their networks, download software
upgrades, and change or configure software parameters. Additionally,
WIRELESS NETMANAGER allows us to access and analyze our customers' systems
from any location through the Internet, giving us the ability to provide
remote customer support to clients, 24 hours per day, 7 days a week.
PRODUCTS
We manufacture a complete suite of broadband wireless access systems that
provide point-to-multipoint, point-to-point and high-capacity transport. Our
systems provide IP and ATM transport via wireless broadband service for
high-speed network access. These systems are designed as an alternative to
copper-based DSL or
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cable-based broadband technologies and allow a service provider to rapidly
install high-speed access throughout a service area. Our technology enables
service providers to respond quickly to meet the demand for high-speed network
access, and allows businesses to build high-performance wireless networks to
supplement wired offerings from service providers. We also offer high-capacity
products to transport traffic from a central base station to a service
provider's network. In addition, we manufacture peripheral products that
complete our total network solution.
WAVENET BROADBAND WIRELESS ACCESS SYSTEMS
Our WAVENET BROADBAND WIRELESS ACCESS series is a family of systems
providing broadband wireless access using point-to-multipoint, point-to-point
and high-capacity transport technology that can transmit data over distances of
up to 20 miles. These systems allow a service provider to offer broadband
wireless access as an economic alternative to cable, DSL and fiber optic
technologies. This series includes the following products:
WAVENET ACCESS. Our WAVENET ACCESS point-to-multipoint system
interconnects a large number of facilities in a relatively small area. In
order to serve a larger geographic region and a larger number of
facilities, multiple WAVENET ACCESS systems are interconnected using
point-to-point technology. Connection into the end user's local area
network, or LAN, from the remote WAVENET ACCESS terminal is accomplished
through an industry standard Ethernet cable.
o WAVENET ACCESS 3500. The WAVENET ACCESS 3500 operates in the
international 3.5 gigahertz, or GHz, band currently accepted as
the preferred frequency assignment for fixed broadband radio
access. Up to 7 Mbps of throughput is available to the user.
Central base stations can be scaled to support transmission rates
from 2 Mbps to 57 Mbps. This system is specifically designed for
point-to-multipoint applications in markets outside the United
States.
o WAVENET ACCESS 2458. The WAVENET ACCESS 2458 operates as a full
duplex radio by using both the 2.4 GHz and 5.8 GHz license-exempt
bands. Using the 2.4 GHz band for downstream transmission and the
5.8 GHz band for upstream transmission provides a unique solution
in high interference environments. Up to 2.4 Mbps throughput is
available to each user. Central base stations can be scaled to
support transmission rates from 2 to 30 Mbps. This system is
designed for point-to-multipoint applications in the United
States and selected international markets.
o WAVENET ACCESS 2400. The WAVENET ACCESS 2400 operates in the 2.4
GHz license-exempt band and is European Telecommunications
Service Institute, or ETSI-, approved. With user throughput of up
to 1 Mbps and central base stations which are scaled to support
transmission rates of up to 10 Mbps, it allows an economical
alternative to T-1 and other dedicated leased lines.
WAVENET LINK. The WAVENET LINK series is a family of point-to-point
products using the license-exempt 5 GHz band, available in the United
States and in an increasing number of other countries. Our WAVENET LINK
system transports data traffic from one location to another, typically in
local distribution applications. Our WAVENET LINK systems can interconnect
high-speed data networks between buildings or facilities within the same
metropolitan area and are characterized by low end-to-end signal delay,
ease of installation and simplicity in use.
o WAVENET LINK EX. The WAVENET LINK EX is a cost-effective product
capable of transporting up to 16 Mbps over a distance of up to 10
miles. The radio is mounted outdoors, close to the antenna, to
minimize transmission losses, and is connected to the user's
local access network or in-building distribution system with an
industry standard Ethernet cable. Although primarily used in
point-to-point applications, the product can be used to implement
a point-to-multipoint system with a 100 Mbps effective central
base station capacity and a 16 Mbps user throughput.
o WAVENET LINK 4X. The WAVENET LINK 4X provides a cost-effective
solution for access requirements as well as cellular base station
connectivity with capacities of up to 4 x 2.048 Mbps. This system
features an embedded simple network management protocol. The
indoor unit, or IDU, provides all user interfaces including 2.048
Mbps ports, simple network management protocol access and
external alarm input.
WAVENET TRANSPORT. Our WAVENET TRANSPORT high-capacity wireless systems
are similar to our point-to-point systems but provide considerably higher
data transport rates. These systems transfer
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aggregated traffic between base stations and service providers' backbone
systems. Like our point-to-point systems, our WAVENET TRANSPORT systems are
characterized by low end-to-end signal delay and simple installation.
o WAVENET TRANSPORT DX. The WAVENET TRANSPORT DX series is a family
of licensed digital microwave radios operating from 13 to 38 GHz,
with digital capacities of up to 34 Mbps. This system is targeted
toward high-speed data transport in selected international
markets.
o WAVENET TRANSPORT MX. The WAVENET TRANSPORT MX is a line-of-sight
digital radio transmission solution operating in millimeter wave
frequency bands for voice, high-speed data, Internet and video
traffic. The WAVENET TRANSPORT MX supports extensive scalable
data rates up to 100 Mbps.
STARPORT
We are currently testing in the field a new system called STARPORT, which
we intend to commercially introduce during 2000. STARPORT is a
point-to-multipoint broadband wireless access system that does not require a
line-of-sight between transmission and reception points and supports high-speed
IP-over-ATM traffic. The current architecture supports operation in the 5.8 GHz
license-exempt frequency band and we expect future development to support
operation in additional frequency bands. STARPORT is designed as a
cost-effective alternative to wire-based cable, DSL or fiber-optic technologies
and is intended to allow a service provider to rapidly supply services, such as
high-speed Internet access, throughout a service area. STARPORT is designed to
be installed by the consumer without the need for the communication service
provider to supply a professional technician. STARPORT consists of base station
units and customer premises units. STARPORT is specifically designed for the
residential, small office/home office markets. We expect that the consumer will
be able to connect an interface cable from STARPORT to a personal computer and
then automatically receive broadband service at data rates comparable to typical
DSL service. The base station units can support data rates of up to 4.3 Mbps per
end-user. STARPORT uses ATM-based network architecture allowing communication
service providers to deliver bandwidth on demand to their end-users. The
technology used in this system is licensed from TRW, Inc. and is subject to
certain restrictions. See "--Strategic Relationship with TRW" and "Certain
Transactions--Strategic Relationship with TRW."
LEGACY PRODUCTS
Multipoint Networks, Inc. developed, manufactured and marketed
point-to-point and point-to multipoint network products, called the RAN series,
prior to its acquisition by Wireless, Inc. The RAN 64/25 and 128/50 are licensed
wireless systems for low data rate connectivity. The RAN 64/25 and 128/50
support a 64 kilobit per second, or kbps, data circuit in a 25 kilohertz, or
kHz, radio channel or a 128 kbps data circuit in a 50 kHz radio channel,
respectively. These systems are typically used to support low-speed traditional
data networks, such as automated teller machine networks.
CUSTOMERS
We have a globally diversified customer base consisting of Internet and
communication service providers, telephone operating companies and private
network operators. During the 12-month period ended December 31, 1999, 49
customers purchased more than $100,000 of our products and 8 customers purchased
more than $500,000 of our products. In the year ended December 31, 1999, one
customer, Celular de Telefonia, accounted for approximately 13.9% of our
revenues. No other customer represented over 10% of revenues in this period.
Approximately 57.4% of our revenues were derived from ten customers in 1999.
SALES AND MARKETING
We market our systems and services globally through our direct sales force
and through a distribution network. We have sales and service offices located in
the United States, Europe, Latin America and Asia. Our distribution network
includes the following channels: systems integrators and distributors, value
added resellers, telephone operating companies and Internet and communication
service providers.
Our direct sales managers provide support to all of the distribution
channels in their geographic territories. They work closely with our channel
partners, participating in end-user briefings, proposals, product training
sessions, end-user seminars, trade shows and other demand-generating activities.
In addition, in partnership with
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our indirect channels, our direct sales managers are involved in generating and
qualifying end-user leads that result in sales.
Our distributors are responsible for identifying potential business
customers, selling our systems as part of complete solutions and installing and
supporting the equipment at end-user sites. We generally establish relationships
with distributors through written agreements that provide pricing, terms and
conditions under which they may purchase our systems for resale. These
agreements are generally non-exclusive, may be terminated at will and do not
prevent these distributors from carrying competing lines or require them to
attain specific sales levels. We provide significant sales, marketing, training
and technical support to our distributors.
CUSTOMER SUPPORT
We complement our products with a worldwide service organization that
provides product support, network and radio system design, turnkey installation,
maintenance and field engineering. Our distributors are typically responsible
for installation, maintenance and support services to their customers, and we
offer our distributors assistance in providing customer service and support 24
hours per day, 7 days a week.
We offer a 12-month warranty on our systems and provide both in-warranty
and out-of-warranty repair and return services. Tracking of field returns is
handled by our on-line return material authorization system. Our manufacturing
department uses an on-line material control system allowing us to track product
and customer trends and history.
Our customer service department also issues technical support notes,
customer service bulletins, and field support notes to keep our customers and
distributors apprised of any changes, issues or concerns regarding product
performance or need for upgrades.
RESEARCH AND DEVELOPMENT
We have assembled a team of engineers with significant telecommunications
and networking industry experience. Our engineers have expertise in radio
design, wireless networking protocols, data networking, hardware and software.
Our current product development plans focus on the commercialization of our
STARPORT point-to-multipoint system and other next generation systems. We use
digital signal processors and other digital components to reduce the cost of our
systems.
We have made, and will continue to make, a substantial investment in
research and development. We believe that our research and development efforts
are key to our ability to maintain technical competitiveness and to deliver
innovative products that address the needs of the market. However, our product
development efforts may not result in commercially successful products and may
be rendered obsolete by changing technology or new product announcements by
other companies.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
We rely upon a combination of patents, trademarks, trade secrets,
copyrights and a variety of other measures to protect our intellectual property.
We currently hold two U.S. patents and have two patent applications pending
before the U.S. Patent and Trademark Office relating to our point-to-point
wireless networking technology. We also share ownership of two patent
applications pending before the U.S. Patent and Trademark Office, obtained under
a Purchase and License Agreement with TRW, relating to our STARPORT
point-to-multipoint wireless networking technology. In addition, under the
Purchase and License Agreement with TRW, we obtained rights in technology in the
field of wireless communications systems that may lead to additional patent
applications. We currently also have registered trademarks for the marks
"WAVENET," and "RAN" and applications pending before the U.S.Patent and
Trademark Office for additional marks, including "STARPORT," and the Wireless
logo. Although we rely on patent, copyright, trade secret and trademark laws to
protect our technology, we believe that factors such as the technological and
creative skill of our personnel, new product developments, frequent product
enhancements and reliable product maintenance are more essential to establishing
and maintaining technology leadership position.
We generally enter into confidentiality or license agreements with our
employees, consultants, service providers, customers and corporations with whom
we have strategic relationships, and generally control access to
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and distribution of our software, documentation and other proprietary
information. In addition, we often incorporate the network designs of our
customers into our solutions and have obligations with respect to the use and
disclosure of this information.
We rely on licensed technology for use in our broadband wireless access
systems. We may not be able to maintain these licensing arrangements, or we may
be unable to maintain them on affordable terms. If these license agreements were
not renewed, our business would be severely harmed, and we would not be able to
ship product for the broadband wireless access market. See "Risk Factors--We
depend upon technology licensed from third parties, and if we do not maintain
these license arrangements, our business will be seriously harmed."
The market for broadband wireless access products and systems is
characterized by vigorous protection and pursuit of intellectual property
rights. From time to time, we may receive notice of claims of infringement of
other parties' proprietary rights. Any claims of infringement, whether or not
they have merit, could result in litigation which could severely harm our
business. See "Risk Factors--Our business model depends upon obtaining and
protecting our intellectual property, and if we fail to protect our proprietary
rights, our business could be harmed" and "--We may become involved in costly
and time consuming litigation over proprietary rights."
GOVERNMENT REGULATION
Our systems intentionally radiate radio frequency energy, and therefore
must comply with regulations in the countries where we sell and install our
systems. The process of verifying compliance with radio and network regulations
is known as system certification, and this must be granted before a system is
offered commercially for sale. The Federal Communications Commission, or FCC,
certifies systems we sell and install in the United States. Some regions of the
world, such as Latin America and the Philippines, accept FCC certification as
sufficient approval for operation within these regions. The European
Telecommunications Standards Institute, or ETSI, certifies systems we sell and
install in Europe. Many countries also require additional testing to certify
compliance to local standards and requirements, in addition to FCC or ETSI
rules.
Our systems operate in both licensed and license-exempt frequency
assignments. A licensed frequency assignment requires that, prior to installing
our systems, the operator obtain a conditional license from the appropriate
regulatory body for a specific frequency allocation. A license-exempt frequency
assignment allows an operator to install and activate our systems without
notifying any authority. In the United States, operation of unlicensed radio
communications equipment is subject to the conditions that no harmful
interference is caused to authorized users of the band, and that interference,
including interference that may cause undesired operation, must be accepted from
all other users of the band. This includes other unlicensed operators,
authorized operators such as amateur licensees, Industrial, Scientific and
Medical equipment, and U.S. Government operations. Unlicensed operators that
cause harmful interference to authorized users, or that exceed permitted radio
frequency emission levels, may be required to cease operations until the
condition causing the harmful interference or excessive emissions has been
corrected.
The delays inherent in this regulatory approval process may cause the
rescheduling, postponement or cancellation of the installation of
telecommunications systems by our customers which, in turn, may significantly
reduce sales of systems to these customers. The failure to comply with current
or future regulations or changes in the interpretation of existing regulations
in a particular country could result in the suspension or cessation of sales in
that country, restrictions on our development efforts and those of our
customers, render current systems obsolete, or increase the opportunity for
additional competition. These regulations or changes in interpretation of these
regulations could require us to modify our products and incur substantial
compliance costs.
MANUFACTURING
Our manufacturing operations occupy 38,000 square feet of our facility in
Santa Clara, California and consist of planning, procurement, final assembly,
testing, quality control, shipping, receiving and stock management.
We design and develop a number of the key components of our products,
including printed circuit boards, mechanical enclosures and software. We
outsource the majority of our sub-assembly operations, and we utilize strategic
ISO 9000 certified local and offshore manufacturing partners to provide
sub-assembly of the printed circuit boards and key components. We also outsource
the sub-assembly of the printed circuit boards for some of our WAVENET ACCESS
and WAVENET LINK systems. We provide exact specifications to our manufacturing
partners that
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provide the sub-assemblies and components for each product. We then conduct
final assembly, burn-in, test and shipment of our products from our headquarters
in Santa Clara, California.
Our manufacturing team works closely with our engineers to manage the
supply chain. We determine the components that are incorporated in our products
and select the appropriate suppliers of these components. All materials used in
our products are processed through a full qualification cycle and are controlled
by an approved vendor list.
Our approach to manufacturing provides the flexibility of outsourcing while
maintaining quality control of delivered products to customers. We believe that
this approach allows us to respond to rapid growth and sudden market shifts. Key
factors that influence our manufacturing operations are cost reduction, quality,
time-to-market and supply of materials. Any interruption in the operations of
our manufacturing partners or material suppliers would harm our ability to meet
scheduled product deliveries to our customers.
We use a rolling four-month forecast based upon anticipated product orders
to determine our material requirements. Lead times for the materials and
components that we order vary significantly and depend on factors such as
specific supplier, contract terms and demand for a component at a given time.
We, along with our contract manufacturers, may terminate our contracts without
cause at any time. At that time, the terminating party must honor all open
purchases. We obtain parts and components through purchase orders and have no
long-term commitments regarding supply or price from these suppliers. We have
established second source manufacturing and material suppliers to provide parts
and components within weeks of losing these suppliers. However, the loss of any
of our suppliers could prevent us from meeting our scheduled product deliveries
to our customers and could materially harm our business, results of operations
and financial condition.
STRATEGIC RELATIONSHIP WITH TRW
We entered into a Purchase and License Agreement with TRW on January 14,
2000. Under the agreement, we purchased and obtained exclusive license rights in
point-to-multipoint wireless networking technology, generally referred to as the
STARPORT technology. Any products we develop based on such technology may only
be sold by us with base stations configured for outdoor use. Sales of products
containing the STARPORT technology with base stations configured for indoor use
or to the U.S. Government--including organizations in which the U.S. is a
member, such as NATO--must be made through TRW or its licensees. TRW also has a
license in any improvements made by us upon the STARPORT technology. If we do
not offer a commercial version of a product containing the STARPORT technology
for sale by July 14, 2001, we will lose our exclusive license with TRW. The
STARPORT technology was originally developed by TRW Systems and Information
Technology Group for military communications. TRW is an international company
that provides advanced technology products and services. The principal
businesses of TRW and its subsidiaries are the design, manufacture and sale of
products and the performance of systems engineering, research and technical
services for industry and the U.S. Government in the automotive, aerospace and
information systems markets. In connection with this agreement, TRW acquired
approximately 18% of our capital stock outstanding prior to this offering.
COMPETITION
The broadband wireless access market is rapidly evolving and highly
competitive. We believe that our business is affected by the following
competitive factors:
o cost;
o ease of installation;
o technical support and service;
o sales and distribution capability;
o breadth of product line;
o conformity to industry standards; and
o implementation of additional product features and enhancements.
We expect that competition in the broadband wireless access market will
increase in the future. We currently compete against wireless broadband access
equipment manufacturers including Adaptive Broadband Corporation, BreezeCom,
Ltd., Gigabit Wireless, Inc., Lucent Technologies, Inc., Netro Corporation, and
Wavtrace, Inc. in the
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point-to-multipoint market and BreezeCom, Digital Microwave Corporation, Lucent
and P-Com, Inc. in the point-to-point market. In addition, well capitalized
wireless equipment manufacturers including Ericsson, Inc., Motorola, Inc., Nokia
Corporation, QUALCOMM Incorporated and Siemens AG are potential entrants into
either market. Our broadband wireless access technology also competes with wired
solutions such as cable, DSL, fiber optic systems and high-speed lines leased
from communication service providers, such as T-1 lines.
Increased competition is likely to result in price reductions, shorter
product life cycles, reduced gross margins, longer sales cycles and loss of
market share, any of which would seriously harm our business. We cannot assure
you that we will be able to compete successfully against current or future
competitors or that competitive pressures we face will not seriously harm our
business and results of operations. Many of our competitors have longer
operating histories, larger installed customer bases, substantially greater name
recognition, and greater financial, sales and marketing, technical,
manufacturing, and distribution resources than us.
FACILITIES
Our principal operations are located in Santa Clara, California. We lease
approximately 55,000 square feet for our corporate headquarters that includes
manufacturing, sales and marketing, research and development, customer service
and support, and finance and administration. This lease expires on July 31,
2006. In addition, we have short-term leases for our various sales offices. We
believe our current facilities will be adequate to meet production needs for the
foreseeable future.
EMPLOYEES
As of December 31, 1999 we had a total of 91 employees, of which 31 were in
operations and manufacturing, 25 were in sales and marketing, 18 were in
research and development, 5 were in customer service and support, and 12 were in
finance and administration. None of our employees is represented by a labor
union. We have not experienced any work stoppages and consider relations with
our employees to be good.
LEGAL PROCEEDINGS
We are not currently a party to any material litigation.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding our
executive officers and directors as of April 15, 2000:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
William E. Gibson................. 60 Chairman of the Board of Directors
William J. Palumbo................ 57 President, Chief Executive Officer and Director
Mark A. Byington.................. 48 Executive Vice President
Antonio Canova.................... 38 Executive Vice President, Chief Financial Officer and Secretary
William E. Kunz................... 42 Senior Vice President, Engineering and Chief Technology Officer
Charles C. Pai.................... 58 Senior Vice President, Finance
Donald H. MacLeod................. 49 Senior Vice President, International
James D. Bletas................... 55 Vice President, Sales--Americas
Ralph M. Gushiken................. 56 Vice President, Manufacturing
Thomas L.F. Ohlsson............... 43 Vice President, Marketing
Andrew I. Fillat.................. 51 Director
Denny R.S. Ko..................... 60 Director
David F. Millet................... 55 Director
Patrick A. Rivelli................ 63 Director
Mark S. Silverman................. 41 Director
</TABLE>
WILLIAM E. GIBSON, a co-founder of our company, has served as Chairman of
the Board of Directors since our inception. Prior to October 1999, Mr. Gibson
also served as our President and Chief Executive Officer. Mr. Gibson was a
founder of Digital Microwave Corporation, a manufacturer of high-frequency
digital microwave radios, and served as its President and Chief Executive
Officer from 1984 through 1991 and as President of DMC Telecom International
from August 1991 until June 1995. Previously, Mr. Gibson held various management
positions at the Farinon division of Harris Corporation, a manufacturer of
digital microwave radios, including Vice President and General Manager. Mr.
Gibson is the founder and has served as Managing Partner of Crossroads Venture
Capital LLC, a private equity fund, from its inception in October 1996. He also
serves on the boards of directors of Mobicom Corporation, a designer of GSM
cellular telephone handsets, Momentum Laser, Inc., a manufacturer of laser-based
construction tools, Oncologic, Inc., a biotechnology company focusing on the
development of a cancer detection and therapy process, and Pu'u'ala Corporation,
a certified organic farm and ranch located in Hawaii. Mr. Gibson holds a M.B.A.
and a B.S. in Engineering from the College of Notre Dame.
WILLIAM J. PALUMBO has served as our President, Chief Executive Officer
and as a member of our board of directors since October 1999. Mr. Palumbo served
as President and CEO of 2 Dot3.com, a research company focusing on the operation
of broadband services, from April 1998 to October 1999. Mr. Palumbo served as
Vice President of Sales and Marketing of SpectraLink Corp., a manufacturer of
indoor wireless products, from July 1990 to March 1998. From 1987 to 1990, Mr.
Palumbo was the Vice President, Sales and Marketing at Digital Microwave
Corporation. He founded Communication Office Machines, Inc., a virtual network
equipment manufacturer, and served as its President and Chief Executive Officer
from 1983 to 1987. Previously, from 1976 to 1983, Mr. Palumbo held the position
of Vice President of Sales for Honeywell Action Communication. Mr. Palumbo holds
a B.S. in Marketing from Southern Illinois University.
MARK A. BYINGTON has served as our Executive Vice President since
December 1999. From May 1997 to December 1999, Mr. Byington held the positions
of Senior Vice President, Engineering and Chief Technology Officer of Wavespan
Corporation, a wireless networking equipment manufacturer. From March 1996 to
May 1997, he was the Vice President, Marketing, Wireless Products of Netro
Corporation, a wireless equipment manufacturer. Previously, from February 1984
to March 1996, he held various managerial and technical positions at Digital
Microwave Corporation including Vice President, Engineering. From March 1976 to
February 1984, Mr. Byington held the positions of Development Engineer and
Senior Development Engineer for the Farinon division of Harris Corporation. From
June 1974 to November 1975, Mr. Byington worked for Computer Curriculum
Corporation as a Development Engineer. Mr. Byington holds a B.S. in Electrical
Engineering from Stanford University.
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ANTONIO CANOVA has served as our Executive Vice President, Chief
Financial Officer and Secretary since April 2000. From July 1995 to April 2000,
Mr. Canova was an audit partner in the Information, Communication and
Entertainment practice group of KPMG LLP where he focused principally on
telecommunications-related companies. Previously, from July 1990 to July 1995,
Mr. Canova was a Senior Manager with KPMG specializing in technology companies.
Mr. Canova is a certified public accountant and holds a B.S. in Business from
Santa Clara University.
WILLIAM E. KUNZ has served as our Senior Vice President, Engineering and
Chief Technology Officer since January 1999. From May 1998 to January 1999, Mr.
Kunz served as our Vice President, Engineering. From July 1979 to May 1998, Mr.
Kunz held various management and technical positions at Hewlett Packard, Inc.,
including LMDS Base Station Program Manager of Video Division-Wireless Systems,
Engineer Scientist at HP Laboratories and Development Engineer in the Network
Measurements Division. Mr. Kunz holds a B.S.E.E. from the University of
California, Davis and a M.S.E.E. from the University of California, Berkeley.
CHARLES C. PAI, a co-founder of our company, has served as our Senior
Vice President, Finance since our inception. Prior to April 2000, Mr. Pai also
served as our Chief Financial Officer and Secretary. From May 1996 to June 1997,
Mr. Pai was the Vice President, Finance of SSE Telecom Products, a manufacturer
of satellite transceivers and data modems. He was a co-founder of Spatial
Systems, a software mapping company, and served as its Chief Executive Officer
from September 1993 to May 1996. He served as the Vice President, Finance of
Digital Microwave Corporation from January 1985 to September 1993. Previously,
from 1972 to 1984, Mr. Pai held various financial management positions at
Plantronics, Inc., a telephone headset manufacturer, Fairchild Camera and
Instrument, a semiconductor technology developer and fabricator and Xerox
Corporation. Mr. Pai serves as a director of Mobicom Corporation. Mr. Pai holds
a M.B.A. from Columbia University and a B.S. in Electrical Engineering from
Cornell University.
DONALD H. MACLEOD, a co-founder of our company, has served as our Senior
Vice President, International since December 1999. Mr. MacLeod also served as
our Senior Vice President, Sales and Marketing from July 1998 to December 1999
and as our Vice President, Asia from September 1997 to July 1998. From September
1996 to September 1997, Mr. MacLeod was employed as General Manager, Asia by MAS
Technology, Ltd., a manufacturer of digital microwave products. From 1993 to
September 1996, he was employed by Digital Microwave Corporation as Vice
President, Asia. Mr. MacLeod holds an M.B.A. from Concordia University of Canada
and a B. Eng from McMaster University of Canada.
JAMES D. BLETAS has served as our Vice President, Sales--Americas since
June 1999. From September 1998 to May 1999, Mr. Bletas was a consultant to
Comtier Corporation, a satellite network communication system company. From
March 1997 to August 1998, he served as Executive Vice President, Sales and
Marketing, Systems and Customer Services at SSE Telecom Products. From June 1996
to February 1997, Mr. Bletas was the Executive Vice President, Sales, Marketing
and Systems for First Pacific Networks, a service provider in the broadband
cable modem market. From May 1993 to June 1996, Mr. Bletas served as President
of the Telecommunication Transmission System division of California Microwave.
From October 1975 to March 1993, he served in various positions with the Farinon
division of Harris Corporation, including Vice President, International. Mr.
Bletas holds B.S. in Electrical Engineering from Concordia University of Canada.
RALPH M. GUSHIKEN has served as our Vice President, Manufacturing since
August 1997. From February 1989 to August 1997, Mr. Gushiken held various
manufacturing positions at Digital Microwave Corporation including Director of
Manufacturing, Spectrum Division, Director of Technology Transfer and Director
of Production. Previously, from January 1971 to February 1989, Mr. Gushiken
served in various manufacturing positions at the Farinon division of Harris
Corporation. Mr. Gushiken holds a B.S. in Industrial Technology from California
State University, San Jose.
THOMAS L.F. OHLSSON has served as our Vice President, Marketing since
November 1999. From March 1991 to November 1999, he served in various roles with
SpectraLink Corporation, including Director of Marketing. From November 1990 to
March 1991, Mr. Ohlsson served as Senior Product Marketing Manager with Cylink
Corp., a manufacturer of data communication products which is now part of P-Com,
Inc. From November 1987 to November 1990, Mr. Ohlsson served in various roles
with Digital Microwave Corporation, including Director of Product Marketing.
Previously, from 1978 to 1987, Mr. Ohlsson held various product management and
engineering positions at the Lenkurt division of GTE Corporation, DSC
Communication and DCA/Cohesive Networks, all manufacturers of telecommunications
products. Mr. Ohlsson holds a M.B.A. and a B.S. in Electrical Engineering from
Santa Clara University.
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ANDREW I. FILLAT has served as a member of our board of directors since
August 1998 and served as a member of Multipoint's board of directors from
September 1994 until the acquisition of Multipoint in August 1998. Since 1989,
he has been a Managing Director of Advent International Corporation, a private
equity fund focusing on high growth sectors, including cable media, information
technology, specialty chemicals, health care, consumer products and retailing.
He also serves on the board of Advanced Radio Telecom, a public company that
provides broadband Internet Protocol service, as well as on the boards of
several private companies. Mr. Fillat holds a M.B.A. from Harvard University, a
M.S. in Computer Science from the Massachusetts Institute of Technology and a
B.S. in Computer Science from the Massachusetts Institute of Technology.
DENNY R.S. KO has served as a member of our board of directors since
August 1998. Dr. Ko is the Managing General Partner of DynaFund Ventures, a
private equity fund that focuses on internet, software, communications,
electronics, photonics and related fields. He serves on the boards of several
technology companies, including Gadzoox Networks, Inc., a developer of hardware
and software equipment in the SAN (storage area network) market. Dr. Ko holds a
Ph.D. in Aeronautics & Applied Math from the California Institute of Technology,
a M.S. in Aeronautical Sciences from the University of California, Berkeley and
a B.S. in Mechanical Engineering from National Taiwan University.
DAVID F. MILLET has served as a member of our board of directors since
September 1999. Since June 1997, he has been a Managing Director of Gemini
Investors, a private equity fund that focuses on middle market companies in
technology and business services. Since August 1993, he has served as the
President of Thomas Emery & Sons. Since 1998, he has also served as President of
Chatham Venture Corporation. Mr. Millet serves on the boards of View Tech, Inc.,
National Telemanagement Corporation, Eloquent, Inc. and Holographix, Inc. Mr.
Millet holds a BA in Physical Sciences from Harvard College.
PATRICK A. RIVELLI has served as a member of our board of directors since
September 1999. Since 1987, Mr. Rivelli has been a general partner of Sunwestern
Investment Group, a private equity fund that focuses on data,
telecommunications, and computer related ventures. Mr. Rivelli serves on the
boards of Vista Information Solutions, an Internet-based provider of real estate
information, and several privately-held companies. He holds a M.S. in Electrical
Engineering from the University of Pennsylvania and a B.S. in Electrical
Engineering from Northeastern University.
MARK S. SILVERMAN has served as a member of our board of directors since
January 2000. Since October 1999, Mr. Silverman has served as Vice President,
Strategic Development for the Aerospace and Information Systems Sector of TRW,
Inc. From 1995 to October 1999, Mr. Silverman served as Vice President, Planning
and Development for the Systems and Information Technology Group of TRW, Inc.
From 1993 to 1995, Mr. Silverman became director of planning and business
development for the TRW Engine Components Group, becoming Vice President in
1994. Previously, from 1983 to 1993, Mr. Silverman held various management and
technical positions with TRW. Mr. Silverman holds a M.B.A. from Case Western
Reserve University's Weatherhead School of Management and a B.S. in Management
Information Systems from Case Western Reserve University.
COMPOSITION OF THE BOARD
Immediately prior to the completion of this offering, we will amend and
restate our certificate of incorporation to adopt certain public company-style
provisions. Under our amended and restated certificate of incorporation, our
board of directors will be divided into three classes, with each class serving
for a term of three years. At each annual meeting of stockholders, directors
will be elected by the holders of common stock to succeed the directors whose
terms are expiring. Our Board has resolved that Messrs. Millet and Filat will be
Class I directors whose term will expire in 2001, Mr. Rivelli and Dr. Ko will be
Class II directors whose terms will expire in 2002 and Messrs. Gibson, Palumbo
and Silverman will be Class III directors whose terms will expire in 2003. With
respect to each class, a director's term will be subject to the election and
qualification of their successor, or their earlier death, resignation or
removal.
BOARD COMMITTEES
We have established an audit committee composed of independent directors,
which reviews and supervises our financial controls, including the selection of
our auditors, reviews our books and accounts, meets with our officers regarding
our financial controls, acts upon recommendations of our auditors and takes
further actions as the audit committee deems necessary to complete an audit of
our books and accounts, as well as other matters which
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may come before it or as directed by the board. The audit committee currently
consists of three directors, Messrs. Millet and Silverman and Dr. Ko.
We have established a compensation committee, which reviews and approves
the compensation and benefits for our executive officers, administers our stock
plans and performs other duties as may from time to time be determined by the
board. The compensation committee currently consists of two directors, Messrs.
Fillat and Rivelli. None of our compensation committee members is, or ever was,
an employee of ours. None of our executive officers serve on the board of
directors or compensation committee of any entity which has one or more
executive officers serving as a member of our board or compensation committee.
DIRECTOR COMPENSATION
Directors who are also employees do not receive additional compensation
for serving as directors. Non-employee directors receive $10,000 for each year
of board service following each annual meeting. Non-employee directors also
receive $1,000 for attending each regular and special meeting of the full Board
of Directors and $500 for attending each regular or special meeting of a board
committee, plus, in each case, reimbursement for reasonable expenses.
Non-employee directors are also eligible to receive discretionary option grants
and stock issuances under the 2000 Stock Incentive Plan. In addition, under the
2000 Stock Incentive Plan, non-employee directors receive automatic option
grants to purchase 30,000 shares of common stock upon becoming directors and
automatic option grants to purchase 5,000 shares of common stock on the date of
each annual meeting of stockholders. The 2000 Stock Incentive Plan also contains
a director fee option grant program. Should this program be activated in the
future, each non-employee board member will have the opportunity to apply all or
a portion of any annual retainer fee otherwise payable in cash to the
acquisition of an option with an exercise price below the then fair market
value. See "Executive Compensation and Other Information--Employee Benefit
Plans."
LIMITATION OF LIABILITY AND INDEMNIFICATION
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except liability for:
o any breach of their duty of loyalty to the corporation or its
stockholders;
o acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
o unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
o any transaction from which the director derived an improper
personal benefit.
Such limitation of liability does not apply to liabilities arising under
the federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission. Our certificate of
incorporation and bylaws provide that we shall indemnify our directors and
executive officers and may indemnify our other officers and employees and other
agents to the fullest extent permitted by law. Our bylaws also permit us to
secure insurance on behalf of any officer, director, employee or other agent for
any liability arising out of his or her actions in such capacity, regardless of
whether the bylaws would permit indemnification.
We have entered into agreements to indemnify our directors and executive
officers in addition to indemnification provided for in our bylaws. These
agreements, among other things, provide for indemnification of our directors and
executive officers for expenses specified in the agreements, including
attorneys' fees, judgments, fines and settlement amounts incurred by any such
person in any action or proceeding arising out of such person's services as a
director or executive officer of Wireless, any subsidiary of Wireless or any
other entity to which the person provides services at our request. In addition,
we maintain directors' and officers' insurance. We believe that these provisions
and agreements are necessary to attract and retain qualified persons as
directors and executive officers.
EXECUTIVE OFFICERS
Our executive officers are appointed by and serve at the discretion of
our board of directors. There are no family relationships among any of our
directors, officers or key employees.
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EXECUTIVE COMPENSATION AND OTHER INFORMATION
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION INFORMATION
The following table sets forth the compensation paid or awarded by us in
1999 to our Chief Executive Officer, our former Chief Executive Officer and each
of our four other most highly compensated executive officers for the year ended
December 31, 1999. These individuals are referred to in this prospectus as the
named executive officers. The compensation table below excludes other
compensation in the form of perquisites and other personal benefits that
constitutes the lesser of $50,000 or ten percent of the total annual salary and
bonus of each of the named executive officers in 1999.
No individual who would otherwise have been includable in the
compensation table on the basis of salary and bonus earned during 1999 has
resigned or otherwise terminated his or her employment during 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
----------------------- ------------------
SECURITIES
YEAR UNDERLYING OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION ENDED SALARY ($) BONUS ($) (#) COMPENSATION0 ($)
- ------------------------------------ ------ ----------- ---------- ------------------ -----------------
<S> <C> <C> <C> <C> <C>
William J. Palumbo (1)..................... 1999 $ 34,597 $ 25,000 1,250,000 (2) $ 5,170
President and Chief Executive Officer
William E. Gibson (3)...................... 1999 180,000 -- 850,961 --
Chairman of the Board of Directors and
former Chief Executive Officer
William E. Kunz............................ 1999 143,058 -- 93,055 $ 1,897
Senior Vice President, Engineering and
Chief Technology Officer
Charles C. Pai............................. 1999 125,112 -- 63,697 (4) --
Senior Vice President, Finance
Donald H. MacLeod.......................... 1999 108,750 -- 59,380 $ 38,621 (5)
Senior Vice President, International
</TABLE>
- -------------------
(1) Mr. Palumbo has served as our President and Chief Executive Officer since
October 1999 and, therefore, these amounts are for less than a full year.
(2) 250,000 of these shares are conditional upon the company undertaking
a successful initial public offering prior to December 31, 2000 or
meeting certain revenue and profit targets in 2000 and are subject to
repurchase by the company at the original exercise price if such
conditions are not met on or before December 31, 2000.
(3) Mr. Gibson served as our President and Chief Executive Officer from May
1997 until October 1999.
(4) In January 1999 our board of directors resolved to accelerate all of Mr.
Pai's unvested options as of the date 180 days following the date this
registration statement is declared effective.
(5) Consists of rent payments for corporate housing of $35,550 and lease
payments for a company car of $10,138.
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STOCK OPTION GRANTS AND STOCK APPRECIATION RIGHTS
The following table sets forth summary information with respect to stock
options granted to each of our named executive officers in 1999, including the
potential realizable value over the term of the options, based on assumed rates
of stock appreciation of 5% and 10%, compounded annually. Each option represents
the right to purchase one share of our common stock. No stock appreciation
rights were granted during 1999.
OPTION GRANTS IN 1999
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
OF STOCK PRICE
PERCENT OF TOTAL APPRECIATION
NUMBER OF OPTIONS FOR OPTION TERM
SECURITIES GRANTED TO EXERCISE AT PUBLIC OFFERING PRICE ($)
UNDERLYING EMPLOYEES IN PRICE PER EXPIRATION ----------------------------
NAME OPTIONS GRANTED 1999 SHARE DATE 5% 10%
- ---------------------------- --------------- ------------ --------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
William J. Palumbo.......... 1,250,000 (1) 30.1% $0.27 9/15/09
William E. Gibson........... 48,961 1.2% 0.27 3/13/09
802,000 19.3% 0.27 9/15/09
William E. Kunz............. 43,055 1.0% 0.27 3/19/09
50,000 1.2% 0.27 9/15/09
Charles C. Pai.............. 13,697 (2) 0.3% 0.27 3/19/09
50,000 (2) 1.2% 0.27 9/15/09
Donald H. MacLeod........... 9,380 0.2% 0.27 3/19/09
50,000 1.2% 0.27 9/15/09
</TABLE>
- -------------------
(1) 250,000 of such shares are conditional upon the company undertaking
a successful initial public offering prior to December 31, 2000 or
meeting certain revenue and profit targets in 2000 and are subject to
repurchase by the company at the original exercise price if such
conditions are not met on or before December 31, 2000.
(2) In January 1999 our board of directors resolved to accelerate all of
Mr. Pai's unvested options as of the date 180 days following the date
this registration statement is declared effective.
In 1999, we granted options to purchase up to an aggregate of 4,124,209
shares of our common stock to employees, directors and consultants under our
1997 Stock Plan. Under our 1997 Stock Plan, options were granted to employees,
officers, directors and consultants. Only employees, officers and directors were
eligible to receive "non-statutory stock options," which are intended to qualify
for certain tax treatment, and consultants may receive "nonstanding stock
options," which do not qualify for such treatment. The exercise price of
incentive stock options under the 1997 Stock Plan must be at least equal to the
fair market value of our common stock on the date of grant, as determined in
good faith by our board of directors, while the exercise price of nonstatutory
options must be at least equal to 85% of the fair market value. Holders of more
than 10% of the outstanding voting shares were only granted options with an
exercise price of at least 110% of the fair market value of the underlying stock
on the date of grant, and if such holder has incentive stock options, the term
of the options must not exceed five years. Options granted under the 1997 Stock
Plan generally vest over a four-year period and must be exercised within ten
years.
The potential realizable value is calculated assuming the aggregate
exercise price on the date of grant appreciates at the indicated rate for the
entire term of the option and that the option is exercised and sold on the last
day of its term at the appreciated price. Stock price appreciation of 5% and 10%
is assumed pursuant to the rules of the Commission. We can give no assurance
that the actual stock price will appreciate over the term of the options at the
assumed 5% and 10% levels or at any other defined level. Actual gains, if any,
on stock option exercises will be dependent on the future performance of our
common stock. Unless the market price of the common stock appreciates over the
option term, no value will be realized from the option grants made to the named
executive officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION
VALUES
The following table sets forth information with respect to the named
executive officers concerning their exercise of stock options during the year
ended December 31, 1999 and the number and value of shares of common
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stock underlying the unexercised options held by them at the close of such year.
No stock appreciation rights were exercised during 1999 and no stock
appreciation rights were outstanding as of December 31, 1999. The value realized
is calculated as the difference between the fair value of the shares at the time
of exercise less the exercise price paid for the shares. The value of
unexercised in-the-money options at December 31, 1999 is calculated on the basis
of the assumed initial public offering price of $ , less the aggregate
exercise price of the options.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1999 (#) DECEMBER 31, 1999 ($)
------------------------------- ----------------------------
SHARES ACQUIRED VALUE
NAME ON EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------- ---------------- ------------- -------------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
William J. Palumbo.... 1,250,000(1) $ -- -- --
William E. Gibson..... 1,400,961 -- -- --
William E. Kunz....... 173,055 3,500 -- --
Charles C. Pai........ 135,447(2) 5,303 -- --
Donald H. MacLeod..... -- -- 162,430 --
</TABLE>
- ---------------
(1) 250,000 of such shares are conditional upon the company undertaking
a successful initial public offering prior to December 31, 2000 or
meeting certain revenue and profit targets in 2000 and are subject to
repurchase by the company at the original exercise price if such
conditions are not met on or before December 31, 2000.
(2) In January 1999 our board of directors resolved to accelerate all of
Mr. Pai's unvested options as of the date 180 days following the date
this registration statement is declared effective.
EMPLOYEE BENEFIT PLANS
2000 STOCK INCENTIVE PLAN.
INTRODUCTION. The 2000 Stock Incentive Plan is intended to serve as the
successor program to our 1997 Stock Option/Stock Issuance Plan. The 2000 plan
was adopted by the board on January 18, 2000 and is expected to be approved by
our stockholders in May 2000. The 2000 plan will become effective when the
underwriting agreement for this offering is signed. At that time, all
outstanding options under our existing 1997 plan will be transferred to the 2000
plan, and no further option grants will be made under the 1997 plan. The
transferred options will continue to be governed by their existing terms, unless
our compensation committee decides to extend one or more features of the 2000
plan to those options. Except as otherwise noted below, the transferred options
have substantially the same terms as will be in effect for grants made under the
discretionary option grant program of our 2000 plan.
SHARE RESERVE. 8,750,000 shares of our common stock have been authorized
for issuance under the 2000 plan. This share reserve consists of the number of
shares we estimate will be carried over from the 1997 plan plus an additional
increase of approximately 1,300,000 shares. The share reserve under our 2000
plan will automatically increase on the first trading day in January each
calendar year, beginning with calendar year 2001, by an amount equal to three
percent of the total number of shares of our common stock outstanding on the
last trading day of December in the prior calendar year, but in no event will
this annual increase exceed 2,000,000 shares. In addition, no participant in the
2000 plan may be granted stock options or direct stock issuances for more than
875,000 shares of common stock in total in any calendar year.
PROGRAMS. Our 2000 plan has five separate programs:
o the discretionary option grant program, under which eligible
individuals in our employ may be granted options to purchase shares of
our common stock at an exercise price not less than the fair market
value of those shares on the grant date;
o the stock issuance program, under which eligible individuals may be
issued shares of common stock directly, upon the attainment of
performance milestones or the completion of a specified period of
service or as a bonus for past services;
o the salary investment option grant program, under which our executive
officers and other highly compensated employees may be given the
opportunity to apply a portion of their base salary each year to the
acquisition of special below market stock option grants;
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o the automatic option grant program, under which option grants will
automatically be made at periodic intervals to eligible non-employee
board members to purchase shares of common stock at an exercise price
equal to the fair market value of those shares on the grant date; and
o the director fee option grant program, under which our non-employee
board members may be given the opportunity to apply a portion of any
retainer fee otherwise payable to them in cash each year to the
acquisition of special below-market option grants.
ELIGIBILITY. The individuals eligible to participate in our 2000 plan
include our officers and other employees, our board members and any consultants
we hire.
ADMINISTRATION. The discretionary option grant and stock issuance
programs will be administered by our compensation committee. This committee will
determine which eligible individuals are to receive option grants or stock
issuances under those programs, the time or times when the grants or issuances
are to be made, the number of shares subject to each grant or issuance, the
status of any granted option as either an incentive stock option or a
nonstatutory stock option under the federal tax laws, the vesting schedule to be
in effect for the option grant or stock issuance and the maximum term for which
any granted option is to remain outstanding. The compensation committee will
also have the authority to select the executive officers and other highly
compensated employees who may participate in the salary investment option grant
program in the event that program is put into effect for one or more calendar
years.
PLAN FEATURES. Our 2000 plan will include the following features:
o the exercise price for any options granted under the 2000 plan may be
paid in cash or in shares of our common stock valued at fair market
value on the exercise date. The option may also be exercised through a
same-day sale program without any cash outlay by the optionee;
o the compensation committee will have the authority to cancel
outstanding options under the discretionary option grant program,
including any transferred options from our 1997 plan, in return for the
grant of new options for the same or different number of option shares
with an exercise price per share based upon the fair market value of
our common stock on the new grant date; and
o stock appreciation rights may be issued under the discretionary option
grant program. These rights will provide the holders with the election
to surrender their outstanding options for a payment from us equal to
the fair market value of the shares subject to the surrendered options
less the exercise price payable for those shares. We may make the
payment in cash or in shares of our common stock. None of the options
under our 1997 plan have any stock appreciation rights.
CHANGE IN CONTROL. The 2000 plan will include the following change in
control provisions which may result in the accelerated vesting of outstanding
option grants and stock issuances:
o in the event that we are acquired by merger or asset sale, each
outstanding option under the discretionary option grant program which
is not to be assumed by the successor corporation will immediately
become exercisable for all the option shares, and all outstanding
unvested shares will immediately vest, except to the extent our
repurchase rights with respect to those shares are to be assigned to
the successor corporation;
o the compensation committee will have complete discretion to grant one
or more options which will become exercisable for all the option shares
in the event those options are assumed in the acquisition but the
optionee's service with us or the acquiring entity is subsequently
terminated. The vesting of any outstanding shares under our 2000 plan
may be accelerated upon similar terms and conditions; and
o the compensation committee may grant options and structure repurchase
rights so that the shares subject to those options or repurchase rights
will immediately vest in connection with a successful tender offer for
more than fifty percent of our outstanding voting stock or a change in
the majority of our board through one or more contested elections. Such
accelerated vesting may occur either at the time of such transaction or
upon the subsequent termination of the individual's service.
SALARY INVESTMENT OPTION GRANT PROGRAM. In the event the compensation
committee decides to put this program into effect for one or more calendar
years, each of our executive officers and other highly compensated employees may
elect to reduce his or her base salary for the calendar year by an amount not
less than $10,000 nor more than $50,000. Each selected individual who makes such
an election will automatically be granted, on the first trading day in January
of the calendar year for which his or her salary reduction is to be in effect,
an option to
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<PAGE>
purchase that number of shares of common stock determined by dividing the salary
reduction amount by two-thirds of the fair market value per share of our common
stock on the grant date. The option will have exercise price per share equal to
one-third of the fair market value of the option shares on the grant date. As a
result, the option will be structured so that the fair market value of the
option shares on the grant date less the exercise price payable for those shares
will be equal to the amount of the salary reduction. The option will become
exercisable in a series of twelve equal monthly installments over the calendar
year for which the salary reduction is to be in effect.
AUTOMATIC OPTION GRANT PROGRAM. Each individual who first becomes a
non-employee board member at any time after the effective date of this offering
will receive an option grant to purchase 30,000 shares of common stock on the
date such individual joins the board. In addition, on the date of each annual
stockholders meeting held after the effective date of this offering, each
non-employee board member who is to continue to serve as a non-employee board
member, including each of our current non-employee board members, will
automatically be granted an option to purchase 5,000 shares of common stock,
provided such individual has served on the board for at least six months.
Each automatic grant will have an exercise price per share equal to the
fair market value per share of our common stock on the grant date and will have
a term of 10 years, subject to earlier termination following the optionee's
cessation of board service. The option will be immediately exercisable for all
of the option shares; however, we may repurchase, at the exercise price paid per
share, any shares purchased under the option which are not vested at the time of
the optionee's cessation of board service. One-third of the shares subject to
the initial 30,000 share grant will be fully vested at the time of the grant.
The remaining two-thirds of such shares will vest in a series of two successive
annual installments upon the optionee's completion of each year of board service
over the two-year period measured from the grant date. However, the shares will
immediately vest in full upon certain changes in control or ownership or upon
the optionee's death or disability while a board member. The shares subject to
each annual 5,000-share automatic grant will vest upon the optionee's completion
of the one year period measured from the grant date.
DIRECTOR FEE OPTION GRANT PROGRAM. If this program is put into effect in
the future, then each non-employee board member may elect to apply all or a
portion of any cash retainer fee for the year to the acquisition of a
below-market option grant. The option grant will automatically be made on the
first trading day in January in the year for which the non-employee board member
would otherwise be paid the cash retainer fee in the absence of his or her
election. The option will have an exercise price per share equal to one-third of
the fair market value of the option shares on the grant date, and the number of
shares subject to the option will be determined by dividing the amount of the
retainer fee applied to the program by two-thirds of the fair market value per
share of our common stock on the grant date. As a result, the option will be
structured so that the fair market value of the option shares on the grant date
less the exercise price payable for those shares will be equal to the portion of
the retainer fee applied to that option. The option will become exercisable in a
series of twelve equal monthly installments over the calendar year for which the
election is in effect. However, the option will become immediately exercisable
for all the option shares upon the death or disability of the optionee while
serving as a board member.
ADDITIONAL PROGRAM FEATURES. Our 2000 plan will also have the following
features:
o outstanding options under the salary investment and director fee option
grant programs will immediately vest if we are acquired by a merger or
asset sale or if there is a successful tender offer for more than 50%
of our outstanding voting stock or a change in the majority of our
board through one or more contested elections;
o limited stock appreciation rights will automatically be included as
part of each grant made under the salary investment option grant
program and the automatic and director fee option grant programs, and
these rights may also be granted to one or more officers as part of
their option grants under the discretionary option grant program.
Options with this feature may be surrendered to us upon the successful
completion of a hostile tender offer for more than 50% of our
outstanding voting stock. In return for the surrendered option, the
optionee will be entitled to a cash distribution from us in an amount
per surrendered option share based upon the highest price per share of
our common stock paid in that tender offer;
o the board may amend or modify the 2000 plan at any time, subject to any
required stockholder approval; and
o the 2000 plan will terminate no later than January 18, 2010.
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<PAGE>
2000 EMPLOYEE STOCK PURCHASE PLAN.
INTRODUCTION. Our 2000 Employee Stock Purchase Plan was adopted by the
Board on January 18, 2000 and is expected to be approved by our stockholders in
May 2000. The plan will become effective when the underwriting agreement for
this offering is signed. The plan is designed to allow our eligible employees
and the eligible employees our participating subsidiaries to purchase shares of
common stock, at semi-annual intervals, with their accumulated payroll
deductions.
SHARE RESERVE. 250,000 shares of our common stock will initially be
reserved for issuance. The reserve will automatically increase on the first
trading day in January each calendar year, beginning in calendar year 2001, by
an amount equal to two percent of the total number of outstanding shares of our
common stock on the last trading day in December in the prior calendar year. In
no event will any such annual increase exceed 1,300,000 shares.
OFFERING PERIODS. The plan will have a series of successive offering
periods, each with a maximum duration of 24 months. The initial offering period
will start on the date the underwriting agreement for the offering covered is
signed and will end on the last business day in April 2002. The next offering
period will start on the first business day in May 2002, and subsequent offering
periods will set by our compensation committee.
ELIGIBLE EMPLOYEES. Individuals scheduled to work more than 20 hours per
week for more than five calendar months per year may join an offering period on
the start date or any semi-annual entry date within that period. Semi-annual
entry dates will occur on the first business day of May and November each year.
Individuals who become eligible employees after the start date of an offering
period may join the plan on any subsequent semi-annual entry date within that
offering period.
PAYROLL DEDUCTIONS. A participant may contribute up to 10% of his or her
cash earnings through payroll deductions, and the accumulated deductions will be
applied to the purchase of shares on each semi-annual purchase date. The
purchase price per share will be equal to 85% of the fair market value per share
on the participant's entry date into the offering period or, if lower, 85% of
the fair market value per share on the semi-annual purchase date. Semi-annual
purchase dates will occur on the last business day of January and July each
year. However, a participant may not purchase more than 800 shares on any
purchase date, and not more than 150,000 shares may be purchased in total by all
participants on any purchase date. Our compensation committee will have the
authority to change these limitations for any subsequent offering period.
RESET FEATURE. If the fair market value per share of our common stock on
any purchase date is less than the fair market value per share on the start date
of the two-year offering period, then that offering period will automatically
terminate, and a new two-year offering period will begin on the next business
day. All participants in the terminated offering will be transferred to the new
offering period.
CHANGE IN CONTROL. Should we be acquired by merger or sale of
substantially all of our assets or more than fifty percent of our voting
securities, then all outstanding purchase rights will automatically be exercised
immediately prior to the effective date of the acquisition. The purchase price
will be equal to 85% of the market value per share on the participant's entry
date into the offering period in which an acquisition occurs or, if lower, 85%
of the fair market value per share immediately prior to the acquisition.
PLAN PROVISIONS. The following provisions will also be in effect under
the plan:
o the plan will terminate no later than the last business day of
April 2010; and
o the board may at any time amend, suspend or discontinue the plan,
subject to any required stockholder approval.
MULTIPOINT 1996 STOCK OPTION PLAN.
The Multipoint 1996 Stock Option Plan was assumed in connection with our
acquisition of Multipoint. The 1996 Stock Option Plan was terminated following
the acquisition and no further option grants will be made under the plan,
however, 85,545 options are outstanding under the plan which continue to be
governed by their existing terms. The outstanding options are either incentive
stock options or non-statutory stock options which were granted at an exercise
price of not less than 100% of the fair market value of the Multipoint common
stock on the grant date. In accordance with the terms of the individual stock
option agreements, in the event that we are acquired by merger or asset sale,
the options under the 1996 Stock Option Plan will become fully vested and
exercisable unless they are
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<PAGE>
either (i) assumed or continued by the successor corporation, (ii) replaced with
a comparable option to purchase capital stock of the successor corporation,
(iii) replaced with a cash incentive program which preserves the spreadexisting
on the option shares at the time of the acquisition and provides for subsequent
payout in accordance with the same vesting schedule applicable to such option or
(iv) the acceleration of such options was subject to additional limitations
imposed by the Multipoint board of directors at the time of the option grant.
All repurchase rights shall lapse except to the extent assigned to the successor
corporation in such acquisition.
54
<PAGE>
CERTAIN TRANSACTIONS
SALES OF SECURITIES
The following table describes the equity issuances that have funded our
operations from inception through March 31, 2000:
<TABLE>
<CAPTION>
PREFERRED COMMON
STOCK STOCK WARRANT
WARRANTS WARRANTS EXERCISE
DATE CLOSED SERIES CONSIDERATION PRICE/SHARE SHARES ISSUED ISSUED ISSUED PRICE/SHARE
- -------------------------------------------- ------------ -------------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
May, 1997.......... A $2,150,000 $0.50 4,300,000
October, 1997...... B $1,500,000 $2.00 750,000
August, 1998....... C $2,855,334 $1.33 2,146,868
March, 1999........ D $8,176,266 $1.25 6,541,013 48,000 $ 1.25
September, 1999.... E $9,003,620 $2.50 3,600,000 20,000 362,000 $ 0.75
January, 2000...... F $15,000,000 $5.00 3,000,000
January, 2000...... Common $17,146,760 $5.00 3,429,352
</TABLE>
SERIES A PREFERRED STOCK. In May 1997, we issued 6,000,000 shares of our
Series A Preferred Stock, of which 3,000,000 shares were issued to Crossroads
Venture Investors II, L.P. at a price of $0.50 per share, resulting in aggregate
proceeds of $1,500,000 and 3,000,000 shares valued at $0.50 per share were
issued to Wi-LAN, Inc. pursuant to a Technology License and Manufacturing
Agreement. As a result of a subsequent restructuring of the license agreement,
1,700,000 of the shares held by Wi-LAN were returned to us, of which 1,400,000
shares were related to the Technology License and Manufacturing Agreement and
300,000 shares were related to the cancellation of a note payable from Wi-LAN to
us.
SERIES B PREFERRED STOCK. In October 1997, we issued 750,000 shares of our
Series B Preferred Stock at a price of $2.00 per share to Crossroads Venture
Investors III, L.P., resulting in aggregate proceeds of $1.5 million.
SERIES C PREFERRED STOCK. In August 1998, in connection with the
acquisition of Multipoint Networks, Inc., or Multipoint, all outstanding shares
of the former Series 1 Preferred Stock of Multipoint were exchanged for an
aggregate of 2,146,838 shares of our Series C Preferred Stock. The major holders
of Series 1 Preferred of Multipoint and the major recipients of Series C
Preferred Stock were HMS Capital Partners, Global Private Equity II, L.P., Alta
V, L.P. and John Rodgers. In November 1999, we repurchased 59,983 shares of our
Series C Preferred Stock from Late Stage Fund 1991 L.P. for a price of $1.33 per
share.
SERIES D PREFERRED STOCK. In March 1999, we issued 6,541,013 shares of our
Series D Preferred Stock at a price of $1.25 per share, resulting in aggregate
proceeds of $8.2 million. Major investors were Crossroads Venture Investors VI,
L.P., DynaFund International, L.P., Dynamics Technology, Inc. and HMS Hawaii
Management Partners. In connection with a loan agreement we also issued warrants
to purchase an additional 48,000 shares of our Series D Preferred Stock to
Silicon Valley Bank at an exercise price of $1.25 per share.
SERIES E PREFERRED STOCK. In September 1999, we issued 3,600,000 shares of
our Series E Preferred Stock at a price of $2.50 per share, resulting in
aggregate proceeds of $9.0 million and issued warrants at a price of $0.01 per
warrant to purchase an additional 360,000 shares of common stock at an exercise
price of $0.75 per share. GMN Investors II, L.P. and Stratford Equity Partners,
L.P. were the major investors. The conversion price was subsequently reduced to
$2.42 per share pursuant to a resolution by the board of directors on December
21, 1999. In connection with a loan agreement we also issued warrants to
purchase an additional 20,000 shares of our Series E Preferred Stock to Silicon
Valley Bank at an exercise price of $2.50 per share.
SERIES F PREFERRED STOCK. In January 2000, we issued 3,000,000 shares of
our Series F Preferred Stock at a price of $5.00 per share, resulting in
aggregate proceeds of $15.0 million. TRW Inc. and CECAP Wireless Group, LLC were
the only investors.
The securities described above were sold pursuant to preferred stock
purchase agreements and an investors' rights agreement on substantially similar
terms, except for terms relating to date and price, under which we made standard
representations, warranties, and covenants, and pursuant to which we provided
the purchasers thereunder with registration rights, information rights, and
rights of first refusal, among other provisions standard in venture capital
financings. Each share of our Series A, Series D and Series F Preferred Stock
will automatically convert into one share of our common stock upon the
completion of the offering. Each share of our Series B Preferred Stock will
55
<PAGE>
automatically convert into 1.1078 shares of our common stock and each share of
our Series C Preferred Stock will automatically convert into 1.0153 shares of
our common stock, in each case after giving effect to an anti-dilution
adjustment resulting from the sales of the Series C and Series D Preferred
Stocks, respectively. Each share of our Series E Preferred Stock will
automatically convert into 1.0331 shares of our common stock after giving effect
to a price adjustment approved by our board of directors in December 1999, as
discussed above.
In addition to the foregoing, we have issued 7,765,538 shares of our common
stock to various investors at prices ranging from $0.27 per share to $4.00 per
share in connection with the exercise of warrants and options we granted. In
January 2000, in connection with a Purchase and License Agreement with TRW,
Inc., we issued 3,429,352 shares of our common stock to TRW for a price of $5.00
per share. The shares of common stock issued or issuable pursuant to the
exercise of common stock purchase warrants enjoy certain registration rights
different from those enjoyed by holders of our Preferred Stock. See "Description
of Capital Stock--Registration Rights."
The purchasers of the securities described above included, among others,
the following holders of 5% or more of our capital stock, named executive
officers, directors, and persons associated with them:
<TABLE>
<CAPTION>
TOTAL SHARES
SERIES A SERIES B SERIES C SERIES D SERIES E SERIES F COMMON ON AN
COMMON PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED STOCK AS-CONVERTED
INVESTOR STOCK STOCK STOCK STOCK STOCK STOCK STOCK WARRANTS BASIS
--------- --------- --------- --------- --------- --------- --------- --------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Advent Entities(1) 1,310,426 -- -- 349,344 259,310 61,984 -- 6,000 1,987,064
Crossroads
Entities (2)..... -- 3,000,000 835,875 -- 1,534,767 475,226 -- 46,000 5,891,868
CECAP Wireless
Group, LLC....... -- -- -- -- -- -- 700,000 -- 700,000
DynaFund
Entities (3)..... 50,000 -- -- -- 1,671,562 -- -- -- 1,721,562
GMN
Investors II, L.P.. -- -- -- -- -- 1,652,960 -- 160,000 1,812,960
William E.
Gibson (4)....... 1,400,961 -- -- 92,113 244,537 -- -- -- 1,737,611
William J. Palumbo. 1,250,000 -- -- -- -- -- -- -- 1,250,000
William E. Kunz.. 173,055 -- -- -- -- -- -- -- 173,055
Charles C. Pai... 210,447 -- -- 7,612 -- -- -- -- 218,059
Donald H. MacLeod. -- -- -- 19,031 -- -- -- -- 19,031
TRW.............. 3,429,352 -- -- -- -- -- 2,300,000 -- 5,729,352
</TABLE>
- -------------------
(1) Consists of 141,531 shares held by Adtel, L.P., 191,527 shares held by
Advent Crown Fund, C.V., 9,173 shares held by Advent Crown Fund II, C.V.,
480,490 shares held by Advent International Investors II, L.P., 1,001,742
shares held by Global Private Equity II, L.P., 156,603 shares held by
Golden Gate Development and Investment, L.P., a warrant exercisable for
4,488 shares of common stock held by Global Private Equity II, L.P., a
warrant exercisable for 624 shares held by Adtel, L.P. and a warrant
exercisable for 888 shares held by Advent Crown Fund II, C.V.
(2) Consists of 1,534,767 shares held by Crossroads Venture Capital LLC,
3,000,000 shares held by Crossroads Venture Investors II, L.P., 835,875
shares held by Crossroads Venture Investors III, L.P., 475,226 shares held
by Crossroads Venture Investors VII, L.P. and a warrant to purchase 46,000
shares held by Crossroads Venture Investors VII, L.P.
(3) Consists of 435,986 shares held by DynaFund International, L.P., 370,918
shares held by DynaFund, L.P. and 914,658 shares held by Dynamics
Technology, Inc.
(4) Consists of 1,405,498 shares held by Mr. Gibson, 92,113 shares held
jointly by Mr. Gibson and his wife, Kahala-Ann Trask Gibson and 240,000
shares held by the William E. and Kahala-Ann Trask Gibson Charitable
Remainder Trust. Excludes 334,767 shares held by Crossroads Venture Capital
LLC, 3,000,000 shares held by Crossroads Venture Investors II, L.P.,
750,000 shares held by Crossroads Venture Investors III, L.P., 1,200,000
shares held by Crossroads Venture Investors VI, L.P. and 460,000 shares
held by Crossroads Venture Investors VII, L.P. Mr. Gibson, Managing Partner
of each of the Crossroads Entities, disclaims
56
<PAGE>
beneficial ownership of the shares held by the Crossroads Entities except
to the extent of his pecuniary interest therein.
LICENSE AND MANUFACTURING AGREEMENT WITH WI-LAN
We entered into a License and Technology Transfer and Manufacturing
Agreement with Wi-LAN, Inc. on May 14, 1997. Under the license agreement, Wi-LAN
agreed to license and transfer technology to us for 3,000,000 shares of Series A
Preferred Stock valued at $0.50 per share. In 1997, we determined that the
licensed and transferred technology was no longer applicable to our needs. On
June 3, 1998, the license agreement was replaced by a new license agreement and
a new manufacturing agreement. Under the terms of the new agreement, we obtained
a non-exclusive license to certain of Wi-LAN's spread spectrum data
communications technology. Any improvements we make upon the licensed technology
belong to Wi-LAN. We also entered into a manufacturing agreement with Wi-LAN on
June 3, 1998, pursuant to which we obtained sole right to manufacture or have a
third party manufacture products based on the licensed technology. Pursuant to
the new agreement, 1,700,000 of the shares held by Wi-LAN were returned to the
Company, of which 1,400,000 shares were related to the manufacturing agreement
and 300,000 shares were related to the cancellation of a note payable from
Wi-LAN to us. In February 2000, we terminated the manufacturing agreement and,
as a result, the license agreement terminated automatically.
LEASE AGREEMENT
In May 1997, we leased 12,800 square feet of office space at 3285 Scott
Boulevard, Santa Clara, California. Pursuant to an informal arrangement we
subleased the facility to Momentum Laser, Inc., a company in which Mr. Gibson
and the Crossroads Entities have an ownership interest. Momentum Laser pays all
costs related to the facility. The Company remains obligated under the lease for
monthly lease payments of $18,560 plus maintenance, property tax and insurance
charges. The lease expires in April 2002. We believe that the arrangement is no
less favorable to us than that which would otherwise be entered into with
unaffiliated third parties.
MULTIPOINT NETWORKS, INC. ACQUISITION
In August 1998, we acquired Multipoint Networks, Inc., or Multipoint. In
connection with this acquisition, the former common stockholders of Multipoint
exchanged all outstanding shares of common stock of Multipoint for an aggregate
of 2,746,053 shares of our common stock. The former Multipoint Series 1
preferred stockholders exchanged all outstanding shares of their Multipoint
Series 1 preferred stock for an aggregate of 2,146,838 shares of our Series C
Preferred Stock. In November 1999, we repurchased 59,983 shares of Series C
Preferred Stock from one investor. Certain holders of 5% or more of our capital
stock, executive officers, directors and persons associated with them acquired
our Series C Preferred Stock as a result of the Multipoint acquisition. See
"--Sales of Securities."
STRATEGIC RELATIONSHIP WITH TRW
We entered into a Purchase and License Agreement with TRW on January 14,
2000. Under the agreement, we purchased and obtained an exclusive, including as
to TRW, royalty-free worldwide license in point-to-multipoint wireless
networking technology, generally referred to in this prospectus as the STARPORT
technology. Any products we develop based on such technology may only be sold
with base stations configured for outdoor use. Sales of products containing the
STARPORT technology with base stations configured for indoor use or to the U.S.
Government--including organizations in which the U.S. is a member, such as
NATO--must be made through TRW or its licensees. The agreement provides TRW with
a royalty-free worldwide non-exclusive license in any improvements made by us
upon the STARPORT technology for the manufacture and sale of products to the
U.S. Government. If we do not offer a commercial version of a product containing
the STARPORT technology for sale by July 14, 2001, unless the delay is the fault
of TRW or attributable to certain specified reasons, we will lose our exclusive
license with TRW.
The STARPORT technology was originally developed by TRW Systems and
Information Group for military communications. TRW is an international company
that provides advanced technology products and services. The principal
businesses of TRW and its subsidiaries are the design, manufacture and sale of
products and the performance of systems engineering, research and technical
services for industry and the United States Government in the automotive,
aerospace and information systems markets. In connection with this agreement,
TRW acquired approximately 18% of our capital stock outstanding prior to the
offering, including 2,300,000 shares of our Series F Preferred Stock and
3,429,352 shares of common stock.
57
<PAGE>
Under the terms of the Purchase and License Agreement, TRW has agreed to
establish an office for the continued development of STARPORT products to be
staffed by employees of both us and TRW and managed by us. TRW has agreed to
provide substantially all of the supplies, infrastructure and services for this
office. TRW will charge us for services performed by its employees at negotiated
rates, including expenses for overhead, facilities, equipment and general and
administrative expenses. TRW will also provide, at no additional charge, 24
person-months of consultation advice and 12 person-months of assistance in
responding to actual and potential claims regarding infringements of third-party
intellectual property rights in connection with the STARPORT technology. TRW is
required to pay for certain field trials of the STARPORT technology and all
products purchased or manufactured for use in these trials.
The Purchase and License Agreement also provides that, until January 14,
2003, at our option, TRW will purchase from L3 Communications, Inc. products and
components needed for use in, as well as services to develop and manufacture,
our STARPORT system at a negotiated markup. TRW will also pass through to us any
rights of exclusivity granted to TRW by L3 and any representations and
warranties granted in favor of TRW by L3.
In consideration of the right and licenses provided under the Purchase and
License Agreement and the technical assistance to be provided by TRW, we have
agreed to pay TRW 10% of the net proceeds of this offering or any private
placement of equity occurring on or before October 14, 2000, until we have paid
TRW an aggregate of $2.5 million. The balance of this amount is due on January
1, 2001, if it has not been paid prior to that date.
The Purchase and License Agreement terminates upon the expiration of the
last patent licensed under the agreement unless terminated earlier by either
party 30 days following a default by the other party. Liability for breaches
under the agreement by either party to the other is limited to $17.0 million
with the exception of, in our case, additional money to be paid by us to TRW
under the agreement or a related time and materials agreement.
COMMITMENTS TO PROVIDE CAPITAL
In February 2000, we received capital commitments of $2.5 million each from
Dynamics Technology, Inc., Advent International Corp., Gemini Investors LLC,
Stratford Equity Partners, L.P., Crossroads Venture Capital, LLC and TRW in the
event that we do not complete an initial public offering with gross proceeds of
$25 million by May 31, 2000. The $15.0 million in commitments, if required, will
be documented in the form of convertible promissory notes bearing interest at a
fixed rate of 10% per annum. If not prepaid, the notes will convert into shares
issued in our next round of equity financing of at least $15.0 million. In
connection with obtaining these commitments, we issued warrants to purchase
10,000 shares of our common stock to each of these six investors at a price of
$4.00 per share and agreed to issue additional warrants for 30,000 shares of our
common stock to each of these six investors at the then fair market value per
share if the loan commitments are exercised, for each $2,500,000 borrowed. These
warrants expire upon the earlier of 5 years or 30 days after the consummation of
an initial public offering.
AGREEMENTS WITH OFFICERS AND DIRECTORS
On December 10, 1999, Wireless made a full recourse loan to William J.
Palumbo in the amount of $168,750 to fund the exercise of his option to purchase
625,000 shares of common stock. Principal and interest due under this loan is
secured by a lien on the option shares.
We have an unwritten agreement with William E. Gibson which has been
approved by our board of directors pursuant to which Mr. Gibson is paid $15,000
per month for his services as Chairman of the Board of Directors.
OTHER RELATED PARTY TRANSACTIONS
We have granted options and issued common stock to our executive officers
and directors. See "Management--Director Compensation" and "Principal
Stockholders."
Holders of shares of preferred stock and certain holders of warrants for
the issuance of common stock are entitled to registration rights in respect of
the common stock issued or issuable upon conversion or exercise thereof. See
"Description of Capital Stock--Registration Rights."
We have entered into an indemnification agreement with each of our
executive officers and directors containing provisions that may require us,
among other things, to indemnify our officers and directors against liabilities
that may arise by reason of their status or service as officers or directors
(other than liabilities arising from
58
<PAGE>
willful misconduct of a culpable nature) and to advance expenses incurred as a
result of any proceeding against them as to which they could be indemnified. See
"Management--Limitation of Liability and Indemnification."
We have entered into non-competition and confidentiality agreements with
some of our officers.
We believe that all of the transactions set forth above were made on terms
no less favorable to us than could have been otherwise obtained from
unaffiliated third parties. All future transactions, including loans, if any,
between us and our officers, directors and principal stockholders and their
affiliates and any transactions between us and any entity with which our
officers, directors or five percent stockholders are affiliated will be approved
by a majority of the board of directors, including a majority of the independent
and disinterested outside directors of the board of directors and will be on
terms no less favorable to us than could be obtained from unaffiliated third
parties.
59
<PAGE>
PRINCIPAL STOCKHOLDERS
The table below sets forth information regarding the beneficial ownership
of our common stock as of December 31, 1999, by the following individuals or
groups:
o each person or entity who is known by us to own beneficially more than
5% of our outstanding stock;
o each of the named executive officers;
o each of our directors; and
o all directors and executive officers as a group.
Each stockholder's percentage ownership in the following table is based
on 31,933,389 shares of common stock outstanding as of December 31, 1999,
assuming the conversion of all outstanding shares of preferred stock upon the
closing of this offering, the exercise of all outstanding warrants to purchase
preferred stock and the exercise of all outstanding warrants to purchase common
stock which, by their terms, expire or convert within 30 days of the completion
of this offering, plus any outstanding options and any other warrants to
purchase common stock exercisable within 60 days of December 31, 1999 held by
the particular stockholder that are included in the first column. The numbers
shown in the table below assume no exercise by the underwriters of their
over-allotment option.
Unless otherwise indicated, the principal address of each of the
stockholders below is c/o Wireless, Inc., 5452 Betsy Ross Drive, Santa Clara, CA
95054. Except as otherwise indicated, and subject to applicable community
property laws, the persons named in the table have sole voting and investment
power with respect to all shares of common stock held by them.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF SHARES BENEFICIALLY OWNED
---------------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED PRIOR TO OFFERING AFTER THE OFFERING
- --------------------------------------------------- ------------------ ----------------- ------------------
<S> <C> <C> <C>
Crossroads Entities (1)............................ 5,901,868 18.5%
TRW (2)............................................ 5,739,352 18.0%
DynaFund Entities (3).............................. 1,731,562 5.4%
GMN Investors II, L.P. (4)......................... 1,822,960 5.7%
Advent Entities (5)................................ 1,997,066 6.3%
William E. Gibson (6).............................. 7,639,479 23.9%
William J. Palumbo................................. 1,250,000 3.9%
Charles C. Pai..................................... 218,059 *
William E. Kunz.................................... 173,055 *
Donald H. MacLeod (7).............................. 181,461 *
Patrick A. Rivelli (8)............................. 315,000 *
Dr. Denny R.S. Ko (9).............................. 1,801,562 5.6%
David F. Millet (10)............................... 1,892,960 5.9%
Andrew I. Fillat (11).............................. 2,067,066 6.5%
Mark S. Silverman ................................. -- *
All directors and executive officers as a group
(14 persons) (12)............................. 16,186,844 48.6%
</TABLE>
- -------------------
* Less than one percent.
(1) Consists of 334,767 shares held by Crossroads Venture Capital LLC,
3,000,000 shares held by Crossroads Venture Investors II, L.P., 835,875
shares held by Crossroads Venture Investors III, L.P., 1,200,000 shares
held by Crossroads Venture Investors VI, L.P., 475,226 shares held by
Crossroads Venture Investors VII, L.P., a warrant exercisable for 46,000
shares of common stock held by Crossroads Venture Capital LLC and a
warrant exercisable for 10,000 shares of common stock held by Crossroads
Venture Capital LLC (collectively, the "Crossroads Entities"). The
address for the Crossroads Entities is 155 Montgomery Street, Suite 603,
San Francisco, California 94104.
(2) Includes a warrant exercisable for 10,000 shares of common stock. The
address for TRW is 12011 Sunset Hills Road, Reston, Virginia 20190.
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(3) Consists of 435,986 shares held by DynaFund International, L.P., 370,918
shares held by DynaFund, L.P. and 914,658 shares held by Dynamics
Technology, Inc. and a warrant exercisable for 10,000 shares of common
stock held by Dynamics Technology, Inc. (collectively, the "DynaFund
Entities"). The address for the DynaFund Entities is 21311 Hawthorne
Blvd, Suite 300, Torrance, California 90503.
(4) Includes warrants exercisable for an aggregate of 170,000 shares of
common stock. The address for GMN Investors II, L.P. is 20 William
Street, Wellesley, Massachusetts 12481.
(5) Consists of 141,531 shares held by Adtel, L.P., 191,527 shares held by
Advent Crown Fund, C.V., 9,173 shares held by Advent Crown Fund II, C.V.,
480,490 shares held by Advent International Investors II, L.P., 1,001,742
shares held by Global Private Equity II, L.P., 156,603 shares held by
Golden Gate Development and Investment, L.P., a warrant exercisable for
4,488 shares of common stock held by Global Private Equity II, L.P., a
warrant exercisable for 624 shares of common stock held by Adtel, L.P. a
warrant exercisable for 10,000 shares of common stock held by Advent
International, L.P. and a warrant exercisable for 888 shares of common
stock held by Advent Crown Fund II, C.V. (collectively, the "Advent
Entities").
(6) Consists of 1,497,611 shares held jointly by Mr. Gibson and his wife,
Kahala-Ann Trask Gibson, 240,000 shares held by the William E. and
Kahala-Ann Trask Gibson Charitable Remainder Trust, 334,767 shares held
by Crossroads Venture Capital LLC, 3,000,000 shares held by Crossroads
Venture Investors II, L.P., 835,875 shares held by Crossroads Venture
Investors III, L.P., 1,200,000 shares held by Crossroads Venture
Investors VI, L.P., 475,226 shares held by Crossroads Venture Investors
VII, L.P. a warrant exercisable for 46,000 shares of common stock held by
Crossroads Venture Capital, LLC and a warrant exercisable for 10,000
shares of common stock held by Crossroads Venture Capital LLC. Crossroads
Venture Capital LLC is owned by William E. and Kahala-Ann Trask Gibson.
Mr. Gibson, Managing Partner of each of the Crossroads Entities,
disclaims beneficial ownership of the shares held by the Crossroads
Entities except to the extent of his pecuniary interest therein. Further,
Mr. Gibson disclaims beneficial ownership in 96,900 shares held by
Crossroads Venture Investors II in which he holds a pecuniary interest,
such shares being held in the Gibson Family Trust, an educational trust
for Ho'okele O Kamakani Trask Gibson Granroos, Kalae Ola'a
Ku'upoki'ialoha Kamaka'alohi o Pu'ulena Trask Sharpe, Mililani
Kaleionaona Trask-Batti, Kawehi Lakea Imaikalani Trask-Batti, Hulali
Kaikei I Mahealani Trask, Kaiana Kaukaohu Trask, Mahi Lee William Cooper
and Kauakea Ian Bucken Cooper. See Footnote 1.
(7) Includes options exercisable for 162,430 shares of common stock within 60
days of December 31, 1999.
(8) Consists of 315,000 shares held by the Patrick A. Rivelli Senior and
Yvonne D. Rivelli Trust. The address for Mr. Rivelli is 12221 Merit
Drive, #935, Dallas, Texas 75251.
(9) Consists of 435,986 shares held by DynaFund International, L.P., 370,918
shares held by DynaFund, L.P., 914,658 shares held by Dynamics
Technology, Inc. a warrant exercisable for 10,000 shares of common stock
held by Dynamics Technology, Inc. and an option exercisable for 70,000
shares of common stock held by Dr. Ko. Dr. Ko, chairman of the board of
directors of Dynamics Technology, Inc. and a General Partner of DynaFund
International and DynaFund, L.P., disclaims beneficial ownership of the
shares held by the DynaFund Entities except to the extent of his
pecuniary interest therein. See Footnote 3.
(10) Consists of 1,652,960 shares held by GMN Investors II, L.P., a warrant
exercisable for 170,000 shares held by GMN Investors II, L.P. and an
option exercisable for 70,000 shares of common stock held by Mr. Millet.
Mr. Millet, General Partner of GMN Investors II, L.P., disclaims
beneficial ownership of the shares held by GMN Investors II, L.P. except
to the extent of his pecuniary interest therein. See Footnote 4.
(11) Consists of 141,531 shares held by Adtel, L.P., 191,527 shares held by
Advent Crown Fund, C.V., 9,173 shares held by Advent Crown Fund II, C.V.,
480,490 shares held by Advent International Investors II, L.P., 1,001,742
shares held by Global Private Equity II, L.P., 156,603 shares held by
Golden Gate Development and Investment, L.P., a warrant exercisable for
4,488 shares of common stock held by Global Private Equity II, L.P., a
warrant exercisable for 624 shares of common stock held by Adtel, L.P., a
warrant exercisable for 10,000 shares of common stock held by Advent
International, L.P. a warrant exercisable for 888 shares of common stock
held by Advent Crown Fund II, C.V. and an option exercisable for 70,000
shares of common stock held by Mr. Fillat. Mr. Fillat, Managing Director
of the Advent Entities, disclaims beneficial ownership of shares held by
the Advent Entities except to the extent of his pecuniary interest
therein. See Footnote 5.
(12) Includes options exercisable for 1,155,632 shares of common stock within
60 days of December 31, 1999 under the 1997 stock option/stock issuance
plan and warrants exercisable for 252,000 shares of common stock within
60 days of December 31, 1999. See Footnotes 6-11.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
At the closing of this offering, we will be authorized to issue 100,000,000
shares of common stock, $0.001 par value per share, and 5,000,000 shares of
undesignated preferred stock, $0.001 par value per share, after giving effect to
the amendment of our certificate of incorporation to delete references to the
existing preferred stock following conversion of that stock. The following
description of capital stock gives effect to the certificate of incorporation to
be filed upon closing of this offering. Immediately following the completion of
this offering, and assuming no exercise of the underwriters' over-allotment
option, an aggregate of __________________ shares of common stock will be issued
and outstanding, and no shares of preferred stock will be issued and
outstanding.
The following description of our capital stock is subject to and qualified
by our certificate of incorporation and bylaws, which are included as exhibits
to the registration statement of which this prospectus forms a part, and by the
provisions of the applicable Delaware law.
COMMON STOCK
The holders of our common stock are entitled to one vote per share on all
matters to be voted upon by our stockholders. Subject to preferences that may be
applicable to any outstanding preferred stock that may come into existence, the
holders of common stock are entitled to receive ratably those dividends, if any,
as may be declared from time to time by the board of directors out of funds
legally available for dividends. See "Dividend Policy." In the event of our
liquidation, dissolution or winding up, the holders of our common stock are
entitled to share ratably in all assets remaining after payment of liabilities,
subject to prior distribution rights of preferred stock, if any, then
outstanding. Our common stock has no preemptive or conversion rights or other
subscription rights. There are no redemption or sinking fund provisions
applicable to the common stock. All outstanding shares of common stock are fully
paid and non-assessable, and the shares of common stock to be outstanding upon
completion of this offering will be fully paid and non-assessable.
PREFERRED STOCK
Our board of directors is authorized to issue from time to time, without
stockholder authorization, in one or more designated series, any or all of our
authorized but unissued shares of preferred stock with any dividend, redemption,
conversion and exchange provisions as may be provided in the particular series.
Any series of preferred stock may possess voting, dividend, liquidation and
redemption rights superior to those of the common stock. The rights of the
holders of our common stock will be subject to, and may be adversely affected
by, the rights of the holders of any preferred stock that may be issued in the
future. Issuance of a new series of preferred stock, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of entrenching our board of directors and making
it more difficult for a third-party to acquire, or discourage a third-party from
acquiring, a majority of our outstanding voting stock. We have no present plans
to issue any shares of or designate any series of preferred stock.
WARRANTS
As of December 31, 1999, we had outstanding warrants to purchase an
aggregate of 621,122 shares of our common stock on an as-converted basis,
including:
o Warrants to purchase 362,000 shares of common stock at $0.75 per share
which will expire on March 31, 2005;
o Warrants to purchase 30,460 shares of common stock at $1.22 per share
which will expire on May 5, 2002;
o Warrants to purchase 48,000 shares of common stock at $1.25 per share,
which will expire on October 16, 2003;
o Warrants to purchase 20,662 and 100,000 shares of common stock at $2.50
per share, which will expire on September 13, 2004 and upon the closing
of this offering, respectively; and
o Warrants to purchase 60,000 shares of common stock at $4.00 per share,
which will expire 30 days after the closing of this offering.
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CONVERTIBLE PROMISSORY NOTE
AMT Capital, Ltd. holds a promissory note, dated as of August 17, 1999 in
the principal amount of $1,000,000 which note is convertible into 320,000 shares
of Series E Preferred Stock and upon conversion the holder will receive a
warrant to purchase 32,000 shares of common stock at an exercise price of $0.75
per share.
REGISTRATION RIGHTS
After this offering, pursuant to the terms of an Investors' Rights
Agreement, holders of 20,509,837 shares of our common stock and 552,500 shares
of our common stock issuable upon the exercise of outstanding warrants will be
entitled to certain registration rights with respect to their capital stock of
Wireless. Under the Investors' Rights Agreement, at any time after the earlier
of (i) January 31, 2001 or (ii) three months after this offering, holders of
more than 30% of these shares may require us to effect registration under the
Securities Act, subject to the board of directors' right, if such registration
would harm us, to defer such registration for up to 60 days. In addition, if we
propose to issue equity securities under the Securities Act for our own account
in an underwritten public offering, then any of the investors has a right
(subject to quantity limitations determined by the underwriters) to request that
we register such investor's registrable securities. Once we qualify to register
the sale of securities on Form S-3, investors proposing to sell an aggregate of
at least $2,000,000 of registrable securities may require us to effect one S-3
registration per year. All registration expenses incurred in connection with any
of the registrations described above will be borne by us. The participating
investors will pay for underwriting discounts and commissions incurred in
connection with any such registrations. We have agreed to indemnify the
investors against certain liabilities including Securities Act liabilities in
connection with any registration effected by us in which their shares are
included pursuant to the Investors' Rights Agreement. Registration of any of the
shares of common stock held by security holders with registration rights would
result in such shares becoming freely tradeable without restriction under the
Securities Act immediately upon effectiveness of such registration. These
registration rights terminate once all shares of our stock may be sold under
Rule 144 during any 90 day period. In addition, holders of 68,662 shares of our
common stock issuable upon the exercise of outstanding warrants will be entitled
to registration rights different from those described above. In particular,
these holders are entitled to include their shares in any registration initiated
by us or by other holders on Forms S-1 or S-3 (excluding registrations relating
to stock plans) without being subject to underwriters' quantity limitations.
COMPLIANCE WITH CALIFORNIA LAW
We are currently subject to Section 2115 of the California General
Corporation Law. Section 2115 provides that, regardless of a company's legal
domicile, certain provisions of California corporate law will apply to that
company if more than 50% of our outstanding voting securities are held of record
by persons having addresses in California and the majority of the company's
operations occur in California. For example, while we are subject to Section
2115, stockholders may cumulate votes in electing directors. This means that
each stockholder may vote the number of votes equal to the number of candidates
multiplied by the number of votes to which the stockholder's shares are normally
entitled in favor of one candidate. This potentially allows minority
stockholders to elect some members of the board of directors. When we are no
longer subject to Section 2115, cumulative voting will not be allowed and a
holder of 50% or more of our voting stock will be able to control the election
of all directors. In addition to this difference, Section 2115 has the following
additional effects:
o enables removal of directors with or without cause with majority
stockholder approval;
o places limitations on the distribution of dividends;
o extends additional rights to dissenting stockholders in any
reorganization, including a merger, sale of assets or exchange of
shares; and
o provides for information rights and required filings in the event we
effect a sale of assets or complete a merger.
We anticipate that our common stock will be qualified for trading as a
national market security on the Nasdaq National Market and that we will have at
least 800 stockholders of record by the record date for our 2000 annual meeting
of stockholders. If these two conditions occur, then we will no longer be
subject to Section 2115 as of the record date for our 2000 annual meeting of
stockholders.
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ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION, BYLAWS
AND DELAWARE LAW
Our certificate of incorporation authorizes our board to issue up to
5,000,000 shares of undesignated preferred stock after the offering. Further,
without any further vote or action on the part of our stockholders, our board of
directors will have the authority to determine the rights, preferences,
privileges and restrictions of the undesignated preferred stock. See
"--Preferred Stock." Our certificate of incorporation also provides that all
stockholder action must be effected at a duly called meeting of stockholders and
not by written consent. In addition, our certificate of incorporation and bylaws
do not permit our stockholders to call a special meeting of stockholders. Only
our Chief Executive Officer, President, Chairman of the Board or a majority of
the board of directors are permitted to call a special meeting of stockholders.
Our certificate of incorporation also provides that the board of directors is
divided into three classes, with each director assigned to a class with a term
of three years, and that the number of directors may only be determined by the
board of directors. Our bylaws require that stockholders give advance notice to
our secretary of any nominations for director or other business to be brought by
stockholders at any stockholders' meeting, and that the chairman of the board
has the authority to adjourn any meeting called by the stockholders. Our bylaws
also require a supermajority vote of members of the board of directors and/or
stockholders to amend certain bylaw provisions. These provisions of our restated
certificate of incorporation and our bylaws could discourage potential
acquisition proposals and could delay or prevent a change in control of the
company. These provisions also may have the effect of preventing changes in the
management of the company. See "Risk Factors--Our certificate of incorporation
and bylaws may discourage potential acquisitions of our business by third
parties that stockholders may consider favorable."
We are subject to Section 203 of the Delaware General Corporation Law, an
anti-takeover law. In general, Section 203 prohibits a Delaware corporation from
engaging in any business combination with any interested stockholder for a
period of three years following the date that the stockholder became an
interested stockholder, unless:
o prior to that date, the board of directors of the corporation approved
either the business combination or the transaction that resulted in
the stockholder becoming an interested stockholder;
o upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced, excluding for purposes of determining
the number of shares outstanding those shares owned by:
o persons who are directors and also officers; and
o employee stock plans in which employee participants do not have
the right to determine confidentially whether shares held subject
to the plan will be tendered in a tender or exchange offer; or
o on or subsequent to that date, the business combination is approved by
the board of directors of the corporation and authorized at an annual
or special meeting of stockholders, and not by written consent, by the
affirmative vote of at least 662/3% of the outstanding voting stock
that is not owned by the interested stockholder.
Section 203 defines "business combination" to include the following:
o any merger or consolidation involving the corporation and the
interested stockholder;
o any sale, transfer, pledge or other disposition of 10% or more of the
assets of the corporation involving the interested stockholder;
o subject to certain exceptions, any transaction that results in the
issuance or transfer by the corporation of any stock of the
corporation to the interested stockholder;
o any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock of any class or series
of the corporation beneficially owned by the interested stockholder;
or
o the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by
or through the corporation.
In general, Section 203 defines an interested stockholder as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by any of these entities or persons.
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TRANSFER AGENT AND REGISTRAR
Our transfer agent and registrar for our common stock is________________ .
Its address is , and its telephone number at this location is
( )_______ .
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MATERIAL UNITED STATES FEDERAL INCOME AND ESTATE TAX CONSEQUENCES TO
NON-UNITED STATES HOLDERS
The following is a general discussion of the material U.S. federal
income and estate tax consequences of the ownership and disposition of the
common stock applicable to holders who are not U.S. persons within the
meaning of the Internal Revenue Code. A U.S. person is any person who is:
o a citizen or resident of the U.S.;
o a corporation, partnership, unless otherwise provided by Treasury
regulations, or other entity created or organized in the U.S. or under
the laws of the U.S. or any political subdivision thereof;
o an estate whose income is included in gross income for U.S. federal
income tax purposes regardless of its source; or
o a trust whose administration is subject to the primary supervision of
a U.S. court and which has one or more U.S. persons who have the
authority to control all substantial decisions of the trust.
This discussion does not address all aspects of U.S. federal income and
estate taxation that may be relevant in light of a holder's particular facts and
circumstances, such as being a U.S. expatriate, and does not address any tax
consequences arising under the laws of any state, local or non-U.S. taxing
jurisdiction. Furthermore, the following discussion is based on current
provisions of the Internal Revenue Code of 1986, as amended, and administrative
and judicial interpretations thereof, all as in effect on the date hereof, and
all of which are subject to change, possibly with retroactive effect. We have
not and will not seek a ruling from the Internal Revenue Service with respect to
the U.S. federal income and estate tax consequences described below, and as a
result, there can be no assurance that the Internal Revenue Service will not
disagree with or challenge any of the conclusions set forth in this discussion.
In addition, the Internal Revenue Service is not precluded from adopting a
contrary position.
DIVIDENDS
Any dividend paid to a holder of common stock who is not a U.S. person
generally will be subject to U.S. withholding tax either at a rate of 30% of the
gross amount of the dividend or such lower rate as may be specified by an
applicable tax treaty. Dividends received by a holder that are effectively
connected with a U.S. trade or business conducted by the holder are exempt from
such withholding tax. However, those effectively connected dividends, net of
certain deductions and credits, are taxed at the same graduated rates applicable
to U.S. persons.
In addition to the graduated rates described above, dividends received by a
corporate holder that are effectively connected with its U.S. trade or business
may also be subject to a branch profits tax at a rate of 30% or such lower rate
as may be specified by an applicable tax treaty.
A holder of common stock that is eligible for a reduced rate of withholding
tax pursuant to a tax treaty may obtain a refund of any excess amounts currently
withheld by filing an appropriate claim for refund with the Internal Revenue
Service.
GAIN ON DISPOSITION OF COMMON STOCK
A holder of common stock who is not a U.S. person generally will not be
subject to U.S. federal income tax on any gain realized upon the sale or
other disposition of his common stock unless:
o the gain is effectively connected with a U.S. trade or business of the
holder (which gain, in the case of a corporate holder, must also be
taken into account for branch profits tax purposes)
o the holder is an individual who holds his or her common stock as a
capital asset and who is present in the U.S. for a period or periods
aggregating 183 days or more during the calendar year in which the
sale or disposition occurs and certain other conditions are met; or
o we are or have been a United States real property holding corporation
within the meaning of the Internal Revenue Code at any time within the
shorter of the five-year period preceding the disposition or the
holder's holding period for its common stock. We have determined that
we are not and do not believe that we will become a United States real
property holding corporation.
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BACKUP WITHHOLDING AND INFORMATION REPORTING
Generally, we must report annually to the Internal Revenue Service the
amount of dividends paid, the name and address of the recipient, and the amount,
if any, of tax withheld. A similar report is sent to the holder of the common
stock. Pursuant to tax treaties or other agreements, the Internal Revenue
Service may make its reports available to tax authorities in the recipient's
country of residence.
Dividends paid to a holder who is not a U.S. Person at an address within
the U.S. may be subject to backup withholding at a rate of 31% if the holder
fails to establish that it is entitled to an exemption or to provide a correct
taxpayer identification number and other information to the payer. Backup
withholding will generally not apply to dividends paid to holders who are not
U.S. persons at an address outside the U.S. on or prior to December 31, 2000,
unless the payer has knowledge that the payee is a U.S. person. Final Treasury
Regulations regarding withholding and information reporting provide that
payments of dividends to a holder who is not a U.S. person at an address outside
the U.S. after December 31, 2000, may be subject to backup withholding at a rate
of 31% unless such holder satisfies various certification requirements.
Under current Treasury Regulations, the payment of the proceeds of the
disposition of common stock to or through the U.S. office of a broker is subject
to information reporting and backup withholding at a rate of 31% unless the
holder certifies its non-U.S. status under penalties of perjury or otherwise
establishes an exemption. Generally, the payment of the proceeds of the
disposition by a holder of common stock who is not a U.S. person outside the
U.S. to or through a foreign office of a broker will not be subject to backup
withholding but will be subject to information reporting requirements if the
broker is a U.S. person, a controlled foreign corporation as defined in the
Internal Revenue Code, or a foreign person 50% or more of whose gross income for
certain periods is from the conduct of a U.S. trade of business, unless the
broker has documentary evidence in its files of the holders' non-U.S. status and
certain other conditions are met, or the holder otherwise establishes an
exemption. Neither backup withholding nor information reporting generally will
apply to a payment of the proceeds of a disposition of common stock by or
through a foreign office of a foreign broker not subject to the preceding
sentence.
In general, the final Treasury Regulations applicable to payments made
after December 31, 2000, described above, do not significantly alter the
substantive withholding and information reporting requirements but do alter the
procedures for claiming benefits of an income tax treaty and change the
certification procedures relating to the receipt by intermediaries of payments
on behalf of the beneficial owner of shares of common stock. Holders should
consult their tax advisors regarding the effect, if any, of those final Treasury
Regulations on an investment in the common stock.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment, a refund may be obtained,
provided that the required information is furnished to the Internal Revenue
Service.
ESTATE TAX
An individual holder who owns common stock at the time of his death or had
made one or more of certain lifetime transfers of an interest in common stock
will be required to include the value of that common stock in such holder's
gross estate for U.S. federal estate tax purposes, unless an applicable estate
tax treaty provides otherwise.
THE FOREGOING IS A DISCUSSION OF THE MATERIAL U.S. FEDERAL INCOME AND
ESTATE TAX CONSEQUENCES OF THE OWNERSHIP, SALE OR OTHER DISPOSITION OF COMMON
STOCK BY HOLDERS WHO ARE NOT U.S. PERSONS WITHIN THE MEANING OF THE INTERNAL
REVENUE CODE. ACCORDINGLY, INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
WITH RESPECT TO THE INCOME TAX CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION OF
COMMON STOCK, INCLUDING THE APPLICATION AND EFFECT OF THE LAWS OF ANY STATE,
LOCAL, FOREIGN OR OTHER TAXING JURISDICTION.
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SHARES AVAILABLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock, and we cannot predict the effect, if any, that market sales of shares of
our common stock or the availability of shares of our common stock for sale will
have on the market price of common stock prevailing from time to time.
Nevertheless, sales of substantial amounts of our common stock in the public
market could adversely affect the market price of our common stock and could
impair our future ability to raise capital through the sale of our equity
securities.
Upon the completion of this offering we will have ________________ shares
of common stock outstanding assuming no exercise of the underwriters
over-allotment option. The number of shares of common stock to be outstanding
after this offering is based on the number of shares outstanding as of December
31, 1999, and excludes:
o 1,706,047 shares of common stock issuable upon the exercise of stock
options outstanding as of December 31, 1999 at a weighted average
exercise price of $0.53 per share;
o 392,460 shares of common stock issuable upon the exercise of
outstanding warrants as of December 31, 1999 at a weighted average
exercise price of $0.79 per share;
o 330,592 shares of common stock issuable upon conversion of an
outstanding convertible promissory note, as of December 31, 1999;
o 8,750,000 shares of common stock reserved for issuance under our 2000
Stock Incentive Plan that incorporates our 1998 Stock Plan; and
o 250,000 shares of common stock reserved for issuance under our 2000
Employee Stock Purchase Plan.
Of the outstanding shares, all of the shares sold in this offering will be
freely tradable, except that any shares held by our "affiliates," as that term
is defined in Rule 144 promulgated under the Securities Act, may only be sold in
compliance with the limitations described below. The remaining shares
of common stock will be deemed "restricted securities" as defined under Rule
144. Restricted shares may be sold in the public market only if registered or if
they qualify for an exemption from registration under Rules 144, 144(k) or 701
promulgated under the Securities Act, which rules are summarized below. Subject
to the lock-up agreements described below and the provisions of Rules 144,
144(k) and 701, additional shares will be available for sale in the public
market as follows:
NUMBER OF
SHARES DATE
- -------------- ----------------------------------------------------------------
After the date of this prospectus, freely tradable shares sold
in this offering and shares saleable under Rule 144(k) that are
not subject to the 180-day lock-up
After 180 days from the date of this prospectus, the 180-day
lock-up is released and these shares are saleable under Rule
144 (subject, in some cases, to volume limitations) or Rule
144(k)
After 180 days from the date of this prospectus, the 180-day
lock-up is released and these shares are saleable under Rule
701 (subject to repurchase by the Company)
After 180 days from the date of this prospectus, restricted
securities that are held for less than one year and are not yet
saleable under Rule 144
RULE 144
In general, under Rule 144 as currently in effect, a person, or group of
persons whose shares are required to be aggregated, including any of our
affiliates, who has beneficially owned shares for at least one year, including
the holding period of any prior owner who is not an affiliate, is entitled to
sell within any three-month period commencing 90 days after the date of this
prospectus, a number of shares that does not exceed the greater of one percent
of the then-outstanding shares of our common stock, which will be approximately
__________________ shares immediately after this offering, or the average weekly
trading volume in our common stock during the four calendar weeks preceding the
date on which notice of such sale is filed, subject to certain restrictions. In
addition, a person who is not deemed to have been an affiliate at any time
during the 90 days preceding a sale and who has beneficially owned the shares
proposed to be sold for at least two years, including the holding period of any
prior owner who is not an affiliate, would be entitled to sell these shares
under Rule 144(k) without regard to the requirements described
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above, unless otherwise contractually restricted. To the extent that shares were
acquired from one of our affiliates, a person's holding period for the purpose
of effecting a sale under Rule 144 would commence on the date of transfer from
the affiliate.
STOCK OPTIONS
As of December 31, 1999, options to purchase a total of 1,706,047 shares of
common stock were outstanding, all of which were currently exercisable. 664,190
of the shares issuable upon exercise of these options were vested. We intend to
file a Form S-8 registration statement under the Securities Act to register all
shares of common stock issuable under our 2000 Stock Incentive Plan and our 2000
Employee Stock Purchase Plan. Accordingly, shares of common stock underlying
these options will be eligible for sale in the public markets, subject to
vesting restrictions or the lock-up agreements described below. See "Executive
Compensation and other information--Employee Benefit Plans."
In general, under Rule 701 of the Securities Act of 1933 as currently in
effect, each of our employees, consultants or advisors who purchases shares from
us in connection with a compensatory stock plan or other written agreement is
eligible to resell such shares 90 days after the date of this prospectus in
reliance on Rule 144, but without compliance with certain restrictions,
including the holding period, contained in Rule 144.
LOCK-UP AGREEMENTS
We have agreed, and each of our officers and directors and substantially
all of our securityholders have agreed, subject to specified exceptions, not to,
without the prior written consent of Salomon Smith Barney Inc., sell, otherwise
dispose of any shares of our common stock or options to acquire shares of our
common stock or take any action to do any of the foregoing during the 180-day
period following the date of this prospectus. Salomon Smith Barney Inc. may, in
its sole discretion and at any time without notice, release all or any portion
of the securities subject to lock-up agreements. See "Underwriting."
REGISTRATION RIGHTS
Following this offering, under specified circumstances and subject to
customary conditions, holders of approximately 20,509,837 shares of our
outstanding common stock and warrants to purchase up to 552,500 shares of our
common stock will have demand registration rights with respect to their shares
of common stock, subject to the 180-day lock-up arrangement described above, to
require us to register their shares of common stock under the Securities Act,
and rights to participate in any future registrations of our securities. Holders
of an additional 68,662 shares of our common stock issuable upon exercise of
outstanding warrants will be entitled to participate in any future registrations
of our securities without being subject to underwriters' quantity limitations,
but will not possess demand registration rights. If the holders of these
registrable securities request that we register their shares, and if the
registration is effected, these shares will become freely tradable without
restriction under the Securities Act. Any sales of securities by these
stockholders could have a material adverse effect on the trading price of our
common stock. See "Description of Capital Stock--Registration Rights."
69
<PAGE>
UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement,
each underwriter named below has severally agreed to purchase, and we have
agreed to sell to such underwriter, the number of shares set forth opposite the
name of such underwriter.
NAME NUMBER OF SHARES
---- --------------------
Salomon Smith Barney Inc............................
CIBC World Markets Corp. ...........................
Prudential Securities Incorporated..................
--------------------
Total..........................................
====================
The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares included in this offering are subject to
approval of legal matters by counsel and other conditions. The underwriters are
obligated to purchase all the shares (other than those covered by the
over-allotment option described below) if they purchase any of the shares.
The underwriters, for whom Salomon Smith Barney Inc., CIBC World Markets
Corp. and Prudential Securities Incorporated are acting as representatives,
propose to offer some of the shares directly to the public at the public
offering price set forth on the cover page of this prospectus and some of the
shares to certain dealers at the public offering price less a concession not in
excess of $ __________ per share. The underwriters may allow, and such dealers
may reallow, a concession not in excess of $ __________ per share on sales to
other dealers. If all of the shares are not sold at the initial offering price,
the representatives may change the public offering price and the other selling
terms. The representatives have advised us that the underwriters do not intend
to confirm any sales to any accounts over which they exercise discretionary
authority.
We have granted the underwriters a 30-day option to purchase up to an
additional shares to cover over-allotments, if any. The underwriters
may exercise such option solely for the purpose of covering over-allotments, if
any, in connection with this offering. To the extent such option is exercised,
each underwriter will be obligated, subject to the conditions stated above, to
purchase a number of additional shares approximately proportionate to such
underwriter's initial purchase commitment.
Our officers, directors and some stockholders have agreed that, for a
period of 180 days from the date of this prospectus, they will not, without the
prior written consent of Salomon Smith Barney Inc., dispose of or hedge any
shares of our common stock or any securities convertible into or exchangeable
for common stock. Salomon Smith Barney Inc. in its sole discretion may release
any of the securities subject to these lock-up agreements at any time without
notice.
The underwriters have reserved for sale, at the initial public offering
price, up to common shares for customers, directors, employees and
other persons associated with us who have expressed an interest in purchasing
common shares in the offering. The number of shares available for sale to the
general public in the offering will be reduced to the extent these persons
purchase these reserved shares. Any reserved shares not so purchased will be
offered by the underwriters to the general public on the same terms as the other
shares.
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price for our shares was
determined by negotiations among us and the representatives. Among the factors
considered in determining the initial public offering price were our record of
operations, our current financial condition, our future prospects, our markets,
the economic conditions in and future prospects for the industry in which we
compete, our management, and currently prevailing general conditions in the
equity securities markets, including current market valuations of publicly
traded companies considered comparable to us. There can be no
70
<PAGE>
assurance, however, that the prices at which our shares will sell in the public
market after this offering will not be lower than the price at which they are
sold by the underwriters or that an active trading market in our common stock
will develop and continue after this offering.
We have applied to have the common stock included for quotation on the
Nasdaq National Market under the symbol "WLSS."
The following table shows the underwriting discounts and commissions to be
paid to the underwriters by us in connection with this offering. These amounts
are shown assuming both no exercise and full exercise of the underwriters'
option to purchase additional shares of common stock.
PAID BY WIRELESS
-------------------------
NO FULL
EXERCISE EXERCISE
------------ -----------
Per share............................................. $ $
Total................................................. $ $
In connection with the offering, Salomon Smith Barney Inc., on behalf of
the underwriters, may purchase and sell shares of common stock in the open
market. These transactions may include over-allotment, syndicate covering
transactions and stabilizing transactions. Over-allotment involves syndicate
sales of common stock in excess of the number of shares to be purchased by the
underwriters in the offering, which creates a syndicate short position.
Syndicate covering transactions involve purchases of the common stock in the
open market after the distribution has been completed in order to cover
syndicate short positions. Stabilizing transactions consist of certain bids or
purchases of common stock made for the purpose of preventing or retarding a
decline in the market of price of the common stock while the offering is in
progress.
The underwriters also may impose a penalty bid. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when
Salomon Smith Barney Inc., in covering syndicate short positions or making
stabilizing purchases, repurchases shares originally sold by that syndicate
member.
Any of these activities may cause the price of the common stock to be
higher than the price that otherwise would exist in the open market in the
absence of such transactions. These transactions may be effected on the Nasdaq
National Market or in the over-the-counter market, or otherwise and, if
commenced, may be discontinued at any time.
We estimate that the total expenses, excluding underwriting discounts and
commissions, of this offering will be approximately $ .
We have agreed to indemnify the underwriters against liabilities to which
they may become subject, including liabilities that may arise under the
Securities Act of 1933, the Securities Exchange Act of 1934 or other federal or
state statutory law or regulation, at common law or otherwise or to contribute
to payments the underwriters may be required to make in respect of any of those
liabilities.
71
<PAGE>
LEGAL MATTERS
The validity of the common stock offered will be passed upon for us by
Brobeck, Phleger & Harrison LLP, Palo Alto, California. Attorneys associated
with Brobeck, Phleger & Harrison LLP beneficially own 200,000 shares of our
common stock. Pillsbury Madison & Sutro LLP, Palo Alto, California is acting as
counsel for the underwriters in connection with selected legal matters relating
to the shares of common stock offered by this prospectus.
EXPERTS
The financial statements and the related financial statement schedule of
Wireless, Inc. as of December 31, 1998 and 1999 and for the period May 7, 1997
to December 31, 1997 and the years ended December 31, 1998 and 1999 have been
included in this prospectus and registration statement in reliance upon the
reports of KPMG LLP, independent auditors, appearing elsewhere in the prospectus
and registration statement, and upon the authority of said firm as experts in
accounting and auditing.
The financial statements of Multipoint Networks, Inc. for the period
January 1, 1998 to August 25, 1998 have been included in this prospectus and
registration statement in reliance upon the report of KPMG LLP, independent
auditors, appearing elsewhere in the prospectus, and upon the authority of said
firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission, Washington, D.C.
20549, under the Securities Act a registration statement on Form S-1 relating to
the common stock offered. This prospectus does not contain all of the
information set forth in the registration statement and its exhibits and
schedules. For further information with respect to us and the shares we are
offering pursuant to this prospectus, you should refer to the registration
statement and its exhibits and schedules. Statements contained in this
prospectus as to the contents of any contract, agreement or other document
referred to are not necessarily complete, and you should refer to the copy of
that contract or other document filed as an exhibit to the registration
statement. You may read or obtain a copy of the registration statement at the
commission's public reference room at 450 Fifth Street, N.W., Washington, D.C.
20549. You may obtain information on the operation of the public reference room
by calling the commission at 1-800-SEC-0330. The commission maintains a web site
that contains reports, proxy information statements and other information
regarding registrants that file electronically with the commission. The address
of this web site is http://www.sec.gov.
We intend to furnish holders of our common stock with annual reports
containing, among other information, audited financial statements certified by
an independent public accounting firm and quarterly reports containing unaudited
condensed financial information for the first three quarters of each fiscal
year. We intend to furnish other reports as we may determine or as may be
required by law.
72
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
WIRELESS, INC.
--------------
PAGE
--------
<S> <C>
Form of Independent Auditors' Report.................................................................. F-2
Balance Sheets as of December 31, 1998 and 1999....................................................... F-3
Statements of Operations for the period from May 7, 1997 (inception) to December 31, 1997
and the years ended December 31, 1998 and 1999........................................................ F-4
Statements of Stockholders' Equity for the period from May 7, 1997 (inception) to
December 31, 1997 and the years ended December 31, 1998 and 1999..................................... F-5
Statements of Cash Flows for the period from May 7, 1997 (inception) to December 31, 1997
and the years ended December 31, 1998 and 1999........................................................ F-6
Notes to Financial Statements......................................................................... F-7
MULTIPOINT NETWORKS, INC.
-------------------------
PAGE
--------
Independent Auditors'Report........................................................................... F-23
Statement of Operations for the period from January 1, 1998 to August 25, 1998........................ F-24
Statement of Stockholders' Equity for the period from January 1, 1998
to August 25, 1998.................................................................................... F-25
Statement of Cash Flows for the period from January 1, 1998 to August 25, 1998........................ F-26
Notes to the Statement of Operations.................................................................. F-27
</TABLE>
F-1
<PAGE>
FORM OF INDEPENDENT AUDITORS' REPORT
When the event referred to in Note 11(e) of the Wireless, Inc. financial
statements has been consummated, we will be in a position to render the
following report.
/s/ KPMG LLP
The Board of Directors
Wireless, Inc.:
We have audited the accompanying balance sheets of Wireless, Inc. as of December
31, 1998 and 1999, and the related statements of operations, stockholders'
equity, and cash flows for the period from May 7, 1997 (inception) to December
31, 1997 and the years ended December 31, 1998 and 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Wireless, Inc. as of December
31, 1998 and 1999, and the results of their operations and their cash flows for
the period from May 7, 1997 (inception) to December 31, 1997 and the years ended
December 31, 1998 and 1999 in conformity with generally accepted accounting
principles.
Mountain View, California
February 23, 2000, except for Note 11
which is as of May ______ , 2000
F-2
<PAGE>
WIRELESS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
1999
------------
PRO FORMA
DECEMBER 31, STOCKHOLDERS'
------------------------- EQUITY
1998 1999 (NOTE 1)
------------ ------------ ------------
(UNAUDITED)
------------
ASSETS
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents, including restricted cash of $80,000 at
December 31, 1998 and 1999................................................... $ 357,580 $ 1,140,409
Accounts receivable, net of allowance of $299,223 and $1,193,635 at
December 31, 1998 and 1999, respectively..................................... 3,732,846 5,851,440
Inventory...................................................................... 3,787,376 4,367,797
Prepaid expenses and other current assets...................................... 416,840 1,148,724
------------ ------------
Total current assets................................................... 8,294,642 12,508,370
------------ ------------
Lease receivable, long-term....................................................... -- 184,077
Property and equipment, net....................................................... 692,640 1,219,124
Goodwill and intangible assets net of amortization................................ 4,228,103 3,125,939
------------ ------------
Total assets........................................................... $13,215,385 $ 17,037,510
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................... $ 5,129,710 $ 3,420,662
Line of credit................................................................. 1,500,000 --
Accrued liabilities............................................................ 832,790 1,281,653
Sales commission payable....................................................... 804,086 1,512,882
Current portion of capital lease obligations................................... 41,128 171,254
Convertible notes payable...................................................... 4,161,064 1,000,000
------------ ------------
Total current liabilities.............................................. 12,468,778 7,386,451
Capital lease obligations, less current portion .................................. 84,193 239,306
------------ ------------
Total liabilities...................................................... 12,552,971 7,625,757
------------ ------------
Commitments
Stockholders' equity:
Series A convertible preferred stock; 6,000,000 shares authorized;
4,300,000 shares issued and outstanding in 1998 and 1999; aggregate
liquidation preference of $2,150,000 at December 31, 1999 ($0.50 per
share) ...................................................................... 2,150,000 2,150,000 $ --
Series B convertible preferred stock; 750,000 shares authorized; 750,000
shares issued and outstanding in 1998 and 1999; aggregate liquidation
preference of $1,500,000 at December 31, 1999 ($2.00 per share).............. 1,500,000 1,500,000 --
Series C convertible preferred stock, 2,400,000 shares authorized;
2,146,868 and 2,086,885 shares issued and outstanding in 1998 and
1999; aggregate liquidation preference of $2,775,556 at December 31,
1999 ($1.33 per share)....................................................... 2,855,333 2,775,556 --
Series D convertible preferred stock, 6,600,000 shares authorized;
6,541,013 issued and outstanding in 1999; aggregate liquidation
preference of $8,176,266 at December 31, 1999 ($1.25 per share).............. -- 8,161,966 --
Series E convertible preferred stock, 4,000,000 shares authorized;
3,600,000 issued and outstanding in 1999; aggregate liquidation
preference of $9,000,000 at December 31, 1999 ($2.50 per share).............. -- 8,173,442 --
Common stock, $0.001 par value; 30,000,000 shares authorized at
December 31, 1998, and 50,000,000 shares authorized at December 31, 1999;
3,496,692 and 7,765,538 shares issued and outstanding at December 31, 1998
and 1999, actual; 100,000,000 shares authorized, 31,933,389 shares issued
and outstanding, pro forma................................................... 3,497 7,766 31,933
Additional paid-in capital..................................................... 5,985,726 17,046,663 72,531,274
Note receivable from stockholder............................................... -- (168,750) (168,750)
Deferred stock-based compensation.............................................. (711,867) (5,415,465) (5,415,465)
Accumulated deficit............................................................ 11,120,275) (24,819,425) (24,819,425)
------------ ------------ ------------
Total stockholders' equity............................................. 662,414 9,411,753 $42,159,567
------------ ------------ ------------
Total liabilities and stockholders' equity ............................ $13,215,385 17,037,510
============ ============
</TABLE>
See accompanying notes to financial statements
F-3
<PAGE>
WIRELESS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
MAY 7, 1997
(INCEPTION)
TO YEARS ENDED DECEMBER 31,
DECEMBER 31, ------------------------------
1997 1998 1999
------------- -------------- ---------------
<S> <C> <C> <C>
Revenue......................................................... $ 200,736 $ 11,172,235 $ 21,296,010
Cost of revenue (excludes amortization of deferred stock-based
compensation of $12,972, $47,878 and $275,437,
respectively)............................................. 420,906 9,091,133 15,793,910
------------- -------------- ---------------
Gross profit (loss)...................................... (220,170) 2,081,102 5,502,100
------------- -------------- ---------------
Operating expenses:
Research and development (excludes amortization of
deferred stock-based compensation of $13,672, $119,838
and $1,657,028, respectively)............................. 708,278 2,323,589 3,220,850
Sales and marketing (excludes amortization of deferred
stock-based compensation of $19,266 and $81,341 and
$560,177, respectively)................................... 902,004 3,811,338 7,443,454
General and administrative (excludes amortization of
deferred stock-based compensation of $23,090, $391,136
and $1,826,423, respectively)............................. 258,412 1,316,072 2,688,924
In-process research and development costs
acquired................................................. -- 817,058 --
Amortization of intangibles.................................. -- 359,097 1,102,164
Impairment of an intangible asset............................ 1,500,000 -- --
Amortization of deferred stock compensation................. 69,000 640,193 4,319,065
------------- -------------- ---------------
Total operating expenses................................. 3,437,694 9,267,347 18,774,457
------------- -------------- ---------------
Operating loss................................................... (3,657,864) (7,186,245) (13,272,357)
Interest expense (income), net................................... (13,953) 290,119 426,793
------------- -------------- ---------------
Net loss................................................. $(3,643,911) $ (7,476,364) $ (13,699,150)
============= ============== ===============
Net loss per share:
Basic and diluted............................................ $ -- $ (6.18) $ (4.30)
============= ============== ===============
Weighted average number of shares used in computation........ -- 1,210,364 3,187,334
============= ============== ===============
</TABLE>
F-4
<PAGE>
WIRELESS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
PERIOD FROM MAY 7, 1997 (INCEPTION) TO DECEMBER 31, 1997 AND THE
YEARS ENDED DECEMBER 31, 1998 AND 1999
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C SERIES D
CONVERTIBLE CONVERTIBLE CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
---------------------- ------------------- --------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ---------- ------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of Series A convertible
preferred stock.................. 6,000,000 $3,000,000 -- $ -- -- $ -- -- $ --
Issuance of Series B convertible
preferred stock.................. -- -- 750,000 1,500,000 -- -- -- --
Unearned compensation for options
granted to employees.............
Amortization of unearned
compensation
Exercise of stock options............ -- -- -- -- -- -- -- --
Net loss.............................. -- -- -- -- -- -- -- --
---------- ---------- ------- ---------- --------- ---------- --------- ----------
Balance as of December 31, 1997....... 6,000,000 3,000,000 750,000 1,500,000 -- -- -- --
Redemption of Series A convertible
preferred stock.................. (1,700,000) (850,000) -- -- -- -- --
Exercise of stock options............. -- -- -- -- -- -- -- --
Issuance of common stock
for interest on financing and
consulting services.............. -- -- -- -- -- -- -- --
Issuance of Series C convertible
preferred stock, common stock,
warrants and stock options as
consideration for the
acquisition of Multipoint........ -- -- -- -- 2,146,868 2,855,333 -- --
Unearned compensation for
options granted to
employees........................ -- -- -- -- -- -- -- --
Amortization of unearned
compensation..................... -- -- -- -- -- -- -- --
Net loss.............................. -- -- -- -- -- -- -- --
---------- ---------- ------- ---------- --------- ---------- --------- ----------
Balance as of December 31, 1998....... 4,300,000 2,150,000 750,000 1,500,000 2,146,868 2,855,333 -- --
Issuance of Series D convertible
preferred stock.................. -- -- -- -- -- -- 6,541,013 8,161,966
Issuance of Series E convertible
preferred stock.................. -- -- -- -- -- -- -- --
Repurchase of Series C
convertible preferred and
common shares.................... -- -- -- -- (59,983) (79,777) -- --
Exercise of stock options............. -- -- -- -- -- -- -- --
Exercise of stock options for
note receivable.................. -- -- -- -- -- -- -- --
Unearned compensation for
options granted to
employees........................ -- -- -- -- -- -- -- --
Amortization of unearned
compensation..................... -- -- -- -- -- -- -- --
Warrants issued for services..........
Net loss.............................. -- -- -- -- -- -- -- --
---------- ---------- ------- ---------- --------- ---------- ---------------------
Balance as of December 31, 1999....... 4,300,000 $2,150,000 750,000 $1,500,000 2,086,885 $2,775,556 6,541,013 $8,161,966
========== ========== ======= ========== ========= ========== ========= ==========
<CAPTION>
SERIES E
CONVERTIBLE NOTE
PREFERRED STOCK COMMON STOCK ADDITIONAL DEFERRED RECEIVABLE
--------------------- ------------------ PAID-IN STOCK-BASED FROM
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION STOCKHOLDER
--------- ---------- --------- ------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of Series A convertible
preferred stock.................. -- $ -- -- $ -- $ -- $ -- $ --
Issuance of Series B convertible
preferred stock.................. -- -- -- -- -- -- --
Unearned compensation for options
granted to employees............. 152,000 (152,000) --
Amortization of unearned
compensation 69,000 --
Exercise of stock options............ -- -- 599,500 600 29,375 -- --
Net loss.............................. -- -- -- -- -- -- --
---------------------- --------- ------- ----------- ------------ -----------
Balance as of December 31, 1997....... -- -- 599,500 600 181,375 (83,000) --
Redemption of Series A convertible
preferred stock.................. -- -- -- -- 630,210 -- --
Exercise of stock options............. -- -- 229,750 230 24,487 -- --
Issuance of common stock
for interest on financing and --
consulting services.............. -- -- 50,000 50 37,698 --
Issuance of Series C convertible
preferred stock, common stock,
warrants and stock options as
consideration for the
acquisition of Multipoint........ -- -- 2,617,442 2,617 3,842,896 -- --
Unearned compensation for
options granted to
employees........................ -- -- -- -- 1,269,060 (1,269,060) --
Amortization of unearned
compensation..................... -- -- -- -- -- 640,193 --
Net loss.............................. -- -- -- -- -- -- --
--------------------- --------- ------- ----------- ------------ -----------
Balance as of December 31, 1998....... -- -- 3,496,692 3,497 5,985,726 (711,867) --
Issuance of Series D convertible
preferred stock.................. -- -- -- -- -- -- --
Issuance of Series E convertible
preferred stock.................. 3,600,000 8,173,442 -- -- 691,200 -- --
Repurchase of Series C
convertible preferred and
common shares.................... -- -- (118,239) (118) (88,562) -- --
Exercise of stock options............. -- -- 4,387,085 4,387 899,686 --
Exercise of stock options for
note receivable.................. -- -- -- -- 168,750 -- (168,750)
Unearned compensation for
options granted to
employees........................ -- -- -- -- 9,022,663 (9,022,663) --
Amortization of unearned
compensation..................... -- -- -- -- -- 4,319,065 --
Warrants issued for services.......... 367,200
Net loss.............................. -- -- -- -- -- -- --
--------- ---------- --------- --- --- ----------- ------------ -----------
Balance as of December 31, 1999....... 3,600,000 $8,173,442 7,765,538 $7,766 $17,046,663 $(5,415,465) $ (168,750)
========= ========== ========= ======= =========== ============ ===========
<CAPTION>
TOTAL
ACCUMULATED STOCKHOLDERS'
DEFICIT EQUITY
------------ ------------
<S> <C> <C>
Issuance of Series A convertible
preferred stock.................. $ -- $ 3,000,000
Issuance of Series B convertible
preferred stock.................. -- 1,500,000
Unearned compensation for options
granted to employees.............
Amortization of unearned
compensation -- 69,000
Exercise of stock options............ -- 29,975
Net loss.............................. (3,643,911) 3,643,911)
------------ ------------
Balance as of December 31, 1997....... (3,643,911) 955,064
Redemption of Series A convertible
preferred stock.................. -- (219,790)
Exercise of stock options............. -- 24,717
Issuance of common stock
for interest on financing and
consulting services.............. -- 37,748
Issuance of Series C convertible
preferred stock, common stock,
warrants and stock options as
consideration for the
acquisition of Multipoint........ -- 6,700,846
Unearned compensation for
options granted to
employees........................ -- --
Amortization of unearned
compensation..................... -- 640,193
Net loss.............................. (7,476,364) (7,476,364)
-------------- -----------
Balance as of December 31, 1998....... (11,120,275) 662,414
Issuance of Series D convertible
preferred stock.................. -- 8,161,966
Issuance of Series E convertible
preferred stock.................. -- 8,864,642
Repurchase of Series C
convertible preferred and
common shares.................... -- (168,457)
Exercise of stock options............. -- 904,073
Exercise of stock options for
note receivable.................. -- --
Unearned compensation for
options granted to
employees........................ -- --
Amortization of unearned
compensation..................... -- 4,319,065
Warrants issued for services.......... 367,200
Net loss.............................. (13,699,150) (13,699,150)
------------ ------------
Balance as of December 31, 1999....... $(24,819,425) $ 9,411,753
============ ============
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
WIRELESS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD
FROM
MAY 7, 1997
(INCEPTION) YEARS ENDED DECEMBER 31,
TO DECEMBER -------------------------
31, 1997 1998 1999
---------- ---------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................. $(3,643,911) $(7,476,364) $(13,699,150)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization........ 29,746 238,188 335,248
Amortization of deferred stock-based
compensation....................... 69,000 640,193 4,319,064
In-process research and development
costs acquired..................... -- 817,058 --
Amortization of intangibles.......... -- 359,097 1,102,164
Impairment of an intangible asset.... 1,500,000 -- --
Allowance for doubtful accounts...... -- 299,223 894,412
Noncash interest expense............. -- 25,348 283,248
Changes in operating assets and
liabilities (net of effect of
non-cash investing and financing
activities):
Accounts receivable............ (145,805) (1,766,384) (3,013,006)
Inventory...................... (244,382) (507,796) (580,421)
Prepaids and other current
assets....................... (424,195) 147,982 (423,652)
Long-term lease receivable..... -- -- (184,077)
Accounts payable............... 273,642 3,719,729 (1,709,048)
Accrued liabilities............ 350,201 709,255 1,157,659
---------- ---------- ------------
Net cash used in operating
activities............ (2,235,704) (2,794,471) (11,517,559)
---------- ---------- ------------
Cash flows from investing activities:
Purchase of property and equipment........ (173,453) (178,539) (455,657)
Acquisition of cash from Multipoint....... -- 237,781 --
Advance to Multipoint..................... (300,000) -- --
---------- ---------- ------------
Net cash (used in)
provided by investing
activities............... (473,453) 59,242 (455,657)
---------- ---------- ------------
Cash flows from financing activities:
Proceeds from (payments of)
lines of credit......................... -- 415,897 (1,500,000)
Proceeds from (payments of) bridge
financing and convertible notes......... -- 2,411,064 1,820,461
Proceeds from issuance of common stock.... 29,975 24,717 904,074
Proceeds from issuance of preferred stock. 3,000,000 -- 11,820,803
Repurchase of common and preferred stock -- -- (168,457)
Payments for capital lease obligations.... (24,071) (55,616) (120,836)
---------- ---------- ----------
Net cash provided by
financing activities............ 3,005,904 2,796,062 12,756,045
---------- ---------- ----------
Net increase in cash and cash equivalents... 296,747 60,833 782,829
Cash and cash equivalents, beginning of
period.................................... -- 296,747 357,580
---------- ---------- ----------
Cash and cash equivalents, end of period.... $ 296,747 $ 357,580 $1,140,409
========== ========== ==========
Supplementary cash flow information:
Cash paid for interest.................... $ 2,423 $ 81,762 $ 63,020
Supplementary disclosure of non-cash
investing and financing activities:
The Company acquired Multipoint
Networks, Inc. during 1998. Note 4
outlines details of the purchase price
and the allocation of the purchase
price to the net assets acquired.
Property and equipment acquired under
capital lease obligations.............. $ 36,255 168,753 406,075
Redemption of Series A preferred stock... -- 219,790 --
Unearned compensation for options
granted to employees................... 152,000 1,269,060 9,022,663
Licensed technology acquired for
issuance of preferred stock............ 1,500,000 -- --
Issuance of Series D preferred stock for
convertible notes and accrued interest. -- -- 5,205,805
Warrants issued for services............. -- -- 367,200
Options exercised for note receivable.... -- -- 168,750
See accompanying notes to financial statements.
</TABLE>
F-6
<PAGE>
WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS
(1) THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) THE COMPANY
Wireless, Inc. (the Company) was incorporated in California on May
7, 1997 to develop broadband wireless access solutions that enable
Internet and communication service providers, telephone operating
companies and private network operators to deliver voice and
high-speed data services to their customers. The operations of the
Company include the design, manufacture and marketing of
high-speed, wireless, point-to-point and point-to-multipoint
telecommunications access equipment. The Company's products are
distributed through a network of worldwide independent
distributors, system integrators, local resellers and a direct
sales force.
(b) REVENUE RECOGNITION
Revenue on products is recognized when all of the following have
occurred: the product has been shipped; title and risk of loss have
passed to the customer; the Company has the right to invoice the
customer and collection of the receivable is probable; and all
obligations have been fulfilled. The only post-sale obligation is a
12 month warranty. Revenue from services is recognized when the
service is completed. Trial sales made directly to the end users
are not recognized as revenue until the trial has been completed
and the product has been accepted.
Estimated warranty costs are accrued at the time of the sale based
upon the Company's historical experience.
(c) USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of expenses during the reporting period. Actual
results could differ from these estimates.
(d) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Equipment under capital
leases is stated at the present value of minimum lease payments at
the inception of the lease. Depreciation and amortization of
property and equipment is provided using the straight-line method
over the estimated useful lives of the respective assets, which
range from three to five years. Equipment held under capital leases
is amortized using the straight-line method over the shorter of the
lease term or the estimated useful life of the asset.
(e) INTANGIBLE ASSETS
Intangible assets include developed technology, assembled
workforce, core technology and goodwill all related to the
acquisition of Multipoint Networks, Inc. as discussed in notes 3
and 4. Intangibles are amortized on a straight line basis over
their estimated useful lives which range from two to five years.
(f) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with remaining
maturities of three months or less at the date of acquisition to be
cash equivalents.
Restricted cash consists of amounts held as security for an
outstanding letter of credit.
F-7
<PAGE>
WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(g) CONCENTRATION OF RISK
Financial instruments, which potentially subject the Company to a
concentration of credit risk, principally consist of accounts
receivable. The Company performs ongoing credit evaluations of its
customers and generally does not require collateral on accounts
receivable.
The following table summarizes information relating to the
Company's significant customers with revenues comprising greater
than 10% of total revenue for the period and/or balances greater
than 10% of accounts receivable at year end:
<TABLE>
<CAPTION>
REVENUE FOR
PERIODS ENDED DECEMBER 31, ACCOUNTS RECEIVABLE
------------------------------------ DECEMBER 31,
CUSTOMER 1997 1998 1999 1999
- ---------- ---------- ------------ ------------- -------------------
<S> <C> <C> <C> <C>
A........................... $ * $ * $2,955,072 *
B........................... * * * 903,900
C........................... 21,158 2,563,290 * *
D........................... 108,609 2,354,907 * *
E........................... * 1,881,258 * *
</TABLE>
- -----------------
* Revenue and/or accounts receivable accounted for less than 10% in these years.
(h) FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company's cash, accounts receivable, accounts
payable, and borrowings approximate their carrying values due to
their short maturity or variable-rate structure. The interest rates
on the capital lease obligations are deemed to be at market rates
and the carrying amounts approximate fair value.
(i) RESEARCH AND DEVELOPMENT
Costs incurred in the research and development of new products and
enhancements to existing products are expensed as incurred until
the technological feasibility of the product or enhancement has
been established. Technological feasibility is established when a
product design and a working model have been completed and the
completeness of the working model, and its consistency with the
product design, have been confirmed by testing. After establishing
technological feasibility, material development costs are
capitalized. The capitalized cost is then amortized on a
straight-line basis over the estimated product life, or is
amortized based on the ratio of current revenues to total projected
product revenues, whichever is greater. To date, the period between
completion of a working model and the general release of the
product has been short and development costs qualifying for
capitalization have been insignificant. Accordingly, the Company
has not capitalized any development costs.
(j) INVENTORY
Inventory is stated at the lower of cost, determined on a first-in
first-out basis or net realizable value.
(k) INCOME TAXES
The Company utilizes the asset and liability method of accounting
for income taxes. Under this method, deferred tax assets and
liabilities are determined based on the difference between the
financial statement and tax basis of assets and liabilities using
enacted tax rates in effect for the year in which the differences
are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the
amounts expected to be recovered.
F-8
<PAGE>
WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(l) STOCK-BASED COMPENSATION
The Company has adopted Statement of Financial Accounting Standards
(SFAS) No. 123, ACCOUNTING FOR STOCK BASED COMPENSATION. This
statement establishes financial accounting and reporting standards
for stock based compensation, including employee stock option
plans. As allowed by SFAS 123, the Company measures compensation
expense under the provisions of Accounting Principles Board (APB)
Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES (APB 25),
and related interpretations. The Company follows Financial
Accounting Standards Board Interpretation No. 28, ACCOUNTING FOR
STOCK APPRECIATION RIGHTS AND OTHER VARIABLE STOCK OPTION OR AWARD
PLANS in amortizing unearned compensation during the service
period.
(m) COMPREHENSIVE INCOME
The Company does not have any components of comprehensive income,
consequently comprehensive loss consists entirely of net loss for
all periods presented.
(n) LONG-LIVED ASSETS, INCLUDING INTANGIBLE ASSETS
The Company accounts for long-lived assets under SFAS No. 121,
ACCOUNTING FOR IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED
ASSETS TO BE DISPOSED OF. SFAS No. 121 requires that long-lived
assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying amount of assets may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash
flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment loss to be recognized is
measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less
costs to sell. The Company estimates fair value based on the best
information available, making judgments and projections as
considered necessary.
(o) ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 133
establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in
other contracts, (collectively referred to as derivatives) and for
hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. For
a derivative not designated as a hedging instrument, changes in the
fair value of the derivative are recognized in earnings in the
period of change. This statement will be effective for all annual
and interim periods beginning after January 1, 2001. Management
does not believe the adoption of SFAS No. 133 will have a material
effect on the Company's consolidated financial position or results
of operations.
(p) NET LOSS PER SHARE
Net loss per share is computed based on SFAS No. 128, EARNINGS PER
SHARE. The basic net loss per share is computed by dividing the net
loss attributable to common stockholders by the weighted average
number of common shares outstanding. Potential weighted average
common shares relating to stock options of 63,000, 214,000 and
845,000 in 1997, 1998 and 1999, respectively, potential weighted
average common shares relating to convertible preferred stock of
6,243,000, 5,858,000 and 13,115,000 shares in 1997, 1998 and 1999,
respectively, and weighted average unvested restricted shares of
405,000, 531,000 and 735,000 shares in 1997, 1998 and 1999
respectively, have also been excluded from the calculations of net
loss per share as their impact would be anti-dilutive. Thus, the
diluted net loss per share in these years is the same as the basic
net loss per share. Net loss per share is not presented in the
period from May 7, 1997 (inception) to December 31, 1997 as all
common share as of December 31, 1997 were unvested and subject to
repurchase and accordingly are not considered outstanding for the
computations of net loss per share.
F-9
<PAGE>
WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(q) PRO FORMA NET LOSS PER SHARE (UNAUDITED)
Unaudited pro forma basic and diluted net loss per share was $0.84
for the year ended December 31, 1999 based on pro forma
weighted-average shares outstanding of 16,302,544 for the year.
This information reflects per share data assuming the conversion of
all outstanding shares of convertible preferred stock at the
respective conversion rate for each preferred share of Series A, B,
C, D and E as if the conversion of the preferred stock had taken
place at January 1, 1999 or at the date of issuance, if later. Pro
forma common equivalent shares, comprised of incremental common
shares issuable upon exercise of stock options and warrants are not
included in pro forma diluted net loss per share because they would
be antidilutive.
(r) PRO FORMA STOCKHOLDERS' EQUITY (UNAUDITED)
The unaudited pro forma stockholders' equity gives effect to (1)
the issuance of 3,000,000 shares of Series F convertible preferred
stock and 3,429,352 common shares, at $5 per share, in January
2000, (2) the exercise of warrants to purchase 48,000 shares of
Series D convertible preferred stock at $1.25 per share and 20,000
shares of Series E convertible preferred stock at $2.50 per share
and (3) the exercise of warrants to purchase 160,000 shares of
common stock at an average exercise price of $3.06, prior to the
consummation of the Company's initial public offering. It also
gives effect to the conversion of Series A, B, C, D, E, and F
convertible preferred stock expected to be outstanding at the
consummation of the Company's initial public offering, into
20,578,499 shares of common stock, upon the closing of the
Company's initial public offering.
(2) PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1999
----------- -------------
<S> <C> <C>
Office furniture and equipment...................... $ 74,941 $ 185,623
Machinery equipment and fixtures.................... 574,139 803,626
Computer equipment and software..................... 207,750 363,303
Leasehold improvements.............................. 79,147 425,454
----------- -------------
935,977 1,778,006
Less: accumulated depreciation and amortization..... (243,337) (558,882)
----------- -------------
Property and equipment, net......................... $ 692,640 $1,219,124
=========== =============
</TABLE>
(3) INTANGIBLE ASSETS
All intangible assets relate to the acquisition of Multipoint. A summary
of intangibles is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- ESTIMATED
1998 1999 USEFUL LIVES
------------ -------------- ------------
<S> <C> <C> <C>
Developed technology................... $3,175,590 $ 3,175,590 5 years
Assembled workforce.................... 610,208 610,208 2 years
Core technology........................ 463,169 463,169 5 years
Goodwill............................... 338,233 338,233 5 years
------------ -------------
4,587,200 4,587,200
Less: accumulated amortization......... (359,097) (1,461,261)
------------ -------------
$4,228,103 $ 3,125,939
============ =============
</TABLE>
In May 1997, the Company acquired licensed technology for the issuance of
3,000,000 shares of Series A Convertible Preferred Stock valued at $0.50
per share. An intangible asset of $1,500,000 was recorded for the
acquired technology. Subsequent to its acquisition, it was determined
that the licensed technology did not have value to the Company,
accordingly, the Company began negotiations to restructure the licensed
F-10
<PAGE>
WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
technology agreement. For the year ended December 31, 1997, the Company
recorded an impairment charge of $1,500,000 related to the acquired
technology.
(4) MULTIPOINT NETWORKS, INC. ACQUISITION
On August 26, 1998 Wireless, Inc. acquired the net assets of Multipoint
Networks, Inc. (Multipoint). Multipoint was incorporated in California in
1987 and designed, manufactured and marketed wireless metropolitan-area
data network products based on unique patented digital transceiver
technology. The acquisition has been accounted for by the purchase method
and accordingly, the operating results of Multipoint form part of the
operating results of the Company from August 26, 1998.
The $7,253,312 purchase price for the acquisition was comprised as
follows:
Issuance of Series C preferred stock............... $2,855,333
Issuance of common stock........................... 3,481,198
Receivable forgiven................................ 300,000
Issuance of stock options.......................... 326,754
Issuance of stock warrants......................... 37,561
Acquisition costs.................................. 252,466
------------
$7,253,312
============
There were no contingent payments or other commitments specified in the
acquisition agreement.
The purchase price was more than the fair value of the net assets
acquired of $6,915,079 resulting in goodwill of $338,233. This goodwill
is included as a component of intangibles and is being amortized over its
useful life of five years.
The purchase price was allocated as follows:
Cash and cash equivalents........................ $ 237,781
Inventory........................................ 3,035,198
Accounts receivable.............................. 2,082,035
Prepaid expenses and other current assets........ 398,260
Property and equipment........................... 395,287
Developed technology............................. 3,175,590
In-process research and development.............. 817,058
Assembled workforce.............................. 610,208
Core technology.................................. 463,169
Goodwill......................................... 338,233
Liabilities...................................... (4,299,507)
-------------
$ 7,253,312
=============
In-process research and development was fully expensed upon acquisition
as the Company determined that the acquired technology had not yet
achieved technological feasibility and that the technology did not have
an alternative future use. The in-process research and development
related to Multipoint's WaveNet IP technology. The valuation of the
in-process research and development was based upon present value of
forecasted operating cash flows expected to be generated from the
technology and considered that the technology was approximately 85%
complete as of the acquisition date. Developed and core technology are
being amortized on a straight-line basis over five years. Assembled
workforce is being amortized on a straight line basis over two years.
F-11
<PAGE>
WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The following table shows unaudited pro forma results of operations for
the Company, assuming the acquisition of Multipoint had been consummated
as of January 1, 1998 and excludes the write-off of in-process research
and development costs because of the non-recurring nature of this charge.
The unaudited pro forma information is not necessarily indicative of the
combined results that would have occurred had the acquisition taken place
as of the beginning of the period presented, nor is it necessarily
indicative of results that may occur in the future:
YEAR ENDED
DECEMBER 31,
1998
--------------
(UNAUDITED)
Pro forma basis:
Total revenue................................ $17,044,735
Net loss..................................... 8,809,019
Net loss per share:
Basic and diluted.......................... $ 3.02
Weighted-average shares outstanding:
Basic and diluted.......................... 2,917,000
(5) BORROWINGS
(a) LINE OF CREDIT
The Company had available a line of credit which allowed for
borrowings up to 80% of eligible accounts receivable with a maximum
borrowing of $2,000,000. The line is renewable annually at the
option of the bank and the Company. In consideration for the
renewal in 1999, the Company issued the bank a warrant to purchase
48,000 shares of the Series D Convertible Stock at $1.25 per share.
The warrant value of $37,400 is being amortized as interest expense
over the term of the line of credit. The amount of $37,400 ascribed
to the warrants was estimated using the Black-Scholes option
valuation model with the following assumptions: no expected
dividend yield; risk free interest rate of 5.5%; expected
volatility of 70%; and contractual term of 5 years. The line is
secured by substantially all of the Company's assets. Borrowings
under the line of credit bear interest at 2.5% above the bank's
prime rate. At December 31, 1999, no borrowings were outstanding on
the line of credit.
The line of credit was renewed on February 23, 2000 with the credit
limit increased to $5 million in the event that the Company
receives at least $15 million in net cash proceeds from the issue
of equity or subordinated debt, or in the event that the Company
raises at least $50 million in net cash proceeds from the
consummation of the initial public offering before May 31, 2000.
The terms of the line of credit remain unchanged with exception of
an additional requirement for the Company to maintain tangible net
worth of $15 million. The Company is committed to issue a five year
warrant to purchase 37,500 shares of common stock at $4.00 per
share in the event that the initial public offering is not
consummated by May 31, 2000 or in the event that the offering does
not raise net cash proceeds of at least $50 million.
(b) CONVERTIBLE NOTES PAYABLE
During 1998, the Company assumed $1,950,000 of short-term financing
as part of the acquisition of Multipoint and obtained $2,004,400
from existing Wireless shareholders in exchange for convertible
notes payable. The bridge loans carried an interest rate of 10%.
The convertible notes stated that the outstanding principal and
interest would be convertible at the option of the holder into
shares of the Company's equity at the closing of the Company's next
equity financing. The conversion price was to be determined at the
time of the next equity financing and was to be consistent with the
price and terms of that financing.
F-12
<PAGE>
WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
On May 21, 1999, the notes and related accrued interest were
converted to Series D preferred stock at a price of $1.25 per
share.
In August 1999, the Company borrowed $1,000,000 under a convertible
promissory note. The principal amount, together with interest
accrued at 10% per annum, will become due and payable on September
1, 2004. At the option of the holder, the note may be converted
into shares of the next series of the Company's preferred stock at
a conversion price based on the underlying terms of that financing.
In September 1999, the Company issued Series E Convertible
Preferred stock at $2.50 per share with an attached 10% warrant to
purchase common stock at $0.75 per share. This financing qualified
as the next financing in accordance with the terms of the
promissory note. Based on this financing, the promissory note is
convertible into 320,000 shares of Series E Convertible Preferred
Stock at $3.125 per share and, if converted, the holder will
receive a warrant to purchase 32,000 shares of common stock at
$0.75 per share. These Series E preferred shares will be
convertible at any time into common shares at a rate of 1.0331
common shares for each preferred share.
(c) BANK LOAN
In 1999, the Company borrowed $1,000,000 at an interest rate of
prime plus 3%. As additional consideration, the Company issued the
bank a warrant to purchase 20,000 shares of Series E Convertible
Preferred Stock at $2.50 per share. The warrant is valued at
$27,800 and has been recorded as interest expense. The amount of
$27,800 ascribed to the warrants was estimated using the
Black-Scholes option pricing model with the following assumptions:
no expected dividend yield; risk free interest rate of 5.5%;
expected volatility of 70%; and contractual term of 5 years. All
principal and interest was repaid from proceeds of the Series E
financing.
(d) LETTERS OF CREDIT
The Company has letters of credit outstanding in lieu of security
deposits on leased facilities. Letters of credit outstanding were
$80,000 and $302,000 at December 31, 1998 and 1999, respectively.
(6) STOCKHOLDERS' EQUITY
(a) CONVERTIBLE PREFERRED STOCK
The Company designated and issued convertible preferred stock as
follows:
In May 1997, the Company issued 6,000,000 shares of Series A
Preferred at $0.50 per share of which 3,000,000 shares were issued
for cash and 3,000,000 shares were issued in exchange for a
technology license agreement. In 1998, as a result of a subsequent
restructuring of the license agreement and cancellation of a note
receivable, 1,700,000 shares were returned to the Company.
In October 1997, the Company issued 750,000 shares of Series B
Preferred Stock for $2.00 per share.
In August 1998, the Company issued 2,146,868 shares of Series C
Preferred Stock at $1.33 per share in connection with the
acquisition of Multipoint.
In March 1999, the Company issued 6,541,013 shares of Series D
Preferred Stock for $1.25 per share.
In September 1999, the Company issued 3,600,000 shares of Series E
Preferred Stock for $2.50 per share and warrants to purchase
360,000 shares of common stock at $0.75 per share. The conversion
price was subsequently reduced to $2.42 per share pursuant to a
resolution by the board of directors on December 21, 1999. The net
proceeds were allocated to the preferred shares and the warrants
based on their respective fair values. The warrants were valued at
$691,200 which is recorded as additional paid in capital. The
warrants expire 5.5 years from the date of issue. The amount of
$691,200 ascribed to the warrants was estimated using the
Black-Scholes option pricing model with the following assumptions:
no expected dividend yield; risk free interest rate of 6.0%;
expected volatility of 70%; and contractual term of 5.5 years.
F-13
<PAGE>
WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The rights, preferences, and privileges of the holders of Series A,
B, C, D, and E preferred stock are as follows:
The holders of Series A and B preferred stock are entitled to
receive dividends in an amount equivalent to that which they
would receive if their shares were converted to common stock.
The holders of Series C, D and E preferred stock are entitled
to receive preferential dividends at a rate of $0.12, $0.11
and $0.23 per share, respectively. All dividends require board
of director approval and are noncumulative. The conversion
price is the original issue price subject to adjustments for
dilution in the event that there is a stock split, subdivision
or combination of the outstanding shares of common stock. In
addition the conversion price is subject to adjustment in the
event that securities are subsequently sold at a lower price,
subject to certain exceptions. No dividends are paid or set
aside for holders of common stock until all dividends have
been paid or set aside for holders of Series A, B, C, D and E
preferred stock. No dividends have been declared to date.
Shares of Series A, B, C, D, and E preferred stock have a
liquidation preference of $0.50, $2.00, $1.33, $1.25 and $2.50
per share, respectively, plus any declared but unpaid
dividends.
Each holder of preferred stock has voting rights equal to
common stock on an "as if converted" basis.
Each share of preferred stock is convertible at any time into
one share of common stock at the option of the holder with the
exception of Series B, C and which each share converts into
1.1078, 1.0153 and 1.0331 shares of common stock. All shares
of preferred stock automatically convert upon the closing of
the sale of the Company's common stock in a public offering in
which gross proceeds exceed $25,000,000 and the offering price
equals or exceeds $7.50 per share. Each series of preferred
stock also converts upon the written consent of a specified
majority of the holders of such series into common stock.
(b) WARRANTS
As of December 31, 1999, there were warrants outstanding to
purchase 492,460 shares of common stock at a weighted average
exercise price of $2.34 per share, 48,000 shares of Series D
preferred stock at $1.25 per share, and 20,000 shares of Series E
preferred stock at $2.50 per share. The warrants contain provisions
for the adjustment of the exercise price and the aggregate number
of shares issuable upon the exercise of the warrant under certain
circumstances, including stock dividends, stock splits,
reorganizations, consolidations and certain dilutive issuances of
securities at prices below the then existing warrant exercise
price.
In November 1999, the Company issued warrants to purchase 100,000
common shares for $2.50 per share for fees related to the Series F
Convertible Preferred Stock financing that is discussed in note 11.
The warrants are valued at $302,000 which is recorded as a deferred
financing fee at December 31, 1999. The amount of $302,000 ascribed
to the warrants was estimated using the Black-Scholes option
pricing model with the following assumptions: no expected dividend
yield; risk free interest rate of 5.5%; expected volatility of 70%;
and contractual term of 3 years.
(c) COMMON STOCK
The Company is authorized to issue 50,000,000 shares of common
stock.
During 1997, 1998 and 1999 the Company issued 599,500, 229,750 and
4,387,085 shares of common stock upon the exercise of stock options
granted under the Company's 1997 Incentive Stock Option Plan.
Shares issued under the Plan are subject to repurchase until they
are fully vested.
Of the 1999 stock option exercises, 625,000 shares were issued to
an officer of the Company in exchange for a promissory note that is
secured by the shares. The recourse promissory note bears interest
at 6.39% per year and is due on December 10, 2009.
F-14
<PAGE>
WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(d) 1997 STOCK PLAN
Pursuant to approval by the Board of Directors (the Board),
effective June 11, 1997 the Company adopted the 1997 Stock Plan
(the 1997 Plan) which allowed for the issuance of up to 1,500,000
shares of common stock. The 1997 plan has subsequently been
amended, increasing the authorized number of shares to 3,650,000
and 7,450,000 at December 31, 1998 and 1999. The 1997 Plan will
terminate on June 11, 2007, or an earlier date when all of the
shares of common stock set aside for issuance under the 1997 Plan
have been issued, or when there has been a merger, sale, transfer,
or other disposition of all or substantially all of the Company's
assets in a liquidation or dissolution of the Company.
At the Board's discretion, employees, directors, and consultants
may be granted options that allow for the purchase of shares of the
Company's common stock, or they may be issued common stock
directly, either through the immediate purchase of such shares, or
as a bonus for services rendered to the Company.
Both non-statutory and incentive options may be granted under the
1997 Plan. Incentive options are options which satisfy the
requirements of Section 422 of the Internal Revenue Code of 1986,
as amended. Non-statutory options do not satisfy these
requirements. Non-statutory options may be granted to employees,
directors, and consultants at a price not less than 85% of the fair
market value of common stock on the date the option is granted, or
110% of the fair market value of common stock where the options are
granted to those individuals owning more than 10% of the total
combined voting power of all classes of stock of the Company (a 10%
shareholder). Incentive options may only be granted to employees at
a price not less than 100% of the fair market value of common stock
on the date the option is granted.
Direct issues of shares of the Company's common stock may be
granted to employees, directors, and consultants at a price not
less than 85% of the fair market value of common stock on the date
of grant, or 110% of the fair market value of common stock where
the shares are granted to a 10% shareholder.
Vesting schedules may vary at the Board's discretion however, no
option shall have a term in excess of ten years from the date of
grant, except where incentive options are granted to a 10%
shareholder, then the option term shall not exceed five years.
Shares of common stock issued to employees must vest at a rate of
at least 20% per year from the date of issuance. Stock options are
immediately exercisable for all of the option shares. The Company
has the right to repurchase, at the exercise price paid per share,
any shares purchased under the option which are not vested. Shares
subject to repurchase at December 31, 1999 are 2,348,380.
The Company has reserved 7,450,000 common shares for issuance under
the 1997 Plan. A summary of the Company's share option plan
activity is as follows:
<TABLE>
<CAPTION>
1997 1998 1999
---------------------------- ---------------------------- ---------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE OPTIONS EXERCISE
----------- ---------------- ----------- --------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of the year/period..... -- $ -- 902,000 $ 0.11 2,076,607 $ 0.16
Granted................... 1,501,500 0.08 1,681,620 0.26 4,124,209 0.42
Exercised................. (599,500) 0.05 (229,750) 0.11 (4,387,085) 0.26
Cancelled................. -- -- (277,263) 0.16 (107,684) 0.22
----------- ---------------- ----------- --------------- ------------ --------------
Outstanding at year-end... 902,000 0.09 2,076,607 0.16 1,706,047 0.53
=========== ================ =========== =============== ============ ==============
Options outstanding for
which vested shares
are issuable at period/
year end............. -- $ -- 1,011,140 $ 0.24 664,190 $ 0.25
=========== ================ =========== =============== ============ ==============
</TABLE>
The options assumed from the Multipoint acquisition are included in
the 1998 shares granted.
F-15
<PAGE>
WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
At the time of grant, all stock options were granted at the then
determined fair value. In consideration of the Company's proposed
initial public offering, the Company re-evaluated all option grants
and determined that all stock options had been granted when the
fair value of the underlying common stock on the grant date had
exceeded the exercise price of the stock option. During fiscal
1997, 1998 and 1999, the Company granted options with a
weighted-average exercise price of $0.08, $0.26 and $0.42,
respectively, compared to the weighted-average fair value of
approximately $0.19, $1.07 and $2.31 for the same periods.
The following table summarizes information about stock options
outstanding and exercisable under the 1997 Plan as of December 31,
1999:
OUTSTANDING EXERCISABLE
--------------------------------------- -----------------------
WEIGHTED WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
- ---------- ------------- ------------ ---------- ------------ ----------
$0.05 191,042 7.54 $0.05 147,812 $0.05
0.16 84,840 7.92 0.16 47,472 0.16
0.20 32,854 8.06 0.20 23,697 0.20
0.27 946,304 9.29 0.27 440,313 0.27
1.00 163,500 9.88 1.00 -- 1.00
2.00 282,500 9.97 2.00 -- 2.00
4.10 1,840 6.50 4.10 1,840 4.10
5.74 3,167 6.50 5.74 3,056 5.74
- ---------- ------------- ------------ ---------- ------------ ----------
1,706,047 8.76 $0.53 664,190 $0.25
============= ============ ========== ============ ==========
At December 31, 1999, options available for grant under the 1997
Plan were 828,000.
A portion of the Company's shares of common stock was not qualified
or exempted under applicable state securities laws and so a portion
of the stock option grants may be in violation of those laws. If it
is determined that the issuance of the affected options constitutes
a violation of state securities laws, certain shareholders may have
the right to recover from the Company any consideration paid for
those shares which were not qualified or exempted under applicable
state securities laws. The outcome of this matter has not yet been
determined, however any potential liability is not expected to
exceed $275,000 in the aggregate.
(e) ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company uses the intrinsic value method to account for its
option plan. Deferred stock-based compensation cost has been
recognized for stock option grants to employees when the fair value
of the underlying common stock on the grant date, or other
measurement date, exceeds the exercise price of each stock option.
Deferred stock-based compensation is amortized using the
accelerated method set for in Financial Accounting Standards Board
Interpretation No. 28.
F-16
<PAGE>
WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Under SFAS No. 123, Accounting for Stock-Based Compensation, the
Company is required to disclose the pro forma effects on net loss
and net loss per share as if the Company had elected to use the
fair value approach to account for its employee stock-based
compensation plan. Had compensation cost for the Company's plans
been determined consistently with the fair value approach described
in SFAS 123, the Company's pro forma net loss and pro forma net
loss per share for the years ended December 31, 1997, 1998, and
1999, would have been changed as indicated below:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------
1997 1998 1999
------------- ------------- --------------
<S> <C> <C> <C>
Net loss:
As reported......................... $3,643,911 $7,476,364 $13,699,150
Pro forma........................... $3,647,677 $7,491,029 $13,778,332
Net loss per share:
As reported......................... $ -- $ 6.18 $ 4.30
Pro forma........................... $ -- $ 6.19 $ 4.32
</TABLE>
The fair value of options granted was estimated on the date of
grant using the Black-Scholes option pricing model with the
following weighted average assumptions used for grants in 1997,
1998, and 1999.
<TABLE>
<CAPTION>
1997 1998 1999
-------------- ------------- ------------
<S> <C> <C> <C>
Weighted average risk-free rate......... 5.5% 5.5% 5.5%
Expected life (years)................... 5 5 5
Volatility.............................. -- -- --
Dividend yield.......................... -- -- --
</TABLE>
(7) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1998 1999
------------- ------------
<S> <C> <C>
Raw materials..................................... $2,709,906 $2,065,910
Work in process................................... 282,558 361,175
Finished goods.................................... 794,912 1,940,712
------------- ------------
Inventories, net............................. $3,787,376 $4,367,797
============= ============
</TABLE>
(8) INCOME TAXES
The Company has incurred significant losses since inception and has not
incurred any income tax expense to date. The income tax benefit differed
from the amounts computed by applying the U.S. Federal income tax rate of
34% to pretax loss as a result of the following:
<TABLE>
<CAPTION>
1997 1998 1999
--------------- --------------- --------------
<S> <C> <C> <C>
Expected tax benefit at U.S. Federal statutory rate of
34%................................................... $(1,238,930) $(2,541,964) $(4,657,711)
Current year net operating losses and temporary
differences for which no tax benefit is recognized.... 719,126 1,912,937 3,161,174
Permanent differences.................................... 519,804 629,027 1,496,537
--------------- --------------- --------------
Total.............................................. $ -- $ -- $ --
=============== =============== ==============
</TABLE>
F-17
<PAGE>
WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the Company's deferred tax assets and liabilities are
presented below.
<TABLE>
<CAPTION>
1998 1999
-------------- --------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards............. $ 10,902,372 $ 12,101,596
Reserves and accrued expenses................ 1,167,453 2,417,444
Deferred stock-based compensation............ -- 360,496
Fixed assets and intangibles................. 50,633 143,290
-------------- --------------
Total gross deferred tax assets............ 12,120,458 15,022,826
Valuation allowance.......................... (12,120,458) (15,022,826)
-------------- --------------
Total deferred tax assets....................... $ -- $ --
============== ==============
</TABLE>
Management has established a valuation allowance for the full amount of
the deferred tax assets. The net change in the total valuation allowance
for the periods ended December 31, 1997, 1998 and 1999 were net increases
of approximately $909,000, $11,211,000 and $2,902,000, respectively.
As of December 31, 1999, the Company has research and other credit
carryforwards available to reduce future income taxes for federal and
California income tax purposes of approximately $760,000 and $500,000,
respectively. The research credit carryforwards expire from 2003 to 2019
for Federal purposes and are available indefinitely for California.
At December 31, 1999, the Company had net operating loss
carryforwards for Federal and California income tax purposes of
approximately $30,000,000 and $17,000,000, respectively, available
to reduce future income subject to income taxes. The Federal net
operating loss carryforwards expire beginning 2003 through 2019.
The California net operating loss carryforwards expire in 2004.
(9) COMMITMENTS
(a) LEASE COMMITMENTS
The Company is obligated under operating leases for certain
equipment and its facility in Santa Clara, California, and capital
leases for certain equipment. The operating leases require the
Company to pay certain maintenance costs, property taxes, and
insurance.
Future minimum lease payments under capital and operating leases as
of December 31, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
----------- -------------
Year ending December 31:
<S> <C> <C>
2000.................................................................. $203,252 $1,150,240
2001.................................................................. 187,533 1,179,559
2002.................................................................. 81,003 1,211,176
2003.................................................................. -- 1,101,068
2004.................................................................. -- 1,044,612
----------- -------------
Total............................................................... 471,788 $5,686,655
=============
Less amount representing interest..................................... 61,228
-----------
Present value of minimum capital lease payments....................... 410,560
Less current portion of capital lease obligations..................... 171,254
-----------
Long-term portion of capital lease obligations........................ $239,306
===========
</TABLE>
Total rent expense for all operating leases was approximately
$183,000, $441,000 and $1,207,000 for the years ended December 31,
1997, 1998 and 1999, respectively.
Included in the future minimum lease payments is a lease obligation
for a facility subleased on an informal basis to a company owned by
an officer of the Company. This company pays all costs related
F-18
<PAGE>
WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
to this facility. The sublease arrangement has been conducted at
arms length such that the Company believes that the terms are the
same as would be offered to unrelated entities. The Company
remains obligated under the lease for monthly lease payments of
$18,560 plus certain maintenance, property tax and insurance
charges. The lease expires April 2002.
Equipment recorded under capital leases is included in property and
equipment as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1998 1999
---------- -----------
<S> <C> <C>
Manufacturing equipment............................... $168,753 $ 340,719
Computer and related equipment........................ -- 123,910
Furniture............................................. -- 92,225
---------- -----------
168,753 556,854
Accumulated depreciation......................... (31,515) (131,656)
---------- -----------
$137,238 $ 425,198
========== ===========
</TABLE>
(b) CONTRACT MANUFACTURERS
The Company generally commits to purchase products from its
contract manufacturers to be delivered within the next 120 days
covered by forecasts. As of December 31, 1999, the Company has
committed to make purchases totaling $5 million from these
manufacturers. In some instances, the Company issues
blanket purchase orders for specific quantities and delivery
schedules over 12 to 18 months to obtain price discounts. If the
Company cancels the purchase order before its term, it would be
obligated for the difference between the regular price and the
discounted price plus the cost of components bought by the
manufacturer specifically for the Company's products. Based on
current sales projections, the Company does not believe that they
will incur any material obligations under these purchase orders.
(10) GEOGRAPHIC SEGMENT INFORMATION
The Company adopted SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION. SFAS No. 131 establishes standards
for the manner in which public companies report information about
operating segments in annual and interim financial statements. It also
establishes standards for related disclosures about products and
services, geographic areas, and major customers. The method for
determining what information to report is based on the way management
organizes the operating segments within the Company for making operating
decisions and assessing financial performance. The Company's chief
operating decision-maker is considered to be the chief executive officer
(CEO). The financial information that the CEO reviews is identical to the
information presented in the accompanying statements of operations.
Therefore, the Company has determined that it operates in a single
operating segment: manufacturing and sale of broadband wireless access
equipment.
F-19
<PAGE>
WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The following table presents information about the Company by geographic
area:
<TABLE>
<CAPTION>
1997
--------------------------------------------------------------------------------------
UNITED OTHER LATIN
STATES MEXICO AMERICA PHILIPPINES OTHER ASIA OTHER CONSOLIDATED
----------- ---------- ------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total net revenues... $ 16,038 $ 129,767 $-- -- $-- $54,931 $ 200,736
Net loss............. (291,134) (2,355,628) -- -- -- (997,149) (3,643,911)
Property &
equipment, net....... 179,960 -- -- -- -- -- 179,960
Percentage of
reported net
revenue.................. 8% 65% -- -- -- 27% 100%
</TABLE>
<TABLE>
<CAPTION>
1998
--------------------------------------------------------------------------------------
UNITED OTHER LATIN
STATES MEXICO AMERICA PHILIPPINES OTHER ASIA OTHER CONSOLIDATED
----------- ---------- ------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total net revenues... $1,003,438 $6,082,476 $ 1,642,374 1,938,627 $172,768 $332,552 $11,172,235
Net loss............. (671,492) (4,070,341) (1,099,063) (1,299,320) (130,050) (206,098) (7,476,364)
Property &
equipment, net....... 692,640 -- -- -- -- -- 692,640
Percentage of
reported net
revenue.............. 9% 54% 15% 17% 2% 3% 100%
</TABLE>
<TABLE>
<CAPTION>
1999
--------------------------------------------------------------------------------------
UNITED OTHER LATIN
STATES MEXICO AMERICA PHILIPPINES OTHER ASIA OTHER CONSOLIDATED
----------- ---------- ------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total net revenues.... $3,605,421 $7,638,139 $3,892,572 2,953,235 $952,183 $2,254,460 $21,296,010
Net loss.............. (2,319,270) (4,913,409) (2,503,987) (1,899,737) (612,514) (1,450,233) (13,699,150)
Property &
equipment, net........ 1,219,124 -- -- -- -- -- 1,219,124
Percentage of
reported net
revenue............... 17% 36% 18% 14% 4% 11% 100%
</TABLE>
(11) SUBSEQUENT EVENTS (UNAUDITED)
(a) SERIES F PREFERRED STOCK FINANCING--ISSUANCE OF COMMON SHARES AND
TECHNOLOGY LICENSE AGREEMENT
In January 2000, the Company completed an offering of 3,000,000
shares of Series F Preferred Stock for $5.00 per share, for
$15,000,000 in gross proceeds. TRW, Inc. (TRW) purchased 2,300,000
shares of the Series F preferred stock financing.
In January 2000, the Company issued 3,429,352 shares of common
stock valued at $5.00 per share to TRW in exchange for a
technology license agreement. Under the agreement, the Company
purchased and obtained an exclusive royalty-free worldwide
license in a point-to-multipoint wireless networking technology.
Any products developed by the Company based on such technology
may only be sold with base stations configured for outdoor use.
Sales of products containing the technology with base stations
configured for indoor use or sales to the U.S. government,
including organizations in which the U.S. is a member, must be
made through the owner of the technology (TRW) or its licensees.
The agreement provides TRW with a royalty-free worldwide
non-exclusive license in any improvements made by the Company
upon the technology for the manufacture and sale of products to
the U.S. Government. If the Company does not offer a commercial
version of a product containing the technology for sale by July
2001, unless the delay is the fault of TRW or attributable to
certain specified reasons, the Company will lose the exclusive
license.
Additionally, in consideration of the rights and licenses provided
under the agreement and the technical assistance to be provided by
TRW, the Company has agreed to pay TRW 10% of the net proceeds of
the initial public offering or any private placement of equity
occurring on or before October 14, 2000, until the Company has paid
TRW an aggregate of $2.5 million. The balance of this amount is due
on January 1, 2001, if it has not previously been paid.
F-20
<PAGE>
WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(b) 2000 STOCK INCENTIVE PLAN
On January 18, 2000, our board of directors adopted, subject to
shareholder approval, the 2000 Stock Incentive Plan (the 2000
Plan). The 2000 Plan is expected to become effective upon the
signing of the underwriting agreement for the Company's initial
public offering. At that time, all outstanding options under the
1997 Plan will be transferred to the 2000 Plan and no further
grants shall be made under the 1997 Plan. Transferred options shall
continue to be governed by their existing terms, unless the
compensation committee decides to extend one or more features of
the 2000 Plan to those options.
A total of 8,750,000 shares of the Company's common stock have been
reserved for issuance under the 2000 Plan. The initial share
reserve includes 7,450,000 shares which are expected to be
available under the 1997 Stock Plan upon the closing of the
Company's initial public offering. The share reserve will be
increased annually on the first trading day in January of each
calendar year, by an amount equal to 3% of the total number of
shares of common stock outstanding on the last trading day of
December in the prior calendar year. Annual increases shall not
exceed 2,000,000 shares. When a grant expires or is terminated
before it is exercised, the shares not acquired pursuant to the
grants shall again become available for issuance under the 2000
Plan.
(c) 2000 EMPLOYEE STOCK PURCHASE PLAN
On January 18, 2000, our board of directors adopted, subject to
shareholder approval, the 2000 Employee Stock Purchase Plan (the
Employee Plan). The Employee Plan is expected to become effective
upon the signing of the underwriting agreement for the Company's
initial public offering. A total of 250,000 shares of the Company's
common stock have been reserved for issuance under the Employee
Plan. The share reserve will be increased annually on the first
trading day in January of each calendar year, by an amount equal to
2% of the total number of shares of common stock outstanding on the
last trading day of December in the prior calendar year. Annual
increases shall not exceed 1,300,000 shares.
The Employee Plan will have a series of successive offering
periods, each with a maximum duration of 24 months. The initial
offering period will commence upon the signing of the underwriting
agreement for the Company's initial public offering and will end on
the last business day in January 2002. Individual employees who are
scheduled to work more than 20 hours per week for more than five
calendar months per year are eligible to purchase shares during the
offering periods. Participants may contribute up to 10% of their
cash earnings through payroll deductions. The accumulated payroll
deductions will be applied to the purchase of shares at the
semi-annual entry date which occur on the first business day of
February and August each year. The purchase price will be equal to
the lower of 85% of the fair market value per share on the
participant's entry date into the offering period, or 85% of the
fair market value on the semi-annual entry date.
(d) FINANCING COMMITMENTS
In February 2000, the Company received financing commitments from
certain shareholders for $15.0 million in the event that the
Company does not complete an initial public offering with gross
proceeds of $25 million by May 31, 2000. The $15.0 million in
commitments, if required, will be in the form of convertible
promissory notes bearing interest at a fixed rate of 10% per annum.
If not prepaid, the notes will convert into shares of the Company's
next round of equity financing of at least $15.0 million. In
connection with obtaining these commitments, the Company issued
warrants to purchase 60,000 shares of common stock at a price of
$4.00 per share and agreed to issue additional warrants for 180,000
shares of common stock at the then fair market value per share if
the loan commitments are exercised. These warrants expire upon the
earlier of 5 years or 30 days after the consummation of an initial
public offering.
F-21
<PAGE>
WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(e) REINCORPORATION
On January 18, 2000, the Company's board of directors approved,
subject to shareholder approval which is expected in May 2000, the
reincorporation of the Company in Delaware. In conjunction with the
reincorporation, the authorized number of common shares will be
increased to 100,000,000, and preferred stock of 5,000,000 shares
will be authorized. The par value of the common shares will
decrease to $0.001 per share. The effects of the reincorporation
have been reflected in the accompanying financial statements.
F-22
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Multipoint Networks, Inc.
We have audited the accompanying statement of operations of Multipoint Networks,
Inc., and the related statements of stockholders' equity and cash flows for the
period from January 1, 1998 to August 25, 1998. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted standards. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Multipoint
Networks, Inc. for the period January 1, 1998 to August 25, 1998 in conformity
with generally accepted accounting principles.
/s/ KPMG LLP
Mountain View, California
February 18, 2000
F-23
<PAGE>
MULTIPOINT NETWORKS, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD
JANUARY 1, 1998 TO AUGUST 25, 1998
<TABLE>
<S> <C>
Revenue................................................................................$ 5,872,500
Cost of revenue........................................................................ 4,355,426
-------------
Gross profit.................................................................... 1,517,074
-------------
Operating expenses:
Research and development............................................................ 954,120
Sales and marketing................................................................. 1,740,433
General and administration.......................................................... 249,963
-------------
Total operating expenses........................................................ 2,944,516
-------------
Operating loss......................................................................... (1,427,442)
=============
Interest expense, net.................................................................. 46,003
Other income........................................................................... (66,799)
-------------
Net loss.......................................................................$(1,406,646)
=============
</TABLE>
F-24
<PAGE>
<TABLE>
<CAPTION>
MULTIPOINT NETWORKS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD
JANUARY 1, 1998 TO AUGUST 25, 1998
SERIES I NONREDEEMABLE
PREFERRED STOCK COMMON STOCK TOTAL
--------------------------- ------------------------- SUBSCRIPTION ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT RECEIVABLE DEFICIT EQUITY
-------------- ------------ ----------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance as of January 1, 1998..... 19,534,200 $ 3,146,304 30,806,754 $18,914,000 $ (5,000) $(19,124,791) $ 2,930,513
Proceeds from issuance of common
stock.......................... -- -- -- 11,894 5,000 -- 16,894
Net loss ......................... -- -- -- -- -- (1,406,646) (1,406,646)
-------------- ------------ ----------- ------------ ------------ ------------- ------------
Balance as of August 25, 1998..... 19,534,200 $ 3,146,304 30,806,754 $18,925,894 $ -- $(20,531,437) $ 1,540,761
============== ============ =========== ============ ============ ============= ============
</TABLE>
F-25
<PAGE>
MULTIPOINT NETWORKS, INC.
STATEMENT OF CASH FLOW
FOR THE PERIOD
JANUARY 1, 1998 TO AUGUST 25, 1998
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss.................................................................. $(1,406,646)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation............................................................. 164,969
Provision for excess and obsolete inventory.............................. (27,211)
Changes in operating assets and liabilities:
Accounts receivable.................................................... (1,158,035)
Inventory.............................................................. (1,010,985)
Prepaids and other current assets...................................... (136,781)
Accounts payable....................................................... (291,758)
Accrued liabilities.................................................... 269,487
-------------
Net cash used in operating activities.................................... (3,596,960)
-------------
Cash flows used in investing activities:
Purchase of property and equipment........................................ (163,256)
-------------
Cash flows from financing activities:
Proceeds from lines of credit............................................. 1,084,103
Proceeds from bridge financing............................................ 1,750,000
Proceeds from issuances of common stock................................... 16,894
-------------
Cash provided by financing activities................................ 2,850,997
-------------
Net decrease in cash and cash equivalents..................................... (909,219)
Cash and cash equivalents, beginning of period................................ 1,147,000
-------------
Cash and cash equivalents, end of period...................................... $ 237,781
=============
</TABLE>
F-26
<PAGE>
MULTIPOINT NETWORKS, INC.
NOTES TO THE STATEMENT OF OPERATIONS FOR THE PERIOD
JANUARY 1, 1998 TO AUGUST 25, 1998
(1) THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) THE COMPANY
Multipoint Networks, Inc. (the "Company") was incorporated in
California in 1987 and designed, manufactured and marketed wireless
metropolitan-area data network products based on unique patented
digital transceiver technology. The Company's products were
distributed through a network of independent distributors and
value-added resellers located throughout Latin America, North
American and Asia-Pacific.
On August 26, 1998 the Company was acquired by Wireless, Inc.
(b) REVENUE RECOGNITION
Revenues are recognized upon product shipment, provided that
significant support obligations, if any, are satisfied and collection
of the resulting receivables is probable. Estimated warranty costs
are accrued at the time of sale based upon the Company's historical
experience.
(c) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
(d) PROPERTY AND EQUIPMENT
Depreciation and amortization of property and equipment is provided
using the straight-line method over the estimated useful lives of the
respective assets, which range from three to five years. Equipment
held under capital leases is amortized using the straight-line method
over the shorter of the lease term or the estimated useful life of
the asset.
(e) CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. Cash and
cash equivalents are deposited with high credit quality financial
institutions.
(f) RESEARCH AND DEVELOPMENT
Costs incurred in the research and development of new products and
enhancements to existing products are expensed as incurred until the
technological feasibility of the product or enhancement has been
established. Technological feasibility is established when a product
design and a working model have been completed and the completeness
of the working model, and its consistency with the product design,
have been confirmed by testing. After establishing technological
feasibility, material development costs are capitalized. The
capitalized cost is then amortized on a straight-line basis over the
estimated product life, or is amortized based on the ratio of current
revenues to total projected product revenues, whichever is greater.
To date, the period between completion of a working model and the
general release of the product has been short and development costs
qualifying for capitalization have been insignificant. Accordingly,
the Company has not capitalized any development costs.
F-27
<PAGE>
MULTIPOINT NETWORKS, INC.
NOTES TO THE STATEMENT OF OPERATIONS FOR THE PERIOD
JANUARY 1, 1998 TO AUGUST 25, 1998--(CONTINUED)
(g) INVENTORIES
Inventory is stated at the lower of cost, determined on a first-in
first-out basis or net realizable value.
(h) INCOME TAXES
The Company utilizes the asset and liability method of accounting for
income taxes. Under this method, deferred tax assets and liabilities
are determined based on the difference between the financial
statement and tax basis of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to
affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amounts expected to be
recovered.
(i) COMPREHENSIVE INCOME
The Company does not have any components of comprehensive income,
consequently comprehensive loss consists entirely of net loss for all
periods presented.
(2) STOCKHOLDERS' EQUITY
(a) SERIES 1 NONREDEEMABLE PREFERRED STOCK
At August 25, 1998, the Company had 19,534,200 shares of Series 1
Nonredeemable Convertible Preferred Stock issued and outstanding.
Holders of Series 1 Preferred Stock are entitled to a noncumulative
dividend, when and if declared by the Board of Directors, at the
minimum rate of $0.02 per share per annum, prior and in preference to
any distribution on the Common Stock. In the event of any
liquidation, dissolution or winding up of the Company, the holders of
Series 1 Preferred Stock shall be entitled to receive, prior and in
preference to any distribution on the Common Stock, the amount of
$0.4875 per share plus an amount equal to all declared but unpaid
dividends on such shares.
Each share of Series 1 Preferred Stock is convertible at the option
of the holder at any time in Common Stock at the initial conversion
rate of one share Common Stock for each share of Series 1 Preferred
Stock. The initial conversion rate of the Series 1 Preferred Stock is
subject to adjustment as provided in the Articles of Incorporation.
Each share of Series 1 Preferred Stock shall automatically be
converted into shares of Common Stock at the then effective
conversion rate upon the closing of a firm commitment underwritten
initial public offering of the Company's Common Stock at a price per
share not less than $0.75 per share and an aggregate offering price
to the public of not less than $10,000,000, exclusive of underwriting
commissions and offering expenses.
Each share of Series 1 Preferred Stock is entitled to the number of
votes equal to the number of share of Common Stock into which the
shares of Series 1 Preferred Stock could be converted.
(b) COMMON STOCK
The Company is authorized to issue 60,000,000 shares of no par value
common stock. At January 1, 1998 and August 25, 1998, the number of
shares of common stock outstanding was 30,806,754.
F-28
<PAGE>
MULTIPOINT NETWORKS, INC.
NOTES TO THE STATEMENT OF OPERATIONS FOR THE PERIOD
JANUARY 1, 1998 TO AUGUST 25, 1998--(CONTINUED)
(3) INCOME TAXES
The Company has incurred significant losses since inception and has not
incurred any income tax expense to date. The income tax benefit differed
from the amounts computed by applying the U.S. Federal income tax rate of
34% to pretax loss as a result of the following:
<TABLE>
<S> <C>
Expected tax benefit at U.S. Federal statutory rate of 34%................ (478,260)
Current year net operating losses and temporary differences for which no
tax benefit is recognized................................................. 344,347
Permanent differences..................................................... 133,913
-----------
Total................................................................... $ --
===========
</TABLE>
F-29
<PAGE>
INSIDE BACK COVER
The page consists of a map of the planet with clusters of yellow dots
appearing in various countries which are colored blue. Below the map are the
words "Wireless Inc. installations highlighted in yellow." Above the map are the
words "Wireless, Inc. delivers broadband wireless access to more than 200
customers in over 50 countries around the globe." In the top left corner of the
page on the purple background is the Wireless logo, which consists of the word
"Wireless" with the first four letters in black and the last four in blue,
multi-colored dots appearing above the "i", "r" and "e", the capital letters
"INC" in the top right corner, the letters "TM" in the lower right corner and a
semi-circular blue line underneath. Underneath the logo are the words "Broadband
without Boundaries."
<PAGE>
================================================================================
SHARES
WIRELESS, INC.
COMMON STOCK
[Logo]
----------
P R O S P E C T U S
, 2000
----------
SALOMON SMITH BARNEY
CIBC WORLD MARKETS
PRUDENTIAL VOLPE TECHNOLOGY
A UNIT OF PRUDENTIAL SECURITIES
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than the
underwriting discounts payable by us in connection with the sale of common stock
being registered. All amounts are estimates except the SEC registration fee, the
NASD filing fees and the Nasdaq National Market listing fee.
SEC Registration Fee.............................................. $22,770
NASD Filing Fee................................................... 12,000
Nasdaq National Market Listing Fee................................ *
Printing and Engraving Expenses................................... *
Legal Fees and Expenses........................................... *
Accounting Fees and Expenses...................................... *
Blue Sky Fees and Expenses........................................ *
Transfer Agent Fees............................................... *
Miscellaneous..................................................... *
-------------
Total........................................................... *
=============
- -------------
* To be filed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to
award or a corporation's board of directors to grant indemnification to
directors and officers in terms sufficiently broad to permit the indemnification
under certain circumstances for liabilities (including reimbursement for
expenses incurred) arising under the Securities Act of 1933, as amended (the
"Securities Act"). Article VII, Section 6 of our bylaws provides for mandatory
indemnification of our directors and officers and permissible indemnification of
employees and other agents to the maximum extent permitted by the Delaware
General Corporation Law. Our certificate of incorporation provides that, subject
to Delaware law, our directors will not be personally liable for monetary
damages for breach of the directors' fiduciary duty as directors to Wireless,
Inc. and its stockholders. This provision in the certificate of incorporation
does not eliminate the directors' fiduciary duty, and in appropriate
circumstances equitable remedies such as injunctive or other forms of
non-monetary relief will remain available under Delaware law. In addition, each
director will continue to be subject to liability for breach of the director's
duty of loyalty to the company or our stockholders for acts or omissions not in
good faith or involving intentional misconduct, for knowing violations of law,
for actions leading to improper personal benefit to the director, and for
payment of dividends or approval of stock repurchases or redemptions that are
unlawful under Delaware law. The provision also does not affect a director's
responsibilities under any other law, such as the federal securities laws or
state or federal environmental laws. We have entered into indemnification
agreements with our officers and directors, a form of which is attached as
Exhibit 10.3 hereto and incorporated herein by reference. The indemnification
agreements provide our officers and directors with further indemnification to
the maximum extent permitted by the Delaware General Corporation Law. We
maintain directors and officers liabilities insurance. Reference is made to
Section 8 of the Underwriting Agreement contained in Exhibit 1.1 hereto,
indemnifying officers and directors of the Registrant against certain
liabilities and Section 1.7 of the Sixth Amended and Restated Investors Rights
Agreement contained in Exhibit 4.1 hereto, indemnifying the parties thereto,
including certain controlling stockholders, against certain liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the Registrant has issued unregistered
securities to a limited number of persons as described below:
(a) The Registrant issued and sold 5,027,547 shares of common stock to
employees and consultants for an aggregate purchase price of $1,283,527
pursuant to direct stock issuances and the exercise of options under its
1997 Stock Option/Stock Issuance Plan.
II-1
<PAGE>
(b) In May 1997, the Registrant issued and sold an aggregate of
6,000,000 shares of Series A Preferred Stock to two investors for an
aggregate of purchase price of $3,000,000.
(c) In May 1997, the Registrant issued a warrant to Imperial Bank to
purchase up to 30,460 shares of its common stock at an exercise price of
$1.22 per share.
(d) In October 1997, the Registrant issued and sold an aggregate of
750,000 shares of Series B Preferred Stock to one investor for an aggregate
of purchase price of $1,500,000.
(e) In June 1998, the Registrant entered into an agreement to acquire
Multipoint Networks, Inc., or Multipoint, whereby the purchase price was
payable in shares of the Registrant's common stock and Series C Preferred
Stock. In August 1998, the Registrant completed the acquisition and paid an
aggregate of 2,746,053 shares of its common stock to the principals of
Multipoint and 2,146,838 shares of its Series C Preferred Stock to the
holders of Multipoint Series A-1 Preferred Stock. In November 1999, 59,983
shares of Series C Preferred Stock were repurchased by the Company from a
single investor for an aggregate purchase price of $79,777.
(f) In October 1998, the Registrant issued a warrant to Silicon Valley
Bank to purchase up to 48,000 shares of its Series D Preferred Stock at an
exercise price of $1.25 per share.
(g) In March 1999, the Registrant issued and sold an aggregate of
6,465,221 shares of Series D Preferred Stock to several investors for an
aggregate purchase price of $8,176,266.
(h) In August 1999, the Registrant issued to an investor a
subordinated debenture in a principal amount of $1,000,000 which is
convertible into shares of its Series E Preferred Stock at an exercise
price of $3.125 per share.
(i) In September 1999, the Registrant issued a warrant to Silicon
Valley Bank to purchase up to 20,000 shares of its Series E Preferred Stock
at an exercise price of $2.50 per share. In December 1999, the Registrant's
board of directors reduced the exercise price to $2.42 per share and
adjusted the number of shares issuable upon exercise of the warrant to
20,662.
(j) In September 1999, the Registrant issued and sold an aggregate of
3,600,000 shares of Series E Preferred Stock and warrants to purchase an
aggregate of 362,000 shares of common stock at an exercise price of $0.75
per share (subject to adjustment) to several investors for an aggregate
purchase price of $9,003,600. In December 1999, the Registrant's board of
directors reduced the exercise price of the warrants to $2.42 per share and
adjusted the number of shares issuable upon exercise of the warrants to
362,000.
(k) In January 2000, the Registrant issued and sold an aggregate of
3,000,000 shares of Series F Preferred Stock to two investors for an
aggregate purchase price of $15,000,000.
(l) In January 2000, the Registrant issued and sold an aggregate of
3,425,352 shares of common stock to TRW in connection with a Purchase and
License Agreement for an aggregate consideration of $17,146,760.
(m) In November 1999, the Registrant issued warrants to two
consultants to purchase up to an aggregate of 100,000 shares of its common
stock at an exercise price of $2.50 per share.
(n) In February 2000, the Registrant issued warrants to several
investors to purchase up to an aggregate of 60,000 shares of its common
stock at an exercise price of $4.00 per share.
None of the foregoing transactions involved any underwriters, underwriting
discounts or commissions, or any public offering, and we believe that each
transaction was exempt from the registration requirements of the Securities Act
by virtue of Section 4(2) thereof, Regulation D promulgated thereunder or Rule
701 pursuant to compensatory benefit plans and contracts relating to
compensation as provided under Rule 701. The recipients in each transaction
represented their intention to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof, and
appropriate legends were affixed to the share certificates and instruments
issued in these transactions. All recipients had adequate access, through their
relationships with us, to information about us.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The exhibits listed in the exhibit Index are filed as part of this
registration statement.
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------
1.1* Form of Underwriting Agreement.
2.1 Agreement and Plan of Reorganization dated as of June 4, 1998 by and
among Multipoint Networks, certain shareholders of Multipoint
Networks, Inc., Wireless, Inc. and certain shareholders of
Wireless, Inc.
3.1 Amended and Restated Certificate of Incorporation, to be
effective upon consummation of this Offering.
3.2 Amended and Restated Bylaws, to be effective upon consummation of
this offering.
4.1 Sixth Amended and Restated Investors' Rights Agreement.
4.2* Form of Registrant's Specimen Common Stock Certificate.
4.3 Reference is made to Exhibits 3.1 and 3.2.
4.4 Form of Warrant to Purchase Common Stock, dated as of October 10,
1999, by and among the Registrant and the purchasers of Series E
Preferred Stock.
4.5 Warrant to Purchase Common Stock, dated as of May 5, 1997, by
and between the Registrant and Imperial Bank.
4.6 Convertible Promissory Note, dated as of August 17, 1999, by and
between the Registrant and AMT Capital, Ltd., as amended.
4.7 Warrant to Purchase Series D Preferred Stock, dated as of
October 16, 1998, by and between the Registrant and Silicon Valley
Bank.
4.8 Warrant to Purchase Series E Preferred Stock, dated as of
September 13, 1999, by and between the Registrant and Silicon Valley
Bank.
4.9* Form of Warrant to Purchase Common Stock, dated as of November 18,
1999, by and between the Registrant and each of Peter Sutherland and
Jed Davis.
4.10* Form of Warrant to Purchase Common Stock, dated as of February 14,
2000, by and between the Registrant and each of Dynamics
Technology, Inc., Advent International Corp., Gemini Investors
LLC, Stratford Equity Partners, L.P., Crossroads Venture Capital,
LLC and TRW.
5.1* Opinion of Brobeck, Phleger & Harrison LLP, counsel for the
Registrant, with respect to the common stock being registered.
10.1 Registrant's 2000 Stock Incentive Plan.
10.2 Registrant's 2000 Employee Stock Purchase Plan.
10.3 Form of Registrant's Directors' and Officers' Indemnification
Agreement.
10.4 Lease Agreement, dated June 4, 1999, between the Registrant and W.F.
Batton & Co.
10.5 Loan and Security Agreement, dated as of February 27, 1999,
between the Registrant and Silicon Valley Bank.
10.6 Amendment to Loan Documents dated as of September 13, 1999, to
the Loan and Security Agreement, dated as of February 27, 1999,
between the Registrant and Silicon Valley Bank.
10.7 Amendment to Loan Documents dated as of February 23, 2000, to
the Loan and Security Agreement dated as of February 27, 1999,
between the Registrant and Silicon Valley Bank.
10.8+ Purchase and License Agreement, dated as of January 14, 2000, between
the Registrant and TRW.
10.9+ Master Distributor Agreement, dated April 1, 1999, as amended, between
the Registrant and Digital Microwave Corporation.
10.10 Promissory Note, dated as of December 10, 1999, executed by William
J. Palumbo in favor of the Registrant.
10.11 Lease Agreement dated as of May 12, 1997, by and between the
Registrant and Spieker Properties, L.P.
23.1 Consent of KPMG LLP, Independent Auditors relative to Wireless, Inc.
23.2 Consent of KPMG LLP, Independent Auditors relative to Multipoint
Networks, Inc.
23.3* Consent of Brobeck, Phleger & Harrison LLP (contained in their
opinion filed as Exhibit 5.1).
24.1 Power of Attorney. Reference is made to Page II-5.
27.1 Financial Data Schedule.
- -------------
* To be filed by amendment
II-3
<PAGE>
+ Confidential treatment has been requested for certain portions
thereof.
(b) Financial Statement Schedule
ITEM 17. UNDERTAKINGS
We hereby undertake to provide to the underwriters at the closing specified
in the underwriting agreement, certificates in such denominations and registered
in such names as required by the underwriters to permit prompt delivery to each
purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to our directors, officers and controlling persons pursuant to
the Delaware General Corporation Law, our certificate of incorporation or our
bylaws, indemnification agreements entered into between the company and our
officers and directors, the underwriting agreement, or otherwise, we have been
advised that in the opinion of the commission such indemnification is against
public policy as expressed in the Securities Act, and is, therefore,
unenforceable. If a claim for indemnification against such liabilities (other
than the payment by us of expenses incurred or paid by any of our directors,
officers or controlling persons in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, we will, unless in the opinion
of our counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question of whether such indemnification
by us is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained
in a form of Prospectus filed by us pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective;
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant certifies that it has reasonable grounds to believe that it meets all
the requirements for filing on Form S-1 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Santa Clara, State of California, on this 20th day of
April, 2000.
By: /s/ WILLIAM J. PALUMBO
-------------------------------------------
William J. Palumbo
CHIEF EXECUTIVE OFFICER AND PRESIDENT
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints, jointly and severally, William E.
Gibson, William J. Palumbo and Antonio Canova, and each one of them, his true
and lawful attorneys-in-fact and agents, each with full power of substitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this registration
statement, and to sign any registration statement for the same offering covered
by this registration statement that is to be effective upon filing pursuant to
Rule 462(b) promulgated under the Securities Act of 1933, as amended, and all
post-effective amendments thereto, and to file the same, with all exhibits
thereto and all documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming that each of said attorneys-in-fact and agents or any of them, or his
or their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has executed this power of
attorney as of the date indicated.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the persons whose signatures
appear below, which persons have signed such registration statement in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ WILLIAM J. PALUMBO Chief Executive Officer and President
- -------------------------------------------------- (Principal Executive Officer) April 20, 2000
William J. Palumbo
/s/ ANTONIO CANOVA Chief Financial Officer, Executive Vice
- -------------------------------------------------- President and Secretary (Principal
Antonio Canova Accounting Officer) April 20, 2000
/s/ WILLIAM E. GIBSON Chairman of the Board of Directors April 20, 2000
- --------------------------------------------------
William E. Gibson
/s/ ANDREW I. FILLAT Director April 20, 2000
- --------------------------------------------------
Andrew I. Fillat
/s/ DENNY R.S. KO
- -------------------------------------------------- Director April 20, 2000
Denny R.S. Ko
/s/ DAVID F. MILLET Director April 20, 2000
- --------------------------------------------------
David F. Millet
</TABLE>
II-5
<PAGE>
<TABLE>
<S> <C> <C>
/s/ PATRICK A. RIVELLI Director April 20, 2000
- --------------------------------------------------
Patrick A. Rivelli
/s/ MARK S. SILVERMAN Director April 20, 2000
- --------------------------------------------------
Mark S. Silverman
</TABLE>
II-6
<PAGE>
FORM OF INDEPENDENT AUDITORS' REPORT
When the event referred to in Note 11(e) of the Wireless, Inc. financial
statements have been consummated, we will be in a position to render the
following report.
/s/ KPMG LLP
The Board of Directors
Wireless, Inc.:
Under date of February 23, 2000, except for Note 11 which is as of May ,
2000 we reported on the balance sheets of Wireless, Inc. as of December 31, 1998
and 1999, and the related statements ofoperations, stockhholders' equity, and
cash flows for the period from May 7, 1997 (inception) to December 31, 1997 and
the years ended December 31, 1998 and 1999, included in the prospectus. In
connection with our audits of the aforementioned financial statements, we also
audited the accompanying financial statement schedule. The financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement schedule based on our
audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
Mountain View, California
February 23, 2000
S-1
<PAGE>
SCHEDULE II
WIRELESS, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE PERIOD MAY 7, 1997 (INCEPTION) TO DECEMBER 31, 1997 AND YEARS ENDED
DECEMBER 31, 1998 AND 1999
<TABLE>
<CAPTION>
ALANCE AT HARGED TO BALANCE
BEGINNING COST AND OTHER AT END OF
BOF PERIOD CEXPENSES ADDITIONS DEDUCTIONS PERIOD
--------------------------------------------------------------------------
ALLOWANCE FOR DOUBTFUL ACCOUNTS
- -------------------------------------
<S> <C> <C> <C> <C> <C>
1997....................... $ -- $ -- $ -- $ -- $ --
1998....................... -- 200,136 145,351 (46,254) 299,233
1999....................... $ 299,233 $ 1,044,365 $ -- $ (149,963) $ 1,193,635
</TABLE>
- -------------------
S-2
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------
1.1* Form of Underwriting Agreement.
2.1 Agreement and Plan of Reorganization dated as of June 4, 1998 by and
among Multipoint Networks, certain shareholders of Multipoint
Networks, Inc., Wireless, Inc. and certain shareholders of
Wireless, Inc.
3.1 Amended and Restated Certificate of Incorporation, to be
effective upon consummation of this Offering.
3.2 Amended and Restated Bylaws, to be effective upon consummation of
this offering.
4.1 Sixth Amended and Restated Investors' Rights Agreement.
4.2* Form of Registrant's Specimen Common Stock Certificate.
4.3 Reference is made to Exhibits 3.1 and 3.2.
4.4 Form of Warrant to Purchase Common Stock, dated as of October 10,
1999, by and among the Registrant and the purchasers of Series E
Preferred Stock.
4.5 Warrant to Purchase Common Stock, dated as of May 5, 1997, by
and between the Registrant and Imperial Bank.
4.6 Convertible Promissory Note, dated as of August 17, 1999, by and
between the Registrant and AMT Capital, Ltd., as amended.
4.7 Warrant to Purchase Series D Preferred Stock, dated as of
October 16, 1998, by and between the Registrant and Silicon Valley
Bank.
4.8 Warrant to Purchase Series E Preferred Stock, dated as of
September 13, 1999, by and between the Registrant and Silicon Valley
Bank.
4.9* Form of Warrant to Purchase Common Stock, dated as of November 18,
1999, by and between the Registrant and each of Peter Sutherland and
Jed Davis.
4.10* Form of Warrant to Purchase Common Stock, dated as of February 14,
2000, by and between the Registrant and each of Dynamics
Technology, Inc., Advent International Corp., Gemini Investors
LLC, Stratford Equity Partners, L.P., Crossroads Venture Capital,
LLC and TRW.
5.1* Opinion of Brobeck, Phleger & Harrison LLP, counsel for the
Registrant, with respect to the common stock being registered.
10.1 Registrant's 2000 Stock Incentive Plan.
10.2 Registrant's 2000 Employee Stock Purchase Plan.
10.3 Form of Registrant's Directors' and Officers' Indemnification
Agreement.
10.4 Lease Agreement, dated June 4, 1999, between the Registrant and W.F.
Batton & Co.
10.5 Loan and Security Agreement, dated as of February 27, 1999,
between the Registrant and Silicon Valley Bank.
10.6 Amendment to Loan Documents dated as of September 13, 1999, to
the Loan and Security Agreement, dated as of February 27, 1999,
between the Registrant and Silicon Valley Bank.
10.7 Amendment to Loan Documents dated as of February 23, 2000, to
the Loan and Security Agreement dated as of February 27, 1999,
between the Registrant and Silicon Valley Bank.
10.8+ Purchase and License Agreement, dated as of January 14, 2000, between
the Registrant and TRW.
10.9+ Master Distributor Agreement, dated April 1, 1999, as amended, between
the Registrant and Digital Microwave Corporation.
10.10 Promissory Note, dated as of December 10, 1999, executed by William
J. Palumbo in favor of the Registrant.
10.11 Lease Agreement dated as of May 12, 1997, by and between the
Registrant and Spieker Properties, L.P.
23.1 Consent of KPMG LLP, Independent Auditors relative to Wireless, Inc.
23.2 Consent of KPMG LLP, Independent Auditors relative to Multipoint
Networks, Inc.
23.3* Consent of Brobeck, Phleger & Harrison LLP (contained in their
opinion filed as Exhibit 5.1).
24.1 Power of Attorney. Reference is made to Page II-5.
27.1 Financial Data Schedule.
- -------------
* To be filed by amendment
+ Confidential treatment has been requested for certain portions
thereof.
<PAGE>
EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
MULTIPOINT NETWORKS, INC.,
CERTAIN SHAREHOLDERS OF MULTIPOINT NETWORKS, INC.,
WIRELESS, INC.,
AND
CERTAIN SHAREHOLDERS OF WIRELESS, INC.
JUNE 4, 1998
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TABLE OF CONTENTS
PAGE
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ARTICLE I THE MERGER ......................................................2
1.1 The Merger ...................................................2
1.2 Closing; Effective Time ......................................2
1.3 Effect of the Merger .........................................2
1.4 Articles of Incorporation; Bylaws ............................2
1.5 Directors and Officers .......................................2
1.6 Effect on Capital Stock ......................................3
1.7 Surrender of Certificates ....................................4
1.8 No Further Ownership Rights in Target Capital Stock ..........6
1.9 Lost, Stolen or Destroyed Certificates .......................6
1.10 Tax Consequences ............................................6
1.11 Exemption from Registration .................................6
1.12 Taking of Necessary Action; Further Action ..................7
ARTICLE II REPRESENTATIONS AND WARRANTIES OF TARGET .......................7
2.1 Organization, Standing and Power .............................7
2.2 Capital Structure ............................................7
2.3 Authority ....................................................9
2.4 Financial Statements .........................................9
2.5 Absence of Certain Changes ..................................10
2.6 Absence of Undisclosed Liabilities ..........................10
2.7 Litigation ..................................................10
2.8 Governmental Authorization ..................................10
2.9 Title to Property ...........................................11
2.10 Intellectual Property ......................................11
2.11 Environmental Matters ......................................12
2.12 Taxes ......................................................12
2.13 Employee Benefit Plans .....................................14
2.14 Employees and Consultants ..................................16
2.15 Related-Party Transactions .................................17
2.16 Insurance ..................................................17
2.17 Compliance with Laws .......................................18
2.18 Brokers' and Finders' Fees .................................18
2.19 Material Contracts .........................................18
2.20 No Breach of Material Contracts ............................19
2.21 Third-Party Consents .......................................19
2.22 Representations Complete ...................................19
ARTICLE III REPRESENTATIONS AND WARRANTIES OF ACQUIROR ...................20
3.1 Organization, Standing and Power ............................20
3.2 Capital Structure ...........................................20
3.3 Authority ...................................................21
3.4 Financial Statements ........................................22
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3.5 Absence of Certain Changes ..................................22
3.6 Absence of Undisclosed Liabilities ..........................22
3.7 Litigation ..................................................23
3.8 Governmental Authorization ..................................23
3.9 Title to Property ...........................................23
3.10 Intellectual Property ......................................23
3.11 Environmental Matters ......................................24
3.12 Taxes ......................................................24
3.13 Employee Benefit Plans .....................................26
3.14 Employees and Consultants ..................................28
3.15 Related-Party Transactions .................................29
3.16 Insurance ..................................................30
3.17 Compliance with Laws .......................................30
3.18 Brokers' and Finders' Fees .................................30
3.19 Material Contracts .........................................30
3.20 No Breach of Material Contracts ............................31
3.21 Representations Complete ...................................31
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME ...........................32
4.1 Conduct of Business of Target and Acquiror ..................32
ARTICLE V ADDITIONAL AGREEMENTS ..........................................34
5.1 Preparation of Information Statement Proxy Statement ........34
5.2 Shareholders Meeting or Consent Solicitation ................35
5.3 Access to Information .......................................35
5.4 Public Disclosure ...........................................36
5.5 Consents; Cooperation .......................................36
5.6 Update Disclosure; Breaches .................................36
5.8 Indemnification .............................................36
5.9 Legal Requirements ..........................................37
5.10 Tax-Free Reorganization ....................................37
5.11 Blue Sky Laws ..............................................37
5.12 Stock Options ..............................................37
5.13 Additional Agreements; Best Efforts ........................38
5.14 Employee Benefits ..........................................38
ARTICLE VI CONDITIONS TO THE MERGER ......................................38
6.1 Conditions to Obligations of Each Party to Effect the Merger.38
6.2 Additional Conditions to Obligations of Target ..............39
6.3 Additional Conditions to the Obligations of Acquiror ........40
ARTICLE VII TERMINATION, EXPENSES, AMENDMENT AND WAIVER ..................42
7.1 Termination .................................................42
7.2 Effect of Termination .......................................43
7.3 Expenses and Termination Fees ...............................43
7.4 Amendment ...................................................43
7.5 Extension; Waiver ...........................................43
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ARTICLE VIII ESCROW AND INDEMNIFICATION ..................................44
8.1 Survival of Representations, Warranties and Covenants .......44
8.2 Indemnity by Target Shareholders ............................44
8.3 Indemnity by Acquiror .......................................44
8.4 Damage Threshold ............................................45
8.5 Damage Limitations ..........................................45
8.13 Maximum Liability and Remedies .............................45
ARTICLE IX GENERAL PROVISIONS ............................................46
9.1 Notices .....................................................46
9.2 Interpretation ..............................................47
9.3 Counterparts ................................................48
9.4 Entire Agreement; No Third Party Beneficiaries ..............48
9.5 Severability ................................................48
9.6 Remedies Cumulative .........................................48
9.7 Governing Law ...............................................48
9.8 Assignment ..................................................48
9.9 Rules of Construction .......................................49
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SCHEDULES
Schedule A - Shareholders of Wireless, Inc. that are Parties to this Agreement
Schedule B - Shareholders of Multipoint Networks, Inc. that are Parties to this
Agreement
Schedule C - Target Disclosure Letter
Schedule D - Acquiror Disclosure Letter
Schedule E - Option Schedule
EXHIBITS
Exhibit A - Agreement of Merger
Exhibit B - Exchange Ratios
Exhibit C - Amended and Restated Articles of Incorporation of Acquiror
Exhibit D - FIRPTA Notice
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AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "AGREEMENT") is made
and entered into as of June 4, 1998, by and among Wireless, Inc., a California
corporation ("ACQUIROR"), the shareholders of Acquiror listed on SCHEDULE A
hereto (the "ACQUIROR SHAREHOLDERS"), Multipoint Networks, Inc., a California
corporation ("TARGET"), and the shareholders of Target listed On SCHEDULE B
hereto (the "TARGET SHAREHOLDERS").
RECITALS
A. The Boards of Directors of Target and Acquiror believe it is in the
best interests of their respective companies and the shareholders of their
respective companies that Target and Acquiror combine into a single company
through the statutory merger of Target with and into Acquiror (the "MERGER")
and, in furtherance thereof, have approved the Merger.
B. Since July 1997, William Gibson and Charles Pai, the Chief
Executive Officer and Chief Financial Officer of Acquiror, respectively, have
also been serving as the Chief Executive Officer and Chief Financial Officer,
respectively, of Target. Certain other representatives of Acquiror have also
been acting on behalf of Target. In addition, Acquiror owns in excess of twenty
percent (20%) of the capital stock of Target.
C. Various of the functional units of Acquiror and Target,
including sales, marketing, finance and engineering, are currently combined.
D. Carol Lefcourt, a director of Acquiror, and Michael Hone, a
director of Target, have been authorized to sign this Agreement on behalf of
Acquiror and Target, respectively.
E. Pursuant to the Merger, among other things, each outstanding share
of capital stock of Target ("TARGET CAPITAL STOCK"), shall be converted into
shares of capital stock of Acquiror ("ACQUIROR CAPITAL STOCK"), at the rates set
forth herein.
F. Target and Acquiror desire to make certain representations and
warranties and other agreements in connection with the Merger.
G. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "CODE"), and to cause the Merger to qualify as a
reorganization under the provisions of Section 368(a)(1)(A) of the Code.
NOW, THEREFORE, in consideration of the covenants and representations
set forth herein, and for other good and valuable consideration, the parties
agree as follows:
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ARTICLE I
THE MERGER
1.1. THE MERGER. At the Effective Time (as defined in Section 1.2)
and subject to and upon the terms and conditions of this Agreement, the
Agreement of Merger attached hereto as EXHIBIT A (the "AGREEMENT OF MERGER") and
the applicable provisions of the California Corporations Code ("CALIFORNIA
LAW"), Target shall be merged with and into Acquiror, the separate corporate
existence of Target shall cease, and Acquiror shall continue as the surviving
corporation. Acquiror as the surviving corporation after the Merger is
hereinafter sometimes referred to as the "SURVIVING CORPORATION."
1.2. CLOSING; EFFECTIVE TIME. The closing of the transactions
contemplated hereby (the "CLOSING") shall take place as soon as practicable
after the satisfaction or waiver of each of the conditions set forth in Article
VI hereof or at such other time as the parties hereto agree (the date on which
the Closing shall occur, the "CLOSING DATE"). The Closing shall take place at
the offices of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP,
155 Constitution Drive, Menlo Park, California, or at such other location as the
parties hereto agree. On the Closing Date, the parties hereto shall cause the
Merger to be consummated by filing the Agreement of Merger, together with the
required officers' certificates, with the Secretary of State of the State of
California, in accordance with the relevant provisions of California Law (the
time and date of such filing being the "EFFECTIVE TIME" and the "EFFECTIVE
DATE," respectively).
1.3. EFFECT OF THE MERGER. At the Effective Time, the effect of
the Merger shall be as provided in this Agreement, the Agreement of Merger and
the applicable provisions of California Law. Without limiting the generality of
the foregoing, and subject thereto, at the Effective Time, all the property,
rights, privileges, powers and franchises of Target shall vest in the Surviving
Corporation, and all debts, liabilities and duties of Target shall become the
debts, liabilities and duties of the Surviving Corporation.
1.4. ARTICLES OF INCORPORATION; BYLAWS.
(a) At the Effective Time, the Restated Articles of Incorporation
of Acquiror, as in effect immediately prior to the Effective Time and attached
hereto as EXHIBIT C, shall be the Articles of Incorporation of the Surviving
Corporation until thereafter amended as provided by California Law.
(b) The Bylaws of Acquiror, as in effect immediately prior to the
Effective Time, shall be the Bylaws of the Surviving Corporation until
thereafter amended.
1.5. DIRECTORS AND OFFICERS. At the Effective Time, the directors of
Acquiror shall be Andrew Fillat, William Gibson, Michael Hone, Carol Lefcourt,
Charles Pai and Marino Polestra, to hold office until such time as such
directors resign, are removed or their respective successors are duly elected or
appointed and qualified. The officers of Acquiror immediately prior to the
Effective Time shall be the officers of the Surviving Corporation, to hold
office until
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such time as such officers resign, are removed or their respective successors
are duly elected or appointed and qualified.
1.6. EFFECT ON CAPITAL STOCK. By virtue of the Merger and without any
action on the part of Acquiror, Target or the holders of any of Target's
securities:
(a) CONVERSION OF TARGET CAPITAL STOCK. The maximum number of
shares of Acquiror Common and Preferred Stock to be issued (including Acquiror
Common Stock to be reserved for issuance upon exercise of warrants to purchase
shares of Target Common Stock (the "TARGET WARRANTS") and options to purchase
shares of Target Common Stock (the "TARGET OPTIONS") assumed by Acquiror
pursuant to Section 5.11 hereof) in exchange for the acquisition by Acquiror of
all outstanding Target Capital Stock and all unexpired and unexercised Target
Options and Target Warrants shall be 2,955,195 and 2,146,867 shares,
respectively, reduced as a result of any Dissenting Shares (as defined below).
No adjustment shall be made in the number of shares of Acquiror Common or
Preferred Stock issued in the Merger as a result of (x) any increase or decrease
in the market value of Acquiror Common or Preferred Stock prior to the Effective
Time or (y) any cash proceeds received by Target from the date hereof to the
Closing Date pursuant to the exercise of currently outstanding Target Options or
Target Warrants. Subject to the terms and conditions of this Agreement and the
Agreement of Merger as of the Effective Time, by virtue of the Merger and
without any action on the part of the holder of any shares of Target Capital
Stock:
(i) At the Effective Time, each share of Target Common Stock
issued and outstanding immediately prior to the Effective Time (other than
shares to be cancelled pursuant to Section 1.6(b) and shares, if any, held by
persons who have not voted such shares for approval of the Merger and with
respect to which such persons shall become entitled to exercise dissenters'
rights in accordance with Chapter 13 of the California Law ("DISSENTING
SHARES")) shall be converted and exchanged for such number of shares of Acquiror
Common Stock as shall be determined in accordance with item (i) of EXHIBIT B
hereof (the "COMMON EXCHANGE RATIO").
(ii) At the Effective Time, each share of Target Series 1
Preferred Stock issued and outstanding immediately prior to the Effective Time
(other than shares to be cancelled pursuant to Section 1.6(b) and Dissenting
Shares) shall be converted and exchanged for such number of shares of Acquiror
Series C Preferred Stock as shall be determined in accordance with item (ii) of
EXHIBIT B hereof (the "SERIES 1 EXCHANGE RATIO").
(b) CANCELLATION OF TARGET CAPITAL STOCK OWNED BY ACQUIROR OR
TARGET. At the Effective Time, each share of Target Capital Stock owned by
Acquiror or any direct or indirect wholly owned subsidiary of Acquiror or of
Target immediately prior to The Effective Time shall be canceled and
extinguished without any conversion thereof.
(c) TARGET STOCK OPTION PLANS. At the Effective Time, the Target
1992 Stock Option Plan and the Target 1996 Stock Option Plan (the "TARGET STOCK
OPTION PLANS") and all options to purchase Target Common Stock then outstanding
under the Target Stock Option Plans shall be assumed by Acquiror in accordance
with Section 5.11.
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(d) TARGET WARRANTS. At the Effective Time, all outstanding
Target Warrants that do not terminate by their terms shall be converted into
warrants to acquire Acquiror Common Stock in accordance with their terms.
(e) ADJUSTMENTS TO EXCHANGE RATIOS. The Exchange Ratios shall be
adjusted to reflect fully the effect of any stock split, reverse split, stock
dividend (including any dividend or distribution of securities convertible into
Acquiror Capital Stock or Target Capital Stock), reorganization,
recapitalization or other like change with respect to Acquiror Capital Stock or
Target Capital Stock occurring after the date hereof and prior to the Effective
Time.
(f) FRACTIONAL SHARES. No fraction of a share of Acquiror Common
or Preferred Stock will be issued, but in lieu thereof each holder of shares of
Target Capital Stock who would otherwise be entitled to a fraction of a share of
Acquiror Common or Preferred Stock (after aggregating all fractional shares of
Acquiror Common or Preferred Stock to be received by such holder) shall receive
from Acquiror an amount of cash (rounded to the nearest whole cent) equal to the
product of (i) such fraction, multiplied by (ii) the price of one share of
Acquiror Common or Preferred Stock, as the case may be, immediately prior to the
Merger, as determined by the Board of Directors of Acquiror (the "CLOSING
PRICE.")
(g) DISSENTERS' RIGHTS. Any Dissenting Shares shall not be
converted into Acquiror Common or Preferred Stock, but shall instead be
converted into the right to receive such consideration as may be determined to
be due with respect to such Dissenting Shares pursuant to California Law. Target
agrees that, except with the prior written consent of Acquiror, or as required
under California Law, it will not voluntarily make any payment with respect to,
or settle or offer to settle, any such purchase demand. Each holder of
Dissenting Shares ("DISSENTING SHAREHOLDER") who, pursuant to the provisions of
California law, becomes entitled to payment of the fair value for shares of
Target Capital Stock shall receive payment therefor (but only alter the value
therefor shall have been agreed upon or finally determined pursuant to such
provisions). If, after the Effective Time, any Dissenting Shares shall lose
their status as Dissenting Shares, Acquiror shall issue and deliver, upon
surrender by such shareholder of certificate or certificates representing shares
of Target Capital Stock, the number of shares of Acquiror Common or Preferred
Stock to which such shareholder would otherwise be entitled under this Section
1.6 and the Agreement of Merger.
(h) Acquiror and Target each contemplate that they may incur
certain indebtedness for money borrowed prior to the Effective Time. Any such
indebtedness incurred by Target prior to the Effective Time will, by virtue of
the Merger, become indebtedness of the Surviving Corporation. Each of such
parties also contemplates that any such amounts (together with interest) will be
converted into Preferred Stock in the next equity financing consummated by the
Surviving Corporation after the Closing Date. Acquiror and Target also
contemplate that such additional indebtedness will not affect the exchange
rates in the Merger.
1.7. SURRENDER OF CERTIFICATES.
(a) EXCHANGE AGENT. Gibson Dunn & Crutcher, counsel to the
Acquiror, shall act as exchange agent (the "EXCHANGE AGENT") in the Merger.
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(b) ACQUIROR TO PROVIDE COMMON STOCK AND CASH. Promptly after the
Effective Time, Acquiror shall make available to the Exchange Agent for exchange
in accordance with this Article I, through such reasonable procedures as
Acquiror may adopt, (i) the shares of Acquiror Common and Preferred Stock
issuable pursuant to Section 1.6(a) in exchange for shares of Target Capital
Stock outstanding immediately prior to the Effective Time, and (ii) cash in an
amount sufficient to permit payment of cash in lieu of fractional shares
pursuant to Section 1.6(f).
(c) EXCHANGE PROCEDURES. Promptly after the Effective Time,
Acquiror shall cause to be mailed to each holder of record of a certificate or
certificates (the "CERTIFICATES") that immediately prior to the Effective Time
represented outstanding shares of Target Capital Stock, whose shares were
converted into the right to receive shares of Acquiror Common or Preferred Stock
(and cash in lieu of fractional shares) pursuant to Section 1.6, (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon receipt of the
Certificates by the Exchange Agent, and shall be in such form and have such
other provisions as Acquiror may reasonably specify) and (ii) instructions for
use in effecting the surrender of the Certificates in exchange for certificates
representing shares of Acquiror Common or Preferred Stock (and cash in lieu of
fractional shares). Upon surrender of a Certificate for cancellation to the
Exchange Agent or to such other agent or agents as may be appointed by Acquiror,
together with such letter of transmittal, duly completed and validly executed in
accordance with the instructions thereto, the holder of such Certificate shall
be entitled to receive in exchange therefor a certificate representing the
number of whole shares of Acquiror Common or Preferred Stock and payment in lieu
of fractional shares that such holder has the right to receive pursuant to
Section 1.6, and the Certificate so surrendered shall forthwith be canceled.
Until so surrendered, each outstanding Certificate that, prior to the Effective
Time, represented shares of Target Capital Stock will be deemed from and after
the Effective Time, for all corporate purposes, other than the payment of
dividends, to evidence the ownership of the number of full shares of Acquiror
Common or Preferred Stock into which such shares of Target Capital Stock shall
have been so converted and the right to receive an amount in cash in lieu of the
issuance of any fractional shares in accordance with Section 1.6.
(d) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No
dividends or other distributions with respect to Acquiror Common or Preferred
Stock with a record date after the Effective Time shall be paid to the holder of
any unsurrendered Certificate with respect to the shares of Acquiror Common or
Preferred Stock represented thereby until the holder of record of such
Certificate surrenders such Certificate. Subject to applicable law, following
surrender of any such Certificate, there shall be paid to the record holder of
the certificates representing whole shares of Acquiror Common or Preferred Stock
issued in exchange therefor, without interest, at the time of such surrender,
the amount of any such dividends or other distributions with a record date after
the Effective Time that would have been previously payable (but for the
provisions of this Section 1.7(d)) with respect to such shares of Acquiror
Common or Preferred Stock.
(e) TRANSFERS OF OWNERSHIP. If any certificate for shares of
Acquiror Common or Preferred Stock is to be issued in a name other than that in
which the Certificate surrendered in exchange therefor is registered, it shall
be a condition of the issuance thereof that
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the Certificate so surrendered is properly endorsed and otherwise in proper form
for transfer and that the person requesting such exchange will have paid to
Acquiror or any agent designated by it any transfer or other taxes required by
reason of the issuance of a certificate for shares of Acquiror Common or
Preferred Stock in any name other than that of the registered holder of the
Certificate surrendered, or established to the satisfaction of Acquiror or any
agent designated by it that such tax has been paid or is not payable.
(f) NO LIABILITY. Notwithstanding anything to the contrary in
this Section 1.7, none of the Exchange Agent, Acquiror or any party hereto shall
be liable to any person for any amount properly paid to a public official
pursuant to any applicable abandoned property, escheat or similar law.
(g) DISSENTING SHARES. The provisions of this Section 1.7 shall
also apply to Dissenting Shares that lose their status as such, except that the
obligations of Acquiror under this Section 1.7 shall commence on the date of
loss of such status and the holder of such shares shall be entitled to receive
in exchange for such shares the number of shares of Acquiror Common or Preferred
Stock to which such holder is entitled pursuant to Section 1.6 hereof.
1.8. NO FURTHER OWNERSHIP RIGHTS IN TARGET CAPITAL STOCK. All shares
of Acquiror Common or Preferred Stock issued upon the surrender for exchange of
shares of Target Capital Stock in accordance with the terms hereof (including
any cash paid in lieu of fractional shares) shall be deemed to have been issued
in full satisfaction of all rights pertaining to such shares of Target Capital
Stock, and there shall be no further registration of transfers on the records of
the Surviving Corporation of shares of Target Capital Stock that were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to the Surviving Corporation for any reason,
they shall be canceled and exchanged as provided in this Article I.
1.9. LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof, such shares of
Acquiror Common or Preferred Stock (and cash in lieu of fractional shares) as
may be required pursuant to Section 1.6; provided, however, that Acquiror may,
in its discretion and as a condition precedent to the issuance thereof, require
the owner of such lost, stolen or destroyed Certificates to deliver a bond in
such sum as it may reasonably direct as indemnity against any claim that may be
made against Acquiror, the Surviving Corporation or the Exchange Agent with
respect to the Certificates alleged to have been lost, stolen or destroyed.
1.10. TAX CONSEQUENCES. It is intended by the parties hereto that the
Merger shall constitute a reorganization within the meaning of Section 368 of
the Code. No party shall take any action that would, to such party's knowledge,
cause the Merger to fail to qualify as a reorganization within the meaning of
Section 368 of the Code.
1.11. EXEMPTION FROM REGISTRATION. The shares of Acquiror Common and
Preferred Stock to be issued in connection with the Merger will be issued in a
transaction exempt from registration under the Securities Act of 1933, as
amended (the "SECURITIES ACT"), by reason of Section 3(a)(10) thereof. The
shares of Acquiror Common and Preferred Stock to be issued in
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connection with the Merger will be qualified under California Law, pursuant to
Section 25121 thereof, after a fairness hearing has been held pursuant to the
authority granted by Section 25142 of such law. Such fairness hearing will also
address the assumption by Acquiror of the Target Options and Target Warrants, as
described in Sections 1.6(c) and 1.6(d) hereof, respectively. Each of Acquiror
and Target shall use its best efforts to file an application for issuance of a
permit to issue such securities and assume such options and warrants as soon as
practicable after the date of this Agreement. The registration of certain of the
shares with the Securities and Exchange Commission (the "SEC") and their resale
shall be subject to the terms and conditions of a registration rights agreement
in a form reasonably acceptable to Target and Acquiror (the "REGISTRATION RIGHTS
AGREEMENT").
1.12. TAKING OF NECESSARY ACTION: FURTHER ACTION. If, at any time
after the Effective Time, any further action is necessary or desirable to carry
out the purposes of this Agreement and to vest the Surviving Corporation with
full right, title and possession to all assets, property, rights, privileges,
powers and franchises of Target, the officers and directors of Acquiror are
fully authorized in the name of their respective corporations or otherwise to
take, and shall take, all such lawful and necessary action, so long as such
action is not inconsistent with this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF TARGET
Target and the Target Shareholders represent and warrant to
Acquiror that the statements contained in this Article II are true and correct,
except as set forth in the disclosure letter delivered by Target to Acquiror
prior to the execution and delivery of this Agreement and attached hereto as
SCHEDULE C (the "TARGET DISCLOSURE LETTER"). Any reference in this Article II to
an agreement being "enforceable" shall be deemed to be qualified to the extent
such enforceability is subject to (i) laws of general application relating to
bankruptcy, insolvency, moratorium and the relief of debtors and (ii) the
availability of specific performance, injunctive relief and other equitable
remedies.
2.1. ORGANIZATION, STANDING AND POWER. Target is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization. Target has the corporate power to own its
properties and to carry on its business as now being conducted and as proposed
to be conducted and is duly qualified to do business and is in good standing in
each jurisdiction in which the failure to be so qualified and in good standing
would have a Material Adverse Effect (as defined in Section 9.2) on Target.
Target has delivered to Acquiror a true and correct copy of the Articles of
Incorporation and Bylaws or other charter documents, as applicable, of Target,
each as amended to date. Target is not in violation of any of the provisions of
its Articles of Incorporation or Bylaws or equivalent organizational documents.
Target does not directly or indirectly own any equity or similar interest in, or
any interest convertible or exchangeable or exercisable for, any equity or
similar interest in, any corporation, partnership, joint venture or other
business association or entity.
2.2. CAPITAL STRUCTURE. The authorized capital stock of Target
consists of 60,000,000 shares of Common Stock and 30,000,000 shares of Preferred
Stock (20,000,000 of
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which have been designated as Series 1 Preferred Stock), of which there were
issued and outstanding as of the date of this Agreement 30,806,754 shares of
Common Stock and 19,534,200 shares of Series 1 Preferred Stock (the "SERIES 1
PREFERRED"). There are no other outstanding shares of capital stock or voting
securities and no outstanding commitments to issue any shares of capital stock
or voting securities after the date of this Agreement, other than pursuant to
the exercise of (i) outstanding Target Warrants and (ii) options outstanding as
of the date of this Agreement under the Target Stock Option Plans. All
outstanding shares of Target Capital Stock are duly authorized, validly issued,
fully paid and non-assessable and are free of any liens or encumbrances, other
than any liens or encumbrances created by or imposed upon the holders thereof,
and are not subject to preemptive rights, rights of first refusal, rights of
first offer or similar rights created by statute, the Articles of Incorporation
or Bylaws of Target, or any agreement to which Target is a party or by which it
is bound. As of the date of this Agreement, Target has reserved 20,000,000
shares of Common Stock for issuance upon conversion of the Series 1 Preferred.
As of the date of this Agreement, there are currently outstanding (i) options to
purchase 2,222,100 shares of Common Stock granted to employees and other service
providers pursuant to the Target Stock Option Plans, and (ii) warrants to
purchase 988,554 shares of Common Stock upon exercise of the Target Warrants.
Except for (i) the rights created pursuant to this Agreement and (ii) Target's
right to repurchase any unvested shares under the Target Stock Option Plans,
there are no other options, warrants, calls, rights, commitments or agreements
of any character to which Target is a party or by which it is bound obligating
or allowing Target to issue, deliver, sell, repurchase or redeem, or cause to be
issued, delivered, sold, repurchased or redeemed, any shares of Target Capital
Stock or obligating Target to grant, extend, accelerate the vesting of, change
the price of, or otherwise amend or enter into any such option, warrant, call,
right, commitment or agreement. There are no contracts, commitments or
agreements relating to the voting, purchase or sale of Target Capital Stock (i)
between or among Target and any of its shareholders and (ii) to the best of
Target's knowledge, among any of Target's shareholders or between any of
Target's shareholders and any third party. The terms of the Target Stock Option
Plans permit the assumption of such Target Stock Option Plans by Acquiror or the
substitution of options to purchase Acquiror Common Stock as provided in this
Agreement, without the consent or approval of the holders of the outstanding
options, the Target shareholders, or otherwise and without any acceleration of
the exercise schedule or vesting provisions in effect for such options. True and
complete copies of all agreements and instruments relating to or issued under
the Target Stock Option Plans have been made available to Acquiror, and such
agreements and instruments have not been amended, modified or supplemented, and
there are no agreements to amend, modify or supplement such agreements or
instruments from the form made available to Acquiror. All outstanding Common
Stock and Series 1 Preferred was issued in compliance with all applicable
federal and state securities laws.
Target contemplates that it may incur certain indebtedness (which may be
convertible into securities of such corporation and which may include warrant
coverage) for money borrowed prior to the Effective Time. Any such indebtedness
incurred by Target prior to the Effective Time will, by virtue of the Merger,
become indebtedness of the Surviving Corporation. Each of Acquiror and Target
contemplates that any such amounts (together with interest) will be convened
into Preferred Stock in the next equity financing consummated by the Surviving
Corporation after the Closing Date. Acquiror and Target also contemplate that
such additional indebtedness will not affect the exchange rates in the Merger.
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2.3. AUTHORITY.
(a) Target has all requisite corporate power and authority to
enter into this Agreement and the Agreement of Merger, and to consummate the
transactions contemplated hereby the thereby. The execution and delivery of this
Agreement and the Agreement of Merger and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action on the part of Target, subject only to the approval of the
Merger by Target's shareholders. This Agreement and Agreement of Merger have
been duly executed and delivered by Target and constitute the valid and binding
obligations of Target enforceable against Target in accordance with their terms.
(b) The execution and delivery of this Agreement and the
Agreement of Merger by Target do not, and the consummation of the transactions
contemplated hereby and thereby will not, conflict with, or result in any
violation of, or default under (with or without notice or lapse of time, or
both), or give rise to a right of termination, cancellation or acceleration of
any obligation or loss of any benefit under (i) any provision of the Articles of
Incorporation or Bylaws of Target, as amended, or (ii) any Material Agreement
(as defined in Section 2.19), permit, concession, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to Target
or any of its properties or assets.
(c) No consent, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or
commission or other governmental authority or instrumentality ("GOVERNMENTAL
ENTITY") is required by or with respect to Target in connection with the
execution and delivery of this Agreement and the Agreement of Merger or the
consummation of the transactions contemplated hereby or thereby, except for (i)
the filing of the Agreement of Merger, together with the required officers'
certificates, as provided in Section 1.2; (ii) such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable state securities laws and the securities laws of any foreign country;
(iii) such filings as may be required under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended ("HSR"); and (iv) such other consents,
authorizations, filings, approvals and registrations that, if not obtained or
made, would not have a Material Adverse Effect on Target and would not prevent
or materially alter or delay any of the transactions contemplated by this
Agreement.
2.4. FINANCIAL STATEMENTS. Target has delivered to Acquiror its
unaudited financial statements (balance sheet, statement of operations,
statement of shareholders' equity and statement of cash flows) as at and for the
fiscal year ended December 31, 1997, and its unaudited financial statements
(balance sheet and statement of operations) as at and for the four-month period
ended April 30, 1998 (collectively, the "TARGET FINANCIAL STATEMENTS"). The
Target Financial Statements have been prepared in accordance with generally
accepted accounting principles ("GAAP") (except that the unaudited financial
statements do not have notes thereto) applied on a consistent basis throughout
the periods indicated and with each other. The Target Financial Statements
fairly present the financial condition and operating results of Target as of the
dates, and for the periods, indicated therein, subject in the case of the
unaudited financial statements to normal year-end audit adjustments, which are
not material in the aggregate. Target maintains a standard system of accounting
established and administered in accordance with generally accepted accounting
principles.
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2.5. ABSENCE OF CERTAIN CHANGES. Since April 30, 1998 (the "TARGET
BALANCE SHEET DATE"), Target has conducted its business in the ordinary course
consistent with past practice and there has not occurred: (i) any change, event
or condition (whether or not covered by insurance) that has resulted in, or
might reasonably be expected to result in, a Material Adverse Effect on Target;
(ii) any acquisition, sale or transfer of any material asset of Target; (iii)
any change in accounting methods or practices (including any change in
depreciation or amortization policies or rates) by Target or any revaluation by
Target of any of its assets; (iv) any declaration, setting aside, or payment of
a dividend or other distribution with respect to the shares of Target, or any
direct or indirect redemption, purchase or other acquisition by Target of any of
its shares of capital stock; (v) any Material Contract entered into by Target,
other than as provided to Acquiror, or any material amendment or termination of,
or default under, any Material Contract to which Target is a party or by which
it is bound; (vi) any amendment or change to the Articles of Incorporation or
Bylaws of Target; (vii) any increase in or modification of the compensation or
benefits payable or to become payable by Target to any of its directors,
employees or consultants; or (viii) any negotiation or agreement by Target to do
any of the things described in the preceding clauses (i) through (vii) (other
than negotiations with Acquiror and its representatives regarding the
transactions contemplated by this Agreement).
2.6. ABSENCE OF UNDISCLOSED LIABILITIES. Target has no material
obligations or liabilities of any nature (matured or unmatured, fixed or
contingent) other than (i) those set forth or adequately provided for in the
Balance Sheet at April 30, 1998 (the "TARGET BALANCE SHEET"), (ii) those
incurred in the ordinary course of business prior to the Target Balance Sheet
Date and not required to be set forth in the Target Balance Sheet under GAAP,
(iii) those incurred in the ordinary course of business since the Target Balance
Sheet Date in amounts consistent with prior periods, and (iv) those incurred in
connection with the execution of this Agreement.
2.7. LITIGATION. There is no private or governmental action, suit,
proceeding, claim, arbitration or investigation pending before any agency, court
or tribunal, foreign or domestic, or, to the knowledge of Target, threatened
(including allegations that could form the basis for future action) against
Target or any of its properties or officers or directors (in their capacities as
such). There is no judgment, decree or order against Target, or, to the
knowledge of Target, any of its directors or officers (in their capacities as
such), that could prevent, enjoin, or materially alter or delay any of the
transactions contemplated by this Agreement, or that could reasonably be
expected to have a Material Adverse Effect on Target. All litigation to which
Target is a party (or, to the knowledge of Target, threatened to become a party)
is disclosed in the Target Disclosure Letter. Target does not have any plans to
initiate any litigation, arbitration or other proceeding against any third
party.
2.8. GOVERNMENTAL AUTHORIZATION. Target has obtained each federal,
state, county, local or foreign governmental consent, license, permit, grant, or
other authorization of a Governmental Entity (i) pursuant to which Target
currently operates or holds any interest in any of its properties or (ii) that
is required for the operation of Target's business or the holding of any such
interest ((i) and (ii) herein collectively called "TARGET AUTHORIZATIONS"), and
all of such Target Authorizations are in full force and effect, except where the
failure to obtain or have any such Target Authorizations could not reasonably be
expected to have a Material Adverse Effect on Target.
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2.9. TITLE TO PROPERTY. Target has good and marketable title to all of
its properties, interests in properties and assets, real and personal, necessary
for the conduct of its business as presently conducted or that are reflected in
the Target Balance Sheet or acquired after the Target Balance Sheet Date (except
properties, interests in properties and assets sold or otherwise disposed of in
the ordinary course of business since the Target Balance Sheet Date), or with
respect to leased properties and assets, valid leasehold interests therein, in
each case free and clear of all mortgages, liens, pledges, charges or
encumbrances of any kind or character, except (i) the lien of current taxes not
yet due and payable, and (ii) liens securing debt that are reflected on the
Target Balance Sheet. The plants, property and equipment of Target that are used
in the operations of its business are in good operating condition and repair.
All properties used in the operations of Target are reflected in the Target
Balance Sheet to the extent generally accepted accounting principles require the
same to be reflected.
2.10. INTELLECTUAL PROPERTY.
(a) Target is the sole and exclusive owner of all Target
Intellectual Property (defined below) free of all contingent and noncontingent
liens, restrictions, interests, rights of reversion or termination, and all
other encumbrances of any nature. The conduct of Target's business as currently
conducted will not infringe, misappropriate or violate any Intellectual Property
(defined below) of others. With respect to patent rights, moral rights and Mark
rights (defined below), the foregoing representations and warranties of this
paragraph are made only to Target's knowledge.
(b) All Target Intellectual Property that is the subject of any
application, registration or issuance with or from any governmental entity is
identified on the Target Disclosure Schedule; all such registered or issued
Intellectual Property is free from any challenge (or threat thereof) and Target
is not aware of any specific basis therefor. All such applications,
registrations and issuances have been properly maintained. Target has adequately
protected all other Target Intellectual Property through the use of
confidentiality agreements and otherwise and Target is not aware of any use,
exercise or exploitation of any Target Intellectual Property, except as
authorized by Target.
(c) Each current and former employee and contractor of Target has
executed and delivered (and to Target's knowledge, is in compliance with) an
agreement in substantially the form of Target's standard Proprietary Information
and Inventions Agreement (in the case of an employee) or Target's standard
Consulting Agreement (in the case of a contractor) (which agreement provides
valid written assignments of all title and rights to any Target Intellectual
Property conceived or developed thereunder or otherwise in connection with his
or her consulting or employment).
(d) "INTELLECTUAL PROPERTY" means patent rights; trade name,
trademark, service mark and similar rights ("MARK" rights); copyrights; mask
work rights; trade secret rights; moral rights; and all other intellectual and
industrial property rights of any sort throughout the world, and all
applications, registrations, issuances and the like with respect thereto.
"TARGET INTELLECTUAL PROPERTY" means all Intellectual Property that has been,
is, or is proposed to be owned by Target, or used, exercised, or exploited, or
otherwise necessary for, Target's business as currently conducted or as proposed
to be conducted.
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2.11. ENVIRONMENTAL MATTERS. Target is and has at all times operated
its business in material compliance with all Environmental Laws, and to the best
of Target's knowledge, no material expenditures are or will be required in order
to comply with such Environmental Laws. "ENVIRONMENTAL LAWS" means all
applicable statutes, roles, regulations, ordinances, orders, decrees, judgments,
permits, licenses, consents, approvals, authorizations, and governmental
requirements or directives or other obligations lawfully imposed by governmental
authority under federal, state or local law pertaining to the protection of the
environment, protection of public health, protection of worker health and
safety, the treatment, emission and/or discharge of gaseous, particulate and/or
effluent pollutants, and/or the handling of hazardous materials.
2.12. TAXES.
(a) All Tax returns, statements, reports, declarations and other
forms and documents (including without limitation estimated Tax returns and
reports and material information returns and reports) required to be filed with
any Tax authority with respect to any Taxable period ending on or before the
Closing, by or on behalf of Target (collectively, "TAX RETURNS" and individually
a "TAX RETURN"), have been or will be completed and filed when due (including
any extensions of such due date) and all amounts shown due on such Tax Returns
on or before the Effective Time have been or will be paid on or before such
date. The Target Financial Statements (i) fully accrue all actual and contingent
liabilities for Taxes with respect to all periods through the Target Balance
Sheet Date and Target has not and will not incur any Tax liability in excess of
the amount reflected on the Target Balance Sheet included in the Target
Financial Statements with respect to such periods, and (ii) properly accrue in
accordance with GAAP all material liabilities for Taxes payable after the Target
Balance Sheet Date with respect to all transactions and events occurring on or
prior to such date. All information set forth in the notes to the Target
Financial Statements relating to Tax matters is true, complete and accurate in
all material respects. No material Tax liability since the Target Balance Sheet
Date has been incurred by Target other than in the ordinary course of business,
and adequate provision has been made by Target for all Taxes since that date in
accordance with GAAP on at least a quarterly basis.
(b) Target has previously provided or made available to Acquiror
true and correct copies of all income, franchise, and sales Tax Returns, and, as
reasonably requested by Acquiror, prior to or following the date hereof,
presently existing information statements and reports. Target has withheld and
paid to the applicable financial institution or Tax authority all amounts
required to be withheld. To the best knowledge of Target, no Tax Returns filed
with respect to Taxable years of Target through the Taxable year ended December
31, 1997 in the case of the United States, have been examined and closed. Target
(or any member of any affiliated or combined group of which Target has been a
member) has not granted any extension or waiver of the limitation period
applicable to any Tax Returns that is still in effect. There is no material
claim, audit, action, suit, proceeding, or (to the knowledge of Target)
investigation now pending or (to the knowledge of Target) threatened against or
with respect to Target in respect of any Tax or assessment. No notice of
deficiency or similar document of any Tax authority has been received by Target,
and there are no liabilities for Taxes (including liabilities for interest,
additions to Tax and penalties thereon and related expenses) with respect to the
issues that have been raised (and are currently pending) by any Tax authority
that could, if determined adversely to Target, materially and adversely affect
the liability of Target for Taxes. There are no liens for
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Taxes (other than for current Taxes not yet due and payable) upon the assets of
Target. Target has never been a member of an affiliated group of corporations,
within the meaning of Section 1504 of the Code. Target is in full compliance
with all the terms and conditions of any Tax exemptions or other Tax-sharing
agreement or order of a foreign government and the consummation of the Merger
will not have any adverse effect on the continued validity and effectiveness of
any such Tax exemption or other Tax-sharing agreement or order. Neither Target
nor any person on behalf of Target has entered into or will enter into any
agreement or consent pursuant to the collapsible corporation provisions of
Section 341(f) of the Code (or any corresponding provision of state, local or
foreign income tax law) or agreed to have Section 341 (f)(2) of the Code (or any
corresponding provision of state, local or foreign income tax law) apply to any
disposition of any asset owned by Target. None of the assets of Target is
property that Target is required to treat as being owned by any other person
pursuant to the so-called "safe harbor lease" provisions of former Section
168(f)(8) of the Code. None of the assets of Target directly or indirectly
secures any debt the interest on which is tax-exempt under Section 103(a) of the
Code. None of the assets of Target is "tax-exempt use property" within the
meaning of Section 168(h) of the Code. Target has not made and will not make a
deemed dividend election under Treas. Reg. Section 1.1502-32(f)(2) or a consent
dividend election under Section 565 of the Code. Target has never been a party
to any transaction intended to qualify under Section 355 of the Internal Revenue
Code or any corresponding provision of state law. Target has not participated in
(and will not participate in) an international boycott within the meaning of
Section 999 of the Code. No Target shareholder is other than a United States
person within the meaning of the Code. Target does not have and has not had a
permanent establishment in any foreign country, as defined in any applicable tax
treaty or convention between the United States of America and such foreign
country and Target has not engaged in a trade or business within any foreign
country. Target has never elected to be treated as an S-corporation under
Section 1362 of the Code or any corresponding provision of federal or state law.
All material elections with respect to Target's Taxes are reflected on the
Target Tax Returns for such periods, copies of which have been provided or made
available to Acquiror. After the date of this Agreement, no material election
with respect to Taxes will be made without the prior written consent of
Acquiror, which consent will not be unreasonably withheld or delayed. Target is
not a party to any joint venture, partnership, or other arrangement or contract
which could be treated as a partnership for federal income tax purposes. Target
is not currently and never has been subject to the reporting requirements of
Section 6038A of the Code. There is no agreement, contract or arrangement to
which Target is a party that could, individually or collectively, result in the
payment of any amount that would not be deductible by reason of Sections 280G
(as determined without regard to Section 280G(b)(4), 162 (other than 162(a)) or
404 of the Code. Target is not a party to or bound by any Tax indemnity, Tax
sharing or Tax allocation agreement (whether written or unwritten or arising
under operation of federal law as a result of being a member of a group filing
consolidated Tax returns, under operation of certain state laws as a result of
being a member of a unitary group, or under comparable laws of other states or
foreign jurisdictions) which includes a party other than Target nor does Target
owe any amount under any such Agreement. Target has previously provided or made
available to Acquiror true and correct copies of all income, franchise, and
sales Tax Returns, and, as reasonably requested by Acquiror, prior to or
following the date hereof, presently existing information statements and
reports. Target is not, and has not been, a United States real property holding
corporation (as defined in Section 897(c)(2) of the Code) during the applicable
period
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specified in Section 897(c)(1)(A)(ii) of the Code. Other than by reason of the
Merger, Target has not been and will not be required to include any material
adjustment in Taxable income for any Tax period (or portion thereof) pursuant to
Section 481 or 263A of the Code or any comparable provision under state or
foreign Tax laws as a result of transactions, events or accounting methods
employed prior to the Merger.
(c) For purposes of this Agreement, the following terms have the
following meanings: "TAX" (and, with correlative meaning, "TAXES" and "TAXABLE")
means any and all taxes including, without limitation, (i) any net income,
alternative or add-on minimum tax, gross income, gross receipts, sales, use, ad
valorem, transfer, franchise, profits, value added, net worth, license,
withholding, payroll, employment, excise, severance, stamp, occupation, premium,
property, environmental or windfall profit tax, custom, duty or other tax
governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest or any penalty, addition to tax or additional amount
imposed by any Governmental Entity (a "TAX AUTHORITY") responsible for the
imposition of any such tax (domestic or foreign), (ii) any liability for the
payment of any amounts of the type described in (i) as a result of being a
member of an affiliated, consolidated, combined or unitary group for any Taxable
period or as the result of being a transferee or successor thereof and (iii) any
liability for the payment of any amounts of the type described in (i) or (ii) as
a result of any express or implied obligation to indemnify any other person. As
used in this section 2.12, the term "TARGET" means Target and any entity
included in, or required under GAAP to be included in, any of the Target
Financial Statements.
2.13. EMPLOYEE BENEFIT PLANS.
(a) for all purposes under this Section 2.13 "ERISA AFFILIATE"
shall mean each person (as defined in Section 3(9) of Employee Retirement Income
Security Act of 1974, as amended ("ERISA") that, together with Target, is
treated as a single employer under Section 4001(b) of ERISA or Section 414 of
the Code. Except for the plans and agreements listed in the Target Disclosure
Schedule (collectively, the "PLANS"), Target and its ERISA Affiliates do not
maintain, are not a party to, do not contribute to and are not obligated to
contribute to, and are employees or former employees of Target and its ERISA
Affiliates and their dependents or survivors do not receive benefits under, any
of the following (whether or not set forth in a written document):
(i) Any employee benefit plan, as defined in section 3(3) of
ERISA;
(ii) Any bonus, deferred compensation, incentive, restricted
stock, stock purchase, stock option, stock appreciation right, phantom stock,
supplemental pension, executive compensation, cafeteria benefit, dependent care,
director or employee loan, fringe benefit, sabbatical, severance, termination
pay or similar plan, program, policy, agreement or arrangement; or
(iii) Any plan, program, agreement, policy, commitment or
other arrangement relating to the provision of any benefit described in section
3(1) of ERISA to former employees or directors or to their survivors, other than
procedures intended to comply with the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA").
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(b) Neither Target nor any ERISA Affiliate has, since January 1,
1992, terminated, suspended, discontinued contributions to or withdrawn from any
employee pension benefit plan, as defined in section 3(2) of ERISA, including
(without limitation) any multiemployer plan, as defined in section 3(37) of
ERISA.
(c) Target has provided to Acquiror complete, accurate and
current copies of each of the following:
(i) The text (including amendments) of each of the Plans, to
the extent reduced to writing;
(ii) A summary of each of the Plans, to the extent not
previously reduced to writing;
(iii) With respect to each Plan that is an employee benefit
plan (as defined in section 3(3) of ERISA), the following:
(1) The most recent summary plan description, as
described in section 102 of ERISA;
(2) Any summary of material modifications that has been
distributed to participants but has not been incorporated in an updated summary
plan description furnished under Subparagraph (1) above; and
(3) The annual report, as described in section 103 of
ERISA, and (where applicable) actuarial reports, for the three most recent plan
years for which an annual report or actuarial report has been prepared; and
(iv) With respect to each Plan that is intended to qualify
under section 401(a) of the Code the most recent determination letter concerning
the plan's qualification under section 401(a) of the Code, as issued by the
Internal Revenue Service, and any subsequent determination letter application.
(d) With respect to each Plan that is an employee benefit plan
(as defined in section 3(3) of ERISA), the requirements of ERISA applicable to
such Plan have been satisfied, except to the extent that a failure to satisfy
any of such requirements would not have a Material Adverse Effect.
(e) With respect to each Plan that is subject to COBRA, the
requirements of COBRA applicable to such Plan have been satisfied, except to the
extent that a failure to satisfy any of such requirements would not have a
Material Adverse Effect.
(f) With respect to each Plan that is subject to the Family
Medical Leave Act of 1993, as amended, the requirements of such Act applicable
to such Plan have been satisfied, except to the extent that a failure to satisfy
any of such requirements would not have a Material Adverse Effect.
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(g) Each Plan that is intended to qualify under section 401(a) of
the Code meets the requirements for qualification under section 401(a) of the
Code and the regulations thereunder, except to the extent that such requirements
may be satisfied by adopting retroactive amendments under section 401 (b) of the
Code and the regulations thereunder. Each such Plan has been administered in
accordance with its terms (or, if applicable, such terms as will be adopted
pursuant to a retroactive amendment under section 401(b) of the Code) and the
applicable provisions of ERISA and the Code and the regulations thereunder,
except to the extent that a failure to be so administered would not have a
Material Adverse Effect.
(h) Neither Target nor any ERISA Affiliate has any accumulated
funding deficiency under section 412 of the Code or any termination or
withdrawal liability under Title IV of ERISA, except to the extent that any such
liability would not have a Material Adverse Effect.
(i) All contributions, premiums or other payments due from the
Target to (or under) any Plan have been fully paid or adequately provided for on
the books and financial statements of Target. All accruals (including, where
appropriate, proportional accruals for partial periods) have been made in
accordance with prior practices.
2.14. EMPLOYEES AND CONSULTANTS.
(a) Target has provided Acquiror with a true and complete list of
all individuals employed by the Company as of the date hereof and the position
and base compensation payable to each such individual. The Target Disclosure
Letter contains a description of any written or oral employment agreements,
consulting agreements or termination or severance agreements to which Target is
a party.
(b) Target is not a party to or subject to a labor union or a
collective bargaining agreement or arrangement and is not a party to any labor
or employment dispute.
(c) The consummation of the transactions contemplated herein will
not result in (i) any amount becoming payable to any employee, director or
independent contractor of Target, (ii) the acceleration of payment or vesting of
any benefit, option or right to which any employee, director or independent
contractor of Target may be entitled, (iii) the forgiveness of any indebtedness
of any employee, director or independent contractor of Target or (iv) any cost
becoming due or accruing to Target or Acquiror with respect to any employee,
director or independent contractor of Target.
(d) Target is not obligated and upon consummation of the Merger
will not be obligated to make any payment or transfer any property that would be
considered a "parachute payment" under section 280G(b)(2) of the Code.
(e) To the knowledge of Target, no employee of Target has been
injured in the work place or in the course of his or her employment, except for
injuries that are covered by insurance or for which a claim has been made under
workers' compensation or similar laws.
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(f) Target has complied in all material respects with the
verification requirements and the record-keeping requirements of the Immigration
Reform and Control Act of 1986 ("IRCA"); to the best knowledge of Target, the
information and documents on which Target relied to comply with IRCA are true
and correct; and there have not been any discrimination complaints filed against
Target pursuant to IRCA, and to the knowledge of Target, there is no basis for
the filing of such a complaint.
(g) Target has not received or been notified of any complaint by
any employee, applicant, union or other party of any discrimination or other
conduct forbidden by law or contract, nor to the knowledge of Target, is there a
basis for any complaint, except such complaints as could not reasonably be
expected to have a Material Adverse Effect.
(h) Target's action in complying with the terms of this Agreement
will not violate any agreements with any of Target's employees.
(i) Target has filed all required reports and information with
respect to its employees that are due prior to the Closing Date and otherwise
has complied in its hiring, employment, promotion, termination and other labor
practices with all applicable federal and state laws and regulations, including
without limitation those within the jurisdiction of the United States Equal
Employment Opportunity Commission, United States Department of Labor and state
and local human rights or civil rights agencies, except to the extent that any
such failure to file or comply would not have a Material Adverse Effect on
Target. Target has filed and shall file any such reports and information that
are required to be filed prior to the Closing Date.
(j) Target is not aware that any of its employees or contractors
is obligated under any agreement, commitments, judgment, decree, order or
otherwise (an "EMPLOYEE OBLIGATION") that would interfere with the use of his or
her best efforts to promote the interests of Target or that would conflict with
any of Target's business as conducted or proposed to be conducted. Neither the
execution nor delivery of this Agreement nor the conduct of Target's business as
conducted or proposed, will, to Target's knowledge, conflict with or result in a
breach of the terms, conditions or provisions of, or constitute a default under,
any Employee Obligation.
2.15. RELATED-PARTY TRANSACTIONS. No employee, officer or director
of Target or member of his or her immediate family is indebted to Target, nor is
Target indebted (or committed to make loans or extend or guarantee credit) to
any of them. To the best of Target's knowledge, none of such persons has any
direct or indirect ownership interest in any firm or corporation with which
Target is affiliated or with which Target has a business relationship, or any
firm or corporation that competes with Target, except to the extent that
employees, officers, or directors of Target and members of their immediate
families own stock in publicly traded companies that may compete with the
Company. No member of the immediate family of any officer or director of Target
is directly or indirectly interested in any material contract with Target.
2.16. INSURANCE. Target has policies of insurance and bonds of the
type and in amounts customarily carried by persons conducting businesses or
owning assets similar to those of Target. There is no material claim pending
under any of such policies or bonds as to which
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coverage has been questioned, denied or disputed by the underwriters of such
policies or bonds. All premiums due and payable under all such policies and
bonds have been paid and Target is otherwise in compliance with the terms of
such policies and bonds. Target has no knowledge of any threatened termination
of, or material premium increase with respect to, any of such policies.
2.17. COMPLIANCE WITH LAWS. Target has complied with, is not in
violation of, and has not received any notices of violation with respect to, any
federal, state, local or foreign statute, law or regulation with respect to the
conduct of its business, or the ownership or operation of its business, except
for such violations or failures to comply as could not be reasonably expected to
have a Material Adverse Effect on Target.
2.18. BROKERS' AND FINDERS' FEES. Target has not incurred, nor will
it incur, directly or indirectly, any liability for brokerage or finders' fees
or agents' commissions or investment bankers' fees or any similar charges in
connection with this Agreement or any transaction contemplated hereby.
2.19. MATERIAL CONTRACTS. Except for the material contracts
described in the Target Disclosure Schedule (collectively, the "TARGET MATERIAL
CONTRACTS"), Target is not a party to or bound by any material contract,
including without limitation:
(a) any distributor, sales, advertising, agency or manufacturer's
representative contract;
(b) any continuing contract for the purchase of materials,
supplies, equipment or services involving in the case of any such contact more
than $100,000 over the life of the contract;
(c) any contract that expires or may be renewed at the option of
any person other than the Target so as to expire more than one year after the
date of this Agreement;
(d) any trust indenture, mortgage, promissory note, loan
agreement or other contract for the borrowing of money, any currency exchange,
commodities or other hedging arrangement or any leasing transaction of the type
required to be capitalized in accordance with GAAP;
(e) any contract for capital expenditures in excess of $100,000
in the aggregate;
(f) any contract limiting the freedom of the Target to engage in
any line of business or to compete with any other person or any confidentiality,
secrecy or non-disclosure contract;
(g) any contract pursuant to which Target leases any real
property;
(h) any contract pursuant to which the Target is a lessor of any
machinery, equipment, motor vehicles, office furniture, fixtures or other
personal property;
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(i) any contract with any person with whom the Target does not
deal at arm's length within the meaning of the Code;
(j) any agreement of guarantee, support, indemnification,
assumption or endorsement of, or any similar commitment with respect to, the
obligations, liabilities (whether accrued, absolute, contingent or otherwise) or
indebtedness of any other person;
(k) any license, sublicense or other agreement to which Target is
a party (or by which it or any Target Intellectual Property is bound or subject)
and pursuant to which any person has been or may be assigned, authorized to Use,
or given access to any Target Intellectual Property, other than (A) access to or
Use of standard object code product pursuant to a customary non-exclusive
end-user, object code, internal-use software license and support/maintenance
agreements entered into in the ordinary course of business or (B) access
provided in the ordinary course of business under a customary
nondisclosure/nonuse agreement;
(l) any license, sublicense or other agreement pursuant to which
Target has been or may be assigned or authorized to Use, or has or may incurred
any obligation in connection with, (A) any third party Intellectual Property or
(B) any Target Intellectual Property;
2.20. NO BREACH OF MATERIAL CONTRACTS. Target has performed all of
the obligations required to be performed by it and is entitled to all benefits
under, and is not alleged to be in default in respect of, any Material Contract.
Each of the Target Material Contracts is in full force and effect, and there
exists no default or event of default or event, occurrence, condition or act,
with respect to Target or to Target's knowledge with respect to the other
contracting party, or otherwise that, with or without the giving of notice, the
lapse of the time or the happening of any other event or conditions, would (A)
become a default or event of default under any Material Contract, which default
or event of default would have a Material Adverse Effect on Target or (B) result
in the loss or expiration of any material right or option by Target (or the gain
thereof by any third party) under any Material Contract. True, correct and
complete copies of all Target Material Contracts have been made available to the
Acquiror.
2.21. THIRD-PARTY CONSENTS. The Target Disclosure Schedule lists
all contracts that require a novation or consent to assignment, as the case may
be, prior to the Effective Time so that Acquiror shall be made a party in place
of Target or as assignee (the "CONTRACTS REQUITING NOVATION OR CONSENT TO
ASSIGNMENT"). Such list is complete and accurate.
2.22. REPRESENTATIONS COMPLETE. None of the representations or
warranties made by Target or the Target Shareholders herein or in any Schedule
hereto, including the Target Disclosure Schedule, or certificate furnished by
Target pursuant to this Agreement, when all such documents are read together in
their entirety, contains or will contain at the Effective Time any untrue
statement of a material fact, or omits or will omit at the Effective Time to
state any material fact necessary in order to make the statements contained
herein or therein, in the light of the circumstances under which made, not
misleading. Target has delivered or made available true and complete copies of
each document that has been requested by Acquiror or its counsel in connection
with their legal and accounting review of Target.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ACQUIROR
Acquiror and the Acquiror Shareholders represent and warrant to Target
and the Former Target Shareholders (as defined in Section 8.1) that the
statements contained in this Article III are true and correct, except as set
forth in the disclosure schedule delivered by acquiror to Target to prior to the
execution and delivery of this Agreement and attached hereto as SCHEDULE D (the
"ACQUIROR DISCLOSURE SCHEDULE"). Any reference in this Article III to an
agreement being "enforceable" shall be deemed to be qualified to the extent such
enforceability is subject to (i) laws of general application relating to
bankruptcy, insolvency, moratorium and the relief of debtors and (ii) the
availability of specific performance, injunctive relief and other equitable
remedies.
3.1. ORGANIZATION, STANDING AND POWER. Acquiror is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization. Acquiror has the corporate power to own its
properties and to carry on its business as now being conducted and as proposed
to be conducted and is duly qualified to do business and is in good standing in
each jurisdiction in which the failure to be so qualified and in good standing
would have a Material Adverse Effect on Acquiror. Acquiror has delivered to
Target a true and correct copy of the Articles of Incorporation and Bylaws or
other charter documents, as applicable, of Acquiror, each as amended to date.
Acquiror is not in violation of any of the provisions of its Articles of
Incorporation or Bylaws or equivalent organizational documents. Acquiror does
not directly or indirectly own any equity or similar interest in, or any
interest convertible or exchangeable or exercisable for, any equity or similar
interest in, any corporation, partnership, joint venture or other business
association or entity.
3.2. CAPITAL STRUCTURE. The authorized capital stock of Acquiror
consists of 20,000,000 shares of Common Stock and 10,000,000 shares of Preferred
Stock (6,000,000 of which have been designated as Series A Preferred Stock and
750,000 of which have been designated as Series B Preferred Stock), of which
there were issued and outstanding as of the date of this Agreement 858,000
shares of Common Stock, 6,000,000 shares of Series A Preferred Stock (the
"SERIES A PREFERRED") and 750,000 shares of Series B Preferred (the "SERIES B
PREFERRED"). There are no other outstanding shares of capital stock or voting
securities and no outstanding commitments to issue any shares of capital stock
or voting securities alter the date of this Agreement, other than pursuant to
the exercise of options outstanding as of the date of this Agreement under the
Acquiror's 1997 Stock Option Plan (the "ACQUIROR STOCK OPTION PLAN"). All
outstanding shares of Acquiror Capital Stock are duly authorized, validly
issued, fully paid and non-assessable and are free of any liens or encumbrances,
other than any liens or encumbrances created by or imposed upon the holders
thereof, and are not subject to preemptive rights, rights of first refusal,
rights of first offer or similar rights created by statute, the Articles of
Incorporation or Bylaws of Acquiror, or any agreement to which Acquiror is a
party or by which it is bound. As of the date of this Agreement, Acquiror has
reserved 6,750,000 shares of Common Stock for issuance upon conversion of the
Series A Preferred and Series B Preferred. As of the date of this Agreement,
there are currently outstanding options to purchase 1,564,000 shares of Common
Stock granted to employees and other service providers pursuant to the Acquiror
Stock Option Plan. Except for (i) the rights created pursuant to this Agreement
and
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(ii) Acquiror's right to repurchase any unvested shares under the Acquiror Stock
Option Plan, there are no other options, warrants, calls, rights, commitments or
agreements of any character to which Acquiror is a party or by which it is bound
obligating or allowing Acquiror to issue, deliver, sell, repurchase or redeem,
or cause to be issued, delivered, sold, repurchased or redeemed, any shares of
Acquiror Capital Stock or obligating Acquiror to grant, extend, accelerate the
vesting of, change the price of, or otherwise amend or enter into any such
option, warrant, call, right, commitment or agreement. There are no contracts,
commitments or agreements relating to the voting, purchase or sale of Acquiror
Capital Stock (i) between or among Acquiror and any of its shareholders and (ii)
to the best of Acquiror's knowledge, among any of Acquiror's shareholders or
between any of Acquiror's shareholders and any third party. True and complete
copies of all agreements and instruments relating to or issued under the
Acquiror Stock Option Plan have been made available to Target, and such
agreements and instruments have not been amended, modified or supplemented, and
there are no agreements to amend, modify or supplement such agreements or
instruments from the form made available to Target. All outstanding Common
Stock, Series A Preferred and Series B Preferred was issued in compliance with
all applicable federal and state securities laws.
Acquiror contemplates that it may incur certain indebtedness (which may be
convertible into securities of such corporation and which may include warrant
coverage) for money borrowed prior to the Effective Time. Each of Acquiror and
Target contemplates that any such amounts (together with interest) will be
converted into Preferred Stock in the next equity financing consummated by the
Surviving Corporation after the Closing Date, Acquiror and Target also
contemplate that such additional indebtedness will not affect the exchanges
rates in the Merger.
3.3. AUTHORITY.
(a) Acquiror has all requisite corporate power and authority to
enter into this Agreement, the Agreement of Merger and the Registration Rights
Agreement (collectively, the "TRANSACTION DOCUMENTS"), and to consummate the
transactions contemplated hereby the thereby. The execution and delivery of this
Agreement and the other Transaction Documents and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action on the part of Acquiror, subject only to the approval
of the Merger by Acquiror's shareholders. This Agreement and other Transaction
Documents have been duly executed and delivered by Acquiror and constitute the
valid and binding obligations of Acquiror enforceable against Acquiror in
accordance with their terms.
(b) The execution and delivery of this Agreement and the other
Transaction Documents by Acquiror do not, and the consummation of the
transactions contemplated hereby and thereby will not, conflict with, or result
in any violation of, or default under (with or without notice or lapse of time,
or both), or give rise to a right of termination, cancellation or acceleration
of any obligation or loss of any benefit under (i) any provision of the Articles
of Incorporation or Bylaws of Acquiror, as amended, or (ii) any Material
Agreement (as defined in Section 3.19), permit, concession, franchise, license,
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to Acquiror or any of its properties or assets.
(c) No consent, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or
commission or other governmental
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authority or instrumentality ("GOVERNMENTAL ENTITY") is required by or with
respect to Acquiror in connection with the execution and delivery of this
Agreement and the other Transaction Documents or the consummation of the
transactions contemplated hereby or thereby, except for (i) the filing of the
Agreement of Merger, together with the required officers' certificates, as
provided in Section 1.2; (ii) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
state securities laws and the securities laws of any foreign country; (iii) such
filings as may be required under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended ("HSR"); and (iv) such other consents, authorizations,
filings, approvals and registrations that, if not obtained or made, would not
have a Material Adverse Effect on Acquiror and would not prevent or materially
alter or delay any of the transactions contemplated by this Agreement.
3.4. FINANCIAL STATEMENTS. Acquiror has delivered to Acquiror its
unaudited financial statements (balance sheet, statement of operations,
statement of shareholders' equity and statement of cash flows) as at and for the
fiscal year ended March 31, 1998, and its unaudited financial statements
(balance sheet and statement of operations) as at and for the one-month period
ended April 30, 1998 (collectively, the "ACQUIROR FINANCIAL STATEMENTS"). The
Acquiror Financial Statements have been prepared in accordance with generally
accepted accounting principles ("GAAP") (except that the unaudited financial
statements do not have notes thereto) applied on a consistent basis throughout
the periods indicated and with each other. The Acquiror Financial Statements
fairly present the financial condition and operating results of Acquiror as of
the dates, and for the periods, indicated therein, subject in the case of the
unaudited financial statements to normal year-end audit adjustments, which are
not material in the aggregate. Acquiror maintains a standard system of
accounting established and administered in accordance with generally accepted
accounting principles.
3.5. ABSENCE OF CERTAIN CHANGES. Since April 30, 1998 (the "ACQUIROR
BALANCE SHEET DATE"), Acquiror has conducted its business in the ordinary course
consistent with past practice and there has not occurred: (i) any change, event
or condition (whether or not covered by insurance) that has resulted in, or
might reasonably be expected to result in, a Material Adverse Effect on
Acquiror; (ii) any acquisition, sale or transfer of any material asset of
Acquiror; (iii) any change in accounting methods or practices (including any
change in depreciation or amortization policies or rates) by Acquiror or any
revaluation by Acquiror of any of its assets; (iv) any declaration, setting
aside, or payment of a dividend or other distribution with respect to the shares
of Acquiror, or any direct or indirect redemption, purchase or other acquisition
by Acquiror of any of its shares of capital stock; (v) any Material Contract
entered into by Acquiror, other than as provided to Acquiror, or any material
amendment or termination of, or default under, any Material Contract to which
Acquiror is a party or by which it is bound; (vi) any amendment or change to the
Articles of Incorporation or Bylaws of Acquiror; (vii) any increase in or
modification of the compensation or benefits payable or to become payable by
Acquiror to any of its directors, employees or consultants; or (viii) any
negotiation or agreement by Acquiror to do any of the things described in the
preceding clauses (i) through (vii) (other than negotiations with Acquiror and
its representatives regarding the transactions contemplated by this Agreement).
3.6. ABSENCE OF UNDISCLOSED LIABILITIES. Acquiror has no material
obligations or liabilities of any nature (matured or unmatured, fixed or
contingent) other than (i) those set
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forth or adequately provided for in the Balance Sheet at April 30, 1998 (the
"ACQUIROR BALANCE SHEET"), (ii) those incurred in the ordinary course of
business prior to the Acquiror Balance Sheet Date and not required to be set
forth in the Acquiror Balance Sheet under GAAP, (iii) those incurred in the
ordinary course of business since the Acquiror Balance Sheet Date in amounts
consistent with prior periods, and (iv) those incurred in connection with the
execution of this Agreement.
3.7. LITIGATION. There is no private or governmental action, suit,
proceeding, claim, arbitration or investigation pending before any agency, court
or tribunal, foreign or domestic, or, to the knowledge of Acquiror, threatened
(including allegations that could form the basis for future action) against
Acquiror or any of its properties or officers or directors (in their capacities
as such). There is no judgment, decree or order against Acquiror, or, to the
knowledge of Acquiror, any of its directors or officers (in their capacities as
such), that could prevent, enjoin, or materially alter or delay any of the
transactions contemplated by this Agreement, or that could reasonably be
expected to have a Material Adverse Effect on Acquiror. All litigation to which
Acquiror is a party (or, to the knowledge of Acquiror, threatened to become a
party) is disclosed in the Acquiror Disclosure Letter. Acquiror does not have
any plans to initiate any litigation, arbitration or other proceeding against
any third party.
3.8. GOVERNMENTAL AUTHORIZATION. Acquiror has obtained each
federal, state, county, local or foreign governmental consent, license, permit,
grant, or other authorization of a Governmental Entity (i) pursuant to which
Acquiror currently operates or holds any interest in any of its properties or
(ii) that is required for the operation of Acquiror's business or the holding of
any such interest ((i) and (ii) herein collectively called "ACQUIROR
AUTHORIZATIONS"), and all of such Acquiror Authorizations are in full force and
effect, except where the failure to obtain or have any such Acquiror
Authorizations could not reasonably be expected to have a Material Adverse
Effect on Acquiror.
3.9. TITLE TO PROPERTY. Acquiror has good and marketable title to all
of its properties, interests in properties and assets, real and personal,
necessary for the conduct of its business as presently conducted or that are
reflected in the Acquiror Balance Sheet or acquired after the Acquiror Balance
Sheet Date (except properties, interests in properties and assets sold or
otherwise disposed of in the ordinary course of business since the Acquiror
Balance Sheet Date), or with respect to leased properties and assets, valid
leasehold interests therein, in each case free and clear of all mortgages,
liens, pledges, charges or encumbrances of any kind or character, except (i) the
lien of current taxes not yet due and payable, and (ii) liens securing debt that
are reflected on the Acquiror Balance Sheet. The plants, property and equipment
of Acquiror that are used in the operations of its business are in good
operating condition and repair. All properties used in the operations of
Acquiror are reflected in the Acquiror Balance Sheet to the extent generally
accepted accounting principles require the same to be reflected.
3.10. INTELLECTUAL PROPERTY.
(a) Acquiror is the sole and exclusive owner of all Acquiror
Intellectual Property (defined below) free of all contingent and noncontingent
liens, restrictions, interests, rights of reversion or termination, and all
other encumbrances of any nature. The conduct of Acquiror's business as
currently conducted will not infringe, misappropriate or
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violate any Intellectual Property (defined below) of others. With respect to
patent rights, moral rights and Mark rights (defined below), the foregoing
representations and warranties of this paragraph are made only to Acquiror's
knowledge.
(b) All Acquiror Intellectual Property that is the subject of any
application, registration or issuance with or from any governmental entity is
identified on the Acquiror Disclosure Schedule; all such registered or issued
Intellectual Property is free from any challenge (or threat thereof) and
Acquiror is not aware of any specific basis therefor. All such applications,
registrations and issuances have been properly maintained. Acquiror has
adequately protected all other Acquiror Intellectual Property through the use of
confidentiality agreements and otherwise and Acquiror is not aware of any use,
exercise or exploitation of any Acquiror Intellectual Property, except as
authorized by Acquiror.
(c) Each current and former employee and contractor of Acquiror
has executed and delivered (and to Acquiror's knowledge, is in compliance with)
an agreement in substantially the form of Acquiror's standard Proprietary
Information and Inventions Agreement (in the case of an employee) or Acquiror's
standard Consulting Agreement (in the case of a contractor) (which agreement
provides valid written assignments of all title and rights to any Acquiror
Intellectual Property conceived or developed thereunder or otherwise in
connection with his or her consulting or employment).
(d) "INTELLECTUAL PROPERTY" means patent rights; trade name,
trademark, service mark and similar rights ("MARK" rights); copyrights; mask
work rights; trade secret rights; moral rights; and all other intellectual and
industrial property rights of any sort throughout the world, and all
applications, registrations, issuances and the like with respect thereto.
"ACQUIROR INTELLECTUAL PROPERTY" means all Intellectual Property that has been,
is, or is proposed to be owned by Acquiror, or used, exercised, or exploited, or
otherwise necessary for, Acquiror's business as currently conducted or as
proposed to be conducted.
3.11. ENVIRONMENTAL MATTERS. Acquiror is and has at all times
operated its business in material compliance with all Environmental Laws, and to
the best of Acquiror's knowledge, no material expenditures are or will be
required in order to comply with such Environmental Laws. "ENVIRONMENTAL LAWS"
means all applicable statutes, rules, regulations, ordinances, orders, decrees,
judgments, permits, licenses, consents, approvals, authorizations, and
governmental requirements or directives or other obligations lawfully imposed by
governmental authority under federal, state or local law pertaining to the
protection of the environment, protection of public health, protection of worker
health and safety, the treatment, emission and/or discharge of gaseous,
particulate and/or effluent pollutants, and/or the handling of hazardous
materials.
3.12. TAXES.
(a) All Tax returns, statements, reports, declarations and other
forms and documents (including without limitation estimated Tax returns and
reports and material information returns and reports) required to be filed with
any Tax Authority with respect to any Taxable period ending on or before the
Closing, by or on behalf of Acquiror (collectively, "TAX RETURNS" and
individually a "TAX RETURN"), have been or will be completed and filed when due
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(including any extensions of such due date) and all amounts shown due on such
Tax Returns on or before the Effective Time have been or will be paid on or
before such date. The Acquiror Financial Statements (i) fully accrue all actual
and contingent liabilities for Taxes with respect to all periods through the
Acquiror Balance Sheet Date and Acquiror has not and will not incur any Tax
liability in excess of the amount reflected on the Acquiror Balance Sheet
included in the Acquiror Financial Statements with respect to such periods, and
(ii) properly accrue in accordance with GAAP all material liabilities for Taxes
payable after the Acquiror Balance Sheet Date with respect to all transactions
and events occurring on or prior to such date. All information set forth in the
notes to the Acquiror Financial Statements relating to Tax matters is true,
complete and accurate in all material respects. No material Tax liability since
the Acquiror Balance Sheet Date has been incurred by Acquiror or will be
incurred prior to the Effective Time by Acquiror other than in the ordinary
course of business, and adequate provision has been made by Acquiror for all
Taxes since that date in accordance with GAAP on at least a quarterly basis.
(b) Acquiror has previously provided or made available to Target
true and correct copies of all income, franchise, and sales Tax Returns, and, as
reasonably requested by Target, prior to or following the date hereof, presently
existing information statements and reports. Acquiror has withheld and paid to
the applicable financial institution or Tax authority all amounts required to be
withheld. To the best knowledge of Acquiror, no Tax Returns filed with respect
to Taxable years of Acquiror through the Taxable year ended December 31, 1997 in
the case of the United States, have been examined and closed. Acquiror (or any
member of any affiliated or combined group of which Acquiror has been a member)
has not granted any extension or waiver of the limitation period applicable to
any Tax Returns that is still in effect. There is no material claim, audit,
action, suit, proceeding, or (to the knowledge of Acquiror) investigation now
pending or (to the knowledge of Acquiror) threatened against or with respect to
Acquiror in respect of any Tax or assessment. No notice of deficiency or similar
document of any Tax authority has been received by Acquiror, and there are no
liabilities for Taxes (including liabilities for interest, additions to Tax and
penalties thereon and related expenses) with respect to the issues that have
been raised (and are currently pending) by any Tax authority that could, if
determined adversely to Acquiror, materially and adversely affect the liability
of Acquiror for Taxes. There are no liens for Taxes (other than for current
Taxes not yet due and payable) upon the assets of Acquiror. Acquiror has never
been a member of an affiliated group of corporations, within the meaning of
Section 1504 of the Code. Acquiror is in full compliance with all the terms and
conditions of any Tax exemptions or other Tax-sharing agreement or order of a
foreign government and the consummation of the Merger will not have any adverse
effect on the continued validity and effectiveness of any such Tax exemption or
other Tax-sharing agreement or order. Neither Acquiror nor any person on behalf
of Acquiror has entered into or will prior to the Effective Time enter into any
agreement or consent pursuant to the collapsible corporation provisions of
Section 341(f) of the Code (or any corresponding provision of state, local or
foreign income tax law) or agreed to have Section 341(f)(2) of the Code (or any
corresponding provision of state, local or foreign income tax law) apply to any
disposition of any asset owned by Acquiror. None of the assets of Acquiror is
property that Acquiror is required to treat as being owned by any other person
pursuant to the so-called "safe harbor lease" provisions of former Section
168(f)(8) of the Code. None of the assets of Acquiror directly or indirectly
secures any debt the interest on which is tax-exempt under Section 103(a) of the
Code. None of the assets of Acquiror is "tax-exempt use property" within the
meaning of Section 168(h) of the Code. Acquiror has not made and will not make a
deemed dividend election under Treas. Reg.
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Section 1.1502-32(f)(2) or a consent dividend election under Section 565 of the
Code. Acquiror has never been a party to any transaction intended to qualify
under Section 355 of the Internal Revenue Code or any corresponding provision of
state law. Acquiror has not participated in (and will not participate in) an
international boycott within the meaning of Section 999 of the Code. No Acquiror
shareholder is other than a United States person within the meaning of the Code.
Acquiror does not have and has not had a permanent establishment in any foreign
country, as defined in any applicable tax treaty or convention between the
United States of America and such foreign country and Acquiror has not engaged
in a trade or business within any foreign country. Acquiror has never elected to
be treated as an S-corporation under Section 1362 of the Code or any
corresponding provision of federal or state law. All material elections with
respect to Acquiror's Taxes are reflected on the Acquiror Tax Returns for such
periods, copies of which have been provided or made available to Acquiror.
Acquiror is not party to any joint venture, partnership, or other arrangement or
contract which could be treated as a partnership for federal income tax
purposes. Acquiror is not currently and never has been subject to the reporting
requirements of Section 6038A of the Code. There is no agreement, contract or
arrangement to which Acquiror is a party that could, individually or
collectively, result in the payment of any amount that would not be deductible
by reason of Sections 280G (as determined without regard to Section 280G(b)(4),
162 (other than 162(a)) or 404 of the Code. Acquiror is not a party to or bound
by any Tax indemnity, Tax sharing or Tax allocation agreement (whether written
or unwritten or arising under operation of federal law as a result of being a
member of a group filing consolidated Tax returns, under operation of certain
state laws as a result of being a member of a unitary group, or under comparable
laws of other states or foreign jurisdictions) which includes a party other than
Acquiror nor does Acquiror owe any amount under any such Agreement. Acquiror has
previously provided or made available to Acquiror true and correct copies of all
income, franchise, and sales Tax Returns, and, as reasonably requested by
Acquiror, prior to or following the date hereof, presently existing information
statements and reports. Acquiror is not, and has not been, a United States real
property holding corporation (as defined in Section 897(c)(2) of the Code)
during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
Other than by reason of the Merger, Acquiror has not been and will not be
required to include any material adjustment in Taxable income for any Tax period
(or portion thereof) pursuant to Section 481 or 263A of the Code or any
comparable provision under state or foreign Tax laws as a result of
transactions, events or accounting methods employed prior to the Merger.
(c) As used in this Section 3.12, the term "ACQUIROR" means
Acquiror and any entity included in, or required under GAAP to be included in,
any of the Acquiror Financial Statements.
3.13. EMPLOYEE BENEFIT PLANS.
(a) For all purposes under this Section 3.13 "ERISA AFFILIATE"
shall mean each person (as defined in Section 3(9) of ERISA) that, together with
Acquiror, is treated as a single employer under Section 4001(b) of ERISA or
Section 414 of the Code. Except for the plans and agreements listed in the
Acquiror Disclosure Schedule (collectively, the "PLANS"), Acquiror and its ERISA
Affiliates do not maintain, are not a party to, do not contribute to and are not
obligated to contribute to, and are employees or former employees of Acquiror
and its ERISA Affiliates and their dependents or survivors do not receive
benefits under, any of the following (whether or not set forth in a written
document):
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(i) Any employee benefit plan, as defined in section 3(3) of
ERISA;
(ii) Any bonus, deferred compensation, incentive, restricted
stock, stock purchase, stock option, stock appreciation right, phantom stock,
supplemental pension, executive compensation, cafeteria benefit, dependent care,
director or employee loan, fringe benefit, sabbatical, severance, termination
pay or similar plan, program, policy, agreement or arrangement; or
(iii) Any plan, program, agreement, policy, commitment or
other arrangement relating to the provision of any benefit described in section
3(1) of ERISA to former employees or directors or to their survivors, other than
procedures intended to comply with the COBRA.
(b) Neither Acquiror nor any ERISA Affiliate has, since January
1, 1992, terminated, suspended, discontinued contributions to or withdrawn from
any employee pension benefit plan, as defined in section 3(2) of ERISA,
including (without limitation) any multiemployer plan, as defined in section
3(37) of ERISA.
(c) Acquiror has provided to Acquiror complete, accurate and
current copies of each of the following:
(i) The text (including amendments) of each of the Plans, to
the extent reduced to writing;
(ii) A summary of each of the Plans, to the extent not
previously reduced to writing;
(iii) With respect to each Plan that is an employee benefit
plan (as defined in section 3(3) of ERISA), the following:
(1) The most recent summary plan description, as
described in section 102 of ERISA;
(2) Any summary of material modifications that has been
distributed to participants but has not been incorporated in an updated summary
plan description furnished under Subparagraph (1) above; and
(3) The annual report, as described in section 103 of
ERISA, and (where applicable) actuarial reports, for the three most recent plan
years for which an annual report or actuarial report has been prepared; and
(iv) With respect to each Plan that is intended to qualify
under section 401(a) of the Code the most recent determination letter concerning
the plan's qualification under section 401(a) of the Code, as issued by the
Internal Revenue Service, and any subsequent determination letter application.
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(d) With respect to each Plan that is an employee benefit plan
(as defined in section 3(3) of ERISA), the requirements of ERISA applicable to
such Plan have been satisfied, except to the extent that a failure to satisfy
any of such requirements would not have a Material Adverse Effect.
(e) With respect to each Plan that is subject to COBRA, the
requirements of COBRA applicable to such Plan have been satisfied, except to the
extent that a failure to satisfy any of such requirements would not have a
Material Adverse Effect.
(f) With respect to each Plan that is subject to the Family
Medical Leave Act of 1993, as amended, the requirements of such Act applicable
to such Plan have been satisfied, except to the extent that a failure to satisfy
any of such requirements would not have a Material Adverse Effect.
(g) Each Plan that is intended to qualify under section 401(a) of
the Code meets the requirements for qualification under section 401(a) of the
Code and the regulations thereunder, except to the extent that such requirements
may be satisfied by adopting retroactive amendments under section 401(b) of the
Code and the regulations thereunder. Each such Plan has been administered in
accordance with its terms (or, if applicable, such terms as will be adopted
pursuant to a retroactive amendment under section 401(b) of the Code) and the
applicable provisions of ERISA and the Code and the regulations thereunder,
except to the extent that a failure to be so administered would not have a
Material Adverse Effect.
(h) Neither Acquiror nor any ERISA Affiliate has any accumulated
funding deficiency under section 412 of the Code or any termination or
withdrawal liability under Title IV of ERISA, except to the extent that any such
liability would not have a Material Adverse Effect.
(i) All contributions, premiums or other payments due from the
Acquiror to (or under) any Plan have been fully paid or adequately provided for
on the books and financial statements of Acquiror. All accruals (including,
where appropriate, proportional accruals for partial periods) have been made in
accordance with prior practices.
3.14. EMPLOYEES AND CONSULTANTS.
(a) Acquiror has provided Target with a true and complete list of
all individuals employed by the Company as of the date hereof and the position
and base compensation payable to each such individual. The Acquiror Disclosure
Letter contains a description of any written or oral employment agreements,
consulting agreements or termination or severance agreements to which Acquiror
is a party.
(b) Acquiror is not a party to or subject to a labor union or a
collective bargaining agreement or arrangement and is not a party to any labor
or employment dispute.
(c) The consummation of the transactions contemplated herein will
not result in (i) any amount becoming payable to any employee, director or
independent contractor of Acquiror, (ii) the acceleration of payment or vesting
of any benefit, option or right to which any employee, director or independent
contractor of Acquiror may be entitled, (iii) the forgiveness of
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any indebtedness of any employee, director or independent contractor of Acquiror
or (iv) any cost becoming due or accruing to Acquiror or Target with respect to
any employee, director or independent contractor of Acquiror.
(d) Acquiror is not obligated and upon consummation of the Merger
will not be obligated to make any payment or transfer any property that would be
considered a "parachute payment" under section 280G(b)(2) of the Code.
(e) To the knowledge of Acquiror, no employee of Acquiror has
been injured in the work place or in the course of his or her employment, except
for injuries that are covered by insurance or for which a claim has been made
under workers' compensation or similar laws.
(f) Acquiror has complied in all material respects with the
verification requirements and the record-keeping requirements of the Immigration
Reform and Control Act of 1986 ("IRCA"); to the best knowledge of Acquiror, the
information and documents on which Acquiror relied to comply with IRCA are true
and correct; and there have not been any discrimination complaints filed against
Acquiror pursuant to IRCA, and to the knowledge of Acquiror, there is no basis
for the filing of such a complaint.
(g) Acquiror has not received or been notified of any complaint
by any employee, applicant, union or other party of any discrimination or other
conduct forbidden by law or contract, nor to the knowledge of Acquiror, is there
a basis for any complaint, except such complaints as could not reasonably be
expected to have a Material Adverse Effect.
(h) Acquiror's action in complying with the terms of this
Agreement will not violate any agreements with any of Acquiror's employees.
(i) Acquiror has filed all required reports and information with
respect to its employees that are due prior to the Closing Date and otherwise
has complied in its hiring, employment, promotion, termination and other labor
practices with all applicable federal and state law and regulations, including
without limitation those within the jurisdiction of the United States Equal
Employment Opportunity Commission, United States Department of Labor and state
and local human rights or civil rights agencies, except to the extent that any
such failure to file or comply would not have a Material Adverse Effect on
Acquiror. Acquiror has filed and shall file any such reports and information
that are required to be filed prior to the Closing Date.
(j) Acquiror is not aware that any of its employees or
contractors is obligated under any agreement, commitments, judgment, decree,
order or otherwise (an "EMPLOYEE OBLIGATION") that would interfere with the use
of his or her best efforts to promote the interests of Acquiror or that would
conflict with any of Acquiror's business as conduct or proposed to be conducted.
Neither the execution nor delivery of this Agreement nor the conduct of
Acquiror's business as conducted or proposed, will, to Acquiror's knowledge,
conflict with or result in a breach of the terms, conditions or provisions of,
or constitute a default under, any Employee Obligation.
3.15. RELATED-PARTY TRANSACTIONS. No employee, officer or director
of Acquiror or member of his or her immediate family is indebted to Acquiror,
nor is Acquiror indebted (or
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committed to make loans or extend or guarantee credit) to any of them. To the
best of Acquiror's knowledge, none of such persons has any direct or indirect
ownership interest in any firm or corporation with which Acquiror is affiliated
or with which Acquiror has a business relationship, or any firm or corporation
that competes with Acquiror, except to the extent that employees, officers, or
directors of Acquiror and members of their immediate families own stock in
publicly traded companies that may compete with the Company. No member of the
immediate family of any officer or director of Acquiror is directly or
indirectly interested in any material contract with Acquiror.
3.16. INSURANCE. Acquiror has policies of insurance and bonds of
the type and in amounts customarily carried by persons conducting businesses or
owning assets similar to those of Acquiror. There is no material claim pending
under any of such policies or bonds as to which coverage has been questioned,
denied or disputed by the underwriters of such policies or bonds. All premiums
due and payable under all such policies and bonds have been paid and Acquiror is
otherwise in compliance with the terms of such policies and bonds. Acquiror has
no knowledge of any threatened termination of, or material premium increase with
respect to, any of such policies.
3.17. COMPLIANCE WITH LAWS. Acquiror has complied with, is not in
violation of, and has not received any notices of violation with respect to, any
federal, state, local or foreign statute, law or regulation with respect to the
conduct of its business, or the ownership or operation of its business, except
for such violations or failures to comply as could not be reasonably expected to
have a Material Adverse Effect on Acquiror.
3.18. BROKERS' AND FINDERS' FEES. Acquiror has not incurred, nor
will it incur, directly or indirectly, any liability for brokerage or finders'
fees or agents' commissions or investment bankers' fees or any similar charges
in connection with this Agreement or any transaction contemplated hereby.
3.19. MATERIAL CONTRACTS. Except for the material contracts
described in the Acquiror Disclosure Schedule (collectively, the "ACQUIROR
MATERIAL CONTRACTS"), Acquiror is not a party to or bound by any material
contract, including without limitation:
(a) any distributor, sales, advertising, agency or manufacturer's
representative contract;
(b) any continuing contract for the purchase of materials,
supplies, equipment or services involving in the case of any such contact more
than $100,000 over the life of the contract;
(c) any contract that expires or may be renewed at the option of
any person other than the Acquiror so as to expire more than one year after the
date of this Agreement;
(d) any trust indenture, mortgage, promissory note, loan
agreement or other contract for the borrowing of money, any currency exchange,
commodities or other hedging arrangement or any leasing transaction of the type
required to be capitalized in accordance with GAAP;
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(e) any contract for capital expenditures in excess of $100,000
in the aggregate;
(f) any contract limiting the freedom of the Acquiror to engage
in any line of business or to compete with any other person or any
confidentiality, secrecy or non-disclosure contract;
(g) any contract pursuant to which Acquiror leases any real
property;
(h) any contract pursuant to which the Acquiror is a lessor of
any machinery, equipment, motor vehicles, office furniture, fixtures or other
personal property;
(i) any contract with any person with whom the Acquiror does not
deal at arm's length within the meaning of the Code;
(j) any agreement of guarantee, support, indemnification,
assumption or endorsement of, or any similar commitment with respect to, the
obligations, liabilities (whether accrued, absolute, contingent or otherwise) or
indebtedness of any other person;
(k) any license, sublicense or other agreement to which Acquiror
is a party (or by which it or any Acquiror Intellectual Property is bound or
subject) and pursuant to which any person has been or may be assigned,
authorized to Use, or given access to any Acquiror Intellectual Property other
than (A) access to or Use of standard object code product pursuant to a
customary non-exclusive end-user, object code, internal-use software license and
support/maintenance agreements entered into in the ordinary course of business
or (B) access provided in the ordinary course of business under a customary
nondisclosure/nonuse agreement;
(l) any license, sublicense or other agreement pursuant to which
Acquiror has been or may be assigned or authorized to Use, or has or may
incurred any obligation in connection with, (A) any third party Intellectual
Property or (B) any Acquiror Intellectual Property;
3.20. NO BREACH OF MATERIAL CONTRACTS. Acquiror has performed all
of the obligations required to be performed by it and is entitled to all
benefits under, and is not alleged to be in default in respect of, any Material
Contract. Each of the Acquiror Material Contracts is in full force and effect,
and there exists no default or event of default or event, occurrence, condition
or act, with respect to Acquiror or to Acquiror's knowledge with respect to the
other contracting party, or otherwise that, with or without the giving of
notice, the lapse of the time or the happening of any other event or conditions,
would (A) become a default or event of default under any Material Contract,
which default or event of default would have a Material Adverse Effect on
Acquiror or (B) result in the loss or expiration of any material right or option
by Acquiror (or the gain thereof by any third party) under any Material
Contract. True, correct and complete copies of all Acquiror Material Contracts
have been made available to the Acquiror.
3.21. REPRESENTATIONS COMPLETE. None of the representations or
warranties made by Acquiror or the Acquiror Shareholders herein or in any
Schedule hereto, including the Acquiror Disclosure Schedule, or certificate
furnished by Acquiror pursuant to this Agreement, when all such documents are
read together in their entirety, contains or will contain at the
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Effective Time any untrue statement of a material fact, or omits or will omit at
the Effective Time to state any material fact necessary in order to make the
statements contained herein or therein, in the light of the circumstances under
which made, not misleading. Acquiror has delivered or made available true and
complete copies of each document which has been requested by Target or its
counsel in connection with their legal and accounting review of Acquiror.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1. CONDUCT OF BUSINESS OF TARGET AND ACQUIROR. During the period
from the date of this Agreement and continuing until the earlier of the
termination of this Agreement or the Effective Time, Target and Acquiror each
agree (except to the extent expressly contemplated by this Agreement or as
consented to in writing by the other), to carry on its business in the usual,
regular and ordinary course in substantially the same manner as heretofore
conducted. Without limiting the foregoing, except as expressly contemplated by
this Agreement, neither Target nor Acquiror shall do, cause or permit any of the
following, without the prior written consent of the other:
(a) CHARTER DOCUMENTS. Cause or permit any amendments to its
Articles of Incorporation or Bylaws;
(b) DIVIDENDS; CHANGES IN CAPITAL STOCK. Declare or pay any
dividends on or make any other distributions (whether in cash, stock or
property) in respect of any of its capital stock, or split, combine or
reclassify any of its capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of, or in substitution for shares of its
capital stock, or repurchase or otherwise acquire, directly or indirectly, any
shares of its capital stock except from former employees, directors and
consultants in accordance with agreements providing for the repurchase of shares
in connection with any termination of service to it;
(c) MATERIAL CONTRACTS. Enter into any material contract,
agreement, license or commitment, or violate, amend or otherwise modify or waive
any of the terms of any of its material contracts, agreements or licenses other
than in the ordinary course of business consistent with past practice;
(d) STOCK OPTION PLANS, ETC. Accelerate, amend or change the
period of exercisability or vesting of options or other rights granted under its
stock plans or authorize cash payments in exchange for any options or other
rights granted under any of such plans; or
(e) ISSUANCE OF SECURITIES. Issue, deliver or sell or authorize
or propose the issuance, delivery or sale of, or purchase or propose the
purchase of, any shares of its capital stock or securities convertible into, or
subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue any such shares or other
convertible securities, other than the issuance of shares of its Common Stock
pursuant to the exercise of stock options, warrants or other rights therefor
outstanding as of the date of this Agreement. Acquiror and Target each
contemplate that they may incur certain indebtedness
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(which may be convertible into securities of such corporation and which may
include warrant coverage) for money borrowed prior to the Effective Time. Any
such indebtedness incurred by Target prior to the Effective Time will, by virtue
of the Merger, become indebtedness of the Surviving Corporation. Each of such
parties also contemplates that any such amounts (together with interest) will be
converted into Preferred Stock in the next equity financing consummated by the
Surviving Corporation after the Closing Date. Acquiror and Target also
contemplate that such additional indebtedness will not affect the exchanges
rates in the Merger.
(f) INTELLECTUAL PROPERTY. Transfer to or license any person or
entity or otherwise extend, amend or modify any rights to
its Intellectual Property other than the grant of non-exclusive licenses in the
ordinary course of business consistent with past practice;
(g) EXCLUSIVE RIGHTS. Enter into or amend any agreements pursuant
to which any other party is granted exclusive marketing, manufacturing or other
exclusive rights of any type or scope with respect to any of its products or
technology;
(h) DISPOSITIONS. Sell, lease, license or otherwise dispose of or
encumber any of its properties or assets that are material, individually or in
the aggregate, to its business;
(i) INDEBTEDNESS. Incur or commit to incur any indebtedness in
excess of $25,000 for borrowed money or guarantee any such indebtedness or issue
or sell any debt securities or guarantee any debt securities of others; provided
that Acquiror may incur such indebtedness if approved the Board of Directors of
Acquiror and Target may incur such indebtedness if approved the Board of
Directors of Target. Acquiror and Target each contemplate that they may incur
certain indebtedness for money borrowed prior to the Effective Time. Any such
indebtedness incurred by Target prior to the Effective Time will, by virtue of
the Merger, become indebtedness of the Surviving Corporation. Each of such
parties also contemplates that any such amounts (together with interest) will be
converted into Preferred Stock in the next equity financing consummated by the
Surviving Corporation after the Closing Date. Acquiror and Target also
contemplate that such additional indebtedness will not affect the exchanges
rates in the Merger.
(j) LEASES. Enter into any operating lease requiting payments in
excess of $100,000;
(k) PAYMENT OF OBLIGATIONS. Pay, discharge or satisfy in an
amount in excess of $100,000 in any one case or $250,000 in the aggregate, any
claim, liability or obligation (absolute, accrued, asserted or unasserted,
contingent or otherwise) arising other than in the ordinary course of business,
other than the payment, discharge or satisfaction of liabilities reflected or
reserved against in the Target Financial Statements or in the Acquiror Financial
Statements;
(l) CAPITAL EXPENDITURES. Incur or commit to incur any capital
expenditures in excess of $200,000 in the aggregate;
(m) INSURANCE. Materially reduce the amount of any material
insurance coverage provided by existing insurance policies;
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(n) TERMINATION OR WAIVER. Terminate or waive any right of
substantial value, other than in the ordinary course of business;
(o) EMPLOYEE BENEFITS; SEVERANCE. Take any of the following
actions: (i) increase or agree to increase the compensation payable or to become
payable to its officers or employees, except for increases in salary or wages of
non-officer employees in the ordinary course of business and in accordance with
past practices, (ii) grant any additional severance or termination pay to, or
enter into any employment or severance agreements with, any officer or employee,
(iii) enter into any collective bargaining agreement, or (iv) establish, adopt,
enter into or amend in any material respect any bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance or other plan, trust, fund,
policy or arrangement for the benefit of any directors, officers or employees;
(p) LAWSUITS. Commence a lawsuit or arbitration proceeding other
than (i) for the routine collection of bills or (ii) for a breach of this
Agreement;
(q) ACQUISITIONS. Acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion of the assets of, or
by any other manner, any business or any corporation, partnership, association
or other business organization or division thereof, or otherwise acquire or
agree to acquire any assets which are material, individually or in the
aggregate, to its business;
(r) TAXES. Make any material Tax election other than in the
ordinary course of business and consistent with past practice, change any
material Tax election, adopt any Tax accounting method other than in the
ordinary course of business and consistent with past practice, change any Tax
accounting method, file any Tax return (other than any estimated tax returns,
immaterial information returns, payroll tax returns or sales tax returns) or any
amendment to a Tax return, enter into any closing agreement, settle any Tax
claim or assessment or consent to any Tax claim or assessment provided that
Acquiror shall not unreasonably withhold or delay approval of any of the
foregoing actions;
(s) REVALUATION. Revalue any of its assets, including without
limitation writing down the value of inventory or writing off notes or accounts
receivable other than in the ordinary course of business; or
(t) OTHER. Take, or agree in writing or otherwise to take, any of
the actions described in Sections 4.1(a) through (s) above, or any action that
would make any of its representations or warranties contained in this Agreement
untrue or incorrect or prevent it from performing or cause it not to perform its
covenants hereunder.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1. PREPARATION OF INFORMATION STATEMENT. As soon as practicable
after the execution of this Agreement, Acquiror and Target shall prepare a joint
Information Statement for
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their respective shareholders to approve this Agreement, the Agreement of Merger
and the transactions contemplated hereby and thereby. The Information Statement
shall constitute the disclosure document for the offer and issuance of the
shares of Acquiror Common and Preferred Stock to be received by the holders of
Target Capital Stock in the Merger. Each of Acquiror and Target shall use its
best efforts to cause the Information Statement to comply with applicable
federal and state securities laws requirements. Each of Acquiror and Target
agrees to provide promptly to the other such information concerning its business
and financial statements and affairs as, in the reasonable judgment of the
providing party or its counsel, may be required or appropriate for inclusion in
the Information Statement, or in any amendments or supplements thereto, and to
cause its counsel and auditors to cooperate with the other's counsel and
auditors in the preparation of the Information Statement. Target will promptly
advise Acquiror, and Acquiror will promptly advise Target, in writing if at any
time prior to the Effective Time either Target or Acquiror shall obtain
knowledge of any facts that might make it necessary or appropriate to amend or
supplement the Information Statement in order to make the statements contained
or incorporated by reference therein not misleading or to comply with applicable
law. Subject to the provisions of Section 5.1, the Information Statement shall
contain the recommendation of Acquiror's and Target's Boards of Directors that
their respective shareholders approve the Merger and this Agreement and the
conclusion of the Boards of Directors that the terms and conditions of the
Merger are fair and reasonable to each company's shareholders.
5.2. SHAREHOLDERS MEETING OR CONSENT SOLICITATION. Each of Acquiror
and Target shall promptly after obtaining a permit allowing the issuance of
shares of Acquiror Common and Preferred Stock in exchange for shares of Target
Capital Stock and the assumption of all Target Options and Target Warrant by
Acquiror as contemplated by Section 1.1 hereof take all actions necessary to
either (i) call a meeting of its shareholders to be held for the purpose of
voting upon this Agreement and the Merger or (ii) commence a consent
solicitation to obtain such approvals on or prior to July 31, 1998, or as soon
thereafter as is practicable. Each of Acquiror and Target will, through its
Board of Directors, recommend to its shareholders approval of such matters.
5.3. ACCESS TO INFORMATION.
(a) Each of Acquiror and Target shall afford the other party and
the other party's accountants, counsel and other representatives, reasonable
access during normal business hours during the period prior to the Effective
Time to (i) all of Acquiror's or Target's (as the case may be) properties,
books, contracts, commitments and records, and (ii) all other information
concerning the business, properties and personnel of Acquiror or Target (as the
case may be) as Acquiror or Target (as the case may be) may reasonably request.
Each of Acquiror and Target agrees to provide to the other party and its
accountants, counsel and other representatives copies of internal financial
statements promptly upon request.
(b) Subject to compliance with applicable law, from the date
hereof until the Effective Time, each of Acquiror and Target shall confer on a
regular and frequent basis with one or more representatives of the other party
to report operational matters of materiality and the general status of ongoing
operations.
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(c) No information or knowledge obtained in any investigation
pursuant to this Section 5.3 shall affect or be deemed to modify any
representation or warranty contained herein or the conditions to the obligations
of the parties to consummate the Merger.
5.4. PUBLIC DISCLOSURE. Unless otherwise permitted by this Agreement,
Acquiror and Target shall consult with each other before issuing any press
release or otherwise making any public statement or making any other public (or
non-confidential) disclosure (whether or not in response to an inquiry)
regarding the terms of this Agreement and the transactions contemplated hereby,
and neither shall issue any such press release or make any such statement or
disclosure without the prior approval of the other (which approval shall not be
unreasonably withheld).
5.5. CONSENTS; COOPERATION. Each of Acquiror and Target shall promptly
apply for or otherwise seek, and use its best efforts to obtain, all consents
and approvals required to be obtained by it for the consummation of the Merger,
including those required under HSR, and shall use its best efforts to obtain all
necessary consents, waivers and approvals under any of its material contracts in
connection with the Merger for the assignment thereof or otherwise. The parties
hereto will consult and cooperate with one another, and consider in good faith
the views of one another, in connection with any analyses, appearances,
presentations, memoranda, briefs, arguments, opinions and proposals made or
submitted by or on behalf of any party hereto in connection with proceedings
under or relating to HSR or any other federal or state antitrust or fair trade
law.
5.6. UPDATE DISCLOSURE; BREACHES. From and after the date of this
Agreement until the Effective Time, each party hereto shall promptly notify the
other party, by update to its Disclosure Schedule, of (i) the occurrence or
non-occurrence of any event that would be likely to cause any condition to the
obligations of any party to effect the Merger and the other transactions
contemplated by this Agreement not to be satisfied, or (ii) the failure of
Target or Acquiror, as the case may be, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it pursuant to this
Agreement that would be likely to result in any condition to the obligations of
any party to effect the Merger and the other transactions contemplated by this
Agreement not to be satisfied. The delivery of any notice pursuant to this
Section 5.6 shall not cure any breach of any representation or warranty
requiring disclosure of such matter prior to the date of this Agreement or
otherwise limit or affect the remedies available hereunder to the party
receiving such notice.
5.7. INDEMNIFICATION.
(a) From and after the Effective Time, Acquiror and the Surviving
Corporation jointly and severally shall indemnify, defend and hold harmless each
person who is now, or has been at any time prior to the date of this Agreement
or who becomes prior to the Effective Time, an officer, director or employee of
Target (the "INDEMNIFIED PARTIES") in respect of acts or omissions occurring on
or prior to the Effective Time to the extent provided under Target's Articles of
Incorporation, Bylaws and indemnification agreements in effect on the date
hereof; provided that such indemnification shall be subject to any limitation
imposed from time to time under applicable law.
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(b) If Acquiror or the Surviving Corporation or any of their
respective successors or assigns (i) consolidates with or merges into any other
person or entity and shall not be the continuing or surviving person of such
consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any person or entity, then and in each such case,
proper provision shall be made so that such successors or assigns of Acquiror or
the Surviving Corporation, as the case may be, shall assume the obligations set
forth in this Section 5.7.
5.8. LEGAL REQUIREMENTS. Each of Acquiror and Target will take all
reasonable actions necessary to comply promptly with all legal requirements that
may be imposed on them with respect to the consummation of the transactions
contemplated by this Agreement and will promptly cooperate with and furnish
information to any party hereto necessary in connection with any such
requirements imposed upon such other party in connection with the consummation
of the transactions contemplated by this Agreement and will take all reasonable
actions necessary to obtain (and will cooperate with the other parties hereto in
obtaining) any consent, approval, order or authorization of, or any
registration, declaration or filing with, any Governmental Entity or other
person, required to be obtained or made in connection with the taking of any
action contemplated by this Agreement.
5.9. TAX-FREE REORGANIZATION. Neither Target nor Acquiror will, either
before or after consummation of the Merger, take any action which, to the
knowledge of such party, would cause the Merger to fail to constitute a
"reorganization" within the meaning of Code Section 368.
5.10. BLUE SKY LAWS. Acquiror shall take such steps as may be
necessary to comply with the securities and blue sky laws of all jurisdictions
that are applicable to the issuance of the Acquiror Common and Preferred Stock
in connection with the Merger. Target shall use its best efforts to assist
Acquiror as may be necessary to comply with the securities and blue sky laws of
all jurisdictions that are applicable in connection with the issuance of
Acquiror Common and Preferred Stock in connection with the Merger.
5.11. STOCK OPTIONS.
(a) At the Effective Time, the Target Stock Option Plans and each
outstanding option to purchase shares of Target Common Stock under the Target
Stock Option Plans, whether vested or unvested, shall be assumed by Acquiror.
Target has delivered to Acquiror a schedule in the form attached hereto as
Schedule E (the "OPTION SCHEDULE") that sets forth a true and complete list as
of the date hereof of all holders of outstanding options under the Target Stock
Option Plans, including the number of shares of Target Capital Stock subject to
each such option, the exercise or vesting schedule, the exercise price per share
and the term of each such option. On the Closing Date, Target shall deliver to
Acquiror an updated Option Schedule current as of such date. Each such option so
assumed by Acquiror under this Agreement shall continue to have, and be subject
to, the same terms and conditions set forth in the Target Stock Option Plans
immediately prior to the Effective Time, except that (i) such option shall be
exercisable for that number of whole shares of Acquiror Common Stock equal to
the product of the number of shares of Target Common Stock that were issuable
upon exercise of such option immediately prior to the Effective Time multiplied
by the Common Exchange Ratio and rounded down to the nearest whole number of
shares of Acquiror Common Stock, and
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(ii) the per share exercise price for the shares of Acquiror Common Stock
issuable upon exercise of such assumed option shall be equal to the quotient
determined by dividing the exercise price per share of Target Common Stock at
which such option was exercisable immediately prior to the Effective Time by the
Common Exchange Ratio, rounded up to the nearest whole cent. It is the intention
of the parties that the options so assumed by Acquiror qualify following the
Effective Time as incentive stock options as defined in Section 422 of the Code
to the extent such options qualified as incentive stock options prior to the
Effective Time. Within 60 business days after the Effective Time, Acquiror will
issue to each person who, immediately prior to the Effective Time was a holder
of an outstanding option under the Target Stock Option Plans, a document in form
and substance satisfactory to Target evidencing the foregoing assumption of such
option by Acquiror.
(b) Acquiror shall comply with the terms of the Target Stock
Option Plans and ensure, to the extent required by, and subject to the
provisions of, such Target Stock Option Plan, that Target Stock Options that
qualified as incentive stock options prior the Effective Time continue to
quality as incentive stock options after the Effective Time.
(c) Acquiror shall take all corporate action necessary to reserve
and make available for issuance a sufficient number of shares of Acquiror Common
Stock for delivery under Target Stock Options assumed in accordance with this
Section 5.11.
5.12. ADDITIONAL AGREEMENTS; BEST EFFORTS. Each of the parties
agrees to use their best efforts to take, or cause to be taken, all action and
to do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement, subject to the appropriate vote of
shareholders of Target and Acquiror, including cooperating fully with the other
party, including by provision of information. In case at any time after the
Effective Time any further action is necessary or desirable to carry out the
purposes of this Agreement or to vest the Surviving Corporation with full title
to all properties, assets, rights, approvals, immunities and franchises of
either of the constituent corporations, the proper officers and directors of
each party to this Agreement shall take all such necessary action.
5.13. EMPLOYEE BENEFITS. Acquiror shall take such reasonable
actions, to the extent permitted by Acquiror's benefits program, as are
necessary to allow eligible employees of Target to participate in the benefit
programs of Acquiror, or alternative benefits programs in the aggregate
substantially comparable to those applicable to employees of Acquiror on similar
terms, as soon as practicable after the Effective Time of the Merger. For
purposes of satisfying the terms and conditions of such programs, to the extent
permitted by Acquiror's benefit programs, Acquiror shall use reasonable efforts
to give full credit for eligibility, or vesting for each participant's period of
service with Target.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1. CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER. The
respective obligations of each party to this Agreement to consummate and effect
this Agreement
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and the transactions contemplated hereby shall be subject to the satisfaction at
or prior to the Effective Time of each of the following conditions, any of which
may be waived, in writing, by agreement of all the parties hereto:
(a) SHAREHOLDER APPROVAL. This Agreement and the Merger shall
have been approved and adopted by the shareholders of Acquiror and of Target;
(b) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger shall be in effect, nor
shall any proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any of
the foregoing be pending; nor shall there be any action taken, or any statute,
rule, regulation or order enacted, entered, enforced or deemed applicable to the
Merger, which makes the consummation of the Merger illegal. In the event an
injunction or other order shall have been issued, each party agrees to use its
reasonable diligent efforts to have such injunction or other order lifted;
(c) GOVERNMENTAL APPROVAL. Acquiror and Target shall have timely
obtained from each Governmental Entity all approvals, waivers and consents, if
any, necessary for consummation of or in connection with the Merger and the
several transactions contemplated hereby, including such approvals, waivers and
consents as may be required under the Securities Act, under state Blue Sky laws,
and under HSR;
(d) TAX OPINION. Each of Target and Acquiror shall have received
a written opinion from their respective counsel to the effect that the Merger
will constitute a reorganization within the meaning of Section 368 of the Code.
In preparing the Target and the Acquiror tax opinions, counsel may rely on
reasonable assumptions and may also rely on (and to the extent reasonably
required, the parties and Target's shareholders shall make) reasonable
representations related thereto;
(e) REGISTRATION RIGHTS AGREEMENT. Acquiror and the holders of
the Target Series 1 Preferred Stock shall have entered into a Registration
Rights Agreement in a form reasonably acceptable to Acquiror and Target.
6.2. ADDITIONAL CONDITIONS TO OBLIGATIONS OF TARGET. The
obligations of Target to consummate and effect this Agreement and the
transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Effective Time of each of the following conditions, any of which
may be waived, in writing, by Target:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS. Except as
disclosed in the Acquiror Disclosure Schedule, (i) the representations and
warranties of Acquiror in this Agreement shall be true and correct in all
material respects (except for such representations and warranties that are
qualified by their terms by a reference to materiality, which representations
and warranties as so qualified shall be true in all respects) on and as of the
Effective Time as though such representations and warranties were made on and as
of such time and (ii) Acquiror shall have performed and complied in all material
respects with all covenants, obligations and
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conditions of this Agreement required to be performed and complied with by it as
of the Effective Time.
(B) CERTIFICATE OF ACQUIROR. Target shall have been provided with
a certificate executed on behalf of Acquiror by its President and its Chief
Financial Officer to the effect that, as of the Effective Time:
(i) all representations and warranties made by Acquiror under
this Agreement are true and complete in all material respects; and
(ii) all covenants, obligations and conditions of this
Agreement to be performed by Acquiror on or before such date have been so
performed in all material respects.
(c) NO MATERIAL ADVERSE CHANGES. There shall not have occurred
any material adverse change in the condition (financial or otherwise),
properties, assets (including intangible assets), liabilities, business,
operations, results of operations or prospects of Acquiror.
(d) AMENDED AND RESTATED ARTICLES OF INCORPORATION OF ACQUIROR.
Acquiror shall have adopted and filed with the Secretary of State of California
the Amended and Restated Articles of Incorporation in the form attached hereto
as EXHIBIT C.
(e) COMPLETION OF WI-LAN, INC. TRANSACTION. Acquiror shall have
completed the restructuring transaction with Wi-LAN, Inc. ("Wi-LAN"), which
transaction is described on the Acquiror Disclosure Schedule. As part of the
restructuring, Wi-Lan's equity ownership in Wireless shall have been reduced
from 3,000,000 shares of Series A Preferred Stock to 1,300,000 shares of Series
A Preferred Stock (as described in the Acquiror Disclosure Schedule). The other
terms of conditions of the restructuring transaction shall be reasonably
acceptable to Target.
6.3. ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF ACQUIROR. The
obligations of Acquiror to consummate and effect this Agreement and the
transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Effective Time of each of the following conditions, any of which
may be waived, in writing, by Acquiror:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS. Except as
disclosed in the Target Disclosure Schedule(i) the representations and
warranties of Target in this Agreement shall be true and correct in all material
respects (except for such representations and warranties that are qualified by
their terms by a reference to materiality, which representations and warranties
as so qualified shall be true in all respects) on and as of the Effective Time
as though such representations and warranties were made on and as of such time
and (ii) Target shall have performed and complied in all material respects with
all covenants, obligations and conditions of this Agreement required to be
performed and complied with by it as of the Effective Time;
(b) CERTIFICATE OF TARGET. Acquiror shall have been provided with
a certificate executed on behalf of Target by its President and Chief Financial
Officer to the effect that, as of the Effective Time:
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(i) all representations and warranties made by Target under
this Agreement are true and complete in all material respects; and
(ii) all covenants, obligations and conditions of this
Agreement to be performed by Target on or before such date have been so
performed in all material respects.
(c) THIRD PARTY CONSENTS. Acquiror shall have been furnished with
evidence satisfactory to it of the consent or approval of those persons whose
consent or approval shall be required in connection with the Merger under the
contracts of Target set forth on the Target Disclosure Schedule, if failure to
obtain such consents or approvals would or would reasonably be expected to have
a Material Adverse Effect on Target.
(d) INJUNCTIONS OR RESTRAINTS ON MERGER AND CONDUCT OF BUSINESS.
No proceeding brought by any administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking to
prevent the consummation of the Merger shall be pending. In addition, no
temporary restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal or regulatory
restraint provision limiting or restricting Acquiror's conduct or operation of
the business of Target following the Merger shall be in effect, nor shall any
proceeding brought by an administrative agency or commission or other
Governmental Entity, domestic or foreign, seeking the foregoing be pending.
(e) NO MATERIAL ADVERSE CHANGES. There shall not have occurred
any material adverse change in the condition (financial or otherwise),
properties, assets (including intangible assets), liabilities, business,
operations, results of operations or prospects of Target.
(f) FIRPTA CERTIFICATE. Target shall, prior to the Closing Date,
provide Acquiror with a properly executed FIRPTA Notification Letter,
substantially in the form of EXHIBIT D attached hereto, which states that shares
of capital stock of Target do not constitute "United States real property
interests" under Section 897(c) of the Code, for purposes of satisfying
Acquiror's obligations under Treasury Regulation Section 1.1445-2(c)(3). In
addition, simultaneously with delivery of such Notification Letter, Target shall
have provided to Acquiror, as agent for Target, a form of notice to the Internal
Revenue Service in accordance with the requirements of Treasury Regulation
Section 1.897-2(h)(2) and substantially in the form of EXHIBIT D attached hereto
along with written authorization for Acquiror to deliver such notice form to the
Internal Revenue Service on behalf of Target upon the Closing of the Merger.
(g) RESIGNATION OF DIRECTORS. The directors of Target in office
immediately prior to the Effective Time shall have resigned as directors of
Target effective as of the Effective Time.
(h) TERMINATION OF WARRANTS. The holders of a majority of the
Warrants to purchase an aggregate of 419,268 shares of Target Common Stock
issued in connection with Target's June 1996 bridge financing shall have voted
to terminate each of the warrants issued in such financing.
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ARTICLE VII
TERMINATION, EXPENSES, AMENDMENT AND WAIVER
7.1. TERMINATION. At any time prior to the Effective Time, whether
before or after approval of the matters presented in connection with the Merger
by the shareholders of Target and Acquiror, this Agreement may be terminated:
(a) by mutual consent duly authorized by the Board of Directors
of Acquiror and Target;
(b) by either Acquiror or Target, if, without fault of the
terminating party, the Closing shall not have occurred on or before July 31,
1998 (provided, a later date may be agreed upon in writing by the parties
hereto, and provided further that the right to terminate this Agreement under
this Section 7.1(b) shall not be available to any party whose action or failure
to act has been the cause or resulted in the failure of the Merger to occur on
or before such date and such action or failure to act constitutes a breach of
this Agreement);
(c) by Acquiror, if (i) Target shall breach any representation,
warranty, obligation or agreement hereunder and such breach shall not have been
cured within five (5) business days of receipt by Target of written notice of
such breach, provided that the right to terminate this Agreement by Acquiror
under this Section 7.1(c)(i) shall not be available to Acquiror where Acquiror
is at that time in willful breach of this Agreement, (ii) the Board of Directors
of Target shall have withdrawn or modified its recommendation of this Agreement
or the Merger in a manner adverse to Acquiror or shall have resolved to do any
of the foregoing, provided that the right to terminate this Agreement by
Acquiror under this Section 7.1(c)(ii) shall not be available to Acquiror where
Acquiror is at that time in willful breach of this Agreement, or (iii) for any
reason Target fails to call and hold the Target Shareholders Meeting or commence
solicitation of shareholder consents by July 31, 1998, provided that the right
to terminate this Agreement by Acquiror under this Section 7.1(c)(iii) shall not
be available to Acquiror where Acquiror is at that time in material breach of
this Agreement;
(d) by Target, if (i) Acquiror shall breach any representation,
warranty, obligation or agreement hereunder and such breach shall not have been
cured within five (5) days following receipt by Acquiror of written notice of
such breach, provided that the right to terminate this Agreement by Target under
this Section 7.1(d) shall not be available to Target where Target is at that
time in material breach of this Agreement, (ii) the Board of Directors of
Acquiror shall have withdrawn or modified its recommendation of this Agreement
or the Merger in a manner adverse to Target or shall have resolved to do any of
the foregoing, provided that the right to terminate this Agreement by Target
under this Section 7.1 (d)(ii) shall not be available to Target where Target is
at that time in willful breach of this Agreement, or (iii) for any reason
Acquiror fails to call and hold the Acquiror Shareholders Meeting or commence
solicitation of shareholder consents by July 31, 1998, provided that the right
to terminate this Agreement by Target under this Section 7.1(d)(iii) shall not
be available to Target where Target is at that time in material breach of this
Agreement;
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(e) by Acquiror if (i) any permanent injunction or other order of
a court or other competent authority preventing the consummation of the Merger
shall have become final and nonappealable or (ii) if any required approval of
the shareholders of Target or Acquiror shall not have been obtained by reason of
the failure to obtain the required shareholder consents within 20 days of the
commencement of a shareholder consent solicitation or vote upon a vote held at a
duly held meeting of shareholders or at any adjournment thereof; or
(f) by Target if (i) any permanent injunction or other order of a
court or other competent authority preventing the consummation of the Merger
shall have become final and nonappealable or (ii) if any required approval of
the shareholders of Target or Acquiror shall not have been obtained by reason of
the failure to obtain the required shareholder consents within 20 days of the
commencement of a shareholder consent solicitation or vote upon a vote held at a
duly held meeting of shareholders or at any adjournment thereof.
7.2. EFFECT OF TERMINATION. In the event of termination of this
Agreement as provided in Section 7.1, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of Acquiror or Target
or their respective officers, directors, shareholders or affiliates, except to
the extent that such termination results from the breach by a party hereto of
any of its representations, warranties or covenants set forth in this Agreement;
provided that, the provisions of Section 7.3 (Expenses and Termination Fees) and
this Section 7.2 shall remain in full force and effect and survive any
termination of this Agreement.
7.3. EXPENSES AND TERMINATION FEES. Whether or not the Merger is
consummated, all costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby (including, without limitation, the
fees and expenses of its advisers, accountants and legal counsel) shall be paid
by the party incurring such expense.
7.4. AMENDMENT. The Boards of Directors of the parties hereto may
cause this Agreement to be amended at any time by execution of an instrument in
writing signed on behalf of each of the parties hereto, provided that an
amendment made subsequent to adoption of the Agreement by the shareholders of
Acquiror or Target shall not (i) alter or change the amount or kind of
consideration to be received on conversion of the Target Capital Stock,
(ii)alter or change any term of the Articles of Incorporation of the Surviving
Corporation to be effected by the Merger, or (iii) alter or change any of the
terms and conditions of the Agreement if such alteration or change would
adversely affect the holders of Target Capital Stock.
7.5. EXTENSION; WAIVER. At any time prior to the Effective Time any
party hereto may, to the extent legally allowed, (i)extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii)waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and
(iii)waive compliance with any of the agreements or conditions for the benefit
of such party contained herein. Any agreement on the part of a party hereto to
any such extension or waiver shall be valid only if set forth in an instrument
in writing signed on behalf of such party.
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ARTICLE VIII
INDEMNIFICATION
8.1. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS.
Notwithstanding any investigation conducted before or after the Closing Date,
Acquiror, Target and the holders of Target Capital Stock (collectively, the
"FORMER TARGET SHAREHOLDERS") will be entitled to rely upon the other party's
(including those made by certain shareholders of the other party),
representations, warranties and covenants set forth in this Agreement. The
obligations of Acquiror, the Acquiror Shareholders, Target and the Target
Shareholders with respect to its representations, warranties, agreements and
covenants will survive the Closing and continue in full force and effect until
the date twelve (12) months following the Closing Date (the "TERMINATION DATE"),
provided that any claim for indemnification made prior to the end of such twelve
(12) month period following the Closing Date shall survive until paid or
otherwise resolved in accordance with the terms of this Agreement.
8.2. INDEMNITY BY TARGET SHAREHOLDERS. From and after the Effective
Time of the Merger, and subject to the other provisions of this Section 8,
Acquiror (on or after the Closing Date) shall be indemnified and held harmless
by the Target Shareholders against, and reimbursed for, any actual liability,
damage, loss, obligation, demand, judgment, fine, penalty, cost or expense
(excluding any indirect or consequential damages to Acquiror, other than any
such damages resulting from injunctive relief granted as to an intellectual
property claim), including reasonable attorneys' fees and expenses, and the
costs of investigation incurred in defending against or settling such liability,
damage, loss, cost or expense or claim therefor and any amounts paid in
settlement thereof) imposed on or reasonably incurred by Acquiror as a result of
any breach of any representation, warranty, agreement or covenant on the part of
Target or the Target Shareholders under this agreement (collectively the
"ACQUIROR DAMAGES"). Notwithstanding any of the foregoing, the Target
Shareholders shall NOT have any indemnification obligation to Acquiror as a
result of any breach of any representation, warranty, agreement or covenant on
the part of Target or the Target Shareholders under this Agreement if, at the
time that this Agreement was executed or at the Effective Time, William Gibson
or Charles Pai knew, or reasonably should have known, that such representation,
warranty, agreement or covenant was inaccurate or not complied with. Acquiror
Damages in each case shall be net of the amount of any insurance proceeds,
indemnity and contribution actually recovered by Acquiror. "Acquiror Damages" as
used herein is not limited to matters asserted by third parties, but includes
Damages incurred or sustained by Acquiror in the absence of claims by a third
party.
8.3. INDEMNITY BY ACQUIROR AND ACQUIROR SHAREHOLDERS. From and after
the Effective Time of the Merger, and subject to the other provisions of this
Section 8, the Former Target Shareholders (on or after the Closing Date) shall
be indemnified and held harmless by the Acquiror and the Acquiror Shareholders
against, and reimbursed for, any actual liability, damage, loss, obligation,
demand, judgment, fine, penalty, cost or expense (excluding any indirect or
consequential damages to the Former Target Shareholders, other than any such
damages resulting from injunctive relief granted as to an intellectual property
claim), including reasonable attorneys' fees and expenses, and the costs of
investigation incurred in defending against or settling such liability, damage,
loss, cost or expense or claim therefor and any amounts
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paid in settlement thereof) imposed on or reasonably incurred by the Former
Target Shareholders as a result of any breach of any representation, warranty,
agreement or covenant on the part of Acquiror or the Acquiror Shareholders under
this Agreement (Collectively the "FORMER TARGET SHAREHOLDERS DAMAGES"). Former
Target Shareholders Damages in each case shall be net of the amount of any
insurance proceeds, indemnity and contribution actually recovered by the Former
Target Shareholders. "Former Target Shareholders Damages" as used herein is not
limited to matters asserted by third parties, but includes Damages incurred or
sustained by the Former Target Shareholders in the absence of claims by a third
party. For purposes of this Section 8, the term "Damages" shall mean Acquiror
Damages or Former Target Shareholders Damages, as the case may be.
8.4. DAMAGE THRESHOLD. Notwithstanding the foregoing, neither Acquiror
nor the Former Target Shareholders may receive indemnification for any Damages
pursuant to this Section 8 unless and until the amount of the Damages sustained
by Acquiror or all Former Target Shareholders, as the case may be, shall exceed
$1,000,000 (the "Damage Threshold Amount"). Once the aggregate claims reach the
Damage Threshold Amount, the indemnitees shall be liable for all such claims,
excluding amounts required to reach the Damage Threshold Amount, subject to the
damage limitations contained in Section 8.5.
8.5. DAMAGE LIMITATIONS; LIMITATION ON REMEDIES. The ability of the
Acquiror and of the Former Target Shareholders to make claims for
indemnification against the Acquiror Shareholders or the Target Shareholders
pursuant to this Section shall be limited (i) in the case of the Acquiror
Shareholders, to the shares of capital stock of Acquiror held by such Acquiror
Shareholders at the Effective Time, and (ii) in the case of the Target
Shareholders, to the shares of capital stock of Acquiror held by such Target
Shareholders immediately after the Effective Time. The indemnification
obligations of the Target Shareholders and of the Acquiror Shareholders
described in the preceding sentence shall be the sole and exclusive obligations
of the Target Shareholders and of the Acquiror Shareholders with respect to any
representation, warranty, covenant or agreement made by Target, the Target
Shareholders, Acquiror or the Acquiror Shareholders under this Agreement and no
former shareholder, optionholder, warrantholder, director, officer, employee or
agent of Target or Acquiror shall have any other personal liability to Acquiror
or the Former Target Shareholders after the Closing in connection with the
Merger. In no event shall the indemnification obligations of (a) Acquiror and
the Acquiror Shareholders exceed a maximum of $2,000,000 in the aggregate (the
"Acquiror's Aggregate Indemnification Obligation") or (b) the Target
Shareholders exceed a maximum of $2,000,000 in the aggregate (the "Target
Shareholders' Aggregate Indemnification Obligation"). Moreover, the
indemnification obligations of the Target Shareholders and the Acquiror
Shareholders shall be limited to their Acquiror Common Stock and Acquiror
Preferred Stock, which Acquiror Common Stock and Acquiror Preferred Stock shall
be deemed to have a value of $2.50 per share for purposes of the $2,000,000
ceiling on liability described in the preceding sentence. The parties to this
Agreement agree that the per share price described in the preceding sentence was
determined without implication on the actual fair market value of the Acquiror's
Common Stock or Preferred Stock at or after the Closing Date, such amount being
selected by the parties hereto for purposes of administrative convenience in
applying the indemnification provisions of this Section 8. Each particular
Target Shareholder's indemnity obligation shall not exceed such Target
Shareholder's pro rata share (as described below) of the difference between the
Acquiror Damages and the Damage Threshold Amount (the "Net Acquiror Damages"),
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which Net Acquiror Damages in the aggregate shall not exceed the Target
Shareholders' Aggregate Indemnification Obligation. Such Target Shareholder's
pro rata share of the Net Acquiror Damages shall be determined by multiplying
the Net Acquiror Damages by a fraction, the numerator of which shall be the
number of shares of Target Common Stock and Preferred Stock held by such Target
Shareholder at the Effective Time (on an as-converted basis) and the denominator
of which shall be the total number of shares of Target Common and Preferred
Stock held by all Target Shareholders at the Effective Time (on an as-converted
basis). Each particular Acquiror Shareholder's indemnity obligation shall not
exceed such Acquiror Shareholder's pro rata share (as described below) of the
difference between the Former Target Shareholders Damages and the Damage
Threshold (the "Net Former Target Shareholders Damages"), which Net Former
Target Shareholders Damages in the aggregate shall not exceed the Acquiror
Aggregate Indemnification Obligation. Such Acquiror Shareholder's pro rata share
of the Net Former Target Shareholders Damages shall be determined by multiplying
the Net Former Target Shareholders Damages by a fraction, the numerator of which
shall be the number of shares of Acquiror Common Stock and Preferred Stock held
by such Acquiror Shareholder at the Effective Time (on an as-converted basis)
and the denominator of which shall be the total number of shares of Acquiror
Common and Preferred Stock held by all Acquiror Shareholders at the Effective
Time (on an as-converted basis). The Former Target Shareholders shall be
entitled to seek indemnification from either Acquiror or the Acquiror
Shareholders, or a combination of both, at the discretion of the Former Target
Shareholders.
8.6. RESTRICTIONS ON TRANSFER ACQUIROR SHAREHOLDERS AND TARGET
SHAREHOLDERS. Each Acquiror Shareholder and Target Shareholder agrees that,
during the period specified in Section 8.1 during which such shareholder may
potentially have an indemnification obligation under this Section 8, it shall
not directly or indirectly sell, offer to sell, contract to sell, grant any
option to purchase or otherwise transfer or dispose of (other than to a
transferee who agrees to be bound by the indemnification obligations of this
Section 8) any Acquiror Common Stock or Acquiror Preferred Stock owned by such
shareholder at the Effective Time. In order to enforce the foregoing covenant,
the Acquiror may impose stop-transfer instructions with respect to the Acquiror
Stock of each Acquiror Shareholder and Target Shareholder until the end of such
period.
ARTICLE IX
GENERAL PROVISIONS
9.1. NOTICES. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with confirmation of receipt) to the parties
at the following address (or at such other address for a party as shall be
specified by like notice):
(a) if to Acquiror, to:
Wireless, Inc.
19 Davis Drive
Belmont, CA
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Attention: President
Facsimile No.: (650) 595-4907
Telephone No.: (650) 595-3300
with a copy to:
Gibson, Dunn & Crutcher LLP
One Montgomery Street
Telesis Tower, 26TH Floor
San Francisco, CA 94104-4505
Attention: William Hudson
Facsimile No.: (415) 393-8306
Telephone No.: (415) 393-8200
(b) if to Target, to:
2130 Fulton Street
San Francisco, CA 94117
Attention: Michael Hone
Facsimile No.: (650) 422-6433
Telephone No.: (650) 595-3300
with a copy to:
Gunderson Dettmer
155 Constitution Drive
Menlo Park, CA 94025
Attention: Daniel O'Connor
Facsimile No.: (650) 321-2800
Telephone No.: (650) 463-5470
9.2. INTERPRETATION. When a reference is made in this Agreement to
Exhibits, such reference shall be to an Exhibit to this Agreement unless
otherwise indicated. The words "include," "includes" and "including" when used
herein shall be deemed in each case to be followed by the words "without
limitation." In this Agreement, any reference to any event, change, condition or
effect being "material" with respect to any entity or group of entities means
any material event, change, condition or effect related to the condition
(financial or otherwise), properties, assets (including intangible assets),
liabilities, business, operations or results of operations of such entity or
group of entities. In this Agreement, any reference to a "Material Adverse
Effect" with respect to any entity or group of entities means any event, change
or effect that is materially adverse to the condition (financial or otherwise),
properties, assets (including intangible assets), liabilities, business,
operations or results of operations of such entity and its subsidiaries, taken
as a whole. In this Agreement, any reference to a party's "knowledge" means such
party's actual knowledge after due and diligent inquiry of officers, directors
and other employees of such party and its subsidiaries reasonably believed to
have knowledge of such matters. The phrase "made available" in this Agreement
shall mean that the information referred to has been made available if requested
by the party to whom such information is to be made
47
<PAGE>
available. The phrases "the date of this Agreement," "the date hereof," and
terms of similar import, unless the context otherwise requires, shall be deemed
to refer to June 4, 1998. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
9.3. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
9.4. ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES. This Agreement,
the other Transaction Documents and the documents and instruments and other
agreements specifically referred to herein or delivered pursuant hereto,
including the Exhibits, the Schedules, including the Target Disclosure Schedule
and the Acquiror Disclosure Schedule constitute the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof.
9.5. SEVERABILITY. In the event that any provision of this Agreement,
or the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
9.6. REMEDIES CUMULATIVE. Except as otherwise provided herein, any and
all remedies herein expressly conferred upon a party will be deemed cumulative
with and not exclusive of any other remedy conferred hereby, or by law or equity
upon such party, and the exercise by a party of any one remedy will not preclude
the exercise of any other remedy.
9.7. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of California without regard to
applicable principles of conflicts of law. Each of the parties hereto
irrevocably consents to the exclusive jurisdiction of any court located within
the State of California, in connection with any matter based upon or arising out
of this Agreement or the matters contemplated herein, agrees that process may be
served upon them in any manner authorized by the laws of the State of California
for such persons and waives and covenants not to assert or plead any objection
which they might otherwise have to such jurisdiction and such process.
9.8. ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and permitted assigns.
48
<PAGE>
9.9. RULES OF CONSTRUCTION. The parties hereto agree that they
have been represented by counsel during the negotiation, preparation and
execution of this Agreement and, therefore, waive the application of any law,
regulation, holding or role of construction providing that ambiguities in an
agreement or other document will be construed against the party drafting such
agreement or document.
49
<PAGE>
IN WITNESS WHEREOF, Target, the Target Shareholders, Acquiror and
the Acquiror Shareholders have caused this Agreement to be executed and
delivered by their respective officers thereunto duly authorized, all as of the
date first written above.
TARGET
By: /S/ WILLIAM GIBSON
--------------------------------------
William Gibson
President
By: /S/ MICHAEL HONE
--------------------------------------
Michael Hone
Member of the Board of Directors
ACQUIROR
By: /S/ WILLIAM GIBSON
--------------------------------------
William Gibson
President
By: /S/ CAROL LEFCOURT
--------------------------------------
Carol Lefcourt
Member of the Board of Directors
SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION
<PAGE>
ACQUIROR SHAREHOLDERS:
Crossroads Venture II, L.P.
By: /S/ WILLIAM GIBSON
--------------------------------------
William Gibson
Title:
-----------------------------------
Address:
---------------------------------
---------------------------------
---------------------------------
Telephone:
-------------------------------
Facsimile:
-------------------------------
SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION
<PAGE>
Crossroads Venture III, L.P.
By: /S/ WILLIAM GIBSON
--------------------------------------
William Gibson
Title:
-----------------------------------
Address:
---------------------------------
---------------------------------
---------------------------------
Telephone:
-------------------------------
Facsimile:
-------------------------------
SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION
<PAGE>
TARGET SHAREHOLDERS:
Adtel Limited Partnership
Advent Crown Fund C.V.
Global Private Equity H Limited Partnership
Golden Gate Development and Investment
Limited Partnership
By: Advent International Limited
Partnership, General Partner
By: Advent International Corporation,
General Partner
By: Andrew I. Fillat,
Vice President*
Advent International Investors II Limited
Partnership
By: Advent International Corporation,
General Partner
By: Andrew I. Fillat,
Vice President*
*For all of the above.
/S/ ANDREW I. FILLAT
------------------------------------------------
Andrew I. Fillat
SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION
<PAGE>
HMS (Overseas) Partners
By: /S/ MICHAEL HONE
---------------------------------------------
PRINT NAME: MICHAEL HONE
-------------------------------------
TITLE: PARTNER
------------------------------------------
HMS Capital Partners (Annex)
By: /S/ MICHAEL HONE
---------------------------------------------
PRINT NAME: MICHAEL HONE
-------------------------------------
TITLE: PARTNER
------------------------------------------
HMS Capital Partners
By: /S/ MICHAEL HONE
---------------------------------------------
PRINT NAME: MICHAEL HONE
-------------------------------------
TITLE: PARTNER
------------------------------------------
HMS Group
By: /S/ MICHAEL HONE
---------------------------------------------
PRINT NAME: MICHAEL HONE
-------------------------------------
TITLE: PARTNER
------------------------------------------
SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION
<PAGE>
Alta V Limited Partnership
By: Alta V Management Partners
---------------------------------------------
By: /S/ [illegible]
---------------------------------------------
Title: General Partner
Customs House Partners
By: /S/ ELAINE WALKER
---------------------------------------------
PRINT NAME: ELAINE WALKER
-------------------------------------
TITLE: UNDER POWER OF ATTORNEY
------------------------------------------
SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION
<PAGE>
MVP Investors L.P.
BY: /S/ MICHAEL F. SCHIAVO
---------------------------------------------
PRINT NAME: MICHAEL F. SCHIAVO
-------------------------------------
TITLE: GENERAL PARTNER
------------------------------------------
ADDRESS: C/O MVP VENTURES
----------------------------------------
45 MILK ST 9FL
----------------------------------------
BOSTON, MA 02109
----------------------------------------
TELEPHONE: (617) 457-5200
--------------------------------------
FACSIMILE: (617) 492-5931
--------------------------------------
SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION
<PAGE>
Chestnut III, L.P.
By: Chestnut III Management Limited Partnership,
Investment General Partner
By: /S/ MICHAEL F. SCHIAVO
---------------------------------------------
Michael F. Schiavo
General Partner
Chestnut Capital International III, L.P.
By: MVP Capital Limited Partnership,
Investment General Partner
By: /S/ MICHAEL F. SCHIAVO
---------------------------------------------
Michael F. Schiavo
General Partner
Late Stage Fund 1990, L.P.
By: MVP Capital Limited Partnership,
Investment General Partner
By: /S/ MICHAEL F. SCHIAVO
---------------------------------------------
Michael F. Schiavo
General Partner
Late Stage Fund 1991, L.P.
By: MVP Capital Limited Partnership,
Investment General Partner
By: /S/ MICHAEL F. SCHIAVO
---------------------------------------------
Michael F. Schiavo
General Partner
SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION
<PAGE>
Michael Hone, TTEE Mchone Inc. Prft Shrg Pl.
BY: /S/ [illegible]
ADDRESS: Fredrick Hall
----------------------------------------
2199 Fulton Street
----------------------------------------
San Francisco, CA 94117
----------------------------------------
TELEPHONE: (415) 422 6723
---------------------------------------
FACSIMILE: (415) 422-6497
----------------------------------------
SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
WIRELESS, INC.
The undersigned, William J. Palumbo and Antonio Canova, hereby
certify that:
ONE: They are the duly elected and acting President and
Secretary, respectively, of said corporation.
TWO: The Certificate of Incorporation of said corporation was
originally filed in the Office of the Secretary of State of the State of
Delaware on ___________, 2000 under the name of Wireless, Inc.
THREE: The Certificate of Incorporation of said corporation
shall be amended and restated to read in full as follows:
ARTICLE I
The name of this corporation is Wireless, Inc. (the
"Corporation").
ARTICLE II
The address of the Corporation's registered office in the
State of Delaware is 1013 Centre Road, in the City of Wilmington, County of New
Castle. The name of the Corporation's registered agent at such address is the
Corporation Service Company.
ARTICLE III
The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of the State of Delaware (the
"GCL").
ARTICLE IV
The Corporation is authorized to issue two classes of stock to
be designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares that the Corporation is authorized to issue is fifty five
million (55,000,000). Fifty million (50,000,000) shares shall be Common Stock,
par value $0.001 per share, and Five million (5,000,000) shares shall be
Preferred Stock, par value $0.001 per share.
<PAGE>
The Preferred Stock may be issued from time to time in one or
more series, without further stockholder approval. The Board of Directors of the
Corporation is hereby authorized to fix or alter the rights, preferences,
privileges and restrictions granted to or imposed upon each series of Preferred
Stock, and the number of shares constituting any such series and the designation
thereof, or of any of them. The rights, privileges, preferences and restrictions
of any such additional series may be subordinated to, PARI PASSU with
(including, without limitation, inclusion in provisions with respect to
liquidation and acquisition preferences, redemption and/or approval of matters
by vote), or senior to any of those of any present or future class or series of
Preferred Stock or Common Stock. The Board of Directors is also authorized to
increase or decrease the number of shares of any series prior or subsequent to
the issue of that series, but not below the number of shares of such series then
outstanding. In case the number of shares of any series shall be so decreased,
the shares constituting such decrease shall resume the status which they had
prior to the adoption of the resolution originally fixing the number of shares
of such series.
ARTICLE V
In furtherance and not in limitation of the powers conferred
by statute, the Board of Directors is expressly authorized to make, repeal,
alter, amend and rescind any or all of the Bylaws of the Corporation. In
addition, the Bylaws may be amended by the affirmative vote of holders of at
least sixty-six and two-thirds percent (66 2/3%) of the outstanding shares of
voting stock of the Corporation entitled to vote at an election of directors.
ARTICLE VI
The number of directors of the Corporation shall be determined
by resolution of the Board of Directors.
Elections of directors need not be by written ballot unless
the Bylaws of the Corporation shall so provide. Advance notice of stockholder
nominations for the election of directors and of any other business to be
brought before any meeting of the stockholders shall be given in the manner
provided in the Bylaws of this Corporation.
At each annual meeting of stockholders, directors of the
Corporation shall be elected to hold office until the expiration of the term for
which they are elected, or until their successors have been duly elected and
qualified; except that if any such election shall not be so held, such election
shall take place at a stockholders' meeting called and held in accordance with
the GCL.
The directors of the Corporation shall be divided into three
(3) classes as nearly equal in size as is practicable, hereby designated Class
I, Class II and Class III. For the purposes hereof, the initial Class I, Class
II and Class III directors shall be those directors so designated by a
resolution of the Board of Directors. At the first annual meeting of
stockholders following the closing of the initial public offering of the
Corporation's Common Stock, the term of office of the Class I directors shall
expire and Class I directors shall be elected for a full term of three (3)
years. At the second annual meeting of stockholders following the closing of the
initial public offering of the Corporation's Common Stock, the term of office of
the Class II directors shall
-2-
<PAGE>
expire and Class II directors shall be elected for a full term of three (3)
years. At the third annual meeting of stockholders following the initial public
offering of the Corporation's Common Stock, the term of office of the Class III
directors shall expire and Class III directors shall be elected for a full term
of three (3) years. At each succeeding annual meeting of stockholders, directors
shall be elected for a full term of three (3) years to succeed the directors of
the class whose terms expire at such annual meeting. If the number of directors
is hereafter changed, each director then serving as such shall nevertheless
continue as a director of the Class of which he is a member until the expiration
of his current term and any newly created directorships or decrease in
directorships shall be so apportioned among the classes as to make all classes
as nearly equal in number as is practicable.
Vacancies occurring on the Board of Directors for any reason
may be filled by vote of a majority of the remaining members of the Board of
Directors, even if less than a quorum, at any meeting of the Board of Directors.
A person so elected by the Board of Directors to fill a vacancy shall hold
office for the remainder of the full term of the director for which the vacancy
was created or occurred and until such director's successor shall have been duly
elected and qualified. A director may be removed from office by the affirmative
vote of the holders of 66 2/3% of the outstanding shares of voting stock of the
Corporation entitled to vote at an election of directors, provided that such
removal is for cause.
ARTICLE VII
Stockholders of the Corporation shall take action by meetings
held pursuant to this Amended and Restated Certificate of Incorporation and the
Bylaws and shall have no right to take any action by written consent without a
meeting. Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. Special meetings of the stockholders, for
any purpose or purposes, may only be called by the Board of Directors of the
Corporation. The books of the Corporation may be kept (subject to any provision
contained in the statutes) outside the State of Delaware at such place or places
as may be designated from time to time by the Board of Directors or in the
Bylaws of the Corporation.
ARTICLE VIII
To the fullest extent permitted by applicable law, this
Corporation is authorized to provide indemnification of (and advancement of
expenses to) directors, officers, employees and agents (and any other persons to
which Delaware law permits this Corporation to provide indemnification) through
Bylaw provisions, agreements with such agents or other persons, vote of
stockholders or disinterested directors or otherwise, in excess of the
indemnification and advancement otherwise permitted by Section 145 of the GCL,
subject only to limits created by applicable Delaware law (statutory or
non-statutory), with respect to action for breach of duty to the Corporation,
its stockholders, and others.
No director of the Corporation shall be personally liable to
the Corporation or any stockholder for monetary damages for breach of fiduciary
duty as a director, except for any matter in respect of which such director
shall be liable under Section 174 of the GCL or any amendment thereto or shall
be liable by reason that, in addition to any and all other requirements for such
liability, such director (1) shall have breached the director's duty or loyalty
to the
-3-
<PAGE>
Corporation or its stockholders, (2) shall have acted in manner involving
intentional misconduct or a knowing violation of law or, in failing to act,
shall have acted in a manner involving intentional misconduct or a knowing
violation of law, or (3) shall have derived an improper personal benefit. If the
GCL is hereafter amended to authorize the further elimination or limitation of
the liability of a director, the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the GCL, as so
amended.
Each person who was or is made a party or is threatened to be
made a party to or is in any way involved in any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), including any appeal therefrom, by
reason of the fact that he or she, or a person of whom he or she is the legal
representative, is or was a director or officer of the Corporation or a direct
or indirect subsidiary of the Corporation, or is or was serving at the request
of the Corporation as a director or officer of another entity or enterprise, or
was a director or officer of a foreign or domestic corporation which was
predecessor corporation of the Corporation or of another entity or enterprise at
the request of such predecessor corporation, shall be indemnified and held
harmless by the Corporation, and the Corporation shall advance all expenses
incurred by any such person in defense of any such proceeding prior to its final
determination, to the fullest extent authorized by the GCL. In any proceeding
against the Corporation to enforce these rights, such person shall be presumed
to be entitled to indemnification and the Corporation shall have the burden of
proving that such person has not met the standards of conduct for permissible
indemnification set forth in the GCL. The rights to indemnification and
advancement of expenses conferred by this Article VIII shall be presumed to have
been relied upon by the directors and officers of the Corporation in serving or
continuing to serve the Corporation and shall be enforceable as contract rights.
Said rights shall not be exclusive of any other rights to which those seeking
indemnification may otherwise be entitled. The Corporation may, upon written
demand presented by a director or officer of the Corporation or of a direct or
indirect subsidiary of the Corporation, or by a person serving at the request of
the Corporation as a director or officer of another entity or enterprise, enter
into contracts to provide such persons with specified rights to indemnification,
which contracts may confer rights and protections to the maximum extent
permitted by the GCL, as amended and in effect from time to time.
If a claim under this Article VIII is not paid in full by the
Corporation within sixty (60) days after a written claim has been received by
the Corporation, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expenses of
prosecuting such claim. It shall be a defense to any such action (other than an
action brought to enforce the right to be advanced expenses incurred in
defending any proceeding prior to its final disposition where the required
undertaking, if any, has been tendered to the Corporation) that the claimant
has not met the standards of conduct which make it permissible under the GCL for
the Corporation to indemnify the claimant for the amount claimed, but the
claimant shall be presumed to be entitled to indemnification and the Corporation
shall have the burden of proving that the claimant has not met the standards of
conduct for permissible indemnification set forth in the GCL.
-4-
<PAGE>
If the GCL is hereafter amended to permit the Corporation to
provide broader indemnification rights than said law permitted the Corporation
to provide prior to such amendment, the indemnification rights conferred by this
Article VIII shall be broadened to the fullest extent permitted by the GCL, as
so amended.
ARTICLE IX
The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon stockholders herein are granted subject to this
reservation. Notwithstanding the foregoing, the provisions set forth in Articles
V, VI, VII, VIII and IX of this Amended and Restated Certificate of
Incorporation may not be repealed or amended in any respect without the
affirmative vote of holders at least 66-2/3% of the outstanding voting stock of
the Corporation entitled to vote at election of directors.
FOUR: The foregoing amendment and restatement has been duly
adopted by the Corporation's Board of Directors in accordance with the
applicable provisions of Sections 242 and 245 of the General Corporation Law of
the State of Delaware.
FIFTH: The foregoing amendment and restatement was approved by
the holders of the requisite number of shares of the Corporation in accordance
with Section 228 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the undersigned have executed this
certificate on ____________, 2000.
------------------------------------------
William J. Palumbo
President
------------------------------------------
Antonio Canova
Secretary
-5-
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
OF
WIRELESS, INC.
ARTICLE I
OFFICES
SECTION 1. The registered office shall be in the City of
Wilmington, County of New Castle, State of Delaware.
SECTION 2. The corporation may also have offices at such other
places both within and without the State of Delaware as the Board of Directors
may from time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. All meetings of the stockholders for the election
of directors shall be held at such place as may be fixed from time to time by
the Board of Directors, or at such other place either within or without the
State of Delaware as shall be designated from time to time by the Board of
Directors and stated in the notice of the meeting. Meetings of stockholders for
any other purpose may be held at such time and place, within or without the
State of Delaware, as shall be stated in the notice of the meeting or in a duly
executed waiver of notice thereof.
SECTION 2. Annual meetings of stockholders shall be held at
such date and time as shall be designated from time to time by the Board of
Directors and stated in the notice of the meeting. At each annual meeting, the
stockholders shall elect directors to succeed those
<PAGE>
directors whose terms expire in that year and shall transact such other business
as may properly be brought before the meeting.
SECTION 3. Written notice of the annual meeting stating the
place, date and hour of the meeting shall be given to each stockholder entitled
to vote at such meeting not less than ten (10) nor more than sixty (60) days
before the date of the meeting.
SECTION 4. The officer who has charge of the stock ledger of
the corporation shall prepare and make available, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
SECTION 5. Special meetings of the stockholders, for any
purpose or purposes, may only be called by the Board.
SECTION 6. Written notice of a special meeting stating the
place, date and hour of the meeting and the purpose or purposes for which the
meeting is called, shall be given not fewer than ten (10) nor more than sixty
(60) days before the date of the meeting, to each stockholder entitled to vote
at such meeting.
SECTION 7. Business transacted at any special meeting of
stockholders shall be limited to the purposes stated in the notice.
2
<PAGE>
SECTION 8. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, either the Chairman of the
Board, or the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have power to adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall be
present or represented. At such adjourned meeting at which a quorum shall be
present or represented any business may be transacted that might have been
transacted at the meeting as originally notified. If the adjournment is for more
than thirty (30) days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
SECTION 9. When a quorum is present at any meeting, the vote
of the holders of a majority of the stock having voting power present in person
or represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of applicable statute
or of the certificate of incorporation, a different vote is required, in which
case such express provision shall govern and control the decision of such
question.
SECTION 10. Unless otherwise provided in the certificate of
incorporation each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder, but no proxy shall be voted on
after three (3) years from its date, unless the proxy provides for a longer
period.
3
<PAGE>
SECTION 11. Nominations for election to the Board of Directors
must be made by the Board of Directors or by a committee appointed by the Board
of Directors for such purpose or by any stockholder of any outstanding class of
capital stock of the corporation entitled to vote for the election of directors.
Nominations by stockholders must be preceded by notification in writing received
by the secretary of the corporation not less than one-hundred twenty (120) days
prior to any meeting of stockholders called for the election of directors. Such
notification shall contain the written consent of each proposed nominee to serve
as a director if so elected and the following information as to each proposed
nominee and as to each person, acting alone or in conjunction with one or more
other persons as a partnership, limited partnership, syndicate or other group,
who participates or is expected to participate in making such nomination or in
organizing, directing or financing such nomination or solicitation of proxies to
vote for the nominee:
(a) the name, age, residence, address, and business address of
each proposed nominee and of each such person;
(b) the principal occupation or employment, the name, type of
business and address of the corporation or other organization in which such
employment is carried on of each proposed nominee and of each such person;
(c) the amount of stock of the corporation owned beneficially,
either directly or indirectly, by each proposed nominee and each such person;
and
(d) a description of any arrangement or understanding of each
proposed nominee and of each such person with each other or any other person
regarding future employment or any future transaction to which the corporation
will or may be a party.
4
<PAGE>
The presiding officer of the meeting shall have the authority
to determine and declare to the meeting that a nomination not preceded by
notification made in accordance with the foregoing procedure shall be
disregarded.
SECTION 12. At any meeting of the stockholders, only such
business shall be conducted as shall have been brought before the meeting (a)
pursuant to the corporation's notice of meeting, (b) by or at the direction of
the Board of Directors or (c) by any stockholder of the corporation who is a
stockholder of record at the time of giving of the notice provided for in this
Bylaw, who shall be entitled to vote at such meeting and who complies with the
notice procedures set forth in this Bylaw.
For business to be properly brought before any meeting by a
stockholder pursuant to clause (c) above of this Section 12, the stockholder
must have given timely notice thereof in writing to the secretary of the
corporation. To be timely, a stockholder's notice must be delivered to or mailed
and received at the principal executive offices of the corporation not less than
one hundred twenty (120) days prior to the date of the meeting. A stockholder's
notice to the secretary shall set forth as to each matter the stockholder
proposes to bring before the meeting (a) a brief description of the business
desired to be brought before the meeting and the reasons for conducting such
business at the meeting, (b) the name and address, as they appear on the
corporation's books, of the stockholder proposing such business, and the name
and address of the beneficial owner, if any, on whose behalf the proposal is
made, (c) the class and number of shares of the corporation which are owned
beneficially and of record by such stockholder of record and by the beneficial
owner, if any, on whose behalf of the proposal is made and (d) any material
interest of such stockholder of record and the beneficial owner, if any, on
whose behalf the proposal is made in such business.
5
<PAGE>
Notwithstanding anything in these Bylaws to the contrary, no
business shall be conducted at a meeting except in accordance with the
procedures set forth in this Section 12. The presiding officer of the meeting
shall, if the facts warrant, determine and declare to the meeting that business
was not properly brought before the meeting and in accordance with the
procedures prescribed by this Section 12, and if such person should so
determine, such person shall so declare to the meeting and any such business not
properly brought before the meeting shall not be transacted. Notwithstanding the
foregoing provisions of this Section 12, a stockholder shall also comply with
all applicable requirements of the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder with respect to the matters set forth
in this Section 12.
SECTION 13. Effective upon the closing of the corporation's
initial public offering of securities pursuant to a registration statement filed
under the Securities Act of 1933, as amended, the stockholders of the
Corporation may not take action by written consent without a meeting but must
take any such actions at a duly called annual or special meeting in accordance
with these Bylaws and the Certificate of Incorporation.
ARTICLE III
DIRECTORS
SECTION 1. The number of directors of this corporation that
shall constitute the whole board shall be determined by resolution of the Board
of Directors; provided, however, that no decrease in the number of directors
shall have the effect of shortening the term of an incumbent director. The Board
of Directors shall be classified, with respect to the time for which they
severally hold office, into three classes, as nearly equal in number as
possible, as determined by the Board of Directors, one class to hold office
initially for a term expiring at the
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annual meeting to be held in 2000, another class to hold office initially for a
term expiring at the annual meeting of stockholders held in 2001 and another
class to hold office initially for a term expiring at the annual meeting of
stockholders to be held in 2002, with the members of each class to hold office
until their successors are elected and qualified. At each annual meeting of
stockholders, the successors of the class of directors whose term expires at
that meeting shall be elected to hold office for a term expiring at the annual
meeting of stockholders held in the third year following the year of their
election.
SECTION 2. Vacancies and newly created directorships resulting
from any increase in the authorized number of directors may be filled by a
majority of the directors then in office, even if less than a quorum, or by a
sole remaining director, and the directors so chosen shall hold office until the
next election of the class for which such directors were chosen and until their
successors are duly elected and qualified or until earlier resignation or
removal. If there are no directors in office, then an election of directors may
be held in the manner provided by statute.
SECTION 3. The business of the corporation shall be managed by
or under the direction of its Board of Directors which may exercise all such
powers of the corporation and do all such lawful acts and things as are not by
statute or by the certificate of incorporation or by these bylaws directed or
required to be exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
SECTION 4. The Board of Directors of the corporation may hold
meetings, both regular and special, either within or without the State of
Delaware.
SECTION 5. The first meeting of each newly elected Board of
Directors shall be held at such time and place as shall be fixed by the vote of
the stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to
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constitute the meeting, provided a quorum shall be present. In the event of the
failure of the stockholders to fix the time or place of such first meeting of
the newly elected Board of Directors, or in the event such meeting is not held
at the time and place so fixed by the stockholders, the meeting may be held at
such time and place as shall be specified in a notice given as hereinafter
provided for special meetings of the Board of Directors, or as shall be
specified in a written waiver signed by all of the directors.
SECTION 6. Regular meetings of the Board of Directors may be
held without notice at such time and at such place as shall from time to time be
determined by the board.
SECTION 7. Special meetings of the board may be called by the
Chairman of the Board or the president on twelve (12) hours' notice to each
director by phone, fax or electronic mail; special meetings shall be called by
the Chairman of the Board, the president or secretary in like manner and on like
notice on the written request of a majority of the Board unless the Board
consists of only one director, in which case special meetings shall be called by
the Chairman of the Board, the president or secretary in like manner and on like
notice on the written request of the sole director.
SECTION 8. At all meetings of the board a majority of the
directors shall constitute a quorum for the transaction of business and the act
of a majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute or by the certificate of incorporation. If a
quorum shall not be present at any meeting of the Board of Directors, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
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SECTION 9. Unless otherwise restricted by the certificate of
incorporation or these bylaws, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if all members of the board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the board or committee.
SECTION 10. Unless otherwise restricted by the certificate of
incorporation or these bylaws, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
COMMITTEES OF DIRECTORS
SECTION 11. The Board of Directors may, by resolution passed
by a majority of the whole board, designate one (1) or more committees, each
committee to consist of one (1) or more of the directors of the corporation. The
board may designate one (1) or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee.
In the absence of disqualification of a member of a committee,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member.
Any such committee, to the extent provided in the resolution
of the Board of Directors, shall have and may exercise all the powers and
authority of the Board of Directors in
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the management of the business and affairs of the corporation, and may authorize
the seal of the corporation to be affixed to all papers that may require it; but
no such committee shall have the power or authority in reference to amending the
certificate of incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the corporation's property and assets, recommending to the
stockholders a dissolution of the corporation or a revocation of a dissolution,
or amending the bylaws of the corporation; and, unless the resolution or the
certificate of incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend or to authorize the issuance of
stock. Such committee or committees shall have such name or names as may be
determined from time to time by resolution adopted by the Board of Directors.
SECTION 12. Each committee shall keep regular minutes of its
meetings and report the same to the Board of Directors when required.
COMPENSATION OF DIRECTORS
SECTION 13. Unless otherwise restricted by the certificate of
incorporation or these bylaws, the Board of Directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
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ARTICLE IV
NOTICES
SECTION 1. Whenever, under the provisions of the statutes or
of the certificate of incorporation or of these bylaws, notice is required to be
given to any director or stockholder, it shall not be construed to mean personal
notice (except as provided in Section 7 of Article III of these Bylaws), but
such notice may be given in writing, by mail, addressed to such director or
stockholder, at his address as it appears on the records of the corporation,
with postage thereon prepaid, and such notice shall be deemed to be given at the
time when the same shall be deposited in the United States mail. Notice to
directors may also be given by telephone, telegram or facsimile.
SECTION 2. Whenever any notice is required to be given under
the provisions of the statutes or of the certificate of incorporation or of
these bylaws, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent thereto.
ARTICLE V
OFFICERS
SECTION 1. The officers of the corporation shall be chosen by
the Board of Directors and shall be a president, a chief financial officer and a
secretary. The Board of Directors may elect from among its members a Chairman of
the Board. The Board of Directors may also choose one or more vice-presidents,
assistant secretaries and assistant treasurers. Any number of offices may be
held by the same person, unless the certificate of incorporation or these bylaws
otherwise provide.
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SECTION 2. The Board of Directors at its first meeting after
each annual meeting of stockholders shall choose a president, a chief financial
officer, and a secretary and may choose vice presidents.
SECTION 3. The Board of Directors may appoint such other
officers and agents as it shall deem necessary who shall hold their offices for
such terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the board.
SECTION 4. The salaries of all officers of the corporation
shall be fixed by the Board of Directors or any committee established by the
Board of Directors for such purpose. The salaries of agents of the corporation
shall, unless fixed by the Board of Directors, be fixed by the president or any
vice-president of the corporation.
SECTION 5. The officers of the corporation shall hold office
until their successors are chosen and qualify. Any officer elected or appointed
by the Board of Directors may be removed at any time by the affirmative vote of
a majority of the Board of Directors. Any vacancy occurring in any office of the
corporation shall be filled by the Board of Directors.
THE CHAIRMAN OF THE BOARD
SECTION 6. The Chairman of the Board, if any, shall preside at
all meetings of the Board of Directors and of the stockholders at which he/she
shall be present. He/she shall have and may exercise such powers as are, from
time to time, assigned to him/her by the Board and as may be provided by law.
SECTION 7. In the absence of the Chairman of the Board, the
president, shall preside at all meetings of the Board of Directors and of the
stockholders at which he shall be present. He shall have and may exercise such
powers as are, from time to time, assigned to him by the Board and as may be
provided by law.
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THE PRESIDENT AND VICE-PRESIDENTS
SECTION 8. The president shall be the chief executive officer
of the corporation; and in the absence of the Chairman of the Board he/she shall
preside at all meetings of the stockholders and the Board of Directors; he/she
shall have general and active management of the business of the corporation and
shall see that all orders and resolutions of the Board of Directors are carried
into effect.
SECTION 9. The president or any vice president shall execute
bonds, mortgages and other contracts requiring a seal, under the seal of the
corporation, except where required or permitted by law to be otherwise signed
and executed and except where the signing and execution thereof shall be
expressly delegated by the Board of Directors to some other officer or agent of
the corporation.
SECTION 10. In the absence of the president or in the event of
his inability or refusal to act, the vice-president, if any, (or in the event
there be more than one vice-president, the vice-presidents in the order
designated by the directors, or in the absence of any designation, then in the
order of their election) shall perform the duties of the president, and when so
acting, shall have all the powers of and be subject to all the restrictions upon
the president. The vice-presidents shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARY
SECTION 11. The secretary shall attend all meetings of the
Board of Directors and all meetings of the stockholders and record all the
proceedings of the meetings of the corporation and of the Board of Directors in
a book to be kept for that purpose and shall perform like duties for the
standing committees when required. He/she shall give, or cause to be given,
notice of all
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meetings of the stockholders and special meetings of the Board of Directors, and
shall perform such other duties as may be prescribed by the Board of Directors
or president, under whose supervision he/she shall be. He/she shall have custody
of the corporate seal of the corporation and he/she, or an assistant secretary,
shall have authority to affix the same to any instrument requiring it and when
so affixed, it may be attested by his signature or by the signature of such
assistant secretary. The Board of Directors may give general authority to any
other officer to affix the seal of the corporation and to attest the affixing by
his signature.
SECTION 12. The assistant secretary, or if there be more than
one, the assistant secretaries in the order determined by the Board of Directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the secretary or in the event of his inability or
refusal to act, perform the duties and exercise the powers of the secretary and
shall perform such other duties and have such other powers as the board of
directors may from time to time prescribe.
THE CHIEF FINANCIAL OFFICER
SECTION 13. The chief financial officer shall be the chief
financial officer of the corporation, shall have the custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the Board of Directors.
SECTION 14. He/she shall disburse the funds of the corporation
as may be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the president and the Board of Directors, at
its regular meetings, or when the Board of Directors so
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requires, an account of all his transactions as Chief Financial Officer and of
the financial condition of the corporation.
SECTION 15. If required by the Board of Directors, he/she
shall give the corporation a bond (which shall be renewed every six years) in
such sum and with such surety or sureties as shall be satisfactory to the Board
of Directors for the faithful performance of the duties of his/her office and
for the restoration to the corporation, in case of his/her death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in his possession or under his/her control
belonging to the corporation.
SECTION 16. The treasurer or an assistant treasurer, in the
order determined by the Board of Directors (or if there be no such
determination, then in the order of their election) shall, in the absence of the
Chief Financial Officer or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the Chief Financial Officer and
shall perform such other duties and have such other powers as the Board of
Directors may from time to time prescribe.
ARTICLE VI
CERTIFICATE OF STOCK
SECTION 1. Every holder of stock in the corporation shall be
entitled to have a certificate, signed by, or in the name of the corporation by,
the Chairman of the Board of Directors, or the president or a vice-president and
the treasurer or an assistant treasurer, or the secretary or an assistant
secretary of the corporation, certifying the number of shares owned by him/her
in the corporation.
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Certificates may be issued for partly paid shares and in such
case upon the face or back of the certificates issued to represent any such
partly paid shares, the total amount of the consideration to be paid therefor,
and the amount paid thereon shall be specified.
If the corporation shall be authorized to issue more than one
class of stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in section 202 of the General Corporation Law of Delaware, in
lieu of the foregoing requirements, there may be set forth on the face or back
of the certificate that the corporation shall issue to represent such class or
series of stock, a statement that the corporation will furnish without charge to
each stockholder who so requests the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
Any of or all the signatures on the certificate may be
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the corporation with the same effect as if he/she
were such officer, transfer agent or registrar at the date of issue.
LOST CERTIFICATES
SECTION 3. The Board of Directors may direct a new certificate
or certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to
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have been lost, stolen or destroyed, upon the making of an affidavit of that
fact by the person claiming the certificate of stock to be lost, stolen or
destroyed. When authorizing such issue of a new certificate or certificates, the
Board of Directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate or certificates, or his/her legal representative, to advertise the
same in such manner as it shall require and/or to give the corporation a bond in
such sum as it may direct as indemnity against any claim that may be made
against the corporation with respect to the certificate alleged to have been
lost, stolen or destroyed.
TRANSFER OF STOCK
SECTION 4. Upon surrender to the corporation or the transfer
agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
FIXING RECORD DATE
SECTION 5. In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty (60) nor less than ten (10) days before the
date of such meeting, nor more than sixty (60) days prior to any other action. A
determination of stockholders of record entitled to notice of or
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to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
REGISTERED STOCKHOLDERS
SECTION 5. The corporation shall be entitled to recognize the
exclusive right of a person registered on its books as the owner of shares to
receive dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
SECTION 1. Dividends upon the capital stock of the
corporation, subject to the provisions of the certificate of incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of the certificate of
incorporation.
SECTION 2. Before payment of any dividend, there may be set
aside out of any funds of the corporation available for dividends such sum or
sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the corporation, or
for such other purposes as the directors shall think conducive to the interest
of the corporation, and the directors may modify or abolish any such reserve in
the manner in which it was created.
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CHECKS
SECTION 3. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
FISCAL YEAR
SECTION 4. The fiscal year of the corporation shall be fixed
by resolution of the Board of Directors.
SEAL
SECTION 5. The Board of Directors may adopt a corporate seal
having inscribed thereon the name of the corporation, the year of its
organization and the words "Corporate Seal, Delaware." The seal may be used by
causing it or a facsimile thereof to be impressed or affixed or reproduced or
otherwise.
INDEMNIFICATION
SECTION 6. The corporation shall, to the fullest extent
authorized under the laws of the State of Delaware, as those laws may be amended
and supplemented from time to time, indemnify any director made, or threatened
to be made, a party to an action or proceeding, whether criminal, civil,
administrative or investigative, by reason of being a director of the
corporation or a predecessor corporation or, at the corporation's request, a
director or officer of another corporation, provided, however, that the
corporation shall indemnify any such agent in connection with a proceeding
initiated by such agent only if such proceeding was authorized by the Board of
Directors of the corporation. The indemnification provided for in this Section 6
shall: (i) not be deemed exclusive of any other rights to which those
indemnified may be entitled under any bylaw, agreement or vote of stockholders
or disinterested directors or otherwise, both
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as to action in their official capacities and as to action in another capacity
while holding such office, (ii) continue as to a person who has ceased to be a
director, and (iii) inure to the benefit of the heirs, executors and
administrators of such a person. The corporation's obligation to provide
indemnification under this Section 6 shall be offset to the extent of any other
source of indemnification or any otherwise applicable insurance coverage under a
policy maintained by the corporation or any other person.
Expenses incurred by a director of the corporation in
defending a civil or criminal action, suit or proceeding by reason of the fact
that he is or was a director of the corporation (or was serving at the
corporation's request as a director or officer of another corporation) shall be
paid by the corporation in advance of the final disposition of such action, suit
or proceeding upon receipt of an undertaking by or on behalf of such director to
repay such amount if it shall ultimately be determined that he is not entitled
to be indemnified by the corporation as authorized by relevant sections of the
General Corporation Law of Delaware. Notwithstanding the foregoing, the
corporation shall not be required to advance such expenses to an agent who is a
party to an action, suit or proceeding brought by the corporation and approved
by a majority of the Board of Directors of the corporation which alleges willful
misappropriation of corporate assets by such agent, disclosure of confidential
information in violation of such agent's fiduciary or contractual obligations to
the corporation or any other willful and deliberate breach in bad faith of such
agent's duty to the corporation or its stockholders.
The foregoing provisions of this Section 6 shall be deemed to
be a contract between the corporation and each director who serves in such
capacity at any time while this bylaw is in effect, and any repeal or
modification thereof shall not affect any rights or obligations then existing
with respect to any state of facts then or theretofore existing or any action,
suit or
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proceeding theretofore or thereafter brought based in whole or in part upon any
such state of facts.
The Board of Directors in its discretion shall have power on
behalf of the corporation to indemnify any person, other than a director, made a
party to any action, suit or proceeding by reason of the fact that he, his
testator or intestate, is or was an officer or employee of the corporation.
To assure indemnification under this Section 6 of all
directors, officers and employees who are determined by the corporation or
otherwise to be or to have been "fiduciaries" of any employee benefit plan of
the corporation which may exist from time to time, Section 145 of the General
Corporation Law of Delaware shall, for the purposes of this Section 6, be
interpreted as follows: an "other enterprise" shall be deemed to include such an
employee benefit plan, including without limitation, any plan of the corporation
which is governed by the Act of Congress entitled "Employee Retirement Income
Security Act of 1974," as amended from time to time; the corporation shall be
deemed to have requested a person to serve an employee benefit plan where the
performance by such person of his duties to the corporation also imposes duties
on, or otherwise involves services by, such person to the plan or participants
or beneficiaries of the plan; excise taxes assessed on a person with respect to
an employee benefit plan pursuant to such Act of Congress shall be deemed
"fines."
ARTICLE VIII
AMENDMENTS
SECTION 1. These bylaws may be altered, amended or repealed or
new bylaws may be adopted by the affirmative vote of holders of at least 66-2/3%
vote of the outstanding voting stock of the corporation. These bylaws may also
be altered, amended or repealed or new bylaws
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may be adopted by the Board of Directors, when such power is conferred upon the
Board of Directors by the certificate of incorporation. The foregoing may occur
at any regular meeting of the stockholders or of the Board of Directors or at
any special meeting of the stockholders or of the Board of Directors if notice
of such alteration, amendment, repeal or adoption of new bylaws be contained in
the notice of such special meeting. If the power to adopt, amend or repeal
bylaws is conferred upon the Board of Directors by the certificate of
incorporation it shall not divest or limit the power of the stockholders to
adopt, amend or repeal bylaws.
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CERTIFICATE OF ADOPTION BY THE
SECRETARY OF
WIRELESS, INC.
The undersigned, Antonio Canova, hereby certifies that he is
the duly elected and acting Secretary of Wireless, Inc., a Delaware corporation
(the "Corporation"), and that the Bylaws attached hereto constitute the Bylaws
of said Corporation as duly adopted by the Board of Directors on ,
2000 and the Stockholders on ________, 2000.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed
his name this _____ day of ________, 2000.
---------------------------------------
Antonio Canova
Secretary
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EXHIBIT 4.1
SIXTH AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
THIS SIXTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT (this
"Agreement") is made as of the 14th day of January, 2000, by and among Wireless,
Inc., a California corporation (the "Company"), and the investors listed on the
signature pages hereto (each of which is herein referred to as a "Holder"), as
amended to include additional investors' pursuant to the Series F Purchase
Agreement (as defined below).
WHEREAS, certain of the investors (the "Existing Investors") have
heretofore possessed registration rights, information rights and other rights
pursuant to that certain Fifth Amended and Restated Investor Rights Agreement
dated as of September 30, 1999 (the "Prior Agreement");
WHEREAS, certain of the investors (the "New Investors") are purchasing
from the Company, and the Company is selling to the New Investors, shares of the
Company's Series F Preferred Stock pursuant to the terms and conditions set
forth in that certain Stock Purchase Agreement dated as of January 14, 2000 (the
"Series F Purchase Agreement");
WHEREAS, in order to induce the New Investors to invest funds in the
Company pursuant to the Series F Purchase Agreement, the parties have agreed to
enter into this Agreement;
WHEREAS, Section 9.3 of the Prior Agreement provides that the Prior
Agreement may be amended IF the Company and the holders of sixty-six percent
(66%) of the "Registrable Securities" and at least 51% of the "New Investor
Securities" (as defined in the Prior Agreement) consent in writing to the
proposed amendment and that any amendment effected in accordance with such
procedure is binding upon EACH Holder of "Registrable Securities" and the
Company.
WHEREAS, certain of the Existing Investors are holders of at least 66%
of the "Registrable Securities" and 51% of the "New Investor Securities" of the
Company (as defined in the Prior Agreement), and desire to terminate the Prior
Agreement and to accept the rights created pursuant hereto in lieu of the rights
granted to them under the Prior Agreement;
NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth herein, the parties hereby agree as follows:
SECTION 1
RESTRICTION ON TRANSFERABILITY OF SECURITIES;
REGISTRATION RIGHTS
1.1 CERTAIN DEFINITIONS. As used in this Agreement, the following terms
shall have the following respective meanings:
(a) "AFFILIATE" shall mean, with respect to any Investor, any
Person directly or indirectly controlling, controlled by or under direct or
indirect common control with such
<PAGE>
Investor (or other specified Person) and shall include (a) any Person who is a
director or beneficial holder of at least 10% of the then outstanding capital
stock (or other shares of beneficial interest) of such Investor (or other
specified Person) and Family Members of any such Person, (b) any Person of which
such Investor (or other specified Person) or an Affiliate (as defined in clause
(a) above) of such Investor (or other specified Person) directly or indirectly,
either beneficially owns at least 10% of the then outstanding capital stock (or
other shares of beneficial interest) or constitutes at least a 10% equity
participant, (c) any Person of which an Affiliate (as defined in clause (a)
above) of such Investor is a partner, director, officer or executive employee,
and (d) in the case of a specified Person who is an individual, Family Members
of such Person.
(b) "AMT CONVERTIBLE NOTE" shall mean that certain Convertible
Promissory Note, dated August 17, 1999, in the principal amount of $1,000,000 by
and between the Company and AMT Capital, Ltd., a Texas limited partnership.
(c) "CLOSING" shall mean the Closing of the purchase of Series F
Preferred Stock as defined in the Series F Purchase Agreement.
(d) "COMMISSION" shall mean the Securities and Exchange Commission
or any other federal agency at the time administering the Securities Act.
(e) "COMMON SHARES" shall mean (a) shares of Common Stock issued or
issuable to the Investors, including upon conversion of any preferred stock and
the exercise of any warrant, (b) any shares of Common Stock into which such
shares of Common Stock have been converted, (c) any capital stock or other
securities into which or for which such Common Stock shall have been converted
or exchanged pursuant to any recapitalization, reorganization or merger of the
Company and (d) any shares of capital stock issued with respect to the foregoing
pursuant to a stock dividend or stock split; provided that no Common Shares
which have been sold pursuant to a Public Sale shall be considered to be
outstanding Common Shares hereunder.
(f) "COMMON STOCK" shall mean (a) the Company's common stock, and
(b) any shares of any other class of capital stock of the Company hereafter
issued which is (i) not preferred as to dividends or assets over any class of
stock of the Company, (ii) not subject to redemption pursuant to the terms
thereof, or (iii) issued to the holders of shares of Common Stock upon any
reclassification thereof.
(g) "CROSSROADS INVESTOR" shall mean Crossroads II, Crossroads III,
Crossroads Venture Investors VII, L.P., a California limited partnership,
Crossroads Venture Capital LLC, a Delaware limited liability company, and
William E. Gibson.
(h) "CROSSROADS PARTIES" shall mean Crossroads Venture Investors
II, L.P., a California limited partnership ("Crossroads II"), Crossroads Venture
Investors III, L.P., a California limited partnership ("Crossroads III"), and
each of the individual investors in such entities, including, without
limitation, William E. Gibson and Charles C. Pai.
(i) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended, or any similar successor federal statute and the rules and
regulations thereunder, all as the same shall be in effect from time to time.
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(j) "EXISTING INVESTOR SECURITIES" shall mean (a) the Series A,
Series B, Series C Series D and Series E Preferred Stock of the Company, (b) the
Common Shares issued to Existing Investors, (c) all other Securities purchased
by or issued from time to time to Existing Investors and (d) all shares of the
Company's capital stock issued with respect to such Securities by way of stock
dividend or stock split or in connection with any merger, consolidation,
recapitalization or other reorganization affecting the Company's capital stock.
Existing Investor Securities will continue to be Existing Investor Securities in
the hands of any holder and each transferee thereof will succeed to the rights
and obligations of a holder of Existing Investor Securities hereunder, provided
that shares of Existing Investor Securities will cease to be Existing Investor
Securities when transferred (i) to the Company, (ii) pursuant to a Public Sale
or (iii) to New Investors.
(k) "EXISTING INVESTOR SHAREHOLDER" shall mean each Existing
Investor as defined on page 1 hereto for so long as such Existing Investor
Shareholder holds Existing Investor Securities and any other Person who holds
Existing Investor Securities for so long as such Person holds any Existing
Investor Securities.
(l) "FAMILY MEMBERS" shall mean, as applied to any individual, any
parent, spouse, child, grandchildren, spouse of a child, and each trust created
for the benefit of one or more of such Persons and each custodian of a property
of one or more such Persons.
(m) "FAMILY TRANSFEREE" shall mean any Family Member of a
Shareholder (i) to whom such Shareholder has transferred shares of Common Stock
pursuant to Section 3.1 and (ii) who has executed an Instrument of Accession.
(n) "HOLDER" shall mean any Investor who holds Registrable
Securities and any holder of Registrable Securities to whom the registration
rights conferred by this Agreement have been transferred in compliance with
Section 1.11 hereof.
(o) "INSTRUMENT OF ACCESSION" shall mean an Instrument of Accession
in the form of Schedule 1 hereto.
(p) "INITIATING HOLDERS" shall mean any Holder or Holders who in
the aggregate hold not less than thirty percent (30%) of the outstanding
Registrable Securities. For purposes of such calculation, holders of Preferred
Shares shall be considered to hold the shares of Common Stock then issuable upon
conversion of such Preferred Shares and holders of Warrants shall be considered
to hold the shares of Warrant Stock then issuable upon the exercise of such
Warrants.
(q) "INVESTOR" shall mean an Existing Investor or a New Investor
for so long as such Existing Investor or New Investor holds Existing Investor or
New Investor Securities and any other Person to whom such Investor transfers
Existing Investor or New Investor Securities for so long as such Person holds
such Securities.
(r) "MAJORITY HOLDERS" shall mean the holder or holders at the
relevant time of determination (excluding the Company) of 51% or more of the
Common Shares.
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(s) "MATERIAL INVESTORS" shall mean the investors listed on the
signature pages hereto who hold at least 300,000 shares of Registrable
Securities.
(t) "NEW INVESTOR SECURITIES" shall mean (a) the Series F Preferred
Stock of the Company, (b) the Common Shares issued to the New Investors, (c) all
other Securities purchased by or issued from time to time to the New Investors
and (d) all shares of the Company's capital stock issued with respect to such
Securities by way of stock dividend or stock split or in connection with any
merger, consolidation, recapitalization or other reorganization affecting the
Company's capital stock. New Investor Securities will continue to be New
Investor Securities in the hands of any holder and each transferee thereof will
succeed to the rights and obligations of a holder of New Investor Securities
hereunder, provided that shares of New Investor Securities will cease to be New
Investor Securities when transferred (i) to the Company, (ii) pursuant to a
Public Sale or (iii) to Existing Investors.
(u) "NEW INVESTOR SHAREHOLDER" shall mean each New Investor for so
long as such New Investor holds New Investor Securities and any other Person who
holds New Investor Securities for so long as such Person holds any New Investor
Securities.
(v) "NON-TRANSFERRING SHAREHOLDER". See Section 3.2.
(w) "OFFER NOTICE". See Section 3.2.
(x) "PERSON" shall mean an individual, partnership, corporation,
limited liability company, association, trust, joint venture, unincorporated
organization, or any government, governmental department or agency or political
subdivision thereof.
(y) "PERSONAL REPRESENTATIVE" shall mean the successor or legal
representative (including without limitation, a guardian, executor,
administrator or conservator) of a dead or incompetent Shareholder.
(z) "PREFERRED SHARES" shall mean the Company's Series A, Series B,
Series C, Series D, Series E, Series E-1 and Series F Preferred Stock.
(aa) "PUBLIC SALE" shall mean any sale of Common Stock to the
public pursuant to a public offering registered under the Securities Act of
1933, as amended, or to the public through a broker or market-maker pursuant to
the provisions of Rule 144 (or any successor rule) adopted under the Securities
Act of 1933, as amended.
(bb) "QUALIFIED IPO" shall mean a firm commitment underwritten
public offering of Common Stock at a price per share exceeding $7.50 pursuant to
an effective registration statement under the Securities Act resulting in at
least $25,000,000 in gross proceeds.
(cc) "REGISTRABLE SECURITIES" shall mean (i) shares of Common Stock
(ii) shares of Common Stock issued or issuable pursuant to the conversion of the
Preferred Shares and the exercise of the Warrants and (iii) any Common Stock
issued as a dividend or other distribution with respect to or in exchange for or
in replacement of the Common Stock or
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Preferred Shares referenced in (i) and (ii) above, provided, however,
that Registrable Securities shall not include any shares of Common Stock that
have been sold in a Public Sale.
(dd) The Terms "REGISTER," "REGISTERED" and "REGISTRATION" shall
refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act and applicable rules and
regulations thereunder, and the declaration or ordering of the effectiveness of
such registration statement.
(ee) "REGISTRATION EXPENSES" shall mean all expenses incurred in
effecting any registration pursuant to this Agreement, including, without
limitation, all registration, qualification and filing fees, printing expenses,
escrow fees, fees and disbursements of counsel for the Company, blue sky fees
and expenses, accounting fees, expenses of any regular or special audits
incident to or required by any such registration, but shall not include Selling
Expenses and fees and disbursements of counsel for the Holders.
(ff) "RESTRICTED SECURITIES" shall mean Restricted Securities as
such term is defined under Rule 144.
(gg) "RESTRUCTURING DATE" shall mean the effective date of the
Restructuring and Release Agreement, dated as of June 4, 1998, between the
Company, Wi-LAN, Crossroads Venture Investors II, L.P., and Crossroads Venture
Investors III, L.P.
(hh) "RULE 144" shall mean Rule 144 as promulgated by the
Commission under the Securities Act, as such Rule may be amended from time to
time, or any similar successor rule that may be promulgated by the Commission.
(ii) "RULE 145" shall mean Rule 145 as promulgated by the
Commission under the Securities Act, as such Rule may be amended from time to
time, or any similar successor rule that may be promulgated by the Commission.
(jj) "SECURITIES" shall mean all outstanding shares of the
Company's capital stock or rights to purchase the Company's capital stock which
have not been sold in a Public Sale, including, without limitation, the Existing
Investor Securities and the New Investor Securities.
(kk) "SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, or similar successor federal statute and the rules and regulations
thereunder, all as the same shall be in effect from time to time, corresponding
to such Act.
(ll) "SELLING EXPENSES" shall mean all underwriting discounts and
selling commissions applicable to the sale of Registrable Securities and all
fees and disbursements of counsel of any Holder (other than the fees and
disbursements of counsel as provided in Section 1.4).
(mm) "SERIES E INVESTORS" shall mean the certain investors who
purchased from the Company shares of the Company's Series E Preferred stock and
Warrants pursuant to the terms and conditions set forth in that certain
Securities Purchase Agreement dated as of September 30, 1999 (the "Series E
Purchase Agreement").
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(nn) "SERIES E INVESTOR SECURITIES" shall mean (a) the Series E
Preferred Stock of the Company, (b) the Common Shares issued to the Series E
Investor Shareholders, (c) all other Securities purchased by or issued from time
to time to the Series E Investor Shareholders and (d) all shares of the
Company's capital stock issued with respect to such Securities by way of stock
dividend or stock split or in connection with any merger, consolidation,
recapitalization or other reorganization affecting the Company's capital stock.
Series E Investor Securities will continue to be Series E Investor Securities in
the hands of any holder and each transferee thereof will succeed to the rights
and obligations of a holder of Series E Investor Securities hereunder, provided
that shares of Series E Investor Securities will cease to be Series E Investor
Securities when transferred (i) to the Company, (ii) pursuant to a Public Sale
or (iii) to Existing Investors.
(oo) "SERIES E INVESTOR SHAREHOLDER" shall mean the Series E
Investors for so long as they holds Series E Investor Securities.
(pp) "SHAREHOLDER ELECTION PERIOD". See Section 3.2.
(qq) "SUBSIDIARY" shall mean any corporation, association, trust,
or other business entity, of which the designated parent shall at any time own
or control directly or indirectly through a Subsidiary or Subsidiaries at least
a majority (by number of votes) of the outstanding shares of capital stock (or
other shares of beneficial interest) entitled ordinarily to vote for the
election of such business entity's directors (or in the case of a business
entity that is not a corporation, for those Persons exercising functions similar
to directors of a corporation).
(rr) "THIRD PARTY SALE" shall mean a bona fide sale by any Existing
Investor Shareholder of Securities to a third party that is not an Affiliate of
the selling Existing Investor Shareholder or the Company, pursuant to a
transaction that is not a Public Sale.
(ss) "TRANSFER". See Section 3.1.
(tt) "TRANSFERRING SHAREHOLDER". See Section 3.2.
(uu) "WARRANTS" shall mean the warrants of the Company issued to
the Series E Investors pursuant to Section 2.1 of the Series E Purchase
Agreement and any other warrants transferred to any other holders pursuant to
Section 12 thereof, as well as warrants issuable upon conversion of the AMT
Convertible Note.
(vv) "WARRANT STOCK" shall mean Common Stock issuable upon exercise
of the Warrants in accordance with their terms and any capital stock or other
securities into which or for which such Common Stock shall have been converted
or exchanged pursuant to any recapitalization, reorganization or merger of the
Company.
(ww) "WI-LAN" shall mean Wi-LAN, Inc., an Alberta Canada
corporation.
1.2 REQUESTED REGISTRATION.
(a) REQUEST FOR REGISTRATION. If the Company shall receive from
Initiating Holders at any time or times not earlier than the earlier of (i)
January 31, 2001 or (ii) three (3)
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months after the effective date of the first registration statement filed by the
Company covering an underwritten offering of any of its securities to the
general public, a written request specifying that it is made pursuant to this
Section 1.2 that the Company effect a registration with respect to all or a part
of the Registrable Securities having a reasonably anticipated aggregate offering
price, net of underwriting discounts and commissions, that exceeds $10,000,000,
the Company will:
(i) promptly give written notice of the proposed registration
to all other Holders; and
(ii) as soon as practicable, use its diligent best efforts to
effect such registration (including, without limitation, filing post-effective
amendments, appropriate qualifications under applicable blue sky or other state
securities laws and appropriate compliance with the Securities Act) as would
permit or facilitate the sale and distribution of all or such portion of such
Registrable Securities as are specified in such request, together with all or
such portion of the Registrable Securities of any Holder or Holders joining in
such request as are specified in a written request received by the Company
within twenty (20) days after such written notice from the Company is effective.
The Company shall not be obligated to effect, or to take any action to
effect, any such registration pursuant to this Section 1.2:
(A) In any particular jurisdiction in which the Company
would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance, unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act;
(B) After the Company has effected three such
registrations pursuant to this Section 1.2(a) and such registrations have been
declared or ordered effective; further, with respect to the second of such
registrations, the Company need take no action pursuant to this Section 1.2
within one year of the date the first has been declared or ordered effective;
(C) During the period starting with the date sixty (60)
days prior to the Company's good faith estimate of the date of filing of, and
ending on a date one hundred eighty (180) days after the effective date of, a
registration pursuant to Section 1.3 hereof; provided that the Company is
actively employing in good faith all reasonable efforts to cause such
registration statement to become effective;
(D) If the Initiating Holders propose to dispose of shares
of Registrable Securities that may be immediately registered on Form S-3
pursuant to a request made under Section 1.5 hereof.
(b) Subject to the foregoing clauses (A) through (D), the Company
shall file a registration statement covering the Registrable Securities so
requested to be registered as soon as practicable after receipt of the request
or requests of the Initiating Holders; provided, however, that if (i) in the
good faith judgment of the Board of Directors of the Company, such registration
would be seriously detrimental to the Company and the Board of Directors of the
Company
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concludes, as a result, that it is essential to defer the filing of such
registration statement at such time, and (ii) the Company shall furnish to such
Holders a certificate signed by the President of the Company stating that in the
good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company for such registration statement to be filed
in the near future and that it is, therefore, essential to defer the filing of
such registration statement, then the Company shall have the right to defer such
filing for the period during which such disclosure would be seriously
detrimental, provided, that the Company may not defer the filing for a period of
more than sixty (60) days after receipt of the request of the Initiating
Holders, and, provided further, that (except as provided in clause (C) above)
the Company shall not defer its obligation in this manner more than once in any
twelve-month period.
The registration statement filed pursuant to the request of the
Initiating Holders may, subject to the provisions of Sections 1.2(d) and 1.16
hereof, include other securities of the Company and may include securities of
the Company being sold for the account of the Company.
(c) UNDERWRITING. If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
Section 1.2 and the Company shall include such information in the written notice
referred to in Section 1.2(a)(i) above. The right of any Holder to registration
pursuant to Section 1.2 shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's Registrable Securities in
the underwriting (unless otherwise mutually agreed by a majority in interest of
the Initiating Holders and such Holder with respect to such participation and
inclusion) to the extent provided herein.
(d) PROCEDURES. If the Company shall request inclusion in any
registration pursuant to Section 1.2 of securities being sold for its own
account, or if other Holders shall request inclusion in any registration
pursuant to Section 1.2, the Initiating Holders shall, on behalf of all Holders,
offer to include such securities in the underwriting and may condition such
offer on their acceptance of the further applicable provisions of this Section
1. The Company shall (together with all Holders proposing to distribute their
securities through such underwriting) enter into an underwriting agreement in
customary form with the representative of the underwriter or underwriters
selected for such underwriting by a majority in interest of the Initiating
Holders, which underwriter(s) shall be reasonably acceptable to the Company.
Notwithstanding any other provision of this Section 1.2, if the representative
of the underwriters advises the Initiating Holders in writing that marketing
factors require a limitation on the number of shares to be underwritten, the
number of shares to be included in the underwriting or registration shall be
allocated as set forth in Section 1.16 hereof. If a Holder who has requested
inclusion in such registration as provided above does not agree to the terms of
any such underwriting, such Holder shall be excluded therefrom by written notice
from the Company, the underwriter or the Initiating Holders. The securities so
excluded pursuant to Section 1.16 shall also be withdrawn from registration. Any
Registrable Securities or other securities excluded shall also be withdrawn from
such registration. If shares are so withdrawn from the registration and if the
number of shares to be included in such registration was previously reduced as a
result of marketing factors pursuant to this Section 1.2(d), then the Company
shall offer to all Holders who have retained rights to include securities in the
registration the right to include additional securities in the registration in
an aggregate amount equal to the number of shares withdrawn,
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with such shares to be allocated among such Holders requesting additional
inclusion in accordance with Section 1.16.
1.3 COMPANY REGISTRATION.
(a) If the Company shall determine to register any of its
securities either for its own account or the account of a security holder or
holders exercising their respective demand registration rights (other than
pursuant to Section 1.2 hereof), other than a registration relating solely to
employee benefit plans, or a registration relating solely to a Commission Rule
145 transaction, or a registration on any registration form which does not
permit secondary sales, the Company will:
(i) promptly give to each Holder written notice thereof; and
(ii) use its best efforts to include in such registration (and
any related qualification under blue sky laws or other compliance), except as
set forth in Section 1.3(b) below, and in any underwriting involved therein, all
the Registrable Securities specified in a written request or requests, made by
any Holder within twenty (20) days after the written notice from the Company
described in clause (i) above is effective. Such written request may specify all
or part of a Holder's Registrable Securities.
(b) UNDERWRITING. If the registration of which the Company gives
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 1.3(a)(i). In such event the right of any Holder to
registration pursuant to Section 1.3 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
(together with the Company and the holders of other securities of the Company
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the representative of the
underwriter or underwriters selected by the Company.
Notwithstanding any other provision of this Section 1.3, if the
representative of the underwriters advises the Company in writing that marketing
factors require a limitation on the number of shares to be underwritten, the
representative may (subject to the limitations set forth below) exclude all
Registrable Securities from, or limit the number of Registrable Securities to be
included in, the registration and underwriting. The Company shall so advise all
Holders of securities requesting registration, and the number of shares of
securities that are entitled to be included in the registration and underwriting
shall be allocated as set forth in Section 1.15 or 1.16, as applicable. If any
Holder does not agree to the terms of any such underwriting, such Holder shall
be excluded therefrom by written notice from the Company or the underwriter. Any
Registrable Securities or other securities excluded or withdrawn from such
underwriting shall be withdrawn from such registration.
If shares are so withdrawn from the registration or if the number of
shares of Registrable Securities to be included in such registration was
previously reduced as a result of marketing factors, the Company shall then
offer to all persons who have retained the right to include
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securities in the registration the right to include additional securities in the
registration in an aggregate amount equal to the number of shares so withdrawn,
with such shares to be allocated among the persons requesting additional
inclusion in accordance with Section 1.15 or 1.16, as applicable hereof.
1.4 EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to
Section 1.2 hereof shall be borne by the Company, and reasonable fees and
expenses of one counsel for the selling shareholders shall also be borne by the
Company. All Registration Expenses incurred in connection with any registration,
qualification or compliance pursuant to Section 1.3 hereof shall be borne by the
Company, and reasonable fees and expenses of one counsel for the selling
shareholders shall also be borne by the Company. Registration Expenses incurred
in connection with any registration, qualification or compliance pursuant to
Section 1.5 hereof and reasonable fees and expenses of one counsel for the
selling shareholders shall be borne by the Company. All Selling Expenses
relating to securities so registered shall be borne by the holders of such
securities pro rata on the basis of the number of shares of securities so
registered on their behalf.
1.5 REGISTRATION ON FORM S-3.
(a) After its initial public offering, the Company shall use its
best efforts to qualify for registration on Form S-3 or any comparable or
successor form or forms. After the Company has qualified for the use of Form
S-3, in addition to the rights contained in the foregoing provisions of this
Section 1, the Holders of Registrable Securities shall have the right to request
one registration on Form S-3 per annum (such requests shall be in writing and
shall state the number of shares of Registrable Securities to be disposed of and
the intended methods of disposition of such shares by such Holder or Holders),
provided, however, that the Company shall not be obligated to effect any such
registration if (i) the Holders, together with the holders of any other
securities of the Company entitled to inclusion in such registration, propose to
sell Registrable Securities and such other securities (if any) on Form S-3 at an
aggregate price to the public of less than $2,000,000, or (ii) in the event that
the Company shall furnish the certification described in paragraph 1.2(b) (but
subject to the limitations set forth therein) or (iii) in a given twelve-month
period, after the Company has effected two (2) such registration in any such
period.
(b) If a request complying with the requirements of Section 1.5(a)
hereof is delivered to the Company, the provisions of Sections 1.2(a)(i) and
(ii) and Section 1.2(b) hereof shall apply to such registration. If the
registration is for an underwritten offering, the provisions of Sections 1.2(c)
and 1.2(d) hereof shall also apply to such registration.
1.6 REGISTRATION PROCEDURES. In the case of each registration effected
by the Company pursuant to Section 1, the Company will keep each Holder advised
in writing as to the initiation of each registration and as to the completion
thereof. At its expense, the Company will use its best efforts to:
(a) Keep such registration effective for a period of one hundred
twenty (120) days or until the Holder or Holders have completed the distribution
described in the registration statement relating thereto, whichever first
occurs; provided, however, that (i) such 120-day
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period shall be extended for a period of time equal to the period the Holder
refrains from selling any securities included in such registration at the
request of an underwriter of Common Stock (or other securities) of the Company;
and (ii) in the case of any registration of Registrable Securities on Form S-3
which are intended to be offered on a continuous or delayed basis, such 120-day
period shall be extended, if necessary, to keep the registration statement
effective until all such Registrable Securities are sold, provided that Rule
415, or any successor rule under the Securities Act, permits an offering on a
continuous or delayed basis, and provided further that applicable rules under
the Securities Act governing the obligation to file a post-effective amendment
permit, in lieu of filing a post-effective amendment which (I) includes any
prospectus required by Section 10(a)(3) of the Securities Act or (II) reflects
facts or events representing a material or fundamental change in the information
set forth in the registration statement, the incorporation by reference of
information required to be included in (I) and (II) above to be contained in
periodic reports filed pursuant to Section 13 or 15(d) of the Exchange Act in
the registration statement;
(b) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement;
(c) Furnish such number of prospectuses and other documents
incident thereto, including any amendment of or supplement to the prospectus, as
a Holder from time to time may reasonably request;
(d) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange on which similar securities
issued by the Company are then listed;
(e) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration;
(f) Otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its security
holders, as soon as reasonably practicable, an earnings statement covering the
period of at least twelve months, but not more than eighteen months, beginning
with the first month after the effective date of the Registration Statement,
which earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act; and
(g) In connection with any underwritten offering pursuant to a
registration statement filed pursuant to Section 1.2 hereof, the Company will
enter into an underwriting agreement reasonably necessary to effect the offer
and sale of Common Stock, provided such underwriting agreement contains
customary underwriting provisions and provided further that if the underwriter
so requests the underwriting agreement will contain customary contribution
provisions.
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(h) Furnish, at the request of any Holder, on the date that the
Common Stock is delivered to the underwriters for sale in connection with a
registration being sold through underwriters, (i) an opinion, if any, dated such
date, of the counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to underwriters in
an underwritten public offering, addressed to the underwriters and to the
Holders and (ii) a letter dated such date, from the independent certified public
accountants of the Company, in form and substance as is customarily given by
independent certified public accountants to underwriters in an underwritten
public offering, addressed to the underwriters, if any, and to the Holders
requesting registration of Registrable Securities.
1.7 INDEMNIFICATION.
(a) The Company will indemnify each Holder, each of its officers,
directors and partners, legal counsel and accountants and each person
controlling such Holder within the meaning of Section 15 of the Securities Act,
with respect to which registration, qualification or compliance has been
effected pursuant to this Section 1, and each underwriter, if any, and each
person who controls within the meaning of Section 15 of the Securities Act any
underwriter, against all expenses, claims, losses, damages and liabilities (or
actions, proceedings or settlements in respect thereof) arising out of or based
on any untrue statement of a material fact contained in any prospectus, offering
circular or other document (including any related registration statement,
notification or the like) incident to any such registration, qualification or
compliance, or based on any omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
or any violation by the Company of the Securities Act or any rule or regulation
thereunder, applicable to the Company and relating to action or inaction
required of the Company in connection with any such registration, qualification
or compliance, and will reimburse each such Holder, each of its officers,
directors, partners, legal counsel and accountants and each person controlling
such Holder, each such underwriter and each person who controls any such
underwriter, for any legal and any other expenses reasonably incurred in
connection with investigating and defending or settling any such claim, loss,
damage, liability or action, provided that the Company will not be liable in any
such case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission based upon written
information furnished to the Company by such Holder (and regarding such Holder)
or underwriter and stated to be specifically for use therein. It is agreed that
the indemnity agreement contained in this Section 1.7(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Company (which consent
has not been unreasonably withheld).
(b) Each Holder will, if Registrable Securities held by him are
included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its directors,
officers, partners, legal counsel and accountants and each underwriter, if any,
of the Company's securities covered by such a registration statement, each
person who controls the Company or such underwriter within the meaning of
Section 15 of the Securities Act, each other such Holder and each of their
officers, directors and partners, and each person controlling such Holder,
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement of a material fact
contained in any such registration statement, prospectus, offering circular or
other document, or any omission
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to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, and will reimburse the Company and
such Holders, directors, officers, partners, legal counsel and accountants,
persons, underwriters or control persons for any legal or any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action, in each case to the extent, but only
to the extent, that such untrue statement or omission is made in such
registration statement, prospectus, offering circular or other document in
reliance upon and in conformity with written information regarding such Holder
furnished to the Company by such Holder specifically for inclusion therein;
provided, however, that the obligations of such Holder hereunder (i) shall not
apply to amounts paid in settlement of any such claims, losses, damages or
liabilities (or actions in respect thereof) if such settlement is effected
without the consent of such Holder (which consent shall not be unreasonably
withheld), and (ii) shall be limited in amount to the net proceeds received by
such Holder from the sale of shares pursuant to such registration, qualification
or compliance.
(c) Any person entitled to indemnification hereunder (an
"Indemnified Party") will (i) give prompt written notice to the party required
to provide indemnification (an "Indemnifying Party") of any claim with respect
to which it seeks indemnification and (ii) permit such Indemnifying Party to
assume the defense of such claim with counsel reasonably satisfactory to the
Indemnified Party, provided, however, that any person entitled to
indemnification hereunder shall have the right to employ separate counsel and to
participate in the defense of such claim, but the fees and expenses of such
counsel shall be at the expense of such person unless (x) the Indemnifying Party
has agreed in writing to pay such fees or expenses, or (y) the Indemnifying
Party shall have failed to assume the defense of such claim and employ counsel
reasonably satisfactory to such person or (z) in the reasonable judgment of any
such person and the Indemnifying Party, based upon advice of their respective
counsel, a conflict of interest may exist between such person and the
Indemnifying Party with respect to such claims (in which case, if the person
notifies the Indemnifying Party in writing that such person elects to employ
separate counsel at the expense of the Indemnifying Party, the Indemnifying
Party shall not have the right to assume the defense of such claim on behalf of
such person). If such defense is not assumed by the Indemnifying Party, the
Indemnifying Party will not be subject to any liability for any settlement made
without its consent (but such consent will not be unreasonably withheld). No
Indemnifying Party shall consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to the Indemnified Party of a release from all
liability in respect to such claim or litigation without the consent of the
Indemnified Party. The failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its obligations
under this Section 1.7 unless the Indemnifying Party is materially prejudiced
thereby. An Indemnifying Party who is not entitled to, or elects not to, assume
the defense of a claim will not be obligated to pay the fees and expenses of
more than one counsel for all parties indemnified by such Indemnifying Party
with respect to such claim, unless in the reasonable judgment of any Indemnified
Party a conflict of interest may exist between such Indemnified Party and any
other of such Indemnified Parties with respect to such claim, in which event the
Indemnifying Party shall be obligated to pay the fees and expenses of such
additional counsel or counsels. Each Indemnified Party shall furnish such
information regarding itself or the claim in question as an Indemnifying Party
may reasonably request in writing and as shall be reasonably required in
connection with the defense of such claim and litigation resulting therefrom.
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(d) If the indemnification provided for in this Section 1.7 is held
by a court of competent jurisdiction to be unavailable to an Indemnified Party
with respect to any loss, liability, claim, damage or expense referred to
therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified
Party hereunder, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such loss, liability, claim, damage or expense
in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party on the one hand and of the Indemnified Party on the other in
connection with the statements or omissions which resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations, provided, however, that the amount of contribution by such
Indemnifying Party where such Indemnifying Party is a Holder shall be limited to
the net proceeds received by such Holder from the sale of shares pursuant to
such registration, qualification or compliance. The relative fault of the
Indemnifying Party and of the Indemnified Party shall be determined by reference
to, among other things, whether the untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
1.8 INFORMATION BY HOLDER. Each Holder of Registrable Securities shall
furnish to the Company such information regarding such Holder and the
distribution proposed by such Holder as the Company may reasonably request and
as shall be reasonably required in connection with any registration,
qualification or compliance referred to in this Section 1.
1.9 LIMITATIONS ON REGISTRATION OF ISSUES OF SECURITIES. From and after
the date of this Agreement, the Company shall not, without the prior written
consent of a majority in interest of the Holders, enter into any agreement with
any holder or prospective holder of any securities of the Company giving such
holder or prospective holder any registration rights the terms of which are not
subordinate to the rights of the Holders hereunder or which grant such holder or
prospective holder demand registration rights exercisable prior to those of the
Holders under Section 1.2 hereof.
1.10 RULE 144 REPORTING. With a view to making available the benefits
of certain rules and regulations of the Commission which may permit the sale of
the Restricted Securities to the public without registration, the Company agrees
to use its best efforts to:
(a) Make and keep public information available as those terms are
understood and defined in Rule 144 under the Securities Act, at all times from
and after ninety (90) days following the effective date of the first
registration under the Securities Act filed by the Company for an offering of
its securities to the general public; and
(b) File with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act at any time after it has become subject to such reporting
requirements.
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1.11 TRANSFER OR ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause
the Company to register Registrable Securities granted to a Holder by the
Company pursuant to this Section 1 may be transferred or assigned by a Holder to
(i) any transferee or assignee of not less than 200,000 shares of Registrable
Securities (as presently constituted and subject to subsequent adjustments for
stock splits, stock dividends, reverse stock splits and the like), (ii) any
constituent partner or member of a partnership or limited liability company
Holder, respectively, (iii) any direct or indirect subsidiary or parent of a
corporate Holder, (iv) any person, trust or other entity if beneficial ownership
or the power to vote or dispose of the Registrable Securities resides in the
same person after the transfer as immediately prior to such transfer or (v) any
Holder; provided, however, that the Company is given written notice at the time
of or within a reasonable time after such a transfer or assignment, stating the
name and address of said transferee or assignee and identifying the securities
with respect to which such registration rights are being transferred or
assigned, and provided further that the transferee or assignee of such rights
assumes in a written instrument provided to the Company the obligations of such
Holder under this Section 1. For purposes of clause (iv) of the foregoing
sentence, where two or more persons share beneficial ownership or power to vote
or dispose of Registrable Securities and such persons take as transferees a
distributive share equal to all or less than all of the Registrable Securities
to which they shared voting or dispositive power prior to the transfer, with
respect to each such person beneficial ownership or the power to vote or dispose
of the Registrable Securities held by them shall be deemed to reside in the same
person as prior to the transfer. In addition, subject to the approval of the
Board of Directors in its sole discretion, the right to cause the Company to
register Registrable Securities granted to a Holder pursuant to this Section 1
hereof may be assigned or transferred by a Holder to any other transferee who is
an affiliated person or entity of a Holder where such transfer is of the type
intended to be permitted by this Section 1.11. Any transferee or assignee under
the foregoing sentence must assume in a written instrument provided to the
Company the obligations of the transferring Holder under this Section 1.
1.12 "MARKET STAND-OFF" AGREEMENT. If requested by the Company and an
underwriter of Common Stock (or other securities) of the Company, an Investor
shall not sell or otherwise transfer or dispose of any Common Stock (or other
securities) of the Company held by such Investor (other than those included in
the registration) during the one hundred eighty (180) day period following the
effective date of a registration statement of the Company filed under the
Securities Act, provided that all officers, directors and 5% shareholders of the
Company, who are not parties to this Agreement, enter into similar agreements.
The obligations described in this Section 1.12 shall not apply to a
registration relating solely to employee benefit plans on Form S-1 or Form S-8
or similar forms which may be promulgated in the future, or a registration
relating solely to a Commission Rule 145 transaction on Form S-4 or similar
forms which may be promulgated in the future. The Company may impose
stop-transfer instructions with respect to the shares (or securities) subject to
the foregoing restriction until the end of said one hundred eighty (180) day
period.
1.13 DELAY OF REGISTRATION. No Holder shall have any right to take any
action to restrain, enjoin, or otherwise delay any registration as the result of
any controversy that might arise with respect to the interpretation or
implementation of this Section 1.
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1.14 TERMINATION OF REGISTRATION RIGHTS. The right of any Holder to
request registration or inclusion in any registration pursuant to this Agreement
shall terminate on the date on which all shares of Registrable Securities held
or entitled to be held upon conversion by such Holder may immediately be sold
under Rule 144 during any ninety (90) day period.
1.15 EXCLUSION/ALLOCATION IN AN OFFERING BY THE COMPANY. With respect
to an underwritten public offering pursuant to Section 1.3 and related primarily
to an offering by the Company for its own account, if the total amount of
securities, including Registrable Securities, requested by shareholders to be
included in the offering exceeds the amount of securities that the underwriters
determine in their sole discretion is compatible with the success of the
offering, then the Company shall be required to include in the offering only
that number of securities that the underwriters determine in their sole
discretion will not jeopardize the offering, in the following order of priority:
(i) first, securities to be offered by the Company for its own account and (ii)
second, Registrable Securities held by the Holders requesting inclusion of
Registrable Securities in the offering, based on their pro rata portion of all
Registrable Securities requested to be included in the offering. For purposes of
the preceding parenthetical concerning apportionment, for any selling
shareholder which is a Holder of Registrable Securities and which is a
partnership or corporation, the partners, retired partners and shareholders of
such holder, or the estates and family members of any such partners and retired
partners and any trusts for the benefit of any of the foregoing persons shall be
deemed to be a single "selling shareholder," and any pro-rata reduction with
respect to such "selling shareholder" shall be based upon the aggregate amount
of shares carrying registration rights owned by all entities and individuals
included in such "selling shareholder," as defined in this sentence.
Notwithstanding the foregoing, in no event shall the amount of securities of
selling holders included in such offering be reduced below twenty-five percent
(25%) of the total amount of securities included in such offering unless such
offering is the Company's initial public offering.
1.16 EXCLUSION/ALLOCATION IN AN OFFERING BY HOLDERS. With respect to an
underwritten public offering (i) pursuant to Section 1.2 or 1.5 or (ii) pursuant
to Section 1.3 and related primarily to an offering by any person other than the
Company for its own account, if the total amount of securities requested to be
included in the offering exceeds the amount of securities that the underwriters
determine in their sole discretion is compatible with the success of the
offering, then there will be included in the offering only that number of
securities that the underwriters determine in their sole discretion will not
jeopardize the offering, in the following order of priority: (i) first,
Registrable Securities held by the Holders requesting inclusion of Registrable
Securities in the offering, based on their pro rata portion of all Registrable
Securities requested to be included in the offering; (ii) second, securities to
be offered by the Company for its own account; and (iii) third, any securities
held by a person who is not a Holder.
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SECTION 2
COVENANTS OF THE COMPANY
2.1 DELIVERY OF FINANCIAL STATEMENTS. The Company shall deliver to each
Material Investor:
(a) as soon as practicable, but in any event within ninety (90)
days after the end of each fiscal year of the Company, an income statement for
such fiscal year, a balance sheet of the Company and statement of shareholder's
equity as of the end of such year, and a statement of cash flows, such year-end
financial reports to be in reasonable detail, unaudited but prepared in
accordance with generally accepted accounting principles;
(b) as soon as practicable, but in any event within forty-five (45)
days after the end of each of the first three (3) quarters of each fiscal year
of the Company, an unaudited profit or loss statement, statement of cash flows
for such fiscal quarter and an unaudited balance sheet as of the end of such
fiscal quarter;
(c) annually as soon as practicable (but in any event at least
thirty (30) days prior to the commencement of each fiscal year of the Company)
the financial and operating plan of the Company, in such manner and form as
approved by the Board of Directors of the Company, which financial and operating
plan shall include a projection of income and a projected cash flow statement
for such fiscal year and a projected balance sheet as of the end of such fiscal
year.
2.2 INSPECTION. The Company shall permit each Material Investor, at
such Material Investor's expense, to visit and inspect the Company's properties,
to examine its books of account and records and to discuss the Company's
affairs, finances and accounts with its officers, all at such reasonable times
as may be requested by the Material Investor; provided, however, that the
Company shall not be obligated pursuant to this Section 2.2 to provide access to
any information which it reasonably considers to be a trade secret or similar
confidential information.
2.3 RIGHT OF FIRST REFUSAL. The Company hereby grants to each Material
Investor the right of first refusal to purchase a pro rata share of New
Securities (as defined in this Section 2.3) which the Company may, from time to
time, propose to sell and issue. For purposes of applying this Section 2.3, the
holdings of a Material Investor shall be deemed to include shares held by
entities who are controlled by or are under common control with the Material
Investor (a "Material Investor Affiliate"). A Material Investor's pro rata
share, for purposes of this right of first refusal, is the ratio of the number
of shares of Common Stock owned by such Material Investor, including shares
owned by such Material Investor's Affiliate(s), immediately prior to the
issuance of New Securities, assuming full conversion of the Preferred Shares and
the exercise of all Warrants, to the total number of shares of Common Stock
outstanding immediately prior to the issuance of New Securities, assuming full
conversion of the Preferred Shares and the exercise of all Warrants; provided,
however, that in the event two or more Material Investors have a common Material
Investor Affiliate, the shares owned by any Material Investor Affiliate may only
be counted once for purposes of determining pro rata ownership. Each Material
Investor shall have a right of over-allotment such that if any Material Investor
fails to exercise its right
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hereunder to purchase its pro rata share of New Securities, the other
Material Investors may purchase the non-purchasing Material Investor's portion
on a pro rata basis within five (5) days from the date such non-purchasing
Material Investor fails to exercise its right hereunder to purchase its pro rata
share of New Securities. This right of first refusal shall be subject to the
following provisions:
(a) "NEW SECURITIES" shall mean any capital stock (including Common
Stock and/or Preferred Stock) of the Company whether now authorized or not, and
rights, options or warrants to purchase such capital stock, and securities of
any type whatsoever that are, or may become, convertible into capital stock;
provided that the term "New Securities" does not include (i) the Preferred
Shares or the Warrants or securities issued upon conversion of the Preferred
Shares or the exercise of the Warrants; (ii) Securities issued upon conversion
of the AMT Convertible Note; (iii) any borrowings, direct or indirect, from
financial institutions or other persons by the Company, whether or not presently
authorized, including any type of loan or payment evidenced by any type of debt
instrument, including, without limitation, the debt instruments between the
Company and Silicon Valley Bank, provided such borrowings do not have any equity
features including warrants, options or other rights to purchase capital stock
and are not convertible into capital stock of the Company except for the
warrants to purchase stock from the Company in favor of Silicon Valley Bank with
respect to 48,000 shares of Series D Preferred Stock and 20,000 shares of Series
E Preferred Stock or securities issued upon exercise thereof; (iv) securities
issued to employees, consultants, officers or directors of the Company pursuant
to any stock option, stock purchase or stock bonus plan, agreement or other
compensation plan or arrangement approved by the Board of Directors; (iv)
securities issued in a firm commitment underwritten public offering pursuant to
a registration under the Securities Act provided that such public offering is a
Qualified IPO; (v) securities issued as consideration in connection with any
stock split, stock dividend or recapitalization of the Company; (vi) securities
issued in connection with a merger or acquisition transaction provided, that (1)
with respect to securities issued in connection with any such merger or
acquisition transaction, subject to subpart (2) below, upon completion of a such
merger the relative shareholdings of the Crossroads Parties (including options
and other rights to acquire an interest) in the surviving merged company shall
be in the same proportion to Wi-LAN's shareholdings in such merged company that
the Crossroads Parties' shareholdings (including options and other rights to
acquire an interest) were to Wi-LAN's shareholdings in the entity just prior to
the merger or acquisition, and (2) the interest of the Crossroads Parties may be
increased from that contemplated in subpart (1) above by virtue of the holding
of one or more of the Crossroads Parties, prior to the merger or acquisition, of
not more than 5% of the equity of the other party to the merger or acquisition
and provided, that in the aggregate of all such transactions and the Merger, the
relative proportionate interests of the Crossroads Parties to Wi-LAN in any
merged entity will not change by more than 20% of their proportionate interests
as of the Restructuring Date; (vii) Common Stock issued to a TRW, Inc. pursuant
to a License Agreement between the Company and TRW, Inc. dated as of January 14,
2000 and (viii) any right, option or warrant to acquire any security convertible
into the securities excluded from the definition of New Securities pursuant to
subsections (i) through (vi) above.
(b) In the event the Company proposes to undertake an issuance of
New Securities, it shall give each Material Investor written notice of its
intention, describing the type of New Securities, and their price and the
general terms upon which the Company proposes to
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issue the same. Each Material Investor shall have fifteen (15) days after any
such notice is effective to notify the Company of its desire to purchase such
Material Investor's pro rata share of such New Securities (a "Participating
Purchaser") for the price and upon the terms specified in the notice and such
Material Investor shall also state the quantity of New Securities to be
purchased (and include the proposed terms of financing for such participation if
such financing is required); provided, however, that the Material Investor shall
not be required to complete the purchase of its pro-rata share of New
Securities, if at all, until sixty (60) days after the effectiveness of
Company's original notice; provided further, that if, after a good faith effort,
the Material Investor is unable to raise the financing necessary to purchase its
pro-rata share of the New Securities, such notice shall not be binding on such
Material Investor. Upon the expiration of the sixty (60) day period specified in
the previous sentence, the Company shall give notice to each Participating
Purchaser, specifying the number of New Securities available for over-allotment
to Participating Purchasers (the "Over-allotment Securities"). Each
Participating Purchaser shall have five (5) business days after any such notice
is effective to agree to purchase such Participating Purchaser's pro rata share
of the Over-allotment Securities by giving written notice to the Company and
stating therein the number of Over-allotment Securities to be purchased.
(c) In the event the Material Investors fail to exercise fully the
right of first refusal within said sixty (60) day period and after the
expiration of the five (5) business days allowed for the exercise of the
over-allotment provisions of this Section 2.3, the Company shall have ninety
(90) days thereafter to sell or enter into an agreement (pursuant to which the
sale of New Securities covered thereby shall be closed, if at all, within ninety
(90) days from the date of said agreement) to sell the New Securities respecting
which the Material Investors' right of first refusal option set forth in this
Section 2.3 was not exercised, at a price and upon terms no more favorable to
the purchasers thereof than specified in the Company's notice to Material
Investors pursuant to Section 2.3(b). In the event the Company has not sold
within said 90 day period or entered into an agreement to sell the New
Securities within said 90 day period (or sold and issued New Securities in
accordance with the foregoing within ninety (90) days from the date of said
agreement), the Company shall not thereafter issue or sell any New Securities,
without first again offering such securities to the Material Investors in the
manner provided in Section 2.3(b) above.
(d) The right of first refusal granted under this Agreement shall
expire upon, and shall not be applicable to, the first sale of Common Stock of
the Company to the public effected pursuant to a registration statement filed
with, and declared effective by, the Commission under the Securities Act
provided that such sale is a Qualified IPO.
(e) The right of first refusal set forth in this Section 2.3 may
not be assigned or transferred, except in a transfer permitted by Section 1.11.
2.4 TERMINATION OF COVENANTS. The covenants set forth in this Sections
2.1 and 2.2 shall terminate and be of no further force and effect after the time
of effectiveness of the Company's first firm commitment underwritten public
offering registered under the Securities Act or when the Company first becomes
subject to the periodic reporting requirements of Sections 12(g) or 15(d) of the
Exchange Act, whichever event shall occur first.
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SECTION 3
RESTRICTIONS ON TRANSFER OF SECURITIES
3.1 TRANSFER OF SECURITIES. Subject to the provisions of Section 3.2
hereof and subject to the rights granted to Wi-LAN pursuant to that certain
Third Amended and Restated Shareholders' Rights Agreement, dated as of June 3,
1998, (a) no Crossroads Investor may sell, assign, pledge or otherwise transfer
(a "Transfer") any interest in any Securities held by such Crossroads Investors
(the "Crossroads Securities"), either voluntarily or involuntarily, by operation
of law or otherwise, except (i) to such Crossroads Investor's Family Members,
provided that such Crossroads Investor retains voting control over the
transferred Crossroads Securities, (ii) to such Crossroads Investor's Personal
Representative, (iii) pursuant to a Third Party Sale subject to the provisions
of Sections 3.2 and 3.3 hereof or (iv) pursuant to a Public Sale; provided that,
in each case, (A) no Event of Default under (and as defined in) the Series E
Purchase Agreement would occur as a result of any such transfer, (B) the
restrictions contained in this Section 3 will continue to be applicable to any
transferee of Crossroads Securities by any Crossroads Investor pursuant to this
Section 3.1, and (C) the transferee of such Crossroads Securities pursuant to
clause (B) above shall have executed and delivered an Instrument of Accession as
a condition precedent to the transfer thereof.
3.2 FIRST RIGHT OF PURCHASE. (a) Subject to the provisions of Section
3.1 hereof, any Crossroads Investor may Transfer any interest in any Crossroads
Securities pursuant to a Third Party Sale in accordance with the provisions of
this Section 3.2 and Section 3.3. At least 45 days prior to any Third Party
Sale, the transferring Crossroads Investor (the "Transferring Shareholder") will
deliver a written notice (the "Offer Notice") to the Company and to the Series E
Investor Shareholders (the "Non-Transferring Shareholders"). The Offer Notice
will disclose in reasonable detail the proposed number of shares of the
Crossroads Securities to be transferred, the class or classes of such Crossroads
Securities, the proposed price, terms and conditions of the Transfer and the
identity of the transferee. The Non-Transferring Shareholders may elect to
purchase all (but not less than all) of the Crossroads Securities specified in
the Offer Notice at the price and on the terms specified therein by delivering
written notice of such election to the Transferring Shareholder and the Company
within 30 days after the delivery of such Offer Notice (the "Shareholder
Election Period"). If the Non-Transferring Shareholders elect to purchase all of
such Crossroads Securities, the Transfer of the Crossroads Securities will be
consummated within 30 days after the expiration of the Shareholder Election
Period. If more than one Non-Transferring Shareholder elects to purchase all of
the Crossroads Securities to be transferred, each Non-Transferring Shareholder
electing to purchase such Crossroads Securities will be entitled to purchase
from the Transferring Shareholder a pro rata portion (based upon the respective
numbers of shares of Securities then held by such Non-Transferring Shareholders
(on a fully-diluted and converted basis)) of the Crossroads Securities proposed
to be transferred. If the Non-Transferring Shareholders do not elect to purchase
all of the Crossroads Securities being offered, the Transferring Shareholder
may, within 90 days after the expiration of the Shareholder Election Period,
complete the Third Party Sale of the Crossroads Securities specified in the
Offer Notice at a price and on terms no more favorable to the transferees than
the price and terms offered to the Non-Transferring Shareholders in the Offer
Notice, provided that no such Third Party Sale may be completed except in
compliance with Section 3.3 and unless each of such transferees shall have
executed and delivered an Instrument of Accession as a condition
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precedent to the transfer thereof. If the Transferring Shareholder fails to
consummate such Third Party Sale within the 90 day period after the expiration
of the Shareholder Election Period, any subsequent proposed Transfer of the
Crossroads Securities shall be once again subject to the provisions of this
Section 3.2.
3.3. PARTICIPATION RIGHTS. In the event that the Non-Transferring
Shareholders fail to purchase the Crossroads Securities specified in the Offer
Notice, any Series E Investor Shareholder may elect to participate in the
contemplated Third Party Sale by delivering written notice to the Transferring
Shareholder within 15 days after expiration of the Shareholder Election Period.
If a Series E Investor Shareholder elects to participate in such Third Party
Sale, each of the Transferring Shareholder and the Series E Investor
Shareholder(s) will be entitled to sell in the contemplated Third Party Sale, at
the same price and on the same terms, a number of shares of Securities proposed
to be sold equal to the product of (i) the fraction, the numerator of which is
the number of shares of Securities (on a fully-diluted basis) held by such
Person, and the denominator of which is the aggregate number of shares of
Securities (on a fully-diluted basis) owned by the Transferring Shareholder and
the Series E Investor Shareholder(s), MULTIPLIED BY (ii) the number of shares of
Securities (on a fully-diluted basis) to be sold in the contemplated Third Party
Sale.
For example, if the notice from the Transferring Shareholder
contemplated a sale of 100 shares of Securities by the Transferring
Shareholder and the Transferring Shareholder at such time owns 300
shares of Securities, and if a Series E Investor Shareholder elects to
participate in such sale and the Series E Investor Shareholder owns 200
shares of Securities (on a fully-diluted basis), such Transferring
Shareholder would be entitled to sell 60 shares (300/500 x 100 shares)
and the Series E Investor Shareholder would be entitled to sell 40
shares (200/500 x 100 shares).
The Transferring Shareholder will use its best efforts to obtain the agreement
of the prospective transferee(s) to the participation of a Series E Investor
Shareholder in any contemplated Third Party Sale and will not transfer any of
its Securities to the prospective transferee(s) if the prospective transferee(s)
declines to allow the participation of the Series E Investor Shareholder(s) on
the terms specified herein.
3.4 TRANSFERS OF SECURITIES IN BREACH OF THIS AGREEMENT. In the event
of any Transfer of Existing Investor Securities in breach of this Section 3,
commencing immediately upon the date of such attempted Transfer (i) such
Transfer shall be void and of no effect, (ii) no dividend of any kind or any
distribution pursuant to any liquidation, redemption or otherwise shall be paid
by the Company to the purported transferee in respect of such Existing Investor
Securities (all such rights to payment by the transferring Shareholder and/or
the purported transferee being deemed waived), (iii) the voting rights of such
Existing Investor Securities, if any, shall terminate, and (iv) neither the
transferring Shareholder nor the purported transferee shall be entitled to
exercise any rights with respect to such Existing Investor Securities until such
Transfer in breach of this Agreement has been rescinded.
3.5 TERMINATION. The provisions of this Section 3 shall terminate and
be of no further force and effect after the time of effectiveness of the
Company's Qualified IPO.
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SECTION 4
BOARD OF DIRECTORS
4.1 BOARD OF DIRECTORS; VOTING AGREEMENTS. (a) Subject to adjustment as
provided below, in any and all elections of directors of the Company (whether at
a meeting or by written consent in lieu of a meeting), each of the undersigned
Holders, to the extent that such Holder has voting rights, shall vote, or cause
to be voted, or cause such Holder's designees as directors to vote, all
Securities, owned by such Holder or over which such Holder has voting control,
so as to fix the number of directors of such Company at nine (9), and to
nominate and elect four (4) directors of such Company as follows:
(i) One (1) individual designated by GMN Investors II, L.P., so
long as GMN Investors II, L.P. or its Affiliates hold any Securities and
thereafter by the Majority Holders;
(ii) One (1) individual designated by Stratford Equity Partners,
L.P., so long as Stratford Equity Partners, L.P. or its Affiliates hold any
Securities and thereafter by the Majority Holders;
(iii) One (1) individual designated by DynaFund, L.P. and DynaFund
International, L.P. (together, the "DynaFund Entities") for so long as the
DynaFund Entities hold at least 200,000 Common Shares and thereafter by the
Majority Holders; and
(iv) One (1) individual designated by TRW, Inc. for so long as TRW
and/or its Affiliates hold at least 2,500,000 Common Shares (subject to
appropriate adjustment in the event of any stock dividend, stock split,
combination or other similar recapitalization affecting such shares) or
securities of the Company which may be converted into at least 2,500,000 Common
Shares (subject to appropriate adjustment in the event of any stock dividend,
stock split, combination or other similar recapitalization affecting such
shares); provided, however, that it shall no longer be so entitled upon such
time as the holders of Common Shares and securities which may be converted into
or exercised for Common Shares on the date hereof no longer hold 51% of the
total Common Shares, assuming for all purposes that securities which may be
converted into or exercised for Common Shares are fully converted or exercised.
If an Investor or the Majority Holders with designation rights as set
forth immediately above, as applicable, choose not to designate a director or
directors of the Company as provided above, the number of directors of such
Company shall be reduced accordingly until such time as such Investor or the
Majority Holders, as applicable, exercise their rights as provided above, at
which time the number of directors of such Company shall be increased
accordingly.
(b) If any vacancy shall occur in the Board of Directors of the Company
as a result of death, disability, resignation or any other termination of a
director, the replacement for such vacating director shall be designated by the
Person or Persons who, pursuant to Section 4.1(a) above, originally designated
such vacating director. Each Person or Persons entitled to designate a director
or a replacement for a director pursuant to this Section 4 shall also be
entitled to designate the removal of such director with or without cause. Each
Holder agrees to vote, or to cause to be voted, all voting securities owned by
such Holder, or over which such Holder has voting control, in order to comply
with this Section 4.1.
22
<PAGE>
4.2 PROXY. Each undersigned Holder hereby grants to the Company, as
applicable, an irrevocable proxy, coupled with an interest, to vote all voting
Securities held by such Person to the extent necessary to carry out the
provisions of this Section 4 in the event of any breach by such Person of its
obligations under the voting agreement contained herein.
4.3 TERMINATION. The provisions of this Section 4 shall terminate and
be of no further force and effect after the time of effectiveness of the
Company's Qualified IPO.
SECTION 5
ADDITIONAL LEGEND
So long as any New Investor Securities are subject to the provisions of
this Agreement, all certificates or instruments representing New Investor
Securities will have imprinted on them the following legend:
The shares represented by this certificate are subject to the
terms of a certain Sixth Amended and Restated Investors' Rights
Agreement, dated as of January 14, 2000, among the issuer of this
certificate and certain investors. Such Agreement contains certain
restrictive provisions relating to the voting and transfer of shares of
the stock represented hereby. A copy of such Agreement is on file at
the Company's principal offices. Upon written request to the Company's
Secretary, a copy of such Agreement will be provided without charge to
appropriately interested persons.
SECTION 6
TRANSFEREE STOCKHOLDERS
The undersigned Holders will not Transfer any Securities to
any Person, unless the transferee of such Securities shall have first
executed an Instrument of Accession.
23
<PAGE>
SECTION 7
REMEDIES
The undersigned Holders will be entitled to enforce their rights under
this Agreement specifically (without posting a bond or other security), to
recover damages by reason of any breach of any provision of this Agreement and
to exercise all other rights existing in their favor. The parties hereto agree
and acknowledge that money damages may not be an adequate remedy for any breach
of the provisions of this Agreement and that any undersigned Holder may in its
sole discretion apply to any court of law or equity of competent jurisdiction
for specific performance and/or injunctive relief in order to enforce or prevent
any violation of the provisions of this Agreement. In the event of any dispute
involving the terms of this Agreement, the prevailing party shall be entitled to
collect reasonable fees and expenses incurred by the prevailing party in
connection with such dispute from the other parties to such dispute.
SECTION 8
TERMINATION OF PRIOR AGREEMENT
The Prior Agreement shall be superseded by this Agreement, shall
terminate and shall be of no further force or effect as of the Closing.
SECTION 9
MISCELLANEOUS
9.1 GOVERNING LAW. This Agreement shall be governed in all respects by
and construed in accordance with the laws of the State of California as if
entered into by and between California residents exclusively for performance
entirely within California.
9.2 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto, including, without limitation, any successor corporation of the
Company, following any amalgamation, merger or similar transaction.
9.3 ENTIRE AGREEMENT; AMENDMENT; WAIVER. This Agreement (including the
Exhibits hereto) constitutes the full and entire understanding and agreement
between the parties with regard to the subject matter hereof. Neither this
Agreement nor any term hereof may be amended, waived, discharged or terminated,
except by a written instrument signed by the Company and the holders of at least
sixty-six percent (66%) of the Registrable Securities, at least fifty-one
percent (51%) of the Series E Investor Securities and at least fifty-one percent
(51%) of the Series F Preferred Stock and any such amendment, waiver, discharge
or termination shall be binding on all the Holders, but in no event shall the
obligation of any Holder hereunder be materially increased, except upon the
written consent of such Holder.
9.4 NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing and shall be telecopied, sent by
nationally-recognized overnight courier or mailed by registered of certified
mail (return receipt requested), postage prepaid, or
24
<PAGE>
delivered personally addressed by hand or special courier (a) if to an
Investor, as indicated on the signature pages hereto, or at such other
address as such Investor or permitted assignee shall have furnished to the
Company in writing, or (b) if to the Company, at its headquarters, 19 Davis
Drive, Belmont, California 94002, or at such other address as the Company shall
have furnished to each Holder in writing. All such notices and other written
communications shall be effective (i) if mailed, ten (10) days after mailing and
(ii) if delivered personally or by telecopier, upon delivery, and (iii) in the
case of a nationally-recognized overnight courier, two (2) business days after
the day when sent.
9.5 SEPARABILITY. In case any provision of the Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
9.6 INFORMATION CONFIDENTIAL. Each Holder acknowledges that the
information received by them pursuant hereto may be confidential and for its use
only, and it will not use any information designated as confidential by the
Company in violation of the Exchange Act or reproduce, disclose or disseminate
such information to any other person (other than its employees or agents having
a need to know the contents of such information, and its attorneys), except in
connection with the exercise of rights under this Agreement, unless the Company
has made such information available to the public generally or such Holder is
required to disclose such information by a governmental body.
9.7 TITLES AND SUBTITLES. The titles of the paragraphs and
subparagraphs of this Agreement are for convenience of reference only and are
not to be considered in construing this Agreement.
9.8 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
25
<PAGE>
Schedule 1
INSTRUMENT OF ACCESSION
The undersigned, ____________________, in order to become the owner or
holder of [a warrant/an option to purchase/Securities convertible into] ________
shares of Common Stock (the "Shares") of Wireless, Inc., a California
corporation, hereby agrees to become a [New Investor Shareholder/Existing
Investor Shareholder/Series E Investor Shareholder] party to that certain Sixth
Amended and Restated Investors' Rights Agreement, dated as of _________, 2000
(the "Shareholder Agreement"), a copy of which is attached hereto. The
undersigned acknowledges that the Shares constitute shares of [Existing Investor
Securities] [New Investor Securities] [Series E Investor Securities] under and
as defined in the Shareholder Agreement. This Instrument of Accession shall
become a part of such Shareholder Agreement.
[The undersigned also acknowledges that the Shares constitute
Crossroads Securities.]
Executed as of the date set forth below under the laws of the State of
California.
Signature: --------------------------------
Address: ---------------------------------
---------------------------------
---------------------------------
Date: ---------------------------------
Accepted:
WIRELESS, INC.
By: ---------------------------------
Date: -------------------------------
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Sixth Amended
and Restated Investors' Rights Agreement effective as of the day and year first
above written.
WIRELESS, INC.
By:/s/ William J. Palumbo
----------------------------------------
William J. Palumbo
President
WI-LAN INC.
By:
----------------------------------------
Hatam Zaghloul
President and Chief Executive Officer
CROSSROADS VENTURE INVESTORS II, L.P.
By: CROSSROADS VENTURE CAPITAL LLC
Its General Partner
By:/s/ William E. Gibson
----------------------------------------
William E. Gibson
Manager
CROSSROADS VENTURE INVESTORS II, L.P.
By: CROSSROADS VENTURE CAPITAL LLC
Its General Partner
By:/s/ William E. Gibson
----------------------------------------
William E. Gibson
Manager
SIGNATURE PAGE TO SIXTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
GMN INVESTORS II, L.P.
By: GMN INVESTORS LLC,
its general partner
By:/s/ David F. Millet
-----------------------------------
David F. Millet
Managing Director
STRATFORD EQUITY PARTNERS, L.P.
By: STRATFORD CAPITAL GP ASSOCIATES, L.P.,
its general partner
By: STRATFORD CAPITAL CORPORATION,
its general partner
By:/s/ Michael D. Brown
--------------------------------
Name: Michael D. Brown
---------------------------
Title: Managing Director
--------------------------
SIGNATURE PAGE TO SIXTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
INVESTORS IN SERIES D PREFERRED STOCK:
Adtel Limited Partnership
Advent Crown Fund C.V.
Global Private Equity II Limited Partnership
Golden Gate Development and Investment
Limited Partnership
By: Advent International Limited Partnership,
General Partners
By: Advent International Corporation,
General Partners
By: Andrew I. Fillat,
Vice President*
*For all of the above.
/s/ Andrew I. Fillat
------------------------------------------
Andrew I. Fillat
Address: 75 State Street
Boston, MA 02109
SIGNATURE PAGE TO SIXTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
HMS Hawaii Management Partners
By:/s/ William K. Richardson
----------------------------------------
Name: William K. Richardson
--------------------------------------
Title: General Partner
--------------------------------------
Address: 841 Bishop Street
Davies Pacific Center, Suite 650
841 Bishop Street
Honolulu, HI 96813
HMS Hawaii
By: /s/ William K. Richardson
----------------------------------------
Name: William K. Richardson
--------------------------------------
Title: General Partner
-------------------------------------
Address: 841 Bishop Street
Davies Pacific Center, Suite 650
Honolulu, HI 96813
SIGNATURE PAGE TO SIXTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
Digital Microwave Corporation
By: /s/ Carl A. Thomsen
----------------------------------------
Name: Carl A. Thomsen
--------------------------------------
Title: SR VP - CFO
--------------------------------------
Address: 170 Rose Orchard Way
San Jose, CA 95134
SIGNATURE PAGE TO SIXTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
Alta V Limited Partnership
By: Alta V. Management Partners
By:
----------------------------------------
Name: Marino R. Polestra
Title: General Partner
Address: C/O Burr, Egan, Deleage & Co.
One Embarcadero Center, Suite 4050
San Francisco, CA 94111
Customs House Partners
By:
----------------------------------------
Print Name:
---------------------------------
Title:
-------------------------------------
Address: C/O Burr, Egan, Deleage & Co.
One Embarcadero Center, Suite 4050
San Francisco, CA 94111
SIGNATURE PAGE TO SIXTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
CROSSROADS VENTURE CAPITAL LLC
By: /s/ William E. Gibson
----------------------------------------
William E. Gibson, its Managing Member
SIGNATURE PAGE TO SIXTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
Dynamics Technology, Inc.
By: /s/ Richard D. Whiting
----------------------------------------
Print Name: Richard D. Whiting
-------------------------------
Title: Managing Member, DynaFund Ventures, LLC
------------------------------------
Address: 21311 Hawthorne Blvd., Suite 300
Torrance, CA 90503-5602
Dynafund, L.P.
By: /s/ Richard D. Whiting
----------------------------------------
Print Name: Richard D. Whiting
--------------------------------
Title: Managing Member, DynaFund Ventures, LLC
-------------------------------------
Dynafund International
By:/s/ Richard D. Whiting
----------------------------------------
Print Name: Richard D. Whiting
--------------------------------
Title: Managing Member, DynaFund Ventures, LLC
-----------------------------------
SIGNATURE PAGE TO SIXTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
Dougery Ventures, LLC
By: /s/ John R. Dougery
----------------------------------------
Printed Name: John R. Dougery
Title:
------------------------------------
Address: 165 Santa Ana Ave.
San Francisco, CA 94127
/s/ John R. Dougery
-------------------------------------------
John R. Dougery
Address: 165 Santa Ana Ave.
San Francisco, CA 94127
SIGNATURE PAGE TO SIXTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
/s/ John E. Rogers
-------------------------------------------
John E. or Lois A. Rogers
Address: 755 Tonkawa Road
Long Lake, MN 55356
/s/ Henry Wilder
-------------------------------------------
Henry Wilder
Address: 3301 Trip Road
Woodside, CA 94062-3631
--------------------------------------------
Tao Chow
Address: 13495 Country Way
Los Altos Hills, CA 94022
/s/ Angela Raish
-------------------------------------------
Angela Raish
Address: 1338 Key Drive
-----------------------------------
Alexandria, VA 22302-3410
-----------------------------------
-----------------------------------
SIGNATURE PAGE TO SIXTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
Ardax Systems, Inc.
By: /s/ Aram Gharakhanian
----------------------------------------
Printed Name: Aram Gharakhanian
Title: President
--------------------------------------
Address: 906 Center Street
San Carlos, CA 94070
SIGNATURE PAGE TO SIXTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
/s/ Carol Lefcourt
-------------------------------------------
Carol Lefcourt
SIGNATURE PAGE TO SIXTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
Sheridan Ing Partners Hawaii, a Hawaii Limited
Partnership
By:/s/ Richard K. Ing
----------------------------------------
Name: Richard K. Ing
-------------------------------------
Title: Co-Trustee of Sheridan Ing Trust,
Its General Partner
------------------------------------
Address: 841 Bishop Street
Davies Pacific Center, Suite 860
Honolulu, HI 96813
SIGNATURE PAGE TO SIXTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
Aala Produce Inc.
By:/s/ Rodney Tamamoto
----------------------------------------
Name: Rodney Tamamoto
-------------------------------------
Title: President
------------------------------------
Address: 431 N. Nimitz
Honolulu, HI 96817
SIGNATURE PAGE TO SIXTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
FMT Limited Partnership
By: /s/ Franklin M. Tokioka
----------------------------------------
Name: Franklin M. Tokioka II
-------------------------------------
Title: General Partner
------------------------------------
Address: 1022 Bethel Street
Honolulu, HI 96813
SIGNATURE PAGE TO SIXTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
Bali Land Associates
By:/s/ Barry Cheng
----------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
Address: 1188 Bishop Street
Honolulu, HI 96813
SIGNATURE PAGE TO SIXTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
-------------------------------------------
Henry L.B. Wilder
SIGNATURE PAGE TO SIXTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
Dougery Ventures, LLC
By: /s/ John R. Dougery
---------------------------------------
Printed Name: John R. Dougery
Title:
------------------------------------
Address: 165 Santa Ana Ave.
San Francisco, CA 94127
Dougery Revocable Trust, John R. Dougery and
Marilyn R. Dougery, Trustees
By: /s/ John R. Dougery
---------------------------------------
By: /s/ Marilyn R. Dougery
---------------------------------------
/s/ John R. Dougery
-------------------------------------------
John R. Dougery Trustee for the
Shelley Dougery Trust
/s/ John R. Dougery
------------------------------------------
John R. Dougery Trustee for the
John R. Dougery, Jr. Trust
/s/ John R. Dougery
-------------------------------------------
John R. Dougery Trustee for the
Katheryn Ann Dougery Trust
/s/ Marilyn R. Dougery
------------------------------------------
Marilyn R. Dougery Trustee for the Rolapp Trust
/s/ Marilyn R. Dougery
------------------------------------------
Marilyn R. Dougery Trustee for the
Marylin R. Dougery Trust
Address: 165 Santa Ana Ave.
San Francisco, CA 94127
SIGNATURE PAGE TO SIXTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
Wi-LAN Inc.
By:
----------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
Address:
------------------------------------
------------------------------------
------------------------------------
SIGNATURE PAGE TO SIXTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
-------------------------------------------
Michael Hone
<PAGE>
ADVENT INTERNATIONAL CORPORATION
By:/s/ Andrew I. Fillat
----------------------------------------
Andrew I. Fillat
Vice President
SIGNATURE PAGE TO SIXTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
HMS Hawaii
By:
----------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
SIGNATURE PAGE TO SIXTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
/s/ John E. Rogers
-------------------------------------------
John E. Rogers
SIGNATURE PAGE TO SIXTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
AMT CAPITAL, LTD.
By: AMT Capital G.P., Inc., its General Partner
By:
----------------------------------------
Peter N. Walmsley
Chairman of the Board
SIGNATURE PAGE TO SIXTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
CROSSROADS VENTURE INVESTORS VII, L.P.
By: CROSSROADS VENTURE CAPITAL LLC
Its General Partner
By:/s/ William E. Gibson
----------------------------------------
William E. Gibson
Manager
CROSSROADS VENTURE CAPITAL LLC
By:/s/ William E. Gibson
----------------------------------------
William E. Gibson
Manager
William E. Gibson and Kahala Ann Trask Gibson
Charitable Trust
By:/s/ William E. Gibson
----------------------------------------
William E. Gibson, Trustee
SIGNATURE PAGE TO SIXTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
INVESTORS IN SERIES E PREFERRED STOCK:
GMN INVESTORS II, L.P.
By: GMN INVESTORS LLC,
its general partner
By: /s/ David F. Millet
------------------------------------
Name: David F. Millet
Title: Managing Director
SIGNATURE PAGE TO SIXTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
STRATFORD EQUITY PARTNERS, L.P.
By: STRATFORD CAPITAL GP ASSOCIATES, L.P.
its general partner
By: STRATFORD CAPITAL CORPORATION
its general partner
By: /s/ Michael D. Brown
-------------------------------
Name: Michael D. Brown
Title Managing Director
SIGNATURE PAGE TO SIXTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
Adtel Limited Partnership
Advent Crown II Fund C.V.
Global Private Equity II Limited Partnership
By: Advent International Limited Partnership,
General Partners
By: Advent International Corporation,
General Partners
By: /s/ Andrew I. Fillat
--------------------------------
Name: Andrew I. Fillat
Title: Vice President
SIGNATURE PAGE TO SIXTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
CROSSROADS VENTURE INVESTORS, VII, L.P.
By: CROSSROADS VENTURE CAPITAL LLC
Its General Partner
By: /s/ William E. Gibson
----------------------------------------
Name: William E. Gibson
Title: Managing Member
SIGNATURE PAGE TO SIXTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
Digital Microwave Corporation
By: /s/ Carl A. Thomsen
----------------------------------------
Name: Carl A. Thomsen
-----------------------------------
Title: SR VP - CFO
----------------------------------
SIGNATURE PAGE TO SIXTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
Dougery Ventures, LLC
By: /s/ John R. Dougery
----------------------------------------
Name: John R. Dougery
----------------------------------
Title:
----------------------------------
Marilyn Rolapp Dougery, Trustee
By: /s/ Marilyn Rolapp Dougery
----------------------------------------
Dougery Revocable Trust
By: /s/ John R. Dougery
----------------------------------------
By: /s/ Marilyn R. Dougery
----------------------------------------
Rolapp Trust
By: /s/ Marilyn R. Dougery
----------------------------------------
/s/ John R. Dougery
-------------------------------------------
John R. Dougery Trustee for the
Shelley Dougery Trust
/s/ John R. Dougery
------------------------------------------
John R. Dougery Trustee for the
John R. Dougery, Jr. Trust
/s/ John R. Dougery
-------------------------------------------
John R. Dougery Trustee for the
Katheryn Ann Dougery Trust
SIGNATURE PAGE TO SIXTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
HMS Hawaii
By: /s/ William K. Richardson
----------------------------------------
Name: William K. Richardson
-----------------------------------
Title: General Partner of HMS Hawaii
Management Partners, the
General Partner of HMS Hawaii
----------------------------------
SIGNATURE PAGE TO SIXTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
-------------------------------------------
John Rogers
SIGNATURE PAGE TO SIXTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
/s/ Henry Wilder
-------------------------------------------
Henry Wilder
SIGNATURE PAGE TO SIXTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
/s/ Bill Palumbo
-------------------------------------------
Bill Palumbo
SIGNATURE PAGE TO SIXTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
Adtel Limited Partnership
Advent Crown Fund C.V.
Global Private Equity II Limited Partnership
Golden Gate Development and Investment
Limited Partnership
By: Advent International Limited Partnership,
General Partners
By: Advent International Corporation,
General Partners
By: Andrew I. Fillat,
Vice President*
Advent International Investors II Limited
Partnership
By: Advent International Corporation,
General Partner
By: Andrew I. Fillat,
Vice President*
*For all of the above.
/s/ Andrew I. Fillat
-------------------------------------------
Andrew I. Fillat
SIGNATURE PAGE TO SIXTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
HMS (Overseas) Partners
By: /s/ Richard G. Grey
----------------------------------------
Print Name: Richard G. Grey
--------------------------------
Title: General Partners
----------------------------------
HMS Capital Partners (Annex)
By: /s/ Richard G. Grey
----------------------------------------
Print Name: Richard G. Grey
-------------------------------
Title: General Partner
----------------------------------
HMS Capital Partners
By: /s/ Richard G. Grey
----------------------------------------
Print Name: Richard G. Grey
-------------------------------
Title: General Partner
----------------------------------
HMS Group
By: /s/ Richard G. Grey
----------------------------------------
Name: Richard G. Grey
-----------------------------------
Title: General Partner
----------------------------------
SIGNATURE PAGE TO SIXTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
Alta V Limited Partnership
By: Alta V. Management Partners
By: /s/ illegible
----------------------------------------
Title: General Partner
Customs House Partners
By: /s/ Elaine Walker
----------------------------------------
Print Name: Elaine Walker
--------------------------------
Title: Under Power of Attorney
------------------------------------
SIGNATURE PAGE TO SIXTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
MVP Investors L.P.
By: /s/ Michael F. Schiavo
----------------------------------------
Print Name: Michael F. Schiavo
--------------------------------
Title: General Partner
------------------------------------
Address: MVP Ventures
----------------------------------
288 Littleton Rd., Suite 25
----------------------------------
Westford, MA 01886
----------------------------------
Telephone: 978-392-8490
---------------------------------
Facsimile: 978-392-9465
---------------------------------
SIGNATURE PAGE TO SIXTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
Chestnut Capital International III, L.P.
By: MVP Capital Limited Partnership,
Investment General Partner
By: /s/ Michael F. Schiavo
-----------------------------------------
Michael F. Schiavo
General Partner
Late Stage Fund 1990, L.P.
By: MVP Capital Limited Partnership,
Investment General Partner
By: /s/ Michael F. Schiavo
-----------------------------------------
Michael F. Schiavo
General Partner
SIGNATURE PAGE TO SIXTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
Michael Hone, TTEE Mchone Inc. Prft Shrg Pl.
By:
----------------------------------------
Print Name:
--------------------------------
Title:
------------------------------------
Address:
-----------------------------------
-----------------------------------
-----------------------------------
Telephone:
---------------------------------
Facsimile:
---------------------------------
SIGNATURE PAGE TO SIXTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
INVESTORS IN SERIES F PREFERRED STOCK
TRW, Inc.
Signature: /s/ Donald C. Winter
---------------------------------
Print Name: Donald C. Winter
--------------------------------
Title: Executive Vice President
-------------------------------------
Address: 12011 Sunset Hill Road
-----------------------------------
Reston, VA 20190
-----------------------------------
CECAP Wireless Group, LLC
Signature: /s/ John C. Maxwell, III
---------------------------------
Print Name: John C. Maxwell, III
--------------------------------
Title: Managing Director
-------------------------------------
Address: 375 Park Avenue, Suite 1604
-----------------------------------
New York, NY 10152
-----------------------------------
SIGNATURE PAGE TO SIXTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
EXHIBIT 4.4
WARRANT
-------
Right to Purchase Shares of Common Stock
of Wireless, Inc.
This Warrant and any shares acquired upon the exercise of this Warrant have
not been registered under the Securities Act of 1933, as amended, and may not be
sold or transferred in the absence of such registration or an exemption
therefrom under such Act or any applicable state securities laws. Furthermore,
this Warrant and any shares acquired upon the exercise of this Warrant may be
sold or otherwise transferred only in compliance with the conditions specified
in Section 12 of the Securities Purchase Agreement referred to hereinafter,
complete and correct copies of which are available for inspection at the
principal office of Wireless, Inc. and will be furnished without charge to the
holder of this Warrant upon written request.
This Warrant is also subject to certain put rights of the holder hereof set
forth in said Securities Purchase Agreement. This Warrant is issued pursuant to
the Securities Purchase Agreement and if any provision of this Warrant is found
to conflict with the Securities Purchase Agreement, the provisions of the
Securities Purchase Agreement shall prevail.
The shares represented by this certificate are subject to the terms of a
certain Fifth Amended and Restated Investors' Rights Agreement, dated as of even
date herewith, among Wireless, Inc. and certain investors. The Fifth Amended and
Restated Investors' Rights Agreement contains certain restrictive provisions
relating to the voting and transfer of shares of the stock represented thereby.
A copy of the Fifth Amended and Restated Investors' Rights Agreement is on file
at Wireless, Inc.'s principal offices. Upon written request to the Secretary of
Wireless, Inc., a copy of the Fifth Amended and Restated Investors' Rights
Agreement will be provided without charge to appropriately interested persons.
No.
Wireless, Inc.
Common Stock Purchase Warrant
Wireless, Inc., a California corporation (together with any corporation
which shall succeed to or assume the obligations of Wireless, Inc. hereunder,
the "COMPANY"), hereby certifies that, for value received, __________ or its
assigns, is entitled, subject to the terms set forth below, to purchase from the
Company from time to time in accordance with Section 2.2 hereof, until the
termination in full or in part of this Warrant pursuant to Section 2.4 hereof,
up to _____ fully paid and non-assessable shares of Common Stock (as defined in
Section 12 hereof) at an initial purchase price per share of $.75 (such price
per share as adjusted from time to time as provided herein is referred to herein
as the "EXERCISE
<PAGE>
PRICE"). The number of shares of Common Stock for which this Warrant is
exercisable and the Exercise Price are subject to adjustment as provided herein.
This Warrant is issued pursuant to the Securities Purchase Agreement (as
amended and in effect from time to time, the "SECURITIES PURCHASE AGREEMENT"),
dated as of September 30, 1999, among the Company, GMN Investors II, L.P. and
Stratford Equity Partners, L.P. and the other investors listed on Exhibit A
attached thereto, a copy of which is on file at the principal office of the
Company. The holder of this Warrant shall be entitled to all of the benefits
and shall be subject to all of the obligations of the Securities Purchase
Agreement.
1. DEFINITIONS. Terms defined in the Securities Purchase Agreement and not
otherwise defined herein are used herein with the meanings so defined. Certain
terms are used in this Warrant as specifically defined in Section 12 hereof.
2. EXERCISE OF WARRANT.
2.1 EXERCISE. This Warrant may be exercised prior to its expiration
pursuant to Section 2.4 hereof by the holder hereof from time to time in
accordance with Section 2.2, by surrender of this Warrant, with the form of
subscription at the end hereof duly executed by such holder, to the Company at
its principal office, accompanied by payment, by certified or official bank
check payable to the order of the Company or by wire transfer to its account, in
the amount obtained by multiplying the number of shares of Common Stock for
which this Warrant is then being exercised by the Exercise Price then in effect.
In the event the Warrant is not exercised in full, the Company, at its expense,
will forthwith issue and deliver to or upon the order of the holder hereof a new
Warrant or Warrants of like tenor, in the name of the holder hereof or as such
holder (upon payment by such holder of any applicable transfer taxes) may
request, calling in the aggregate on the face or faces thereof for the number of
shares of Common Stock equal (without giving effect to any adjustment therein)
to the number of such shares called for on the face of this Warrant minus the
number of such shares (without giving effect to any adjustment therein) for
which this Warrant shall have been exercised. Upon any exercise of this Warrant,
in whole or in part, the holder hereof may pay the aggregate Exercise Price with
respect to the shares of Common Stock for which this Warrant is then being
exercised (collectively, the "EXERCISE SHARES") by surrendering its rights to a
number of Exercise Shares having a fair market value equal to or greater than
the required aggregate Exercise Price, in which case the holder hereof would
receive the number of Exercise Shares to which it would otherwise be entitled
upon such exercise, less the surrendered shares. For purposes of this Section
2.1, the fair market value of one share of Common Stock shall be equal to (i) in
the event such exercise is being made in connection with the occurrence of a
Capital Transaction, the Repurchase Price of such interest determined in
accordance with Section 13.5 of the Securities Purchase Agreement and (ii) in
all other cases, the Repurchase Price of such interest determined in accordance
with Section 13.4 of the Securities Purchase Agreement.
2.2 WARRANT AGENT. In the event that a bank or trust company shall have
been appointed as trustee for the holder of the Warrant pursuant to Section 6.2
hereof, such bank or trust company shall have all the powers and duties of a
warrant agent appointed pursuant to Section 13
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hereof and shall accept, in its own name for the account of the Company or such
successor entity as may be entitled thereto, all amounts otherwise payable to
the Company or such successor, as the case may be, on exercise of this Warrant
pursuant to this Section 2.
2.3 TERMINATION. This Warrant shall terminate in full upon the earliest to
occur of (i) exercise in full, (ii) the fifth anniversary of the date on which
all shares of the Company's preferred stock owned or held by the Holder of this
Warrant have been redeemed or paid in full (including all accrued and unpaid
dividends thereon) or converted into Common Stock, and (iii) March 31, 2005.
3. PUT OPTION; REGISTRATION RIGHTS. The holder of this Warrant has the option
to require the Company to purchase this Warrant and/or shares of Warrant Stock
at the times and in the manner specified in Section 13 of the Securities
Purchase Agreement. The holder of this Warrant has the right to cause the
Company to register this Warrant, and/or shares of Warrant Stock issued upon
exercise hereof, under the Securities Act and any blue sky or securities laws
of any jurisdictions within the United States at the time and in the manner
specified in the Investors Rights Agreement.
4. DELIVERY OF STOCK CERTIFICATES ON EXERCISE.
4.1 DELIVERY. As soon as practicable after the exercise of this Warrant in
full or in part, and in any event within ten (10) days thereafter, the Company,
at its expense (including the payment by it of any applicable issue taxes),
will cause to be issued in the name of and delivered to the holder hereof, or as
such holder (upon payment by such holder of any applicable transfer taxes) may
direct, a certificate or certificates for the number of fully paid and
non-assessable shares of Common Stock (or Other Securities) to which such holder
shall be entitled on such exercise, together with any other stock or other
securities and property (including cash, where applicable) to which such holder
is entitled upon such exercise.
4.2 FRACTIONAL SHARES. In the event that the exercise of this Warrant, in
full or in part, results in the issuance of any fractional share of Common
Stock, then in such event the holder of this Warrant shall be entitled to cash
equal to the fair market value of such fractional share as determined in good
faith by the Company's Board of Directors.
5. ADJUSTMENT FOR DIVIDENDS, DISTRIBUTIONS AND RECLASSIFICATIONS.
In case at any time or from time to time, the holders of Common Stock shall have
received, or (on or after the record date fixed for the determination of
shareholders eligible to receive) shall have become entitled to receive, without
payment therefor:
(a) other or additional stock, other securities, or property (other
than cash) by way of dividend; or
(b) other or additional (or less) stock or other securities or
property (including cash) by way of spin-off, split-up, reclassification,
recapitalization, combination of shares or similar corporate restructuring;
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OTHER THAN additional shares of Common Stock issued as a stock dividend or in a
stock-split (adjustments in respect of which are provided for in Section 7
hereof), then and in each such case the holder of this Warrant, on the exercise
hereof as provided in Section 2 hereof, shall be entitled to receive the amount
of stock and other securities and property (including cash in the case referred
to in subsection (b) of this Section 5) which such holder would have received
prior to or would have held on the date of such exercise if on the date hereof
it had been the holder of record of the number of shares of Common Stock called
for on the face of this Warrant and had thereafter, during the period from the
date hereof to and including the date of such exercise, retained such shares and
all such other or additional stock and other securities and property (including
cash in the case referred to in subsection (b) of this Section 5) receivable by
such holder as aforesaid during such period, without interest, giving effect to
all further adjustments called for during such period by Sections 6 and 7
hereof.
6. ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, MERGER, ETC.
6.1 CERTAIN ADJUSTMENTS. In case at any time or from time to time, the
Company shall (i) effect a capital reorganization, reclassification or
recapitalization, (ii) consolidate with or merge into any other person, or (iii)
transfer all or substantially all of its properties or assets to any other
person under any plan or arrangement contemplating the dissolution of the
Company, then in each such case, the holder of this Warrant, on the exercise
hereof as provided in Section 2 hereof at any time after the consummation of
such reorganization, recapitalization, consolidation or merger or the effective
date of such dissolution, as the case may be, shall receive, in lieu of the
Common Stock (or Other Securities) issuable on such exercise prior to such
consummation or effective date, the stock and other securities and property
(including cash) to which such holder would have been entitled upon such
consummation or in connection with such dissolution, as the case may be, if such
holder had so exercised this Warrant immediately prior thereto, all subject to
further adjustment thereafter as provided in Sections 5 and 7 hereof.
6.2 APPOINTMENT OF TRUSTEE FOR WARRANT HOLDERS UPON DISSOLUTION. In the
event of any dissolution of the Company following the transfer of all or
substantially all of its properties or assets, the Company, prior to such
dissolution, shall, at its expense, deliver or cause to be delivered the stock
and other securities and property (including cash), where applicable) receivable
by the holders of the Warrant after the effective date of such dissolution
pursuant to this Section 6 to a bank or trust company having its principal
office in Boston, Massachusetts, as trustee for the holder or holders of the
Warrant.
6.3 CONTINUATION OF TERMS. Upon any reorganization, consolidation, merger
or transfer (and any dissolution following any transfer) referred to in this
Section 6, this Warrant shall continue in full force and effect and the terms
hereof shall be applicable to the shares of stock and other securities and
property receivable on the exercise of this Warrant after the consummation of
such reorganization, consolidation or merger or the effective date of
dissolution following any such transfer, as the case may be, and shall be
binding upon the issuer of any such stock or other securities, including, in the
case of any such transfer, the person
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<PAGE>
acquiring all or substantially all of the properties or assets of the Company,
whether or not such person shall have expressly assumed the terms of this
Warrant as provided in Section 8 hereof.
7. ADJUSTMENTS FOR ISSUANCE OF COMMON STOCK AND AMOUNT OF OUTSTANDING COMMON
STOCK.
7.1 GENERAL. If at any time there shall occur any stock split, stock
dividend, reverse stock split or other subdivision of the Company's Common Stock
("STOCK EVENT"), then the number of shares of Common Stock to be received by the
holder of this Warrant shall be appropriately adjusted such that the proportion
of the number of shares issuable hereunder to the total number of shares of the
Company (on a fully diluted basis) prior to such Stock Event is equal to the
proportion of the number of shares issuable hereunder to the total number of
shares of the Company (on a fully-diluted basis) after such Stock Event and the
Exercise Price shall be appropriately adjusted such that the aggregate Exercise
Price for the total number of shares of the Company issuable hereunder prior to
such Stock Event is equal to the aggregate Exercise Price for the total number
of shares of the Company issuable hereunder after such Stock Event; PROVIDED
that in no event will the Exercise Price be less than the par value of the
Common Stock.
7.2 SALE OF COMMON STOCK. If at any time there shall occur any issuance or
sale by the Company of any shares of Common Stock or of any securities
convertible into or exchangeable for shares of Common Stock or any warrants,
options, subscriptions or purchase rights with respect to shares of Common Stock
or securities convertible into or exchangeable for shares of Common Stock (any
of the foregoing events being referred to herein as a "STOCK SALE EVENT" and the
securities issued in connection therewith being referred to herein as "NEW
SECURITIES"), so that (i) the total number of shares of Common Stock of the
Company on a fully-diluted basis immediately following such issuance or sale
exceeds the total number of shares of Common Stock on a fully-diluted basis
immediately following the issuance of the Warrants and (ii) the New Security
Price Per Share (as defined herein) of such newly issued securities is lower
than the then current Warrant Price Per Share (as defined herein), then the
number of shares of Common Stock to be received by the holder of this Warrant
under the unexercised portion of this Warrant shall be increased by multiplying
such number by the Factor (defined below), and the Exercise Price shall be
appropriately adjusted such that the aggregate Exercise Price for the total
number of shares of Common Stock of the Company issuable hereunder prior to such
Stock Sale Event is equal to the aggregate Exercise Price for the total number
of shares of Common Stock of the Company issuable hereunder after such Stock
Sale Event; provided, however, that the foregoing provisions shall not apply to
the issuance of any options or the issuance of any Common Stock upon exercise of
options issued pursuant to the Company's 1997 Stock Option/Stock Issuance Plan
or any shares of Common Stock issued pursuant to the Warrants. The Factor shall
be the quotient obtained by dividing one (1) by a fraction, the numerator of
which is the New Security Price Per Share and the denominator of which is the
Warrant Price Per Share. For purposes hereof, "WARRANT PRICE PER SHARE" shall
mean the "Conversion Price" as defined in the Certificate of Determination of
Preferences and Rights of Series E Preferred Stock of the Company (subject to
adjustment in the event of any stock splits, stock dividends, recapitalizations,
reorganizations and the like with respect to the Common Stock). For purposes
hereof, "NEW SECURITY PRICE PER SHARE"
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<PAGE>
shall mean (a) the sum of (I) the aggregate consideration paid by the purchasers
of the applicable New Securities for such New Securities plus (II) in the case
of any warrants, options, subscriptions or purchase rights with respect to
shares of Common Stock or securities convertible into or exchangeable for shares
of Common Stock, the minimum amount of consideration, if any, payable to the
Company upon exercise, conversion or exchange thereof (provided that, if the New
Securities are issued for no consideration, the consideration paid under this
clause (a) shall be deemed to be $.01 per share), divided by (b) the total
number of shares of Common Stock of the Company issued or sold to such
purchasers or to which such purchasers are entitled to convert the New
Securities.
7.3 OTHER SECURITIES. In case any Other Securities shall have been issued,
or shall then be subject to issue upon the conversion or exchange of any stock
(or Other Securities) of the Company (or any other issuer of Other Securities or
any other entity referred to in Section 6 hereof) or to subscription, purchase
or other acquisition pursuant to any rights or options granted by the Company
(or such other issuer or entity), the holder hereof shall be entitled to receive
upon exercise hereof such amount of Other Securities (in lieu of or in addition
to Common Stock) as is determined in accordance with the terms hereof, treating
all references to Common Stock herein as references to Other Securities to the
extent applicable, and the computations, adjustments and readjustments provided
for in this Section 7 with respect to the number of shares of Common Stock
issuable upon exercise of this Warrant shall be made as nearly as possible in
the manner so provided and applied to determine the amount of Other Securities
from time to time receivable on the exercise of the Warrant, so as to provide
the holder of the Warrant with the benefits intended by this Section 7 and the
other provisions of this Warrant.
8. NO DILUTION OR IMPAIRMENT. The Company will not, by amendment of its Charter
or through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance of performance of any of the terms of this Warrant,
but will at all times in good faith assist in the carrying out of all such terms
and in the taking of all such action as may be necessary or appropriate in order
to protect the rights of the holder of the Warrant as described herein, in the
Securities Purchase Agreement or in any other Related Agreement, against
dilution. Without limiting the generality of the foregoing, the Company (i) will
not increase the par value of any shares of stock receivable on the exercise of
the Warrant above the amount payable therefor on such exercise, (ii) will take
all such action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and non-assessable shares of stock on the
exercise of the Warrant from time to time outstanding, (iii) will not issue any
capital stock of any class which is preferred as to dividends or as to the
distribution of assets upon voluntary or involuntary dissolution, liquidation or
winding up, unless the rights of the holders thereof shall be limited to a fixed
sum or percentage of par value in respect of participation in dividends and in
any such distribution of assets, (iv) will comply in all respects with the
provisions of Sections 6.1 through 6.18 and 7.1 through 7.11 of the Securities
Purchase Agreement except to the extent such compliance may be waived by Section
18 of the Securities Purchase Agreement, and (v) will not transfer all or
substantially all of its properties and assets to any other entity (corporate or
otherwise), or consolidate with or merge into any other entity or permit any
such entity to consolidate with or merge into the Company (if the Company is not
the surviving entity), unless
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<PAGE>
such other entity shall expressly assume in writing and will be bound by all the
terms of this Warrant and the Securities Purchase Agreement.
9. ACCOUNTANTS' CERTIFICATE AS TO ADJUSTMENTS. In each case of any event that
may require any adjustment or readjustment in the shares of Common Stock
issuable on the exercise of this Warrant, the Company at its expense will
promptly prepare a certificate setting forth such adjustment or readjustment, or
stating the reasons why no adjustment or readjustment is being made, and
showing, in detail, the facts upon which any such adjustment or readjustment is
based, including a statement of (i) the number of shares of the Company's Common
Stock then outstanding on a fully diluted basis, and (ii) the number of shares
of Common Stock to be received upon exercise of this Warrant, in effect
immediately prior to such adjustment or readjustment and as adjusted and
readjusted (if required by Section 7) on account thereof. The Company will
forthwith mail a copy of each such certificate to the Majority Holders of the
Warrants, and will, on the written request at any time of the Majority Holders
of the Warrants, furnish to such holders a like certificate setting forth the
calculations used to determine such adjustment or readjustment. At its option,
the Majority Holders of the Warrants may confirm the adjustment noted on the
certificate by causing such adjustment to be computed by an independent
certified public accountant at the expense of the Company.
10. NOTICES OF RECORD DATE. In the event of:
(a) any taking by the Company of a record of the holders of any class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other right;
or
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any transfer of all
or substantially all the assets of the Company to or any consolidation or
merger of the Company with or into any other Person; or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company; or
(d) any proposed issue or grant by the Company of any shares of stock
of any class or any other securities, or any right or option to subscribe
for, purchase or otherwise acquire any shares of stock of any class or any
other securities (other than the issue of Common Stock on the exercise of
this Warrant),
then, and in each such event, the Company will mail or cause to be mailed to the
Majority Holders of the Warrants a notice specifying (i) the date on which any
such record is to be taken for the purpose of such dividend, distribution or
right, and stating the amount and character of such dividend, distribution or
right, (ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
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<PAGE>
winding-up is anticipated to take place, and the time, if any is to be fixed, as
of which the holders of record of Common Stock (or Other Securities) shall be
entitled to exchange their shares of Common Stock (or Other Securities) for
securities or other property deliverable on such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding-up and (iii) the amount and character of any
stock or other securities, or rights or options with respect thereto, proposed
to be issued or granted, the date of such proposed issue or grant and the
persons or class of persons to whom such proposed issue or grant is to be
offered or made. Such notice shall be mailed at least thirty (30) days prior to
the date specified in such notice on which any such action is to be taken.
11. RESERVATION OF STOCK ISSUABLE ON EXERCISE OF WARRANT. The Company will at
all times reserve and keep available, solely for issuance and delivery on the
exercise of this Warrant, a number of shares of Common Stock equal to the total
number of shares of Common Stock from time to time issuable upon exercise of
this Warrant, and from time to time, will take all steps necessary to amend its
Charter to provide sufficient reserves of shares of Common Stock issuable upon
exercise of this Warrant.
12. DEFINITIONS. As used herein the following terms, unless the context
otherwise requires, have the following respective meanings:
12.1 The term COMMON STOCK includes (i) the Company's Common Stock, no par
value per share, (ii) any other capital stock of any class or classes (however
designated) of the Company, the holders of which shall have the right, without
limitation as to amount, either to all or to a share of the balance of current
dividends and liquidating dividends after the payment of dividends and
distributions on any shares entitled to preference, and (iii) any other
securities into which or for which any of the securities described in clauses
(i) or (ii) above have been converted or exchanged pursuant to a plan of
recapitalization, reorganization, merger, sale of assets or otherwise.
12.2 The term OTHER SECURITIES refers to any stock (other than Common
Stock) and other securities of the Company or any other entity (corporate or
otherwise) (i) which the holder of this Warrant at any time shall be entitled to
receive, or shall have received, on the exercise of this Warrant, in lieu of or
in addition to Common Stock, or (ii) which at any time shall be issuable or
shall have been issued in exchange for or in replacement of Common Stock or
Other Securities, in each case pursuant to Section 5 or 6 hereof.
13. WARRANT AGENT. The Company may, by written notice to the holder of this
Warrant, appoint an agent having an office in Boston, Massachusetts for the
purpose of issuing Common Stock on the exercise of this Warrant pursuant to
Section 2 hereof, and exchanging or replacing this Warrant pursuant to the
Securities Purchase Agreement, or any of the foregoing, and thereafter any such
issuance, exchange or replacement, as the case may be, shall be made at such
office by such agent.
14. REMEDIES. The Company stipulates that the remedies at law of the holder of
this Warrant in the event of any default or threatened default by the Company in
the performance of
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or compliance with any of the terms of this Warrant are not and will not be
adequate, and that such terms may be specifically enforced by a decree for the
specific performance of any agreement contained herein or by an injunction
against a violation of any of the terms hereof or otherwise.
15. NOTICES. All notices and other communications from the Company to the
holder of this Warrant shall be mailed by first class registered or certified
mail, postage prepaid, or sent by overnight courier (or sent in the form of a
telex or telecopy) at such address as may have been furnished to the Company in
writing by such holder or, until any such holder furnishes to the Company an
address, then to, and at the adress of, the last holder of this Warrant who has
so furnished an address to the Company.
16. MISCELLANEOUS. In case any provision of this Warrant shall be invalid,
illegal or unenforceable, or partially invalid, illegal or unenforceable, the
provision shall be enforced to the extent, if any, that it may legally be
enforced and the validity, legality and enforceabilty of the remaining
provisions shall not in any way be affected or impaired thereby. This Warrant
and any term hereof may be changed, waived, discharged or terminated only by a
statement in writing signed by the party against which enforcement of such
change, waiver, discharge or termination is sought. This Warrant shall be
governed by and construed in accordance with the domestic substantive laws (and
not the conflict of law rules) of the Commonwealth of Massachusetts. The
headings in this Warrant are for purposes of reference only, and shall not
limit or otherwise affect any of the terms hereof. This Warrant shall take
effect as an instrument under seal.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its
duly authorized officer and its corporate seal to be impressed hereon and
attested by its Secretary.
Dated as of October 10, 1999
WIRELESS, INC.
(Corporate Seal) By:
------------------------------------------
Title:
---------------------------------------
Attest:
- ----------------------------------
Secretary
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FORM OF SUBSCRIPTION
(To be signed only on exercise
of Common Stock Purchase Warrant)
TO: Wireless, Inc.
The undersigned, the Holder of the within Common Stock Purchase Warrant,
hereby irrevocably elects to exercise this Common Stock Purchase Warrant for,
and to purchase thereunder _______ shares of the Common Stock of Wireless, Inc.,
a California corporation, and herewith makes payment of $____________ therefor,
and requests that the certificates for such shares be issued in the name of, and
delivered to _____________, whose address is __________________.
Dated:
----------------------- ---------------------------------------------
(Signature must conform in all
respects to name of Holder as
specified on the face of the
Warrant)
---------------------------------------------
(Address)
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FORM OF ASSIGNMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and transfers
unto __________________ the right represented by the within Warrant to purchase
_______________ shares of the Common Stock of Wireless, Inc., a California
corporation, to which the within Warrant relates, and appoints
__________________ attorney to transfer such right on the books of Wireless,
Inc., with full power of substitution in the premises.
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EXHIBIT 4.5
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE STOCK
Corporation: Multipoint Networks Inc., a California corporation
Number of Shares: 2,500,000
Class of Stock: Common Stock
Initial Exercise Price: $0.01 per share
Issue Date: May 5, 1997
Expiration Date: May 5, 2002 (subject to Article 4.1)
THIS WARRANT CERTIFIES THAT, in consideration of the payment of $1.00 and
for other good and valuable consideration, IMPERIAL BANCORP as of parent
IMPERIAL BANK or IMPERIAL BANK at Holder's election, ("Holder") is entitled to
purchase the number of fully paid and nonassessable shares of the class of
securities (the "Shares") of the corporation (the "Company") at the initial
exercise price per Share (the "Warrant Price") all as set forth above and as
adjusted pursuant to Article 2 of this Warrant subject to the provisions and
upon the terms and conditions set forth of this Warrant.
ARTICLE 1. EXERCISE
1.1 METHOD OF EXERCISE. Holder may exercise this Warrant by delivering this
Warrant and a duly executed Notice of Exercise in substantially the form
attached as Appendix 1 to the principal office of the Company. Unless Holder is
exercising the conversion right set forth in Section 1.2, Holder shall also
deliver to the Company a check for the aggregate Warrant Price for the Shares
being purchased.
1.2 CONVERSION RIGHT. In lieu of exercising this Warrant as specified in
Section 1.1, Holder may from time to time convert this Warrant, in whole or in
part, into a number of Shares determined by dividing (a) the aggregate fair
market value of the Shares or other securities otherwise issuable upon exercise
of this Warrant minus the aggregate Warrant Price of such Shares by (b) the fair
market value of one Share. The fair market value of the Shares shall be
determined pursuant to Section 1.4.
1.3 RIGHT TO PUT WARRANT. At Holder's option, in lieu of exercising its
rights as set forth in Sections 1.1, or 1.2, Holder shall have the right to
require the Company to purchase the Warrant under the circumstances set forth on
Exhibit A.
Page 1 of 10
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1.4 FAIR MARKET VALUE. If the Shares are traded regularly in a public
market, the fair market value of the Shares shall be the closing price of the
Shares (or the closing price of the Company's stock into which the Shares are
convertible) reported for the business day immediately before Holder delivers
its Notice of Exercise to the Company. If the Shares are not regularly traded in
a public market, the Board of Directors of the Company shall determine fair
market value in its reasonable good faith judgment.
1.5 DELIVERY OF CERTIFICATE AND NEW WARRANT. Promptly after Holder
exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.
1.6 REPLACEMENT OF WARRANTS. On receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of this Warrant
and, in the case of loss, theft or destruction, on delivery of an indemnity
agreement reasonably satisfactory in form and amount to the Company or, in the
case of mutilation, or surrender and cancellation of this Warrant, the Company
at its expense shall execute and deliver, in lieu of this Warrant, a new warrant
of like tenor.
1.7 REPURCHASE ON SALE, MERGER, OR CONSOLIDATION OF THE COMPANY.
1.7.1. "ACQUISITION". For the purpose of this Warrant, "Acquisition"
means any sale, license, or other disposition of all or substantially all of the
assets (including intellectual property) of the Company, or any reorganization,
consolidation, or merger of the Company where the holders of the Company's
securities before the transaction beneficially own less than 50% of the
outstanding voting securities of the surviving entity after the transaction.
1.7.2. ASSUMPTION OF WARRANT. If upon the closing of any Acquisition
the successor entity assumes the obligations of this Warrant, then this Warrant
shall be exercisable for the same securities, cash, and property as would be
payable for the Shares issuable upon exercise of the unexercised portion of this
Warrant as if such Shares were outstanding on the record date for the
Acquisition and subsequent closing. The Warrant Price shall be adjusted
accordingly. The Company shall use reasonable efforts to cause the surviving
corporation to assume the obligations of this Warrant.
1.7.3. NONASSUMPTION. If upon the closing of any Acquisition the
successor entity does not assume the obligations of his Warrant and Holder has
not otherwise exercised his Warrant in full, then the unexercised portion of
this Warrant shall be deemed to have been automatically converted pursuant to
Section 1.2 and thereafter Holder shall participate in the acquisition on the
same terms as other holders of the same class of securities of the Company.
1.7.4. PURCHASE RIGHT. Notwithstanding the foregoing, at the election
of Holder, the Company shall purchase the unexercised portion of this Warrant
for cash upon the closing of any Acquisition for an amount equal to (a) the fair
market value of any consideration that would have been received by Holder in
consideration of the Shares had Holder exercised the unexercised portion of this
Warrant immediately before the record date for determining the shareholders
entitled to participate in the
Page 2 of 10
<PAGE>
proceeds of the Acquisition, less (b) the aggregate Warrant Price of the Shares,
but in no event less than zero.
ARTICLE 2. ADJUSTMENTS TO THE SHARES.
2.1 STOCK DIVIDENDS, SPLITS, ETC. If the Company declares or pays a
dividend on its common stock payable in common stock, or other securities,
subdivides the outstanding common stock into a greater amount of common stock,
then upon exercise of this Warrant, for each Share acquired, Holder shall
receive, without cost to Holder, the total number and kind of securities to
which Holder would have been entitled had Holder owned the Shares of record as
of the date the dividend or subdivision occurred.
2.2 RECLASSIFICATION, EXCHANGE OR SUBSTITUTION. Upon any reclassification,
exchange, substitution, or other event that results in a change of the number
and/or class of the securities issuable upon exercise or conversion of this
Warrant, Holder shall be entitled to receive, upon exercise or conversion of
this Warrant, the number and kind of securities and property that Holder would
have received for the Shares if this Warrant had been exercised immediately
before such reclassification, exchange, substitution, or other event. Such an
event shall include any automatic conversion of the outstanding or issuable
securities of the Company of the same class or series as the Shares to common
stock pursuant to the terms of the Company's Articles of Incorporation upon the
closing of a registered public offering of the Company's common stock. The
Company or its successor shall promptly issue to Holder a new Warrant for such
new securities or other property. The new Warrant shall provide for adjustments
which shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Article 2 including, without limitation, adjustments to the
Warrant Price and to the number of securities or property issuable upon exercise
of the new Warrant. The provisions of this Section 2.2 shall similarly apply to
successive reclassifications, exchanges, substitutions, or other events.
2.3 ADJUSTMENTS FOR COMBINATIONS, ETC. If the outstanding Shares are
combined or consolidated, by reclassification or otherwise, into a lesser number
of shares, the Warrant Price shall be proportionately increased.
2.4 NO IMPAIRMENT. The Company shall not, by amendment of its Articles of
Incorporation or through a reorganization, transfer of assets, consolidation,
merger, dissolution, issue, or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed under this Warrant by the Company, but shall at all times
in good faith assist in carrying out all the provisions of this Article 2 and in
taking all such action as may be necessary or appropriate to protect Holder's
rights under this Article against impairment. If the Company takes any action
affecting the Shares or its common stock other than as described above that
adversely affects Holder's rights under this Warrant, the Warrant Price shall be
adjusted downward and the number of Shares issuable upon exercise of this
Warrant shall be adjusted upward in such a manner that the aggregate Warrant
Price of this Warrant is unchanged.
2.5 CERTIFICATE AS TO ADJUSTMENTS. Upon each adjustment of the Warrant
Price, the Company at its expense shall promptly compute such adjustment, and
furnish Holder with a certificate of its Chief
Page 3 of 10
<PAGE>
Financial Officer setting forth such adjustment and the facts upon which such
adjustment is based. The Company shall, upon written request, furnish Holder a
certificate setting forth the Warrant Price in effect upon the date thereof and
the series of adjustments leading to such Warrant Price.
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
3.1 REPRESENTATIONS AND WARRANTIES. The Company hereby represents and
warrants to the Holder as follows:
(a) The initial Warrant Price referenced on the first page of this
Warrant is not greater than the fair market value of the Shares as of the date
of this Warrant.
(b) All Shares which may be issued upon the exercise of the purchase right
represented by this Warrant, and all securities, if any, issuable upon
conversion of the Shares, shall, upon issuance, be duly authorized, validly
issued, fully paid and nonassessable, and free of any liens and encumbrances
except for restrictions on transfer provided for herein or under applicable
federal and state securities laws.
3.2 NOTICE OF CERTAIN EVENTS. If the Company proposes at any time (a) to
declare any dividend or distribution upon its common stock, whether in cash,
property, stock, or other securities and whether or not a regular cash dividend;
(b) to offer for subscription pro rata to the holders of any class or series of
its stock any additional shares of stock of any class or series or other rights;
(c) to effect any reclassification or recapitalization of common stock; (d) to
merge or consolidate with or into any other corporation, or sell, lease,
license, or convey all or substantially all of its assets, or to liquidate,
dissolve or wind up; or (e) offer holders of registration rights the opportunity
to participate in an underwritten public offering of the company's securities
for cash, then, in connection with each such event, the Company shall give
Holder (1) at least 10 days prior written notice of the date on which a record
will be taken for such dividend, distribution, or subscription rights (and
specifying the date on which the holders of common stock will be entitled
thereto) or for determining rights to vote, if any, in respect of the
matters referred to in (c) and (d) above; (2) in the case of the matters
referred to in (c) and (d) above at least 10 days prior written notice of the
date when the same will take place (and specifying the date on which the holders
of common stock will be entitled to exchange their common stock for securities
or other property deliverable upon the occurrence of such event); and (3) in the
case of the material referred to in (e) above, the same notice as is given to
the holders of such registration rights.
3.3 INFORMATION RIGHTS. So long as the Holder holds this Warrant and/or any
of the Shares, the Company shall deliver to the Holder (a) promptly after
mailing, copies of all communiques to the shareholders of the Company, (b)
within one hundred twenty (120) days after the end of each fiscal year of the
Company, the annual audited financial statements of the Company certified by
independent public accountants of recognized standing and (c) within forty-five
(45) days after the end of each of the first three quarters of each fiscal year,
the Company's quarterly, unaudited financial statements.
Page 4 of 10
<PAGE>
3.4 REGISTRATION UNDER SECURITIES ACT OF 1933, AS AMENDED. The Company
agrees that the Shares shall be subject to the registration rights set forth on
Exhibit B.
ARTICLE 4. MISCELLANEOUS.
4.1 TERM; NOTICE OF EXPIRATION. This Warrant is exercisable, in whole or in
part, at any time and from time to time on or before the Expiration Date set
forth above. The Company shall give Holder written notice of Holder's right to
exercise this Warrant in the form attached as Appendix 2 not more than 90 days
and not less than 30 days before the Expiration Date. If the notice is not so
given, the Expiration Date shall automatically be extended until 30 days after
the date the Company delivers the notice to Holder.
4.2 LEGENDS. This Warrant and the Shares (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) shall be
imprinted with a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION AND ITS COUNSEL
THAT SUCH REGISTRATION IS NOT REQUIRED.
4.3 COMPLIANCE WITH SECURITIES LAWS ON TRANSFER. This Warrant and the
Shares issuable upon exercise this Warrant (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company). The Company
shall not require Holder to provide an opinion of counsel if the transfer is to
an affiliate of Holder or if there is no material question as to the
availability of current information as referenced in Rule 144(c), Holder
represents that it has complied with Rule 144(d) and (e) in reasonable detail,
the selling broker represents that it has complied with Rule 144(f), and the
Company is provided with a copy of Holder's notice of proposed sale.
4.4 TRANSFER PROCEDURE. Subject to the provisions of Section 4.2, Holder
may transfer all or part of this Warrant or the Shares issuable upon exercise of
this Warrant (or the securities issuable, directly or indirectly, upon
conversion of the Shares, if any) by giving the Company notice of the portion of
the Warrant being transferred setting forth the name, address and taxpayer
identification number of the transferee and surrendering this Warrant to the
Company for reissuance to the transferee(s) (and Holder, if applicable). Unless
the Company is filing financial information with the SEC pursuant to the
Securities Exchange Act of 1934, the Company shall have the right to refuse to
transfer any portion of this Warrant to any person who directly competes with
the Company.
4.5 NOTICES. All notices and other communications from the Company to the
Holder, or vice versa, shall be deemed delivered and effective when given
personally or mailed by first-class registered
Page 5 of 10
<PAGE>
or certified mail, postage prepaid, at such address as may have been furnished
to the Company or the Holder, as the case may be, in writing by the Company or
such Holder from time to time.
4.6 WAIVER. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
4.7 ATTORNEY'S FEES. In the event of any dispute between the parties
concerning the terms and provisions of this Warrant, the party
prevailing in such dispute shall be entitled to collect from the other party
all costs incurred in such dispute, including reasonable attorneys' fees.
4.8 GOVERNING LAW. This Warrant shall be governed by and construed in
accordance with the laws of the State of California, without giving effect to
its principles regarding conflicts of law.
Multipoint Networks, Inc.
By /s/ DAVID J. MCCLURE
----------------------------------------
David J. McClure
Its: President and Chief Executive Officer
By /s/ ARTHUR WILDER
----------------------------------------
Arthur Wilder
Its: Acting Chief Financial Officer
Page 6 of 10
<PAGE>
APPENDIX 1
NOTICE OF EXERCISE
1. The undersigned hereby elects to purchase _________ shares of Common
Stock of Multipoint Networks, Inc. pursuant to the terms of the attached
Warrant, and tenders herewith payment of the purchase price of such shares in
full.
1. The undersigned hereby elects to convert the attached Warrant into
Shares/cash [strike one] in the manner specified in the Warrant. This conversion
is exercised with respect to ___________ of the Shares covered by the Warrant.
[Strike paragraph that does not apply.]
2. Please issue a certificate or certificates representing said shares in
the name of the undersigned or in such other name as is specified below:
Chief Financial Officer
Controllers Department
Imperial Bancorp
P.O. Box 92991
Los Angeles, CA 90009
3. The undersigned represents it is acquiring the shares solely for its own
account and not as a nominee for any other party and not with a view toward the
resale or distribution thereof except in compliance with applicable securities
laws.
IMPERIAL BANCORP or IMPERIAL BANK
- ----------------------------------------
(Signature)
- -------------------------
(Date)
Page 7 of 10
<PAGE>
APPENDIX 2
NOTICE THAT WARRANT IS ABOUT TO EXPIRE
_______________, ____
Chief Financial Officer
Controllers Department
Imperial Bancorp
P.O. Box 92991
Los Angeles, CA 90009
Gentlepersons:
This is to advise you that the Warrant issued to you described below will
expire on _____________________.
Issuer:
Issue Date:
Class of Security Issuable:
Exercise Price Per Share:
Number of Shares Issuable:
Procedure for Exercise:
Please contact [name of contact person at (phone number)] with any
questions you may have concerning exercise of the Warrant. This is your only
notice of pending expiration.
Multipoint Networks, Inc.
By:
------------------------------------
Its:
-----------------------------------
Page 8 of 10
<PAGE>
EXHIBIT A
PUT RIGHT
Subject to the succeeding sentence, upon written notice to the Company,
Holder shall have the right (the "Put Right") to require that the Company
purchase the Warrant from Holder in consideration of the Company's payment to
Holder (due seven days after receipt of Holder's written notice) of $25,000. The
foregoing notwithstanding, Holder may only exercise the Put Right during the
first to occur of the following periods:
1. October 31, 1998; or
2. The 20 day period ending on the closing of the merger, consolidation
or sale of assets of the Company; or
3, The 20 day period ending on the liquidation, dissolution or winding up
of the Company.
Page 9 of 10
<PAGE>
EXHIBIT B
REGISTRATION RIGHTS
The Company shall make its best efforts to amend the Investors Rights
Agreement dated _________________________ (the "Agreement") so that the Shares
shall be entitled to "piggy back" registration rights in accordance with the
terms of the Agreement between the Company and its investor(s), if no Agreement
exists then "piggy back" registration rights in accordance with the terms of any
future Agreement.
The Company agrees that no amendments will be made to the Agreement which
would have an adverse impact on Holder's registration thereunder without the
consent of Holder. By acceptance of the Warrant to which this Exhibit B is
attached, Holder shall not be deemed to be a party to the Agreement, but solely
entitled to the registration rights created thereby.
Page 10 of 10
<PAGE>
EXHIBIT 4.6
THIS CONVERTIBLE PROMISSORY NOTE AND THE SHARES ISSUABLE CONVERSION
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAW. THE
SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR
SAID SECURITIES UNDER THE SECURITIES ACT AND ANY OTHER APPLICABLE STATE
SECURITIES LAWS OR RULES, UNLESS EXEMPTIONS FROM THE REGISTRATION
REQUIREMENTS OF SAID LAWS ARE AVAILABLE AND SAID OFFER, SALE OR
TRANSFER IS MADE PURSUANT TO AND IN STRICT COMPLIANCE WITH THE TERMS
AND CONDITIONS OF SAID EXEMPTIONS.
WIRELESS, INC.
CONVERTIBLE PROMISSORY NOTE
$1,000,000.00 August 17, 1999
Wireless, Inc., a California corporation (the "Company"), hereby
promises to pay to AMT Capital, Ltd., a Texas limited partnership or its
successors and assigns (the "Payee"), the principal sum of ONE MILLION AND
NO/100 DOLLARS ($1,000,000.00) on September 1, 2000, together with interest
accrued thereon as hereinafter provided.
This Note is issued by the Company pursuant to the terms and provisions
of that certain Note Purchase Agreement dated as of August 17, 1999 by and
between the Company and Payee (the "Purchase Agreement"). This Note shall be
deemed to be a "Note" as that term is used in the Purchase Agreement. The
Company agrees that this Note is entitled to all of the benefits provided in the
Purchase Agreement including, without limitation, all representations,
warranties and covenants of the Company contained therein and all remedies
provided therein. Reference herein to the Purchase Agreement shall not affect or
impair the absolute and unconditional obligation of the Company to pay this Note
when due. Capitalized terms that are not defined herein shall have such meanings
as are assigned to them in the Purchase Agreement.
The unpaid principal balance of this Note shall bear interest at a rate
equal to seventeen percent (17%) per annum. Accrued interest shall be calculated
on the basis of a 365-day year. Interest accrued hereon shall be due and payable
on the first day of each December, March, June and September, beginning December
1, 1999, until the entire unpaid principal amount of this Note is repaid to
Payee.
Notwithstanding anything in this Note to the contrary, in the event the
Company obtains, no later than fourteen (14) days following the date hereof, the
final, full, irrevocable and unconditional waiver of all preemptive rights,
rights of first refusal, and similar rights regarding the issuance by the
Company to Payee of this Note and any and all capital stock upon the conversion
of this Note as provided herein (the "Waivers"), then thereafter (i) this Note
shall mature on September 1, 2004 instead of on September 1, 2000, and (ii) the
unpaid principal balance of this Note shall bear interest at a rate equal to ten
percent (10%) per annum.
From and after the maturity date of this Note, any outstanding
principal of and interest on this Note shall bear interest at a rate equal to
the maximum rate allowed by applicable law.
<PAGE>
Payments under this Note shall be made by wire transfer on the date due to such
bank account that Payee shall designate to the Company in writing.
At any time after October 31, 1999, the Company shall have the right to
prepay, upon 30 prior days written notice to Payee, a portion or all of the
unpaid principal of and accrued and unpaid interest on this Note. During such 30
day notice period, Payee shall have the right to exchange all or any portion of
the principal of and interest on this Note for shares of the Company's capital
stock in accordance with the provisions below.
Upon the occurrence of any default or event of default under the
Purchase Agreement, Payee shall have the option of declaring the principal
balance hereof and the interest accrued hereon to be immediately due and
payable.
Payee shall have the right to convert all or any portion of the unpaid
principal amount of and interest on this Note as follows:
(a) CONVERSION PROCEDURES.
(i) CONVERSION RIGHT. Subject to and upon compliance with the
terms hereof, at any time after the date hereof, the holder of this
Note may elect, by giving written notice of such election to the
Company, to convert all or any portion of the principal amount of and
interest on this Note into shares of fully paid and non-assessable
shares of the class of the Company's preferred stock purchased by the
investor(s) in the Company's arms' length equity financing, if any,
most immediately following the date hereof (such financing being the
"Next Financing" and such class of preferred stock being the "Preferred
Stock"), which number of shares shall be determined by dividing such
amount by the "Preferred Stock Conversion Price" (as determined below)
in effect at the time of conversion. The conversion price payable for
each share of Preferred Stock into which this Note is convertible
shall, subject to further adjustment as provided herein, be equal to
the lesser of (i) 125% of the per-share purchase price paid for the
Preferred Stock in the Next Financing, or (ii) $3.75 (as applicable,
such per share price, as adjusted, the "Preferred Stock Conversion
Price").
In the event (a) an Organic Change (as defined below) occurs
prior to the Next Financing, or (b) the Next Financing does not occur
prior to October 31, 1999, then in either event and subject to and upon
compliance with the terms hereof the holder of this Note may elect (at
any time after receiving notice of the Organic Change in accordance
with the terms hereof or at any time after October 31, 1999 if the Next
Financing has not then occurred), by giving written notice of such
election to the Company, to convert all or any portion of the principal
amount of and interest on this Note into shares of fully paid and
non-assessable shares of the Company's common stock (the "Common
Stock"), which number of shares shall be determined by dividing such
amount by the "Common Stock Conversion Price" (as determined below) in
effect at the time of conversion. The conversion price payable for each
share of Common Stock into which this Note is convertible shall,
subject to further adjustment as provided herein, be equal to $1.25 (as
adjusted, the "Common Stock Conversion Price," and unless otherwise
specifically
2
<PAGE>
referenced, the Preferred Stock Conversion Price and the Common Stock
Conversion Price are collectively referred to herein as the "Conversion
Price").
If only a portion of this Note is converted to capital stock,
the Company shall return this Note to the Holder with a notation of the
remaining outstanding principal of this Note or, at the request of the
Holder of this Note, shall issue and deliver to such Holder, a
replacement convertible promissory note for the remaining outstanding
balance hereof.
(ii) PREPAYMENT/CONVERSION RIGHT. In the event the Company
notifies the Payee that the Company has elected to exercise its right
to prepay this Note as set forth above, the Payee may elect to convert
this Note into shares of capital stock pursuant hereto at any time
prior to the actual tender of such payment by the Company in accordance
with the terms hereof, and the conversion right granted to Payee
pursuant hereto shall only terminate upon the actual tender for payment
by the Company of the prepayment price of this Note to Payee in
accordance with the terms hereof. In the event Payee elects to convert
all or a portion of this Note after the Company elects to prepay this
Note, but before payment of this Note is tendered in accordance with
the terms hereof, the Company's prepayment right with respect to the
amount designated to be converted shall terminate immediately upon
Payee's notice of its election to convert, and the Note (or appropriate
portion thereof) shall be converted into shares of capital stock in
accordance with the terms hereof.
(iii) DELIVERY OF CERTIFICATES. As soon as possible after
conversion has been effected (but in any event within five business
days), the Company will deliver to the converting holder a certificate
or certificates representing the number of shares of capital stock
issuable by reason of such conversion registered in such name or names
and such denomination or denominations as the converting holder has
specified.
(iv) FURTHER ASSURANCES. The issuance of certificates for
shares of capital stock upon conversion of this Note will be made
without charge to the holder of this Note for any issuance tax in
respect thereof or other cost incurred by the Company in connection
with such conversion and the related issuance of shares of stock. Upon
conversion of this Note, the Company will take all such actions as are
necessary in order to ensure that the shares issuable with respect to
such conversion will be validly issued, fully paid and nonassessable.
(v) BOOKS TO BE KEPT OPEN. The Company will not close its
books against the transfer of this Note or of capital stock issued or
issuable upon conversion of this Note in any manner which interferes
with the timely conversion of this Note.
(vi) FRACTIONAL SHARES. If any fractional interest in a share
would be deliverable upon any conversion of this Note, the Company, in
lieu of delivering the fractional share therefor, will, pay an amount
to the holder thereof equal to such fractional interest multiplied by
the applicable Conversion Price as of the date of conversion.
3
<PAGE>
(b) ADJUSTMENTS TO CONVERSION PRICE AND NUMBER OF SHARES. The
Conversion Price and the number of shares into which this
Note is convertible shall be subject to adjustment as follows:
(i) ISSUANCE OF ADDITIONAL SHARES.
(A) If the Company issues or sells shares of
Preferred Stock, or in any manner grants any warrants, options
or other rights (collectively, "Preferred Options") to
purchase shares of Preferred Stock or any other securities
convertible into or exchangeable for Preferred Stock
("Preferred Convertible Securities"), which entitles the
subscriber, or the holder of such Preferred Option or
Preferred Convertible Security, to purchase any share of
Preferred Stock at less than the then current Preferred Stock
Conversion Price (if then applicable), then the Preferred
Stock Conversion Price in effect immediately prior to such
action by the Company shall be adjusted by being multiplied by
the fraction obtained:
by dividing
(X), which is the numerator obtained by adding (A)
the total number of issued and outstanding shares of
Preferred Stock immediately prior to the
effectiveness of such action by the Company, plus (B)
the number of shares of Preferred Stock that could
have been acquired, at the Preferred Stock Conversion
Price in effect immediately prior thereto, with the
consideration, if any, received or deemed received by
the Company in exchange for such action,
by
(Y), which is the denominator that equals the sum of
the actual total number of issued and outstanding
shares, plus the number of shares in a Preferred
Deemed Issue (defined below), of Preferred Stock
immediately after such effectiveness.
In case at any time the Company shall grant or issue
any Preferred Options or Preferred Convertible Securities,
whether or not such Preferred Options or the rights to convert
or exchange any such Preferred Convertible Securities are
immediately exercisable, and the price per share for which
Preferred Stock is issuable upon the exercise of such
Preferred Options or upon the conversion or exchange of such
Preferred Convertible Securities (determined by dividing (x)
the total amount, if any, received or receivable by the
Company as consideration for the issue or grant of such
Preferred Options and Preferred Convertible Securities, plus
the minimum aggregate amount of additional consideration
payable to the Company upon the exercise of such Preferred
Options and the conversion or exchange of such Preferred
Convertible Securities, including, in the case of any such
Preferred Options which relate to Preferred Convertible
Securities, the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the
conversion or exchange of such Preferred Convertible
4
<PAGE>
Securities, by (y) the total maximum number of shares
of Preferred Stock issuable upon the exercise of such
Preferred Options and upon the conversion or exchange of all
such Preferred Convertible Securities) shall be less than the
Preferred Stock Conversion Price in effect immediately prior
to the time of the granting of such Preferred Options or
Preferred Convertible Securities, then the total maximum
number of shares of Preferred Stock issuable upon the exercise
of such Preferred Options and upon the conversion or exchange
of the total maximum amount of such Preferred Convertible
Securities (including those issuable upon the exercise of
Preferred Options) shall, as of the date of granting of such
Preferred Options and Preferred Convertible Securities, be
deemed to be outstanding and to have been issued and sold for
such price per share (a "Preferred Deemed Issue") and the
provisions of this paragraph (i) shall apply accordingly.
(B) If the Company issues or sells shares of Common
Stock, or in any manner grants any warrants, options or other
rights (collectively, "Common Options") to purchase shares of
Common Stock or any other securities convertible into or
exchangeable for Common Stock ("Common Convertible
Securities"), which entitles the subscriber, or the holder of
such Common Option or Common Convertible Security, to purchase
any share of Common Stock at less than the then current Common
Stock Conversion Price (if then applicable), then the Common
Stock Conversion Price in effect immediately prior to such
action by the Company shall be adjusted by being multiplied by
the fraction obtained:
by dividing
(X), which is the numerator obtained by adding (A)
the total number of issued and outstanding shares of
Common Stock immediately prior to the effectiveness
of such action by the Company, plus (B) the number of
shares of Common Stock that could have been acquired,
at the Common Stock Conversion Price in effect
immediately prior thereto, with the consideration, if
any, received or deemed received by the Company in
exchange for such action,
by
(Y), which is the denominator that equals the sum of
the actual total number of issued and outstanding
shares, plus the number of shares in a Common Deemed
Issue (defined below), of Common Stock immediately
after such effectiveness.
In case at any time the Company shall grant or issue
any Common Options or Common Convertible Securities, whether
or not such Common Options or the rights to convert or
exchange any such Common Convertible Securities are
immediately exercisable, and the price per share for which
Common Stock is issuable upon the exercise of such Common
Options or upon the conversion or exchange of such Common
Convertible Securities (determined by dividing (x) the
5
<PAGE>
total amount, if any, received or receivable by the
Company as consideration for the issue or grant of such Common
Options and Common Convertible Securities, plus the minimum
aggregate amount of additional consideration payable to the
Company upon the exercise of such Common Options and the
conversion or exchange of such Common Convertible Securities,
including, in the case of any such Common Options which relate
to Common Convertible Securities, the minimum aggregate amount
of additional consideration, if any, payable to the Company
upon the conversion or exchange of such Common Convertible
Securities, by (y) the total maximum number of shares of
Common Stock issuable upon the exercise of such Common Options
and upon the conversion or exchange of all such Common
Convertible Securities) shall be less than the Common Stock
Conversion Price in effect immediately prior to the time of
the granting of such Common Options or Common Convertible
Securities, then the total maximum number of shares of Common
Stock issuable upon the exercise of such Common Options and
upon the conversion or exchange of the total maximum amount of
such Common Convertible Securities (including those issuable
upon the exercise of Common Options) shall, as of the date of
granting of such Common Options and Common Convertible
Securities, be deemed to be outstanding and to have been
issued and sold for such price per share (a "Common Deemed
Issue") and the provisions of this paragraph (i) shall apply
accordingly.
Notwithstanding anything in this Note to the
contrary, this paragraph (b)(i)(B) shall not be applicable to
any of the following:
(1) shares of Common Stock issued upon
conversion of any of the Company's
preferred stock;
(2) shares of Common Stock issued to officers,
directors, employees and consultants or
other service providers of the Company
pursuant to a stock grant, stock option plan
or purchase plan or other employee stock
incentive program or agreement approved by
the Company's Board of Directors;
(3) shares of capital stock issued or issuable
in connection with a bona fide equipment
lease or bank financing transaction approved
by the Company's Board of Directors,
including without limitation shares issued
upon the exercise of warrants issued in
connection with such transactions; or
(4) shares of capital stock issued or issuable
in connection with a merger or acquisition
transaction.
(ii) TREATMENT OF EXPIRED OPTIONS AND UNEXERCISED CONVERTIBLE
SECURITIES. Upon the expiration of any Preferred Option or Common
Option or the termination of any right to convert or exchange any
Preferred Convertible Security or Common Convertible Security without
the exercise or conversion of any such option, convertible security or
6
<PAGE>
right, the Preferred Conversion Price or Common Conversion Price then
in effect and the number of shares into which this Note is then
convertible will be adjusted to the Preferred Conversion Price or
Common Conversion Price, as applicable, and number of shares which
would have been in effect at the time of such expiration or termination
had such option or convertible security, to the extent outstanding
immediately prior to such expiration or termination, never been issued.
(iii) TREASURY SHARES. The number of shares of capital stock
outstanding at any given time does not include shares owned or held by
or for the account of the Company, and the disposition of any shares so
owned or held will be considered an issue or sale of capital stock.
(iv) RECORD DATE. If the Company takes a record of the holders
of capital stock for the purpose of entitling them (A) to receive a
dividend or other distribution payable in capital stock, options or in
convertible securities or (B)to subscribe for or purchase capital
stock, options or convertible securities, then such record date will be
deemed to be the date of the issue or sale of the shares of capital
stock deemed to have been issued or sold upon the declaration of such
dividend or upon the making of such other distribution or the date of
the granting of such right of subscription or purchase, as the case may
be.
(v) SUBDIVISION OR COMBINATION OF CAPITAL STOCK.
If the Company at any time after the date hereof
subdivides (by any stock split, stock dividend,
recapitalization or otherwise) its outstanding shares of
Preferred Stock into a greater number of shares, the Preferred
Stock Conversion Price in effect immediately prior to such
subdivision will be proportionately reduced and the number of
shares of Preferred Stock into which this Note is then
convertible shall be proportionately increased, and if the
Company at any time combines (by reverse stock split or
otherwise) its outstanding shares of Preferred Stock into a
smaller number of shares, the Preferred Stock Conversion Price
in effect immediately prior to such combination will be
proportionately increased and the number of shares of
Preferred Stock into which this Note is then convertible shall
be proportionately decreased.
If the Company at any time after the date hereof
subdivides (by any stock split, stock dividend,
recapitalization or otherwise) its outstanding shares of
Common Stock into a greater number of shares, the Common Stock
Conversion Price in effect immediately prior to such
subdivision will be proportionately reduced and the number of
shares of Common Stock into which this Note is then
convertible shall be proportionately increased, and if the
Company at any time combines (by reverse stock split or
otherwise) its outstanding shares of Common Stock into a
smaller number of shares, the Common Stock Conversion Price in
effect immediately prior to such combination will be
proportionately increased and the number of shares of Common
Stock into which this Note is then convertible shall be
proportionately decreased.
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<PAGE>
(vi) REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER
OR SALE. Any capital reorganization, reclassification, consolidation,
merger or sale of all or substantially all of the Company's assets to
another person which is effected in such a way that holders of capital
stock are entitled to receive (either directly or upon subsequent
liquidation) stock, securities or assets with respect to or in exchange
for capital stock is referred to herein as an "Organic Change." Prior
to the consummation of any Organic Change, the Company will make
appropriate provisions (in form and substance satisfactory to the
holder of this Note) to ensure that such holder will thereafter have
the right to acquire and receive, in lieu of or in addition to the
shares of capital stock that immediately prior thereto are acquirable
and receivable upon the conversion of this Note, such shares of stock,
securities or assets as such holder would have received in connection
with such Organic Change if such holder had fully converted this Note
immediately prior to such Organic Change. The Company will not effect
any such consolidation, merger or sale, unless prior to the
consummation thereof, the successor (if other than the Company)
resulting from consolidation or merger or the party purchasing such
assets assumes by written instrument (in form reasonably satisfactory
to the holder hereof), the obligation to deliver to such holder such
shares of stock, securities or assets as, in accordance with the
foregoing provisions, such holder may be entitled to acquire.
(vii) CERTAIN EVENTS. If any event occurs of the type
contemplated by the provisions of this section (b) but not expressly
provided for by such provisions, then the Company's Board of Directors
will make an appropriate adjustment in the Preferred Stock Conversion
Price or Common Stock Conversion Price, as applicable, and the number
of shares for which this Note is convertible so as to protect the
rights of the holder hereof; provided, that no such adjustment will
increase such conversion price as otherwise determined pursuant hereto
or decrease the number of shares of capital stock issuable upon
conversion hereof.
(viii) NOTICES.
(A) Immediately upon any adjustment of the Conversion
Price or the number of shares for which this Note is convertible, the
Company will give written notice thereof to the holder hereof.
(B) The Company will give written notice to the
holder hereof at least 10 days prior to the date on which the Company
closes its books or declares a record date (1) with respect to any
dividend or distribution upon (or any subdivision, combination or other
change in the outstanding number of shares of) any class of the
Company's capital stock, (2) with respect to any pro rata subscription
offer to holders of any class of the Company's capital stock or (3) for
determining rights to vote with respect to any Organic Change,
dissolution or liquidation.
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<PAGE>
(C) The Company also give written notice to the
holder hereof at least 30 days prior to the date on which the Next
Financing or any Organic Change will take place.
The invalidity, or unenforceability in particular circumstances, of any
provision of this Note shall not extend beyond such provision or such
circumstances and no other provision of this Note shall be affected thereby. It
is expressly stipulated and agreed to be the intent of the Company and Payee at
all times to comply with applicable state law governing the maximum rate or
amount of interest payable on or in connection with this Note (or applicable
United States federal law to the extent that it permits Payee to contract for,
charge, take, reserve or receive a greater amount of interest than under state
law). If the applicable law is ever judicially interpreted so as to render
usurious any amount called for under this Note or under any of the other
documents evidencing, securing or relating to this Note or any part thereof
(collectively, the "Note Documents"), or contracted for, charged, taken,
reserved or received with respect to the indebtedness evidenced by this Note
(the "Loan"), or if any prepayment by the Company results in the Company having
paid any interest in excess of that permitted by law, then it is the Company's
and Payee's express intent that all excess amounts theretofore collected by
Payee be credited on the principal balance of this Note (or, if this Note has
been or would thereby be paid in full, refunded to the Company), and the
provisions of this Note and the other Note Documents immediately be deemed
reformed and the amounts thereafter collectible hereunder and thereunder
reduced, without the necessity of the execution of any new document, so as to
permit the recovery of the fullest amount called for hereunder and thereunder,
while complying in all respects with the applicable law and regulations. All
sums paid or agreed to be paid to Payee for the use, forbearance or detention of
the Loan shall, to the extent permitted by applicable law, be amortized,
prorated, allocated and spread throughout the full term of the Note until
payment in full so that the rate or amount of interest on account of the Note
does not exceed the applicable usury ceiling. Notwithstanding any provision
contained in this Note or in the Note Documents that permits the compounding of
interest, including without limitation any provision by which any of the accrued
interest is added to the principal amount of this Note, the total amount of
interest that the Company is obligated to pay and Payee is entitled to receive
with respect to this Note shall not exceed the amount calculated on a simple
(i.e., non-compounded) interest basis at the maximum allowable rate on principal
amounts actually advanced to or for the account of the Company.
The Company and each surety, endorser, guarantor, and other party, if
any, now or hereafter liable for payment of any sums of money payable on this
Note, jointly and severally, waive presentment and demand for payment, notice of
intent to accelerate and notice of acceleration, protest and notice of protest
and nonpayment, and diligence in collecting or bringing suit against any party
liable hereon, and agree that their liability on this Note shall not be affected
by any
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<PAGE>
renewal or extension in time of payment hereof, by any indulgence, or by any
release, modification, or substitution of any security for the payment of this
Note, and hereby consent to any and all extensions, renewals, replacements,
waivers, releases, or exchanges affecting this Note and the taking, release,
modification, or substitution of any security, with or without notice and before
or after maturity.
This Note shall be binding upon and inure to the benefit of the
Company, its successors and assigns, and shall inure to the benefit of the
Payee, its successors and permitted assigns. In the event this Note is placed in
the hands of an attorney for collection or suit is filed hereon or if
proceedings are had in bankruptcy, receivership, reorganization, or other legal
or judicial proceedings for the collection hereof, the Company hereby agrees to
pay to the holder of this Note reasonable attorneys' fees, and shall pay all
additional reasonable costs and expenses of collection and enforcement.
THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS SHALL GOVERN THE VALIDITY,
CONSTRUCTION, ENFORCEMENT, AND INTERPRETATION OF THIS NOTE WITHOUT REGARD TO
CONFLICT OF LAWS PROVISIONS.
IN WITNESS WHEREOF, the Company has caused its duly authorized officer
to execute this Note as of the day and year first written above.
WIRELESS, INC.
By: /s/ William E. Gibson
-----------------------------------
Name: William E. Gibson
------------------------------
Title: President
-----------------------------
<PAGE>
WAIVER
Reference is hereby made to that certain Wireless, Inc. Convertible
Promissory Note, dated as of August 17, 1999, in the principal amount of
$1,000,000 (the "Note") issued by Wireless, Inc., a California Corporation (the
"Company") in favor of AMT Capital, Ltd., a Texas limited partnership ("AMT").
Capitalized terms used but not defined herein shall have the meaning given to
such terms in the Note.
Pursuant to Paragraph (b)(i) of the Note, the Preferred Stock Conversion
Price and the Common Stock Conversion Price, are subject to adjustment upon the
issuance of Preferred Stock or Common Stock of the Company, or options, warrants
or rights to purchase Preferred Stock or Common Stock of the Company,
respectively, at a price per share that is less than the then current Preferred
Stock Conversion Price or Common Stock Conversion Price, as applicable.
The Company and certain investors are entering into a Securities Purchase
Agreement, pursuant to which the Company is selling up to 3,600,000 shares of
its Series E Preferred Stock at a price per share of $2.50 and warrants to
purchase up to 360,000 shares of its Common Stock with an exercise price of
$0.75 per share (the "Series E Purchase Agreement"), upon the terms and
conditions set forth therein.
The Company has also issued a warrant to purchase 20,000 shares of Series E
Preferred Stock to Silicon Valley Bank (the "SVB Warrant") with an exercise
price of $2.50 per share. Upon the exercise of the Warrant the bank will also be
provided with the opportunity to buy one warrant to purchase Common Stock for
every 10 shares of Series E Preferred received by the bank upon the exercise of
the SVB Warrant on the same terms and conditions provided for under the Series E
Purchase Agreement.
Having considered the foregoing, AMT hereby agrees to waive the provision
of Paragraph (b)(1) with respect to the issuance of securities pursuant to the
Securities Purchase Agreement and the SVB Warrant, provided that, at the time of
conversion of the Note, AMT is provided with the opportunity to buy one warrant
to purchase Common Stock for every 10 shares of Series E Preferred received by
AMT upon the conversion, on the same terms and conditions as the Series E
purchasers under the Series E Purchase Agreement.
Date: September 30, 1999
AMT CAPITAL, LTD.
By: AMT Capital G.P., Inc., its General Partner
By: /s/ Peter N. Walmsley
-------------------------------------
Peter N. Walmsley
Chairman of the BOard
<PAGE>
EXHIBIT 4.7
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE STOCK
Corporation: Wireless, Inc., a California corporation
Number of Shares: 4% Warrant Coverage
Class of Stock: Series D Preferred
Initial Exercise Price: The price given at the close of the Series D Preferred
offering.
Issue Date: October 16, 1998
Expiration Date: October 16, 2003
THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and for
other good and valuable consideration, SILICON VALLEY BANK ("Holder") is
entitled to purchase the number of fully paid and nonasssessable shares of the
class of securities (the "Shares") of the corporation (the "Company") at the
initial exercise price per Share (the "Warrant Price") all as set forth above
and as adjusted pursuant to Article 2 of this Warrant, subject to the provisions
and upon the terms and conditions set forth in this Warrant. For purposes of
determining the Number of Shares, Warrant Coverage shall be defined as
$1,500,000.00 divided by the Initial Exercise Price multiplied by 4%.
ARTICLE 1. EXERCISE.
1.1 METHOD OF EXERCISE. Holder may exercise this Warrant by
delivering a duly executed Notice of Exercise in substantially the form attached
as Appendix 1 to the principal office of the Company. Unless Holder is
exercising the conversion right set forth in Section 1.2, Holder shall also
deliver to the Company a check for the aggregate Warrant Price for the Shares
being purchased.
1.2 CONVERSION RIGHT. In lieu of exercising this Warrant as
specified in Section 1.1, Holder may from time to time convert this Warrant, in
whole or in part, into a number of Shares determined by dividing (a) the
aggregate fair market value of the Shares or other securities otherwise issuable
upon exercise of this Warrant minus the aggregate Warrant Price of such Shares
by (b) the fair market value of one Share. The fair market value of the Shares
shall be determined pursuant to Section 1.4.
1.3 INTENTIONALLY OMITTED.
1.4 FAIR MARKET VALUE. If the Shares are traded in a public
market, the fair market value of the Shares shall be the closing price of the
Shares (or the closing price of the Company's stock into which the Shares are
convertible) reported for the business day immediately before Holder delivers
its Notice of Exercise to the Company. If the Shares are not traded in a public
market, the Board of Directors of the Company shall determine fair market value
in its reasonable good faith judgment. The foregoing notwithstanding, if Holder
advises the Board of Directors in writing that Holder disagrees with such
determination, then the Company and Holder shall promptly agree upon a reputable
investment banking firm to undertake such valuation. If the valuation of such
investment banking firm is greater than that determined by the Board of
Directors, then all fees and expenses of such investment banking firm shall be
paid by the Company. In all other circumstances, such fees and expenses shall be
paid by Holder.
1.5 DELIVERY OF CERTIFICATE AND NEW WARRANT. Promptly after
Holder exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.
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<PAGE>
1.6 REPLACEMENT OF WARRANTIES. On receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant and, in the case of loss, theft or destruction, on
delivery of an indemnity agreement reasonably satisfactory in form and amount to
the Company or, in the case of mutilation, on surrender and cancellation of this
Warrant, the Company at its expense shall execute and deliver, in lieu of this
Warrant, a new warrant of like tenor.
1.7 REPURCHASE ON SALE, MERGER, OR CONSOLIDATION OF THE COMPANY.
1.7.1. "ACQUISITION". For the purpose of this Warrant,
"Acquisition" means any sale, license, or other disposition of all or
substantially all of the assets of the Company, or any reorganization,
consolidation, or merger of the Company where the holders of the Company's
securities before the transaction beneficially own less than 50% of the
outstanding voting securities of the surviving entity after the transaction.
1.7.2. ASSUMPTION OF WARRANT. Upon the closing of any
Acquisition the successor entity shall assume the obligations of this Warrant,
and this Warrant shall be exercisable for the same securities, cash, and
property as would be payable for the Shares issuable upon exercise of the
unexercised portion of this Warrant as if such Shares were outstanding on the
record date for the Acquisition and subsequent closing. The Warrant Price shall
be adjusted accordingly.
1.7.3. PURCHASE RIGHT. Notwithstanding the foregoing, at
the election of Holder, the Company shall purchase the unexercised portion of
this Warrant for cash upon the closing of any Acquisition for an amount equal to
(a) the fair market value of any consideration that would have been received by
Holder in consideration of the Shares had Holder exercised the unexercised
portion of this Warrant immediately before the record date for determining the
shareholders entitled to participate in the proceeds of the Acquisition, less
(b) the aggregate Warrant Price of the Shares, but in no event less than zero.
ARTICLE 2. ADJUSTMENTS TO THE SHARES.
2.1 STOCK DIVIDENDS, SPLITS, ETC. If the Company declares or pays a
dividend on its common stock (or the Shares if the Shares are securities other
than common stock) payable in common stock, or other securities, subdivides the
outstanding common stock into a greater amount of common stock, or, if the
Shares are securities other than common stock, subdivides the Shares in a
transaction that increases the amount of common stock into which the Shares are
convertible, then upon exercise of this Warrant, for each Share acquired, Holder
shall receive, without cost to Holder, the total number and kind of securities
to which Holder would have been entitled had Holder owned the Shares of record
as of the date the dividend or subdivision occurred.
2.2 RECLASSIFICATION, EXCHANGE OR SUBSTITUTION. Upon any
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant, Holder shall be entitled to receive, upon exercise
or conversion of this Warrant, the number and kind of securities and property
that Holder would have received for the Shares if this Warrant had been
exercised immediately before such reclassification, exchange, substitution, or
other event. Such an event shall include any automatic conversion of the
outstanding or issuable securities of the Company of the same class or series as
the Shares to common stock pursuant to the terms of the Company's Articles of
Incorporation upon the closing of a registered public offering of the Company's
common stock. The Company or its successor shall promptly issue to Holder a new
Warrant for such new securities or other property. The new Warrant shall provide
for adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article 2 including, without limitation,
adjustments to the Warrant Price and to the number of securities or property
issuable upon exercise of the new Warrant. The provisions of this Section 2.2
shall similarly apply to successive reclassifications, exchanges, substitutions,
or other events.
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2.3 ADJUSTMENTS FOR COMBINATIONS, ETC. If the outstanding Shares
are combined or consolidated, by reclassification or otherwise, into a lesser
number of shares, the Warrant Price shall be proportionately increased.
2.4 ADJUSTMENTS FOR DILUTING ISSUANCES. The Warrant Price and
the number of Shares issuable upon exercise of this Warrant or, if the Shares
are Preferred Stock, the number of shares of common stock issuable upon
conversion of the Shares, shall be subject to adjustment, from time to time in
the manner set forth on Exhibit A in the event of Diluting Issuances (as defined
on Exhibit A).
2.5 NO IMPAIRMENT. The Company shall not, by amendment of its
Articles of Incorporation or through a reorganization, transfer of assets,
consolidation, merger, dissolution, issue, or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed under this Warrant by the Company, but
shall at all times in good faith assist in carrying out of all the provisions of
this Article 2 and in taking all such action as may be necessary or appropriate
to protect Holder's rights under this Article against impairment. If the Company
takes any action affecting the Shares or its common stock other than as
described above that adversely affects Holder's rights under this Warrant, the
Warrant Price shall be adjusted downward and the number of Shares Issuable upon
exercise of this Warrant shall be adjusted upward in such a manner that the
aggregate Warrant Price of this Warrant is unchanged.
2.6 FRACTIONAL SHARES. No fractional Shares shall be issuable
upon exercise or conversion of the Warrant and the number of Shares to be issued
shall be rounded down to the nearest whole Share. If a fractional share interest
arises upon any exercise or conversion of the Warrant, the Company shall
eliminate such fractional share interest by paying Holder amount computed by
multiplying the fractional interest by the fair market value of a full Share.
2.7 CERTIFICATE AS TO ADJUSTMENTS. Upon each adjustment of the
Warrant Price, the Company at its expense shall promptly compute such
adjustment, and furnish Holder with a certificate of its Chief Financial Officer
setting forth such adjustment and the facts upon which such adjustment is based.
The Company shall, upon written request, furnish Holder a certificate setting
forth the Warrant Price in effect upon the date thereof and the series of
adjustments leading to such Warrant Price.
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
3.1 REPRESENTATIONS AND WARRANTIES. The Company hereby represents
and warrants to the Holder as follows:
(a) The initial Warrant Price referenced on the first page of
this Warrant is not greater than (i) the price per share at which the Shares
were last issued in an arms-length transaction in which at least $500,000 of the
Shares were sold and (ii) the fair market value of the Shares as of the date of
this Warrant.
(b) All Shares which may be issued upon the exercise of
the purchase right represented by this Warrant, and all securities, if any,
issuable upon conversion of the Shares, shall, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable, and free of any liens
and encumbrances except for restrictions on transfer provided for herein or
under applicable federal and state securities laws.
(c) The capitalization table attached hereto is true and correct.
3.2 NOTICE OF CERTAIN EVENTS. If the Company proposes at any
time (a) to declare any dividend or distribution upon its common stock, whether
in cash, property, stock, or other securities and whether or not a regular cash
dividend; (b) to offer for subscription pro rata to the holders of any class or
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<PAGE>
series of its stock any additional shares of stock of any class or series or
other rights; (c) to effect any reclassification or recapitalization of common
stock, (d) to merge or consolidate with or into any other corporation, or sell,
lease, license, or convey all or substantially all of its assets, or to
liquidate, dissolve or wind up; or (e) offer holders of registration rights the
opportunity to participate in an underwritten public offering of the company's
securities for cash, then, in connection with each such event, the Company shall
give Holder (1) at least 20 days prior written notice of the date on which a
record will be taken for such dividend, distribution, or subscription rights
(and specifying the date on which the holders of common stock will be entitled
thereto) or for determining rights to vote, if any, in respect of the matters
referred to in (c) and (d) above; (2) in the case of the matters referred to in
(c) and (d) above at least 20 days prior written notice of the date when the
same will take place (and specifying the date on which the holders of common
stock will be entitled to exchange their common stock for securities or other
property deliverable upon the occurrence of such event); and (3) in the case of
the matter referred to in (e) above, the same notice as is given to the holders
of such registration rights.
3.3 INFORMATION RIGHTS. So long as the Holder holds this Warrant
and/or any of the Shares, the Company shall deliver to the Holder (a) promptly
after mailing, copies of all notices or other written communications to the
shareholders of the Company, (b) within ninety (90) days after the end of each
fiscal year of the Company, the annual audited financial statements of the
Company certified by independent public accountants of recognized standing and
(c) such other financial statements required under and in accordance with any
loan documents between Holder and the Company (or if there are no such
requirements [or if the subject loan(s) no longer are outstanding]), then within
forty-five (45) days after the end of each of the first three quarters of each
fiscal year, the Company's quarterly, unaudited financial statements.
3.4 REGISTRATION UNDER SECURITIES ACT OF 1933, AS AMENDED. The
Company agrees that the Shares or, if the Shares are convertible into common
stock of the Company, such common stock, shall be subject to the registration
rights set forth on Exhibit B, if attached.
ARTICLE 4. MISCELLANEOUS.
4.1 TERM; NOTICE OF EXPIRATION. This Warrant is exercisable,
in whole or in part, at any time and from time to time on or before the
Expiration Date set forth above. The Company shall give Holder written notice of
Holder's right to exercise this Warrant in the form attached as Appendix 2 not
more than 90 days and not less than 30 days before the Expiration Date. If the
notice is not so given, the Expiration Date shall automatically be extended
until 30 days after the date the Company delivers the notice to Holder.
4.2 LEGENDS. This Warrant and the Shares (and the securities
issuable, directly or indirectly, upon conversion of the Shares, if any) shall
be imprinted with a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED
WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO
RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
4.3 COMPLIANCE WITH SECURITIES LAWS ON TRANSFER. This Warrant
and the Shares issuable upon exercise this Warrant (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company, as reasonably
requested by the Company). The Company shall not require Holder to
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<PAGE>
provide an opinion of counsel if the transfer is to an affiliate of Holder or if
there is no material question as to the availability of current information as
referenced in Rule 144(c), Holder represents that it has complied with Rule
144(d) and (e) in reasonable detail, the selling broker represents that it has
complied with Rule 144(f), and the Company is provided with a copy of Holder'
notice of proposed sale.
4.4 TRANSFER PROCEDURE. Subject to the provisions of Section
4.3 Holder may transfer all or part of this Warrant or the Shares issuable upon
exercise of this Warrant (or the securities issuable, directly or indirectly,
upon conversion of the Shares, if any) at any time to Silicon Valley Bancshares
or The Silicon Valley Bank Foundation, or to any affiliate of Holder, or, to any
other transferree by giving the Company notice of the portion of the Warrant
being transferred setting forth the name, address and taxpayer identification
number of the transferee and surrendering this Warrant to the Company for
reissuance to the transferee(s) (and Holder if applicable). Unless the Company
is filing financial information with the SEC pursuant to the Securities Exchange
Act of 1934, the Company shall have the right to refuse to transfer any portion
of this Warrant to any person who directly competes with the Company.
4.5 NOTICES. All notices and other communications from the
Company to the Holder, or vice versa, shall be deemed delivered and effective
when given personally or mailed by first-class registered or certified mail,
postage prepaid, at such address as may have been furnished to the Company or
the Holder, as the case may be, in writing by the Company or such holder from
time to time. All notices to be provided under this Warrant shall be send to the
following address:
Silicon Valley Bank
Attn: Treasury Department HG 250
3003 Tasman Drive
Santa Clara, CA 95054
4.6 WAIVER. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought.
4.7 ATTORNEYS FEES. In the event of any dispute between the
parties concerning the terms and provisions of this Warrant, the party
prevailing in such dispute shall be entitled to collect from the other party all
costs incurred in such dispute, including reasonable attorneys' fees.
4.8 GOVERNING LAW. This Warrant shall be governed by and construed
in accordance with the laws of the State of California, without giving effect
to its principles regarding conflicts of law.
"COMPANY"
WIRELESS, INC.
By: /S/ WILLIAM E. GIBSON
Name: WILLIAM E. GIBSON
---------------------------
(Print)
Title: Chairman of the Board, President or
Vice President
5
<PAGE>
By: /S/ CHARLES PAI
Name: CHARLES PAI
--------------
(Print)
Title: Chief Financial Officer, Secretary,
Assistant Treasurer or
Assistant Secretary
6
<PAGE>
APPENDIX 1
NOTICE OF EXERCISE
1. The undersigned hereby elects to purchase ________ shares of the
Common/Preferred Series ___ [Strike one] Stock of sample pursuant to the terms
of the attached Warrant, and tenders herewith payment of the purchase price of
such shares in full.
1. The undersigned hereby elects to convert the attached Warrant into
Shares/cash [strike one] in the manner specified in the Warrant. This conversion
is exercised with respect to of the Shares covered by the Warrant.
[Strike paragraph that does not apply.]
2. Please issue a certificate or certificates representing said
shares in the name of the undersigned or in such other name as is specified
below:
---------------------------------
(Name)
---------------------------------
---------------------------------
(Address)
3. The undersigned represents it is acquiring the shares solely for its
own account and not as a nominee for any other party and not with a view toward
the resale or distribution thereof except in compliance with applicable
securities laws.
------------------------------------
(Signature)
- -----------------------
(Date)
<PAGE>
APPENDIX 2
NOTICE THAT WARRANT IS ABOUT TO EXPIRE
--------------------, -----
(Name of Holder)
(Address of Holder)
Attn: Chief Financial Officer
Dear: ____________________
This is to advise you that the Warrant issued to you described below
will expire on ________________ ,19 _____.
Issuer:
Issue Date:
Class of Security Issuable:
Exercise Price per Share:
Number of Shares Issuable:
Procedure for Exercise:
Please contact [name of contact person at (phone number)] with any
questions you may have concerning exercise of the Warrant. This is your only
notice of pending expiration.
---------------------------------------
(Name of Issuer)
By:
---------------------------------------
Its:
---------------------------------------
<PAGE>
EXHIBIT A
ANTI-DILUTION PROVISIONS
(FOR COMMON STOCK WARRANTS WHERE EXERCISE PRICE EQUALS
PRICE OF PREFERRED STOCK WHICH HAS ANTI-DILUTION PROTECTION)
In the event of the issuance (a "Diluting Issuance") by the Company,
after the Issue Date of the Warrant, of securities at a price per share less
than the then conversion price of the Company's Series _____ Preferred Stock,
then the number of Shares issuable upon exercise of the Warrant shall be
adjusted as a result of Diluting Issuances in the same proportion as the number
of shares of common stock issuable upon conversion of the Company's Series
_____ Preferred Stock (the "Preferred Stock") are adjusted pursuant to those
provisions (the "Provisions") of the Company's Articles (Certificate) of
Incorporation which adjust the conversion price of the Preferred Stock in the
event of Diluting Issuances.
The Company agrees that the Provisions, as in effect on the Issue Date,
shall be deemed to remain in full force and effect during the term of the
Warrant notwithstanding (a) any subsequent amendment, waiver or termination
thereof by the Company's shareholders or (b) the conversion of the Preferred
Stock.
Under no circumstances shall the aggregate Warrant Price payable by the
Holder upon exercise of the Warrant increase as a result of any adjustment
arising from a Diluting Issuance.
<PAGE>
EXHIBIT A
ANTI-DILUTION PROVISIONS
(FOR PREFERRED STOCK WARRANTS WITH EXISTING ANTI-DILUTION PROTECTION)
In the event of the issuance (a "Diluting Issuance") by the Company,
after the Issue Date of the Warrant, of securities at a price per share less
than the Warrant Price, then the number of shares of common stock issuable upon
conversion of the Shares shall be adjusted in accordance with those provisions
(the "Provisions") of the Company's Articles (Certificate) of Incorporation
which apply to Diluting Issuances.
The Company agrees that the Provisions, as in effect on the Issue Date,
shall be deemed to remain in full force and effect during the term of the
Warrant notwithstanding any subsequent amendment, waiver or termination thereof
by the Company's shareholders.
Under no circumstances shall the aggregate Warrant Price payable by the
Holder upon exercise of the Warrant increase as a result of any adjustment
arising from a Diluting Issuance.
<PAGE>
EXHIBIT B
REGISTRATION RIGHTS
The Shares (if common stock), or the common stock issuable upon
conversion of the Shares, shall be deemed "registrable securities" or otherwise
entitled to "piggy back" registration rights in accordance with the terms of the
following agreement (the "Agreement") between the Company and its investor(s):
- --------------------------------------------------------------------------------
[Identify Agreement by date, title and parties. If no
Agreement exists, indicate by "none".]
The Company agrees that no amendments will be made to the Agreement
which would have an adverse impact on Holder's registration rights thereunder
without the consent of Holder. By acceptance of the Warrant to which this
Exhibit B is attached, Holder shall be deemed to be a party to the Agreement,
unless Holder otherwise elects not to become or to cease being a party thereto.
If no Agreement exists, then the Company and the Holder Shall enter
into Holder's standard form of Registration Rights Agreement as in effect on the
Issue Date of the Warrant.
<PAGE>
EXHIBIT "B"
SILICON VALLEY BANK
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is entered into as of October 16,
1998, by and between Silicon Valley Bank ("Purchaser") and the Company whose
name appears on the last page of this Agreement.
RECITALS
A. Concurrently with the execution of this Agreement, the Purchaser is
purchasing from the Company a Warrant to Purchase Stock (the "Warrant") pursuant
to which Purchaser has the right to acquire from the Company the Shares (as
defined in the Warrant).
B. By this Agreement, the Purchaser and the Company desire to set
forth the registration rights of the Shares all as provided herein.
NOW, THEREFORE, in consideration of the mutual promises,
covenants and conditions hereinafter set forth, the parties hereto mutually
agree as follows:
1. REGISTRATION RIGHTS. The Company covenants and agrees as follows:
1.1 DEFINITIONS. For purposes of this Section 1:
(a) The term "register," "registered," and
"registration" refer to a registration effected by preparing and filing a
registration statement or similar document in compliance with the Securities Act
of 1933, as amended (the "Securities Act"), and the declaration or ordering of
effectiveness of such registration statement or document;
(b) The term "Registrable Securities" means (i) the
Shares (if Common Stock) or all shares of Common Stock of the Company issuable
or issued upon conversion of the Shares and (ii) any Common Stock of the Company
issued as (or issuable upon the conversion or exercise of any warrant, right or
other security which is issued as) a dividend or other distribution with respect
to, or in exchange for or in replacement of, any stock referred to in (i).
(c) The terms "Holder" or "Holders" means the Purchaser
or qualifying transferees under subsection 1.8 thereof who hold Registrable
Securities.
(d) The term "SEC" means the Securities and Exchange
Commission.
1.2 COMPANY REGISTRATION.
(a) REGISTRATION. If at any time or from time to time,
the Company shall determine to register any of its securities, for its own
account or the account of any of its shareholders, other than a registration on
Form S-l or S-8 relating solely to employee stock option or purchase plans, or
a registration on Form S-4 relating solely to an SEC Rule 145 transaction, or
a registration on any other form (other than Form S-l, S-2, S-3 or S-18, or
their successor forms) or any successor to such forms, which does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of Registrable Securities, the
Company will:
(i) promptly give to each Holder written notice
thereof (which shall include a list of the jurisdictions in which the Company
intends to attempt to qualify such securities under the applicable blue sky or
other state securities laws); and
<PAGE>
(ii) include in such registration (and compliance),
and in any underwriting involved therein, all the Registrable Securities
specified in a written request or requests, made within 30 days after receipt of
such written notice from the Company, by any Holder or Holders, except as set
forth in subsection 1.2(b) below.
(b) UNDERWRITING. If the registration of which the
Company gives notice is for a registered public offering involving an
underwriting, the Company shall so advise the Holders as a part of the written
notice given pursuant to subsection 1.2(a)(i). In such event the right of any
Holder to registration pursuant to this subsection 1.2 shall be conditioned upon
such Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting to the extent provided
herein. All Holders proposing to distribute their securities through such
underwriting shall (together with the Company and the other shareholders
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by the Company.
1.3 EXPENSES OF REGISTRATION. All expenses incurred in
connection with any registration, qualification or compliance pursuant to this
Section 1 including without limitation, all registration, filing and
qualification fees, printing expenses, fees and disbursements of counsel for the
Company and expenses of any special audits incidental to or required by such
registration, shall be borne by the Company except the Company shall not be
required to pay underwriters fees, discounts or commissions relating to
Registrable Securities. All expenses of any registered offering not otherwise
borne by the Company shall be borne pro rata among the Holders participating in
the offering and the Company.
1.4 REGISTRATION PROCEDURES. In the case of each registration,
qualification or compliance effected by the Company pursuant to this
Registration Rights Agreement, the Company will keep each Holder participating
therein advised in writing as to the initiation of each registration,
qualification and compliance and as to the completion thereof. Except as
otherwise provided in subsection 1.3, at its expense the Company will:
(a) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective, and, upon the request of the
Holders of a majority of the Registrable Securities registered thereunder, keep
such registration statement effective for up to 120 days.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required in connection therewith
or as a condition thereto qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
2
<PAGE>
(e) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement
(f) Notify each Holder of Registrable Securities covered
by such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act or the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
1.5 INDEMNIFICATION.
(a) The Company will indemnify each Holder of Registrable
Securities and each of its officers, directors and partners, and each person
controlling such Holder, with respect to which such registration, qualification
or compliance has been effected pursuant to this Rights Agreement, and each
underwriter, if any, and each person who controls any underwriter of the
Registrable Securities held by or issuable to such Holder, against all claims,
losses, expenses, damages and liabilities (or actions in respect thereto)
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any prospectus, offering circular or offer document
(including any related registration statement, notification or the like)
incident to any such registration, qualification or compliance, or based on any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statement therein not misleading, or any
violation or alleged violation by the Company of the Securities Act, the
Securities Exchange Act of 1934, as amended, ("Exchange Act") or any state
securities law applicable to the Company or any rule or regulation promulgated
under the Securities Act, the Exchange Act or any such state law and relating to
action or inaction required of the Company in connection with any such
registration, qualification of compliance, and will reimburse each such Holder.
each of its officers, directors and partners, and each person controlling such
Holder, each such underwriter and each person who controls any such underwriter,
within a reasonable amount of time after incurred for any reasonable legal and
any other expenses incurred in connection with investigating, defending or
settling any such claim, loss, damage, liability or action; provided, however,
that the indemnity agreement contained in this subsection 1.5(a) shall not apply
to amounts paid in settlement of any such claim, loss, damage, liability, or
action if such settlement is effected without the consent of the Company (which
consent shall not be unreasonably withheld); and provided further, that the
Company will not be liable in any such case to the extent that any such claim,
loss, damage or liability arises out of or is based on any untrue statement or
omission based upon written information furnished to the Company by an
instrument duly executed by such Holder or underwriter specifically for use
therein.
(b) Each Holder will, if Registrable Securities held by
or issuable to such Holder are included in the securities as to which such
registration, qualification or compliance is being effected, indemnify the
Company, each of its directors and officers, each underwriter, if any, of the
Company's securities covered by such a registration statement, each person who
controls the Company within the meaning of the Securities Act, and each other
such Holder, each of its officers, directors and partners and each person
controlling such Holder, against all claims, losses, expenses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Company, such Holders, such directors,
officers, partners, persons or underwriters for any reasonable legal or any
other expenses incurred in connection with investigating, defending or settling
any such claim, loss, damage, liability or action, in each case to the extent,
but only to the extent, that such untrue statement (or alleged untrue statement)
or omission (or alleged omission) is made in such registration statement,
3
<PAGE>
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by such Holder specifically for use therein; provided, however,
that the indemnity agreement contained in this subsection 1.5(b) shall not apply
to amounts paid in settlement of any such claim, loss, damage, liability or
action if such settlement is effected without the consent of the Holder, (which
consent shall not be unreasonably withheld); and provided further, that the
total amount for which any Holder shall be liable under this subsection 1.5(b)
shall not in any event exceed the aggregate proceeds received by such Holder
from the sale of Registrable Securities held by such Holder in such
registration.
(c) Each party entitled to indemnification under this
subsection 1.5 (the "Indemnified Party") shall give notice to the party required
to provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom; provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not be
unreasonably withheld), and the Indemnified Party may participate in such
defense at such party's expense; and provided further, that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
indemnifying Party of its obligations hereunder, unless such failure resulted in
prejudice to the Indemnifying Party; and provided further, that an Indemnified
Party (together with all other Indemnified Parties which may be represented
without conflict by one counsel) shall have the right to retain one separate
counsel, with the fees and expenses to be paid by the Indemnifying Party, if
representation of such indemnified Party by the counsel retained by the
Indemnifying Party would be inappropriate due to actual or potential differing
interests between such indemnified Party and any other party represented by such
counsel in such proceeding. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability in respect to such
claim or litigation.
1.6 INFORMATION BY HOLDER. Any Holder or Holders of
Registrable Securities included in any registration shall promptly furnish to
the Company such information regarding such Holder or Holders and the
distribution proposed by such Holder or Holders as the Company may request in
writing and as shall be required in connection with any registration,
qualification or compliance referred to herein.
1.7 RULE 144 REPORTING. With a view to making available to
Holders the benefits of certain rules and regulations of the SEC which may
permit the sale of the Registrable Securities to the public without
registration, the Company agrees at all times to:
(a) make and keep public information available, as those
terms are understood and defined in SEC Rule 144, after 90 days after the
effective date of the first registration filed by the Company for an offering of
its securities to the general public;
(b) file with the SEC in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements); and
(c) so long as a Holder owns any Registrable Securities,
to furnish to such Holder forthwith upon request a written statement by the
Company as to its compliance with the reporting requirements of said Rule 144
(at any time after 90 days after the effective date of the first registration
statement filed by the Company for an offering of its securities to the general
public), and of the Securities Act and the Exchange Act (at any time after it
has become subject to such reporting requirements), a copy of the most recent
annual or quarterly report of the Company, and such other reports and documents
so
4
<PAGE>
filed by the Company as the Holder may reasonably request in complying with any
rule or regulation of the SEC allowing the Holder to sell any such securities
without registration.
1.8 TRANSFER OF REGISTRATION RIGHTS. Holders' rights to cause
the Company to register their securities and keep information available, granted
to them by the Company under subsections 1.2 and 1.7 may be assigned to a
transferee or assignee of a Holder's Registrable Securities not sold to the
public, provided, that the Company is given written notice by such Holder at the
time of or within a reasonable time after said transfer, stating the name and
address of said transferee or assignee and identifying the securities with
respect to which such registration rights are being assigned. The Company may
prohibit the transfer of any Holders' rights under this subsection 1.8 to any
proposed transferee or assignee who the Company reasonably believes is a
competitor of the Company.
2. GENERAL.
2.1 WAIVERS AND AMENDMENTS. With the written consent of the
record or beneficial holders of at least a majority of the Registrable
Securities, the obligations of the Company and the rights of the Holders of the
Registrable Securities under this agreement may be waived (either generally or
in a particular instance, either retroactively or prospectively, and either for
a specified period of time or indefinitely), and with the same consent the
Company, when authorized by resolution of its Board of Directors, may enter into
a supplementary agreement for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Agreement;
provided, however, that no such modification, amendment or waiver shall reduce
the aforesaid percentage of Registrable Securities without the consent of all of
the Holders of the Registrable Securities. Upon the effectuation of each such
waiver, consent, agreement of amendment or modification, the Company shall
promptly give written notice thereof to the record holders of the Registrable
Securities who have not previously consented thereto in writing. This Agreement
or any provision hereof may be changed, waived, discharged or terminated only by
a statement in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought, except to the extent
provided in this subsection 2. 1.
2.2 GOVERNING LAW. This Agreement shall be governed in all
respects by the laws of the State of California as such laws are applied to
agreements between California residents entered into and to be performed
entirely within California.
2.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, assigns, heirs, executors and administrators of
the parties hereto.
2.4 ENTIRE AGREEMENT. Except as set forth below, this
Agreement and the other documents delivered pursuant hereto constitute the full
and entire understanding and agreement between the parties with regard to the
subjects hereof and thereof.
2.5 NOTICES, ETC. All notices and other communications
required or permitted hereunder shall be in writing and shall be mailed by first
class mail, postage prepaid, certified or registered mail, return receipt
requested, addressed (a) if to Holder, at such Holder's address as set forth
below, at such other address as such Holder shall have furnished to the Company
in writing, or (b) if to the Company, at the Company's address set forth below,
or at such other address as the Company shall have furnished to the Holder in
writing.
2.6 SEVERABILITY. In case any provision of this Agreement
shall be invalid, illegal, or unenforceable, the validity, legality and
enforceability of the remaining provisions of this Agreement or any provision of
the other Agreement s shall not in any way be affected or impaired thereby.
5
<PAGE>
2.7 TITLES AND SUBTITLES. The titles of the sections and
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
2.8 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
PURCHASER COMPANY
SILICON VALLEY BANK WIRELESS, INC.
By: By: /S/ WILLIAM E. GIBSON
----------------------- ---------------------------
Name: Name: WILLIAM E. GIBSON
----------------------- ---------------------------
Title: Title: PRESIDENT & CHIEF EXECUTIVE
--------------------- ------------------------------
By: /S/ CHARLES PAI
Name: CHARLES PAI
Title: CFO
Address: Address:
3003 Tasman Drive 19 Davis Drive
Santa Clara, CA 95054-1191 Belmont, CA 94002
6
<PAGE>
EXHIBIT 4.8
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
THE CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE STOCK
Corporation: WIRELESS, INC., A CALIFORNIA CORPORATION
Number of Shares: 20,000 SHARES
Class of Stock: PREFERRED STOCK, SERIES E
Initial Exercise Price: $2.50 PER SHARE
Issue Date: SEPTEMBER 13, 1999
Expiration Date: SEPTEMBER 13, 2004
THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and for
other good and valuable consideration, SILICON VALLEY BANK ("Holder") is
entitled to purchase the number of fully paid and nonassessable shares of the
class of securities (the "Shares") of the corporation (the "Company") at the
initial exercise price per Share (the "Warrant Price") all as set forth above
and as adjusted pursuant to Article 2 of this Warrant, subject to the provisions
and upon the terms and conditions set forth in this Warrant.
ARTICLE 1. EXERCISE.
1.1 METHOD OF EXERCISE. Holder may exercise this Warrant by delivering
a duly executed Nonce of Exercise in substantially the form attached as Appendix
1 to the principal office of the Company. Unless Holder is exercising the
conversion right set forth in Section 1.2, Holder shall also deliver to the
Company a check for the aggregate Warrant Price for the Shares being purchased.
1.2 CONVERSION RIGHT. In lieu of exercising this Warrant as specified
in Section 1.1, Holder may from time to time convert this Warrant, in whole or
in part, into a number of Shares determined by dividing (a) the aggregate fair
market value of the Shares or other securities otherwise issuable upon exercise
of this Warrant minus the aggregate Warrant Price of such Shares by (b) the fair
market value of one Share. The fair market value of the Shares shall be
determined pursuant to Section 1.4.
1.3 INTENTIONALLY OMITTED
1.4 FAIR MARKET VALUE. If the Shares are traded in a public market,
the fair market value of the Shares shall be the closing price of the Shares (or
the closing price of the Company's stock into which the Shares are convertible)
reported for the business day immediately before Holder delivers its Notice of
Exercise to the Company. If the Shares are not
<PAGE>
traded in a public market, the Board of Directors of the Company shall determine
fair market value in its reasonable good faith judgment. The foregoing
notwithstanding, if Holder advises the Board of Directors in writing that Holder
disagrees with such determination, then the Company and Holder shall promptly
agree upon a reputable investment banking firm to undertake such valuation. If
the valuation of such investment banking firm is greater than that determined by
the Board of Directors, then all fees and expenses of such investment banking
firm shall be paid by the Company. In all other circumstances, such fees and
expenses shall be paid by Holder.
1.5 DELIVERY OF CERTIFICATE AND NEW WARRANT. Promptly after Holder
exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.
1.6 REPLACEMENT OF WARRANTS. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of mutilation, on surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new warrant of like tenor.
1.7 REPURCHASE ON SALE, MERGER, OR CONSOLIDATION OF THE COMPANY.
1.7.1. "ACQUISITION". For the purpose of this Warrant,
"Acquisition" means any sale, license, or other disposition of all
or substantially all of the assets of the Company, or any reorganization,
consolidation, or merger of the Company where the holders of the Company's
securities before the transaction beneficially own less than 50% of the
outstanding voting securities of the surviving entity after the transaction.
1.7.2. ASSUMPTION OF WARRANT. Upon the closing of any Acquisition
the successor entity shall assume the obligations of this Warrant, and this
Warrant shall be exercisable for the same securities, cash, and property as
would be payable for the Shares issuable upon exercise of the unexercised
portion of this Warrant as if such Shares were outstanding on the record date
for the Acquisition and subsequent closing. The Warrant Price shall be adjusted
accordingly.
1.7.3. PURCHASE RIGHT. Notwithstanding the foregoing, at the
election of Holder, the Company shall purchase the unexercised portion of this
Warrant for cash upon the closing of any Acquisition for an amount equal to (a)
the fair marker value of any consideration that would have been received by
Holder in consideration of the Shares had Holder exercised the unexercised
portion of this Warrant immediately before the record date for determining the
shareholders entitled to participate in the proceeds of the Acquisition, less
(b) the aggregate Warrant Price of the Shares, but in no event less than zero.
ARTICLE 2. ADJUSTMENTS TO THE SHARES.
2
<PAGE>
2.1 STOCK DIVIDENDS, SPLITS, ETC. If the Company declares or
pays a dividend on its common stock (or the Shares if the Shares are securities
other than common stock) payable in common stock, or other securities,
subdivides the outstanding common stock into a greater amount of common stock,
or, if the Shares are securities other than common stock, subdivides, the Shares
in a transaction that increases the amount of common stock into which the Shares
are convertible, then upon exercise of this Warrant, for each Share acquired,
Holder shall receive, without cost to Holder, the total number and kind of
securities to which Holder would have been entitled had Holder owned the Shares
of record as of the date the dividend or subdivision occurred.
2.2 RECLASSIFICATION, EXCHANGE OR SUBSTITUTION. Upon any
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant, Holder shall be entitled to receive, upon exercise
or conversion of this Warrant, the number and kind of securities and property
that Holder would have received for the Shares, if this Warrant had been
exercised immediately before such reclassification, exchange, substitution, or
other event. Such an event shall include any automatic conversion of the
outstanding or issuable securities of the Company of the same class or series as
the Shares to common stock pursuant to the terms of the Company's Articles of
Incorporation upon the closing of a registered public offering of the Company's
common stock. The Company or its successor shall promptly issue to Holder a new
Warrant for such new securities or other property. The new Warrant shall provide
for adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article 2 including, without limitation,
adjustments to the Warrant Price, and to the number of securities or property
issuable upon exercise of the new Warrant. The provisions of this Section 2.2
shall similarly apply to successive reclassifications, exchanges, substitution,
or other events.
2.3 ADJUSTMENTS FOR COMBINATIONS, ETC. If the outstanding Shares are
combined or consolidated by reclassification or otherwise, into a lesser number
of shares, the Warrant Price shall be proportionately increased.
2.4 ADJUSTMENTS FOR DILUTING ISSUANCES. The Warrant Price and the
number of Shares issuable upon exercise of this Warrant or, if the Shares are
Preferred Stock, the number of shares of common stock issuable upon conversion
of the Shares, shall be subject to adjustment, from time to time in the manner
set forth on Exhibit A in the event of Diluting Issuances (as defined on Exhibit
A).
3
<PAGE>
2.5 NO IMPAIRMENT. The Company shall not, by amendment of its Articles
of Incorporation or through a reorganization, transfer of assets, consolidation,
merger, dissolution, issue, or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed under this Warrant by the Company, but shall at all times
in good faith assist in carrying out of all the provisions of this Article 2 and
in taking all such action as may be necessary or appropriate to protect Holder's
rights under this Article against impairment. If the Company takes any action
affecting the Shares or its common stock other than as described above that
adversely affects Holder's rights under this Warrant, the Warrant Price shall be
adjusted downward and the number of Shares issuable upon exercise of this
Warrant shall be adjusted upward in such a manner that the aggregate Warrant
Price of this Warrant is unchanged.
2.6 FRACTIONAL SHARES. No fractional Shares shall be issuable upon
exercise or conversion of the Warrant and the number of Shares to be issued
shall be rounded down to the nearest whole Share. If a fractional share interest
arises upon any exercise or conversion of the Warrant, the Company shall
eliminate such fractional share interest by paying Holder amount computed by
multiplying the fractional interest by the fair market value of a full Share.
2.7 CERTIFICATE AS TO ADJUSTMENTS. Upon each adjustment of the Warrant
Price, the Company at its expense shall promptly compute such adjustment, and
furnish Holder with a certificate of its Chief Financial Officer setting forth
such adjustment and the facts upon which such adjustment is based. The Company
shall, upon written request, furnish Holder a certificate setting forth the
Warrant Price in effect upon the date thereof and the series of adjustments
leading to such Warrant Price.
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
3.1 REPRESENTATIONS AND WARRANTIES. The Company hereby represents and
warrants to the Holder as follows:
(a) The initial Warrant Price referenced on the first page of this
Warrant is not greater than (i) the price per share at which the Shares were
last issued in an arms-length transaction in which at least $500,000 of the
Shares were sold and (ii) the fair market value of the Shares as of the date of
this Warrant.
(b) All Shares which may be issued upon the exercise of the
purchase rights represented by this Warrant, and all securities, if any,
issuable upon conversion of the Shares, shall, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable, and free of any liens
and encumbrances except for restrictions on transfer provided for herein or
under applicable federal and state securities laws.
(c) The Capitalization Table attached to this Warrant is true and
complete as of the Issue Date.
4
<PAGE>
3.2 NOTICE OF CERTAIN EVENTS. If the Company proposes at any time (a)
to declare any dividend or distribution upon its common stock, whether in cash,
property, stock, or other securities and whether or not a regular cash dividend;
(b) to offer for subscription pro rata to the holders of any class or series of
its stock any additional shares of stock of any class or series or other rights;
(c) to effect any reclassification or recapitalization of common stock; (d) to
merge or consolidate with or into any other corporation, or sell, lease,
license, or convey, all or substantially all of its assets, or to liquidate,
dissolve or wind up; or (e) offer holders of registration rights the opportunity
to participate in an underwritten public offering of the company's securities
for cash, then, in connection with each such event, the Company shall give
Holder (1) at least 20 days prior written notice of the date on which a record
will be taken for such dividend, distribution, or subscription rights (and
specifying the date on which the holders of common stock will be entitled
thereto) or for determining rights to vote, if any, in respect of the matters
referred to in (c) and (d) above; (2) in the case of the matters referred to in
(c) and (d) above at least 20 days prior written notice of the date when the
same will take place (and specifying the date on which the holders of common
stock will be entitled to exchange their common stock for securities or other
property deliverable upon the occurrence of such event); and (3) in the case of
the matter referred to in (e) above, the same notice as is given to the holders
of such registration rights.
3.3 INFORMATION RIGHTS. So long as the Holder holds this Warrant
and/or any of the Shares, the Company shall deliver to the Holder (a) promptly
after mailing, copies of all notices or other written communications to the
shareholders of the Company, (b) within ninety (90) days after the end of each
fiscal year of the Company, the annual audited financial statements of the
Company certified by independent public accountants of recognized standing and
(c) such other financial statements required under and in accordance with any
loan documents between Holder and the Company (or if there are no such
requirements [or if the subject loan(s) no longer are outstanding]), then within
forty-five (45) days after the end of each of the first three quarters of each
fiscal year, the Company's quarterly, unaudited financial statements.
3.4 REGISTRATION UNDER SECURITIES ACT OF 1933, AS AMENDED. The Company
agrees that the Shares or, if the Shares are convertible into common stock of
the Company, such common stock, shall be subject to the registration rights set
forth on Exhibit B, if attached.
ARTICLE 4. MISCELLANEOUS.
4.1 TERM; NOTICE OF EXPIRATION. This Warrant is exercisable, in whole
or in part, at any time and from time to time on or before the Expiration Date
set forth above. The Company shall give Holder written notice of Holder's right
to exercise this Warrant in the form attached as Appendix 2 not more than 90
days and not less than 30 days before the Expiration Date. If the notice is not
so given, the Expiration Date shall automatically be extended until 30 days
after the date the Company delivers the notice to Holder.
4.2 LEGENDS. This Warrant and the Shares (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) shall be
imprinted with a legend in substantially the following form:
5
<PAGE>
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF I933, AS
AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION AND ITS
COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
4.3 COMPLIANCE WITH SECURITIES LAWS ON TRANSFER. This Warrant and the
Shares issuable upon exercise this Warrant (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company, as reasonably
requested by the Company). The Company shall not require Holder to provide an
opinion of counsel if the transfer is to an affiliate of Holder or if there is
no material question as to the availability of current information as referenced
in Rule 144(c), Holder represents that it has complied with Rule 144(d) and (e)
in reasonable detail, the selling broker represents that it has complied with
Rule 144(f), and the Company is provided with a copy of Holder's notice of
proposed sale.
4.4 TRANSFER PROCEDURE. Subject to the provisions of Section 4.3,
Holder may transfer all or part of this Warrant or the Shares issuable upon
exercise of this Warrant (or the securities issuable, directly or indirectly,
upon conversion of the Shares, if any) by giving the Company notice of the
portion of the Warrant being transferred setting forth the name, address and
taxpayer identification number of the transferee and surrendering the Warrant to
the Company for reissuance to the transferee(s) (and Holder, if applicable);
PROVIDED, HOWEVER, that Holder may transfer all or part of this Warrant to its
affiliates, including, without limitation, Silicon Valley Bancshares and The
Silicon Valley Bank Foundation, at any time without notice to the Company. The
terms and conditions of this Warrant shall inure to the benefit of, and be
binding upon, the Company and the holders hereof and their respective permitted
successors and assigns.
4.5 NOTICES. All notices and other communications from the Company to
the Holder, or vice versa, shall be deemed delivered and effective when given
personally or mailed by first-class registered or certified mail, postage
prepaid, at such address as may have been furnished to the Company or the
Holder, as the case may be, in writing by the Company or such holder from time
to time. All notices to Holder should be sent to the following address:
Treasury Department
Silicon Valley Bank
3003 Tasman Drive HG110
Santa Clara, CA 95054
6
<PAGE>
4.6 WAIVER. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
4.7 ATTORNEYS FEES. In the event of any dispute between the parties
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonable attorneys' fees.
4.8 GOVERNING LAW. This Warrant shall be governed by and construed in
accordance with the laws of the State of California, without giving effect to
its principles regarding conflicts of law.
"COMPANY"
WIRELESS, INC.
By: /s/ WILLIAM E. GIBSON
--------------------------------------
Name:
--------------------------------------
(Print)
Title: Chairman of the Board, President or
Vice President
By: /s/ CHARLES PAI
--------------------------------------
Name: CHARLES PAI
--------------------------------------
(Print)
Title: Chief Financial Officer, Secretary,
Assistant Treasurer or Assistant
Secretary
7
<PAGE>
APPENDIX 1
NOTICE OF EXERCISE
1. The undersigned hereby elects to purchase _____________ shares of the
Common/Series ________ Preferred [strike one] Stock of ________________________
pursuant to the terms of the attached Warrant, and tenders herewith payment of
the purchase price of such shares in full.
1. The undersigned hereby elects to convert the attached Warrant into
Shares/cash [strike one] in the manner specified in the Warrant. This conversion
is exercised with respect to _______________________ of the Shares covered by
the Warrant.
[Strike paragraph that does not apply.]
2. Please issue a certificate or certificates representing said shares in
the name of the undersigned or in such other name as is specified below:
------------------------------------------
(Name)
------------------------------------------
------------------------------------------
(Address)
3. The undersigned represents it is acquiring the shares solely for its
own account and not as a nominee for any other party and not with a view
toward the resale or distribution thereof except in compliance with applicable
securities laws.
---------------------------------
(Signature)
-------------------------
(Date)
<PAGE>
APPENDIX 2
NOTICE THAT WARRANT IS ABOUT TO EXPIRE
_____________,__
(Name of Holder)
(Address of Holder)
Attn: Chief Financial Officer
Dear: _____________________
This is to advise you that the Warrant issued
to you described below will expire on _____________________, 19__.
Issuer:
Issue Date:
Class of Security Issuable:
Exercise Price per Share:
Number of Shares Issuable:
Procedure for Exercise:
Please contact [name of contact person at (phone number)] with any
questions you may have concerning exercise of the Warrant. This is your only
notice of pending expiration.
-------------------------------------------
(Name of Issuer)
By:
-------------------------------------------
Its:
-------------------------------------------
<PAGE>
EXHIBIT A
Anti-Dilution Provisions
In the event of the issuance (a "Diluting Issuance") by the Company, after
the Issue Date of the Warrant of securities at a price per share less than the
Warrant Price, or, if the Shares are common stock, less than the then conversion
price of the Company's Series ___ Preferred Stock, then the number of shares of
common stock issuable upon conversion of the Shares, or if the Shares are common
stock, the number of Shares issuable upon exercise of the Warrant, shall be
adjusted as a result of Diluting Issuances in accordance with the Holder's
standard form of Anti-Dilution Agreement in effect on the Issue Date.
Under no circumstances shall the aggregate Warrant Price payable by the
Holder upon exercise of the Warrant increase as a result of any adjustment
arising from a Diluting Issuance.
<PAGE>
SILICON VALLEY BANK
ANTIDILUTION AGREEMENT
THIS ANTIDILUTION AGREEMENT is entered into as of September 13, 1999, by
and between SILICON VALLEY BANK ("Purchaser") and Wireless, Inc.
RECITALS
A. Concurrently with the execution of this Antidilution Agreement, the
Purchaser is purchasing from the Company a Warrant to Purchase Stock (the
"Warrant")pursuant to which Purchaser has the right to acquire from the Company
the Shares (as defined in the Warrant).
B. By this Antidilution Agreement, the Purchaser and the Company desire to
set forth the adjustment in the number of Shares issuable upon exercise of the
Warrant as a result of a Diluting Issuance (as defined in Exhibit A to the
Warrant).
C. Capitalized terms used herein shall have the same meaning as set forth
in the Warrant.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions hereinafter set forth, the parties hereto mutually agree as follows:
1. DEFINITIONS. As used in this Antidilution Agreement, the following
terms have the following respective meanings:
(a) "Option" means any right, option, or warrant to subscribe
for, purchase, or otherwise acquire common stock or Convertible Securities.
(b) "Convertible Securities" means any evidences of indebtedness,
shares of stock, or other securities directly or indirectly convertible into or
exchangeable for common stock.
(c) "Issue" means to grant, issue, sell, assume, or fix a record
date for determining persons entitled to receive, any security (including
Options), whichever of the foregoing is the first to occur.
(d) "Additional Common Shares" means all common stock (including
reissued shares) issued (or deemed to be issued pursuant to Section 2) after the
date of the Warrant. Additional Common Shares does not include, however, any
common stock issued in a transaction described in Sections 2.1 and 2.2 of the
Warrant; any common stock Issued upon conversion of preferred stock outstanding
on the date of the Warrant; the Shares: or common stock Issued as incentive or
in a nonfinancing transaction to employees, officers, directors, or consultants
to the Company.
<PAGE>
10.6 TITLES AND SUBTITLES. The titles of the sections [illegible]
Agreement are for convenience of reference only and are not to be
cons[illegible] Antidilution Agreement.
10.7 COUNTERPARTS. This Antidiultion Agreement n[illegible]
number of counterparts, each of which shall be an original, but all [illegible]
constitute one instrument.
PURCHASER COMPANY
SILICON VALLEY BANK WIRELESS, INC.
By: /s/ Matthew Grignon By: /s/ William E. Gibson
--------------------------- ------------------------------
Name: Matthew Grignon Name:
------------------------- ----------------------------
(print) (print)
Title: Title: Chairman of the Board, President or
AVP Vice President
- ------------------------------
Address: 3003 Tasman Drive Address:
---------------------- -------------------------
Santa Clara, CA
------------------------- ----------------------------
95054
------------------------- ----------------------------
<PAGE>
EXHIBIT B
REGISTRATION RIGHTS
The Shares (if common stock), or the common stock issuable upon conversion
of the Shares, shall be deemed "registrable securities" or otherwise entitled to
"piggy back" registration rights in accordance with the terms of the following
agreement (the "Agreement") between the Company and its investor(s):
--------------------------------------------------------
[Identify Agreement by date, title and parties. If no
Agreement exists, indicate by "none".]
The Company agrees that no amendments will be made to the Agreement which
would have an adverse impact on Holder's registration rights thereunder without
the consent of Holder. By acceptance of the Warrant to which this Exhibit B is
attached. Holder shall be deemed to be a party to the Agreement, unless Holder
otherwise elects not to become or to cease being a party thereto.
If no Agreement exists, then the Company and the Holder shall enter into
Holder's standard form of Registration Rights Agreement as in effect on the
Issue Date of the Warrant.
<PAGE>
EXHIBIT 10.1
WIRELESS, INC.
2000 STOCK INCENTIVE PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 2000 Stock Incentive Plan is intended to promote the
interests of Wireless, Inc., a Delaware corporation, by providing eligible
persons with the opportunity to acquire a proprietary interest, or otherwise
increase their proprietary interest, in the Corporation as an incentive for them
to remain in the service of the Corporation.
Capitalized terms shall have the meanings assigned to such
terms in the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into five separate equity
programs:
(i) the Discretionary Option Grant Program under which
eligible persons may, at the discretion of the Plan
Administrator, be granted options to purchase shares of Common
Stock,
(ii) the Salary Investment Option Grant Program under
which eligible employees may elect to have a portion of their
base salary invested each year in special options,
(iii) the Stock Issuance Program under which eligible
persons may, at the discretion of the Plan Administrator, be
issued shares of Common Stock directly, either through the
immediate purchase of such shares or as a bonus for services
rendered the Corporation (or any Parent or Subsidiary),
(iv) the Automatic Option Grant Program under which
eligible non-employee Board members shall automatically
receive options at periodic intervals to purchase shares of
Common Stock; and
(v) the Director Fee Option Grant Program under which
non-employee Board members may elect to have all or any
portion of their annual retainer fee otherwise payable in cash
applied to a special option grant.
B. The provisions of Articles One and Seven shall apply to all
equity programs under the Plan and shall govern the interests of all persons
under the Plan.
<PAGE>
III. ADMINISTRATION OF THE PLAN
A. The following provisions shall govern the administration of
the Plan:
(i) The Board shall have the authority to administer the
Discretionary Option Grant and Stock Issuance Programs with
respect to Section 16 Insiders but may delegate such authority
in whole or in part to the Primary Committee.
(ii) Administration of the Discretionary Option Grant
and Stock Issuance Programs with respect to all other persons
eligible to participate in those programs may, at the Board's
discretion, be vested in the Primary Committee or a Secondary
Committee, or the Board may retain the power to administer
those programs with respect to all such persons.
(iii) The Primary Committee shall have the sole and
exclusive authority to determine which Section 16 Insiders and
other highly compensated Employees shall be eligible for
participation in the Salary Investment Option Grant Program
for one or more calendar years. However, all option grants
under the Salary Investment Option Grant Program shall be made
in accordance with the express terms of that program, and the
Primary Committee shall not exercise any discretionary
functions with respect to the option grants made under that
program.
(iv) Administration of the Automatic Option Grant and
Director Fee Option Grant Programs shall be self-executing in
accordance with the terms of those programs.
B. Each Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full power and authority
subject to the provisions of the Plan:
(i) to establish such rules as it may deem appropriate
for proper administration of the Plan, to make all factual
determinations, to construe and interpret the provisions of
the Plan and the awards thereunder and to resolve any and all
ambiguities thereunder;
(ii) to determine, with respect to awards made under the
Discretionary Option Grant and Stock Issuance Programs, which
eligible persons are to receive such awards, the time or times
when such awards are to be made, the number of shares to be
covered by each such award, the vesting schedule (if any)
applicable to the award, the status of a granted option as
either an Incentive Option or a Non-Statutory Option and the
maximum term for which the option is to remain outstanding;
(iii) to amend, modify or cancel any outstanding award
with the consent of the holder or accelerate the vesting of
such award; and
2
<PAGE>
(iv) to take such other discretionary actions as
permitted pursuant to the terms of the applicable program.
Decisions of each Plan Administrator within the scope of its administrative
functions under the Plan shall be final and binding on all parties.
C. Members of the Primary Committee or any Secondary Committee
shall serve for such period of time as the Board may determine and may be
removed by the Board at any time. The Board may also at any time terminate the
functions of any Secondary Committee and reassume all powers and authority
previously delegated to such committee.
D. Service on the Primary Committee or the Secondary Committee
shall constitute service as a Board member, and members of each such committee
shall accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any options or stock issuances under the Plan.
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary
Option Grant and Stock Issuance Programs are as follows:
(i) Employees,
(ii) non-employee members of the Board or the board of
directors of any Parent or Subsidiary, and
(iii) consultants and other independent advisors who
provide services to the Corporation (or any Parent or
Subsidiary).
B. Only Employees who are Section 16 Insiders or other highly
compensated individuals shall be eligible to participate in the Salary
Investment Option Grant Program.
C. Only non-employee Board members shall be eligible to
participate in the Automatic Option Grant and Director Fee Option Grant
Programs.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock, including shares repurchased
by the Corporation on the open market. The maximum number of shares of Common
Stock initially reserved for issuance over the term of the Plan shall not exceed
[8,750,000] shares. Such authorized share reserve consists of (i) the number of
shares which remain available for issuance, as of the Plan Effective Date, under
the Predecessor Plan, including the shares subject to the outstanding options to
be incorporated into the Plan and the additional shares which would otherwise be
available for future grant, plus (ii) an increase of [ ] shares authorized by
the Board subject to stockholder approval prior to the Section 12 Registration
Date.
3
<PAGE>
B. The number of shares of Common Stock available for issuance
under the Plan shall automatically increase on the first trading day of each
calendar year during the term of the Plan, beginning with the 2001 calendar
year, by an amount equal to [three percent (3%)] of the shares of Common Stock
outstanding on the last trading day of the immediately preceding calendar year,
but in no event shall any such annual increase exceed [ ] shares.
C. No one person participating in the Plan may receive
options, separately exercisable stock appreciation rights and direct stock
issuances for more than [ ] shares of Common Stock in the aggregate per calendar
year, beginning with the 2000 calendar year.
D. Shares of Common Stock subject to outstanding options
(including options incorporated into this Plan from the Predecessor Plan) shall
be available for subsequent issuance under the Plan to the extent those options
expire, terminate or are cancelled for any reason prior to exercise in full.
Unvested shares issued under the Plan and subsequently repurchased by the
Corporation, at the original exercise or issue price paid per share, pursuant to
the Corporation's repurchase rights under the Plan shall be added back to the
number of shares of Common Stock reserved for issuance under the Plan and shall
accordingly be available for reissuance through one or more subsequent options
or direct stock issuances under the Plan. However, should the exercise price of
an option under the Plan be paid with shares of Common Stock or should shares of
Common Stock otherwise issuable under the Plan be withheld by the Corporation in
satisfaction of the withholding taxes incurred in connection with the exercise
of an option or the vesting of a stock issuance under the Plan, then the number
of shares of Common Stock available for issuance under the Plan shall be reduced
by the gross number of shares for which the option is exercised or which vest
under the stock issuance, and not by the net number of shares of Common Stock
issued to the holder of such option or stock issuance. Shares of Common Stock
underlying one or more stock appreciation rights exercised under the Plan shall
NOT be available for subsequent issuance.
E. If any change is made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration, appropriate adjustments
shall be made to (i) the maximum number and/or class of securities issuable
under the Plan, (ii) the number and/or class of securities by which the share
reserve is to increase each calendar year pursuant to the automatic share
increase provisions of the Plan, (iii) the number and/or class of securities for
which any one person may be granted options, separately exercisable stock
appreciation rights and direct stock issuances under the Plan per calendar year,
(iv) the number and/or class of securities for which grants are subsequently to
be made under the Automatic Option Grant Program to new and continuing
non-employee Board members, (v) the number and/or class of securities and the
exercise price per share in effect under each outstanding option under the Plan
and (vi) the number and/or class of securities and price per share in effect
under each outstanding option incorporated into this Plan from the Predecessor
Plan. Such adjustments to the outstanding options are to be effected in a manner
which shall preclude the enlargement or dilution of rights and benefits under
such options. The adjustments determined by the Plan Administrator shall be
final, binding and conclusive.
4
<PAGE>
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the
form approved by the Plan Administrator; PROVIDED, however, that each such
document shall comply with the terms specified below. Each document evidencing
an Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. EXERCISE PRICE.
1. The exercise price per share shall be fixed by the
Plan Administrator at the time of the option grant, but shall
not be less than one hundred percent (100%) of the Fair Market
Value per share of Common Stock on the grant date.
2. The exercise price shall become immediately due upon
exercise of the option and shall, subject to the provisions of
Section II of Article Seven and the documents evidencing the
option, be payable in cash or check made payable to the
Corporation. Should the Common Stock be registered under
Section 12 of the 1934 Act at the time the option is
exercised, then the exercise price may also be paid as
follows:
(i) shares of Common Stock held for the requisite
period necessary to avoid a charge to the Corporation's
earnings for financial reporting purposes and valued at
Fair Market Value on the Exercise Date, or
(ii) to the extent the option is exercised for
vested shares, through a special sale and remittance
procedure pursuant to which the Optionee shall
concurrently provide irrevocable instructions to (a) a
Corporation-approved brokerage firm to effect the
immediate sale of the purchased shares and remit to the
Corporation, out of the sale proceeds available on the
settlement date, sufficient funds to cover the aggregate
exercise price payable for the purchased shares plus all
applicable Federal, state and local income and
employment taxes required to be withheld by the
Corporation by reason of such exercise and (b) the
Corporation to deliver the certificates for the
purchased shares directly to such brokerage firm in
order to complete the sale.
Except to the extent such sale and remittance procedure is
utilized, payment of the exercise price for the purchased
shares must be made on the Exercise Date.
B. EXERCISE AND TERM OF OPTIONS. Each option shall be
exercisable at such time or times, during such period and for such number of
shares as shall be determined by the Plan Administrator and set forth in the
documents evidencing the option. However, no option shall have a term in excess
of ten (10) years measured from the option grant date.
C. CESSATION OF SERVICE.
5
<PAGE>
1. The following provisions shall govern the exercise of
any options outstanding at the time of the Optionee's
cessation of Service or death:
(i) Any option outstanding at the time of the
Optionee's cessation of Service for any reason shall
remain exercisable for such period of time thereafter as
shall be determined by the Plan Administrator and set
forth in the documents evidencing the option, but no
such option shall be exercisable after the expiration of
the option term.
(ii) Any option exercisable in whole or in part by
the Optionee at the time of death may be subsequently
exercised by his or her Beneficiary.
(iii) During the applicable post-Service exercise
period, the option may not be exercised in the aggregate
for more than the number of vested shares for which the
option is exercisable on the date of the Optionee's
cessation of Service. Upon the expiration of the
applicable exercise period or (if earlier) upon the
expiration of the option term, the option shall
terminate and cease to be outstanding for any vested
shares for which the option has not been exercised.
However, the option shall, immediately upon the
Optionee's cessation of Service, terminate and cease to
be outstanding to the extent the option is not otherwise
at that time exercisable for vested shares.
(iv) Should the Optionee's Service be terminated
for Misconduct or should the Optionee engage in
Misconduct while his or her options are outstanding,
then all such options shall terminate immediately and
cease to be outstanding.
2. The Plan Administrator shall have complete
discretion, exercisable either at the time an option is
granted or at any time while the option remains outstanding:
(i) to extend the period of time for which the
option is to remain exercisable following the Optionee's
cessation of Service to such period of time as the Plan
Administrator shall deem appropriate, but in no event
beyond the expiration of the option term, and/or
(ii) to permit the option to be exercised, during
the applicable post-Service exercise period, for one or
more additional installments in which the Optionee would
have vested had the Optionee continued in Service.
D. STOCKHOLDER RIGHTS. The holder of an option shall have no
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.
E. REPURCHASE RIGHTS. The Plan Administrator shall have the
discretion to grant options which are exercisable for unvested shares of Common
Stock. Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price paid per
share, any or all of those unvested shares. The terms
6
<PAGE>
upon which such repurchase right shall be exercisable (including the period and
procedure for exercise and the appropriate vesting schedule for the purchased
shares) shall be established by the Plan Administrator and set forth in the
document evidencing such repurchase right.
F. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of
the Optionee, Incentive Options shall be exercisable only by the Optionee and
shall not be assignable or transferable other than to a Beneficiary following
the Optionee's death. Non-Statutory Options shall be subject to the same
restrictions, except that a Non-Statutory Option may, to the extent permitted by
the Plan Administrator, be assigned in whole or in part during the Optionee's
lifetime (i) as a gift to one or more members of the Optionee's immediate
family, to a trust in which Optionee and/or one or more such family members hold
more than fifty percent (50%) of the beneficial interest or to an entity in
which more than fifty percent (50%) of the voting interests are owned by one or
more such family members or (ii) pursuant to a domestic relations order. The
terms applicable to the assigned portion shall be the same as those in effect
for the option immediately prior to such assignment and shall be set forth in
such documents issued to the assignee as the Plan Administrator may deem
appropriate.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Six shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options when
issued under the Plan shall NOT be subject to the terms of this Section II.
A. ELIGIBILITY. Incentive Options may only be granted to
Employees.
B. EXERCISE PRICE. The exercise price per share shall not be
less than one hundred percent (100%) of the Fair Market Value per share of
Common Stock on the option grant date.
C. DOLLAR LIMITATION. The aggregate Fair Market Value of the
shares of Common Stock (determined as of the respective date or dates of grant)
for which one or more options granted to any Employee under the Plan (or any
other option plan of the Corporation or any Parent or Subsidiary) may for the
first time become exercisable as Incentive Options during any one calendar year
shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the
extent the Employee holds two (2) or more such options which become exercisable
for the first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
D. 10% STOCKHOLDER. If any Employee to whom an Incentive
Option is granted is a 10% Stockholder, then the exercise price per share shall
not be less than one hundred ten percent (110%) of the Fair Market Value per
share of Common Stock on the option grant date, and the option term shall not
exceed five (5) years measured from the option grant date.
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III. CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. Each option outstanding at the time of a Change in Control
but not otherwise fully-vested shall automatically accelerate so that each such
option shall, immediately prior to the effective date of the Change in Control,
become exercisable for all of the shares of Common Stock at the time subject to
that option and may be exercised for any or all of those shares as fully-vested
shares of Common Stock. However, an outstanding option shall not so accelerate
if and to the extent: (i) such option is, in connection with the Change in
Control, assumed or otherwise continued in full force and effect by the
successor corporation (or parent thereof) pursuant to the terms of the Change in
Control, (ii) such option is replaced with a cash incentive program of the
successor corporation which preserves the spread existing at the time of the
Change in Control on the shares of Common Stock for which the option is not
otherwise at that time exercisable and provides for subsequent payout in
accordance with the same vesting schedule applicable to those option shares or
(iii) the acceleration of such option is subject to other limitations imposed by
the Plan Administrator at the time of the option grant. Each option outstanding
at the time of the Change in Control shall terminate as provided in Section
III.C. of this Article Two.
B. All outstanding repurchase rights shall also terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event of any Change in Control, except to
the extent: (i) those repurchase rights are assigned to the successor
corporation (or parent thereof) or otherwise continue in full force and effect
pursuant to the terms of the Change in Control or (ii) such accelerated vesting
is precluded by other limitations imposed by the Plan Administrator at the time
the repurchase right is issued.
C. Immediately following the consummation of the Change in
Control, all outstanding options shall terminate and cease to be outstanding,
except to the extent assumed by the successor corporation (or parent thereof) or
otherwise expressly continued in full force and effect pursuant to the terms of
the Change in Control.
D. Each option which is assumed in connection with a Change in
Control shall be appropriately adjusted, immediately after such Change in
Control, to apply to the number and class of securities which would have been
issuable to the Optionee in consummation of such Change in Control had the
option been exercised immediately prior to such Change in Control. Appropriate
adjustments to reflect such Change in Control shall also be made to (i) the
exercise price payable per share under each outstanding option, PROVIDED the
aggregate exercise price payable for such securities shall remain the same, (ii)
the maximum number and/or class of securities available for issuance over the
remaining term of the Plan and (iii) the maximum number and/or class of
securities for which any one person may be granted options, separately
exercisable stock appreciation rights and direct stock issuances under the Plan
per calendar year.
E. The Plan Administrator may at any time provide that one or
more options will automatically accelerate in full or in part in connection with
a Change in Control, whether or not those options are assumed or otherwise
continued in full force and effect pursuant to the terms of the Change in
Control. Any such option shall accordingly become exercisable,
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<PAGE>
immediately prior to the effective date of such Change in Control, for all or
part of the shares of Common Stock at the time subject to that option and may be
exercised for some or all of those shares as fully-vested shares of Common
Stock. In addition, the Plan Administrator may at any time provide that one or
more of the Corporation's repurchase rights shall not be assignable in
connection with such Change in Control and shall terminate upon the consummation
of such Change in Control.
F. The Plan Administrator may at any time provide that one or
more options will automatically accelerate in full or in part upon an
Involuntary Termination of the Optionee's Service within a designated period
(not to exceed eighteen (18) months) following the effective date of any Change
in Control in which those options do not otherwise accelerate. Any options so
accelerated shall remain exercisable for fully-vested shares until the EARLIER
of (i) the expiration of the option term or (ii) the expiration of the one (1)
year period measured from the effective date of the Involuntary Termination. In
addition, the Plan Administrator may at any time provide that one or more of the
Corporation's repurchase rights shall immediately terminate upon such
Involuntary Termination.
G. The Plan Administrator may at any time provide that one or
more options will automatically accelerate in full or in part in connection with
a Hostile Take-Over. Any such option shall become exercisable, immediately prior
to the effective date of such Hostile Take-Over, for all or part of the shares
of Common Stock at the time subject to that option and may be exercised for some
or all of those shares as fully-vested shares of Common Stock. In addition, the
Plan Administrator may at any time provide that one or more of the Corporation's
repurchase rights shall terminate automatically upon the consummation of such
Hostile Take-Over. Alternatively, the Plan Administrator may condition such
automatic acceleration and termination upon an Involuntary Termination of the
Optionee's Service within a designated period (not to exceed eighteen (18)
months) following the effective date of such Hostile Take-Over. Each option so
accelerated shall remain exercisable for fully-vested shares until the
expiration or sooner termination of the option term.
H. The portion of any Incentive Option accelerated in
connection with a Change in Control or Hostile Take Over shall remain
exercisable as an Incentive Option only to the extent the applicable One Hundred
Thousand Dollar ($100,000) limitation is not exceeded. To the extent such dollar
limitation is exceeded, the accelerated portion of such option shall be
exercisable as a Non-Statutory Option under the Federal tax laws.
IV. STOCK APPRECIATION RIGHTS
The Plan Administrator may, subject to such conditions as it
may determine, grant to selected Optionees stock appreciation rights which will
allow the holders of those rights to elect between the exercise of the
underlying option for shares of Common Stock and the surrender of that option in
exchange for a distribution from the Corporation in an amount equal to the
excess of (a) the Option Surrender Value of the number of shares for which the
option is surrendered over (b) the aggregate exercise price payable for such
shares. The distribution may be made in shares of Common Stock valued at Fair
Market Value on the option surrender date, in cash, or partly in shares and
partly in cash, as the Plan Administrator shall in its sole discretion deem
appropriate.
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ARTICLE THREE
SALARY INVESTMENT OPTION GRANT PROGRAM
I. OPTION GRANTS
The Primary Committee may implement the Salary Investment
Option Grant Program for one or more calendar years beginning after the
Underwriting Date and select the Section 16 Insiders and other highly
compensated Employees eligible to participate in the Salary Investment Option
Grant Program for each such calendar year. Each selected individual who elects
to participate in the Salary Investment Option Grant Program must, prior to the
start of each calendar year of participation, file with the Plan Administrator
(or its designate) an irrevocable authorization directing the Corporation to
reduce his or her base salary for that calendar year by an amount not less than
Ten Thousand Dollars ($10,000.00) nor more than Fifty Thousand Dollars
($50,000.00). The Primary Committee shall have complete discretion to determine
whether to approve the filed authorization in whole or in part. To the extent
the Primary Committee approves the authorization, the individual who filed that
authorization shall be granted an option under the Salary Investment Grant
Program on the first trading day in January for the calendar year for which the
salary reduction is to be in effect.
II. OPTION TERMS
Each option shall be a Non-Statutory Option evidenced by one
or more documents in the form approved by the Plan Administrator; PROVIDED,
however, that each such document shall comply with the terms specified below.
A. EXERCISE PRICE.
1. The exercise price per share shall be thirty-three
and one-third percent (33-1/3%) of the Fair Market Value per
share of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon
exercise of the option and shall be payable in one or more of
the alternative forms authorized under the Discretionary
Option Grant Program. Except to the extent the sale and
remittance procedure specified thereunder is utilized, payment
of the exercise price for the purchased shares must be made on
the Exercise Date.
B. NUMBER OF OPTION SHARES. The number of shares of Common
Stock subject to the option shall be determined pursuant to the following
formula (rounded down to the nearest whole number):
X = A / (B x 66-2/3%), where
X is the number of option shares,
A is the dollar amount of the approved reduction in the
Optionee's base salary for the calendar year, and
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B is the Fair Market Value per share of Common Stock on
the option grant date.
C. EXERCISE AND TERM OF OPTIONS. The option shall become
exercisable in a series of twelve (12) successive equal monthly installments
upon the Optionee's completion of each calendar month of Service in the calendar
year for which the salary reduction is in effect. Each option shall have a
maximum term of ten (10) years measured from the option grant date.
D. CESSATION OF SERVICE. Each option outstanding at the time
of the Optionee's cessation of Service shall remain exercisable, for any or all
of the shares for which the option is exercisable at the time of such cessation
of Service, until the EARLIER of (i) the expiration of the option term or (ii)
the expiration of the three (3)-year period following the Optionee's cessation
of Service. To the extent the option is held by the Optionee at the time of his
or her death, the option may be exercised by his or her Beneficiary. However,
the option shall, immediately upon the Optionee's cessation of Service,
terminate and cease to remain outstanding with respect to any and all shares of
Common Stock for which the option is not otherwise at that time exercisable.
III. CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Change in Control or Hostile Take-Over
while the Optionee remains in Service, each outstanding option shall
automatically accelerate so that each such option shall, immediately prior to
the effective date of the Change in Control or Hostile Take-Over, become fully
exercisable with respect to the total number of shares of Common Stock at the
time subject to such option and may be exercised for any or all of those shares
as fully-vested shares of Common Stock. Each such option accelerated in
connection with a Change in Control shall terminate upon the Change in Control,
except to the extent assumed by the successor corporation (or parent thereof) or
otherwise continued in full force and effect pursuant to the terms of the Change
in Control. Each such option accelerated in connection with a Hostile Take-Over
shall remain exercisable until the expiration or sooner termination of the
option term.
B. Each option which is assumed in connection with a Change in
Control shall be appropriately adjusted to apply to the number and class of
securities which would have been issuable to the Optionee in consummation of
such Change in Control had the option been exercised immediately prior to such
Change in Control. Appropriate adjustments shall also be made to the exercise
price payable per share under each outstanding option, PROVIDED the aggregate
exercise price payable for such securities shall remain the same.
C. Upon the occurrence of a Hostile Take-Over, the Optionee
shall have a thirty (30)-day period in which to surrender to the Corporation
each of his or her outstanding options. The Optionee shall in return be entitled
to a cash distribution from the Corporation in an amount equal to the excess of
(i) the Option Surrender Value of the shares of Common Stock at the time subject
to each surrendered option (whether or not the Optionee is otherwise at the time
vested in those shares) over (ii) the aggregate exercise price payable for such
shares. Such cash distribution shall be paid within five (5) days following the
surrender of the option to the Corporation.
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IV. REMAINING TERMS
The remaining terms of each option granted under the Salary
Investment Option Grant Program shall be the same as the terms in effect for
options made under the Discretionary Option Grant Program.
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ARTICLE FOUR
STOCK ISSUANCE PROGRAM
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance
Program through direct and immediate issuances without any intervening options.
Shares of Common Stock may also be issued under the Stock Issuance Program
pursuant to share right awards which entitle the recipients to receive those
shares upon the attainment of designated performance goals or Service
requirements. Each such award shall be evidenced by one or more documents which
comply with the terms specified below.
A. PURCHASE PRICE.
1. The purchase price per share of Common Stock subject
to direct issuance shall be fixed by the Plan Administrator,
but shall not be less than one hundred percent (100%) of the
Fair Market Value per share of Common Stock on the issuance
date.
2. Subject to the provisions of Section II of Article
Seven, shares of Common Stock may be issued under the Stock
Issuance Program for any of the following items of
consideration which the Plan Administrator may deem
appropriate in each individual instance:
(i) cash or check made payable to the Corporation,
or
(ii) past services rendered to the Corporation (or
any Parent or Subsidiary).
B. VESTING/ISSUANCE PROVISIONS.
1. The Plan Administrator may issue shares of Common
Stock which are fully and immediately vested upon issuance or
which are to vest in one or more installments over the
Participant's period of Service or upon attainment of
specified performance objectives. Alternatively, the Plan
Administrator may issue share right awards which shall entitle
the recipient to receive a specified number of vested shares
of Common Stock upon the attainment of one or more performance
goals or Service requirements established by the Plan
Administrator.
2. Any new, substituted or additional securities or
other property (including money paid other than as a regular
cash dividend) which the Participant may have the right to
receive with respect to his or her unvested shares of Common
Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or
other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration shall be
issued subject to (i) the same vesting requirements applicable
to the Participant's unvested shares of Common Stock and (ii)
such escrow arrangements as the Plan Administrator shall deem
appropriate.
3. The Participant shall have full stockholder rights
with respect to the issued shares of Common Stock, whether or
not the Participant's interest in those shares is
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<PAGE>
vested. Accordingly, the Participant shall have the right to
vote such shares and to receive any regular cash dividends
paid on such shares.
4. Should the Participant cease to remain in Service
while holding one or more unvested shares of Common Stock, or
should the performance objectives not be attained with respect
to one or more such unvested shares of Common Stock, then
those shares shall be immediately surrendered to the
Corporation for cancellation, and the Participant shall have
no further stockholder rights with respect to those shares. To
the extent the surrendered shares were previously issued to
the Participant for consideration paid in cash or cash
equivalent (including the Participant's purchase-money
indebtedness), the Corporation shall repay to the Participant
the cash consideration paid for the surrendered shares and
shall cancel the unpaid principal balance of any outstanding
purchase-money note of the Participant attributable to the
surrendered shares.
5. The Plan Administrator may waive the surrender and
cancellation of one or more unvested shares of Common Stock
(or other assets attributable thereto) which would otherwise
occur upon the cessation of the Participant's Service or the
non-attainment of the performance objectives applicable to
those shares. Such waiver shall result in the immediate
vesting of the Participant's interest in the shares of Common
Stock as to which the waiver applies. Such waiver may be
effected at any time, whether before or after the
Participant's cessation of Service or the attainment or
non-attainment of the applicable performance objectives.
6. Outstanding share right awards shall automatically
terminate, and no shares of Common Stock shall actually be
issued in satisfaction of those awards, if the performance
goals or Service requirements established for such awards are
not attained. The Plan Administrator, however, shall have the
authority to issue shares of Common Stock in satisfaction of
one or more outstanding share right awards as to which the
designated performance goals or Service requirements are not
attained.
II. CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. All of the Corporation's outstanding repurchase rights
shall terminate automatically, and all the shares of Common Stock subject to
those terminated rights shall immediately vest in full, in the event of any
Change in Control, except to the extent (i) those repurchase rights are assigned
to the successor corporation (or parent thereof) or otherwise continue in full
force and effect pursuant to the terms of the Change in Control or (ii) such
accelerated vesting is precluded by other limitations imposed by the Plan
Administrator at the time the repurchase right is issued.
B. The Plan Administrator may at any time provide for the
automatic termination of one or more of those outstanding repurchase rights and
the immediate vesting of the shares of Common Stock subject to those terminated
rights upon (i) a Change in Control or Hostile Take-Over or (ii) an Involuntary
Termination of the Participant's Service within a designated period (not to
exceed eighteen (18) months) following the effective date of any Change in
Control or Hostile Take-Over in which those repurchase rights are assigned to
the successor corporation (or parent thereof) or otherwise continue in full
force and effect.
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III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion,
be held in escrow by the Corporation until the Participant's interest in such
shares vests or may be issued directly to the Participant with restrictive
legends on the certificates evidencing those unvested shares.
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<PAGE>
ARTICLE FIVE
AUTOMATIC OPTION GRANT PROGRAM
I. OPTION TERMS
A. GRANT DATES. Options shall be made on the dates specified
below:
1. Each individual who is first elected or appointed as
a non-employee Board member at any time after the Underwriting
Date shall automatically be granted, on the date of such
initial election or appointment, a Non-Statutory Option to
purchase [twenty thousand (20,000)] shares of Common Stock,
provided that individual has not previously been in the employ
of the Corporation (or any Parent or Subsidiary).
2. On the date of each Annual Stockholders Meeting held
after the Underwriting Date, each individual who is to
continue to serve as a non-employee Board member, whether or
not that individual is standing for re-election to the Board,
shall automatically be granted a Non-Statutory Option to
purchase [five thousand (5,000)] shares of Common Stock,
provided such individual has served as a non-employee Board
member for at least six (6) months.
B. EXERCISE PRICE.
1. The exercise price per share shall be equal to one
hundred percent (100%) of the Fair Market Value per share of
Common Stock on the option grant date.
2. The exercise price shall be payable in one or more of
the alternative forms authorized under the Discretionary
Option Grant Program. Except to the extent the sale and
remittance procedure specified thereunder is utilized, payment
of the exercise price for the purchased shares must be made on
the Exercise Date.
C. OPTION TERM. Each option shall have a term of ten (10)
years measured from the option grant date.
D. EXERCISE AND VESTING OF OPTIONS. Each option shall be
immediately exercisable for any or all of the option shares. However, any shares
purchased under the option shall be subject to repurchase by the Corporation, at
the exercise price paid per share, upon the Optionee's cessation of Board
service prior to vesting in those shares. Each initial 20,000 share grant shall
vest, and the Corporation's repurchase right shall lapse, in a series of four
(4) successive equal annual installments over the Optionee's period of continued
service as a Board member, with the first such installment to vest upon the
Optionee's completion of one (1) year of Board service measured from the option
grant date. Each annual 5,000 share option grant shall vest, and the
Corporation's repurchase right shall lapse upon the Optionee's completion of one
(1) year of Board service measured from the option grant date.
E. CESSATION OF BOARD SERVICE. The following provisions shall
govern the exercise of any options outstanding at the time of the Optionee's
cessation of Board service:
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(i) Any option outstanding at the time of the Optionee's
cessation of Board service for any reason shall remain
exercisable for a twelve (12)-month period following the date
of such cessation of Board service, but in no event shall such
option be exercisable after the expiration of the option term.
(ii) Any option exercisable in whole or in part by the
Optionee at the time of death may be subsequently exercised by
his or her Beneficiary.
(iii) Following the Optionee's cessation of Board
service, the option may not be exercised in the aggregate for
more than the number of shares for which the option was
exercisable on the date of such cessation of Board service.
Upon the expiration of the applicable exercise period or (if
earlier) upon the expiration of the option term, the option
shall terminate and cease to be outstanding for any vested
shares for which the option has not been exercised. However,
the option shall, immediately upon the Optionee's cessation of
Board service, terminate and cease to be outstanding for any
and all shares for which the option is not otherwise at that
time exercisable.
(iv) However, should the Optionee cease to serve as a
Board member by reason of death or Permanent Disability, then
all shares at the time subject to the option shall immediately
vest so that such option may, during the twelve (12)-month
exercise period following such cessation of Board service, be
exercised for all or any portion of those shares as
fully-vested shares of Common Stock.
II. CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Change in Control or Hostile Take-Over,
the shares of Common Stock at the time subject to each outstanding option but
not otherwise vested shall automatically vest in full so that each such option
may, immediately prior to the effective date of such Change in Control or
Hostile Take-Over, became fully exercisable for all of the shares of Common
Stock at the time subject to such option and maybe exercised for all or any of
those shares as fully-vested shares of Common Stock. Each such option
accelerated in connection with a Change in Control shall terminate upon the
Change in Control, except to the extent assumed by the successor corporation (or
parent thereof) or otherwise continued in full force and effect pursuant to the
terms of the Change in Control. Each such option accelerated in connection with
a Hostile Take-Over shall remain exercisable until the expiration or sooner
termination of the option term.
B. All outstanding repurchase rights shall automatically
terminate and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event of any Change in Control or Hostile
Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the Optionee
shall have a thirty (30)-day period in which to surrender to the Corporation
each of his or her outstanding
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<PAGE>
options. The Optionee shall in return be entitled to a cash distribution from
the Corporation in an amount equal to the excess of (i) the Option Surrender
Value of the shares of Common Stock at the time subject to each surrendered
option (whether or not the option is otherwise at the time exercisable for those
shares) over (ii) the aggregate exercise price payable for such shares. Such
cash distribution shall be paid within five (5) days following the surrender of
the option to the Corporation.
D. Each option which is assumed in connection with a Change in
Control shall be appropriately adjusted to apply to the number and class of
securities which would have been issuable to the Optionee in consummation of
such Change in Control had the option been exercised immediately prior to such
Change in Control. Appropriate adjustments shall also be made to the exercise
price payable per share under each outstanding option, PROVIDED the aggregate
exercise price payable for such securities shall remain the same.
III. REMAINING TERMS
The remaining terms of each option granted under the Automatic
Option Grant Program shall be the same as the terms in effect for options made
under the Discretionary Option Grant Program.
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ARTICLE SIX
DIRECTOR FEE OPTION GRANT PROGRAM
I. OPTION GRANTS
The Board may implement the Director Fee Option Grant Program
as of the first day of any calendar year beginning after the Underwriting Date.
Upon such implementation of the Program, each non-employee Board member may
elect to apply all or any portion of the annual retainer fee otherwise payable
in cash for his or her service on the Board to the acquisition of a special
option grant under this Director Fee Option Grant Program. Such election must be
filed with the Corporation's Chief Financial Officer prior to the first day of
the calendar year for which the election is to be in effect. Each non-employee
Board member who files such a timely election with respect to the annul retainer
fee shall automatically be granted an option under this Director Fee Option
Grant Program on the first trading day in January in the calendar year for which
that fee would otherwise be payable.
II. OPTION TERMS
Each option shall be a Non-Statutory Option governed by the
terms and conditions specified below.
A. EXERCISE PRICE.
1. The exercise price per share shall be thirty-three
and one-third percent (33-1/3%) of the Fair Market Value per
share of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon
exercise of the option and shall be payable in one or more of
the alternative forms authorized under the Discretionary
Option Grant Program. Except to the extent the sale and
remittance procedure specified thereunder is utilized, payment
of the exercise price for the purchased shares must be made on
the Exercise Date.
B. NUMBER OF OPTION SHARES. The number of shares of Common
Stock subject to the option shall be determined pursuant to the following
formula (rounded down to the nearest whole number):
X = A / (B x 66-2/3%), where
X is the number of option shares,
A is the portion of the annual retainer fee subject to the
non-employee Board member's election, and
B is the Fair Market Value per share of Common Stock on the
option grant date.
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C. EXERCISE AND TERM OF OPTIONS. The option shall become
exercisable in a series of twelve (12) successive equal monthly installments
upon the Optionee's completion of each month of Board service during the
calendar year in which the option is granted. Each option shall have a maximum
term of ten (10) years measured from the option grant date.
D. CESSATION OF BOARD SERVICE. Should the Optionee cease Board
service for any reason (other than death or Permanent Disability) while holding
one or more options, then each such option shall remain exercisable, for any or
all of the shares for which the option is exercisable at the time of such
cessation of Board service, until the EARLIER of (i) the expiration of the ten
(10)-year option term or (ii) the expiration of the three (3)-year period
measured from the date of such cessation of Board service. However, each option
held by the Optionee at the time of such cessation of Board service shall
immediately terminate and cease to remain outstanding with respect to any and
all shares of Common Stock for which the option is not otherwise at that time
exercisable.
E. DEATH OR PERMANENT DISABILITY. Should the Optionee's
service as a Board member cease by reason of death or Permanent Disability, then
each option held by such Optionee shall immediately become exercisable for all
the shares of Common Stock at the time subject to that option, and the option
may be exercised for any or all of those shares as fully-vested shares until the
EARLIER of (i) the expiration of the ten (10)-year option term or (ii) the
expiration of the three (3)-year period measured from the date of such cessation
of Board service.
Should the Optionee die after cessation of Board service but
while holding one or more options, then each such option may be exercised, for
any or all of the shares for which the option is exercisable at the time of the
Optionee's cessation of Board service (less any shares subsequently purchased by
Optionee prior to death), by the Optionee's Beneficiary. Such right of exercise
shall lapse, and the option shall terminate, upon the EARLIER of (i) the
expiration of the ten (10)-year option term or (ii) the three (3)-year period
measured from the date of the Optionee's cessation of Board service.
III. CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Change in Control or Hostile Take-Over
while the Optionee remains in Board service, each outstanding option held by
such Optionee shall automatically accelerate so that each such option shall,
immediately prior to the effective date of the Change in Control or Hostile
Take-Over, become fully exercisable with respect to the total number of shares
of Common Stock at the time subject to such option and may be exercised for any
or all of those shares as fully-vested shares of Common Stock. Each such option
accelerated in connection with a Change in Control shall terminate upon the
Change in Control, except to the extent assumed by the successor corporation (or
parent thereof) or otherwise expressly continued in full force and effect
pursuant to the terms of the Change in Control. Each such option accelerated in
connection with a Hostile Take-Over shall remain exercisable until the
expiration or sooner termination of the option term.
B. Upon the occurrence of a Hostile Take-Over, the Optionee
shall have a thirty (30)-day period in which to surrender to the Corporation
each of his or her outstanding options. The Optionee shall in return be entitled
to a cash distribution from the Corporation in an
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amount equal to the excess of (i) the Option Surrender Value of the shares of
Common Stock at the time subject to each surrendered option (whether or not the
Optionee is otherwise at the time vested in those shares) over (ii) the
aggregate exercise price payable for such shares. Such cash distribution shall
be paid within five (5) days following the surrender of the option to the
Corporation.
IV. REMAINING TERMS
The remaining terms of each option granted under this Director
Fee Option Grant Program shall be the same as the terms in effect for options
made under the Discretionary Option Grant Program.
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ARTICLE SEVEN
MISCELLANEOUS
I. NO IMPAIRMENT OF AUTHORITY
Outstanding awards shall in no way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
II. FINANCING
The Plan Administrator may permit any Optionee or Participant
to pay the option exercise price under the Discretionary Option Grant Program or
the purchase price of shares issued under the Stock Issuance Program by
delivering a full-recourse, interest bearing promissory note payable in one or
more installments. The terms of any such promissory note (including the interest
rate and the terms of repayment) shall be established by the Plan Administrator
in its sole discretion. In no event may the maximum credit available to the
Optionee or Participant exceed the sum of (i) the aggregate option exercise
price or purchase price payable for the purchased shares plus (ii) any Federal,
state and local income and employment tax liability incurred by the Optionee or
the Participant in connection with the option exercise or share purchase.
III. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common
Stock upon the exercise of options or the issuance or vesting of such shares
under the Plan shall be subject to the satisfaction of all applicable Federal,
state and local income and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion, provide any
or all holders of Non-Statutory Options or unvested shares of Common Stock under
the Plan with the right to use shares of Common Stock in satisfaction of all or
part of the Withholding Taxes incurred by such holders in connection with the
exercise of their options or the vesting of their shares. Such right may be
provided to any such holder in either or both of the following formats:
STOCK WITHHOLDING: The election to have the Corporation
withhold, from the shares of Common Stock otherwise issuable upon
the exercise of such Non-Statutory Option or the vesting of such
shares, a portion of those shares with an aggregate Fair Market
Value equal to the percentage of the Withholding Taxes (not to
exceed one hundred percent (100%) designated by the holder.
STOCK DELIVERY: The election to deliver to the Corporation, at
the time the Non-Statutory Option is exercised or the shares vest,
one or more shares of Common Stock previously acquired by such
holder (other than in connection with the option exercise or share
vesting triggering the Withholding Taxes) with an aggregate Fair
Market Value equal to the percentage of the Taxes (not to exceed one
hundred percent (100%)) designated by the holder.
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IV. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan shall become effective immediately upon the Plan
Effective Date. However, the Salary Investment Option Grant and Director Fee
Option Grant Programs shall not be implemented until such time as the Primary
Committee or the Board may deem appropriate. Options may be granted under the
Discretionary Option Grant Program at any time on or after the Plan Effective
Date. However, no options granted under the Plan may be exercised, and no shares
shall be issued under the Plan, until the Plan is approved by the Corporation's
stockholders. If such stockholder approval is not obtained within twelve (12)
months after the Plan Effective Date, then all options previously granted under
this Plan shall terminate and cease to be outstanding, and no further options
shall be granted and no shares shall be issued under the Plan.
B. The Plan shall serve as the successor to the Predecessor
Plan, and no further options or direct stock issuances shall be made under the
Predecessor Plan after the Plan Effective Date. All options outstanding under
the Predecessor Plan on the Plan Effective Date shall be incorporated into the
Plan at that time and shall be treated as outstanding options under the Plan.
However, each outstanding option so incorporated shall continue to be governed
solely by the terms of the documents evidencing such option, and no provision of
the Plan shall be deemed to affect or otherwise modify the rights or obligations
of the holders of such incorporated options with respect to their acquisition of
shares of Common Stock.
C. One or more provisions of the Plan, including (without
limitation) the option/vesting acceleration provisions of Article Two relating
to Changes in Control, may, in the Plan Administrator's discretion, be extended
to one or more options incorporated from the Predecessor Plan which do not
otherwise contain such provisions.
D. The Plan shall terminate upon the EARLIEST of (i) January
1, 2010, (ii) the date on which all shares available for issuance under the Plan
shall have been issued as fully-vested shares or (iii) the termination of all
outstanding options in connection with a Change in Control. Upon such plan
termination, all outstanding options and unvested stock issuances shall
thereafter continue to have force and effect in accordance with the provisions
of the documents evidencing such grants or issuances.
V. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects. However, no such
amendment or modification shall adversely affect the rights and obligations with
respect to stock options or unvested stock issuances at the time outstanding
under the Plan unless the Optionee or the Participant consents to such amendment
or modification. In addition, certain amendments may require stockholder
approval pursuant to applicable laws or regulations.
B. Options to purchase shares of Common Stock may be granted
under the Discretionary Option Grant and Salary Investment Option Grant Programs
and shares of Common Stock may be issued under the Stock Issuance Program that
are in each instance in excess of the number of shares then available for
issuance under the Plan, provided any excess
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shares actually issued under those programs shall be held in escrow until there
is obtained stockholder approval of an amendment sufficiently increasing the
number of shares of Common Stock available for issuance under the Plan. If such
stockholder approval is not obtained within twelve (12) months after the date
the first such excess issuances are made, then (i) any unexercised options
granted on the basis of such excess shares shall terminate and cease to be
outstanding and (ii) the Corporation shall promptly refund to the Optionees and
the Participants the exercise or purchase price paid for any excess shares
issued under the Plan and held in escrow, together with interest (at the
applicable Short Term Federal Rate) for the period the shares were held in
escrow, and such shares shall thereupon be automatically cancelled and cease to
be outstanding.
VI. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares of Common Stock under the Plan shall be used for general corporate
purposes.
VII. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any stock
option under the Plan and the issuance of any shares of Common Stock (i) upon
the exercise of any granted option or (ii) under the Stock Issuance Program
shall be subject to the Corporation's procurement of all approvals and permits
required by regulatory authorities having jurisdiction over the Plan, the stock
options granted under it and the shares of Common Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued
or delivered under the Plan unless and until there shall have been compliance
with all applicable requirements of Federal and state securities laws, including
the filing and effectiveness of the Form S-8 registration statement for the
shares of Common Stock issuable under the Plan, and all applicable listing
requirements of any stock exchange (or the Nasdaq National Market, if
applicable) on which Common Stock is then listed for trading.
VIII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the
Participant any right to continue in Service for any period of specific duration
or interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or Subsidiary employing or retaining such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by each,
to terminate such person's Service at any time for any reason, with or without
cause.
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APPENDIX
The following definitions shall be in effect under the Plan:
A. AUTOMATIC OPTION GRANT PROGRAM shall mean the automatic
option grant program in effect under the Plan.
B. BENEFICIARY shall mean, in the event the Plan Administrator
implements a beneficiary designation procedure, the person designated by an
Optionee or Participant, pursuant to such procedure, to succeed to such person's
rights under any outstanding awards held by him or her at the time of death. In
the absence of such designation or procedure, the Beneficiary shall be the
personal representative of the estate of the Optionee or Participant or the
person or persons to whom the award is transferred by will or the laws of
descent and distribution.
C. BOARD shall mean the Corporation's Board of Directors.
D. CHANGE IN CONTROL shall mean a change in ownership or
control of the Corporation effected through any of the following transactions:
(i) a merger, consolidation or reorganization approved
by the Corporation's stockholders, UNLESS securities
representing more than fifty percent (50%) of the total
combined voting power of the voting securities of the
successor corporation are immediately thereafter beneficially
owned, directly or indirectly and in substantially the same
proportion, by the persons who beneficially owned the
Corporation's outstanding voting securities immediately prior
to such transaction,
(ii) any stockholder-approved transfer or other
disposition of all or substantially all of the Corporation's
assets, or
(iii) the acquisition, directly or indirectly by any
person or related group of persons (other than the Corporation
or a person that directly or indirectly controls, is
controlled by, or is under common control with, the
Corporation), of beneficial ownership (within the meaning of
Rule 13d-3 of the 1934 Act) of securities possessing more than
fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities pursuant to a tender or
exchange offer made directly to the Corporation's stockholders
which the Board recommends such stockholders accept.
E. CODE shall mean the Internal Revenue Code of 1986, as
amended.
F. COMMON STOCK shall mean the Corporation's common stock.
G. CORPORATION shall mean Wireless, Inc., a Delaware
corporation, and any corporate successor to all or substantially all of the
assets or voting stock of Wireless, Inc. which shall by appropriate action adopt
the Plan.
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H. DIRECTOR FEE OPTION GRANT PROGRAM shall mean the director
fee option grant program in effect under the Plan.
I. DISCRETIONARY OPTION GRANT PROGRAM shall mean the
discretionary option grant program in effect under the Plan.
J. EMPLOYEE shall mean an individual who is in the employ of
the Corporation (or any Parent or Subsidiary), subject to the control and
direction of the employer entity as to both the work to be performed and the
manner and method of performance.
K. EXERCISE DATE shall mean the date on which the Corporation
shall have received written notice of the option exercise.
L. FAIR MARKET VALUE per share of Common Stock on any relevant
date shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the
Nasdaq National Market, then the Fair Market Value shall be
the closing selling price per share of Common Stock on the
date in question, as such price is reported on the Nasdaq
National Market or any successor system. If there is no
closing selling price for the Common Stock on the date in
question, then the Fair Market Value shall be the closing
selling price on the last preceding date for which such
quotation exists.
(ii) If the Common Stock is at the time listed on any
Stock Exchange, then the Fair Market Value shall be the
closing selling price per share of Common Stock on the date in
question on the Stock Exchange determined by the Plan
Administrator to be the primary market for the Common Stock,
as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no closing selling
price for the Common Stock on the date in question, then the
Fair Market Value shall be the closing selling price on the
last preceding date for which such quotation exists.
M. HOSTILE TAKE-OVER shall mean:
(i) the acquisition, directly or indirectly, by any
person or related group of persons (other than the Corporation
or a person that directly or indirectly controls, is
controlled by, or is under common control with, the
Corporation) of beneficial ownership (within the meaning of
Rule 13d-3 of the 1934 Act) of securities possessing more than
fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities pursuant to a tender or
exchange offer made directly to the Corporation's stockholders
which the Board does not recommend such stockholders to
accept, or
(ii) a change in the composition of the Board over a
period of thirty-six (36) consecutive months or less such that
a majority of the Board members ceases, by reason of one or
more contested elections for Board membership, to be comprised
of individuals who either (A) have been Board
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members continuously since the beginning of such period or (B)
have been elected or nominated for election as Board members
during such period by at least a majority of the Board members
described in clause (A) who were still in office at the time
the Board approved such election or nomination.
N. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
O. INVOLUNTARY TERMINATION shall mean the termination of the
Service of any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge
by the Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following
(A) a change in his or her position with the Corporation or
Parent or Subsidiary employing the individual which materially
reduces his or her duties and responsibilities or the level of
management to which he or she reports, (B) a reduction in his
or her level of compensation (including base salary, fringe
benefits and target bonus under any performance based bonus or
incentive programs) by more than fifteen percent (15%) or (C)
a relocation of such individual's place of employment by more
than fifty (50) miles, provided and only if such change,
reduction or relocation is effected by the Corporation without
the individual's consent.
P. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee or Participant, any unauthorized use
or disclosure by such person of confidential information or trade secrets of the
Corporation (or any Parent or Subsidiary), or any intentional wrongdoing by such
person, whether by omission or commission, which adversely affects the business
or affairs of the Corporation (or any Parent or Subsidiary) in a material
manner. This shall not limit the grounds for the dismissal or discharge of any
person in the Service of the Corporation (or any Parent or Subsidiary).
Q. 1934 ACT shall mean the Securities Exchange Act of 1934, as
amended.
R. NON-STATUTORY OPTION shall mean an option not intended to
satisfy the requirements of Code Section 422.
S. OPTION SURRENDER VALUE shall mean the Fair Market Value per
share of Common Stock on the date the option is surrendered to the Corporation
or, in the event of a Hostile Take-Over, effected through a tender offer, the
highest reported price per share of Common Stock paid by the tender offeror in
effecting such Hostile Take-Over, if greater. However, if the surrendered option
is an Incentive Option, the Option Surrender Value shall not exceed the Fair
Market Value per share.
T. OPTIONEE shall mean any person to whom an option is granted
under the Discretionary Option Grant, Salary Investment Option Grant, Automatic
Option Grant or Director Fee Option Grant Program.
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U. PARENT shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations ending with the Corporation,
provided each corporation in the unbroken chain (other than the Corporation)
owns, at the time of the determination, stock possessing fifty percent (50%) or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
V. PARTICIPANT shall mean any person who is issued shares of
Common Stock under the Stock Issuance Program.
W. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the
inability of the Optionee or the Participant to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of twelve
(12) months or more. However, solely for purposes of the Automatic Option Grant
and Director Fee Option Grant Programs, Permanent Disability or Permanently
Disabled shall mean the inability of the non-employee Board member to perform
his or her usual duties as a Board member by reason of any medically
determinable physical or mental impairment expected to result in death or to be
of continuous duration of twelve (12) months or more.
X. PLAN shall mean the Corporation's 2000 Stock Incentive
Plan, as set forth in this document.
Y. PLAN ADMINISTRATOR shall mean the particular entity,
whether the Primary Committee, the Board or the Secondary Committee, which is
authorized to administer the Discretionary Option Grant, Salary Investment
Option Grant and Stock Issuance Programs with respect to one or more classes of
eligible persons, to the extent such entity is carrying out its administrative
functions under those programs with respect to the persons under its
jurisdiction. However, the Primary Committee shall have the plenary authority to
make all factual determinations and to construe and interpret any and all
ambiguities under the Plan to the extent such authority is not otherwise
expressly delegated to any other Plan Administrator.
Z. PLAN EFFECTIVE DATE shall mean ________, 2000, the date on
which the Plan was adopted by the Board.
AA. PREDECESSOR PLAN shall mean the Corporation's pre-existing
1997 Stock Option/Stock Issuance Plan in effect immediately prior to the Plan
Effective Date hereunder.
BB. PRIMARY COMMITTEE shall mean the committee of two (2) or
more non-employee Board members appointed by the Board to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to Section
16 Insiders and to administer the Salary Investment Option Grant Program with
respect to all eligible individuals.
CC. SALARY INVESTMENT
shall mean the
salary investment grant program in effect under the Plan.
DD. SECONDARY COMMITTEE shall mean a committee of one (1) or
more Board members appointed by the Board to administer the Discretionary Option
Grant and Stock Issuance Programs with respect to eligible persons other than
Section 16 Insiders.
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EE. SECTION 12 REGISTRATION DATE shall mean the date on which
the Common Stock is first registered under Section 12(g) of the 1934 Act.
FF. SECTION 16 INSIDER shall mean an officer or director of
the Corporation subject to the short-swing profit liabilities of Section 16 of
the 1934 Act.
GG. SERVICE shall mean the performance of services for the
Corporation (or any Parent or Subsidiary) by a person in the capacity of an
Employee, a non-employee member of the board of directors or a consultant or
independent advisor, except to the extent otherwise specifically provided in the
documents evidencing the option grant or stock issuance.
HH. STOCK EXCHANGE shall mean either the American Stock
Exchange or the New York Stock Exchange.
II. STOCK ISSUANCE PROGRAM shall mean the stock issuance
program in effect under the Plan.
JJ. SUBSIDIARY shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each corporation (other than the last corporation) in the
unbroken chain owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
KK. 10% STOCKHOLDER shall mean the owner of stock (as
determined under Code Section 424(d)) possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Corporation (or
any Parent or Subsidiary).
LL. UNDERWRITING AGREEMENT shall mean the agreement between
the Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
MM. UNDERWRITING DATE shall mean the date on which the
Underwriting Agreement is executed and priced in connection with an initial
public offering of the Common Stock.
NN. WITHHOLDING TAXES shall mean the Federal, state and local
income and employment withholding tax liabilities to which the holder of
Non-Statutory Options or unvested shares of Common Stock may become subject in
connection with the exercise of those options or the vesting of those shares.
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EXHIBIT 10.2
WIRELESS, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
I. PURPOSE OF THE PLAN
This 2000 Employee Stock Purchase Plan is intended to promote
the interests of Wireless, Inc., a Delaware corporation, by providing eligible
employees with the opportunity to acquire a proprietary interest in the
Corporation through participation in a payroll-deduction based employee stock
purchase plan designed to qualify under Section 423 of the Code.
Capitalized terms herein shall have the meanings assigned to
such terms in the attached Appendix.
II. ADMINISTRATION OF THE PLAN
The Plan Administrator shall have full authority to interpret
and construe any provision of the Plan and to adopt such rules and regulations
for administering the Plan as it may deem necessary in order to comply with the
requirements of Section 423 of the Code. Decisions of the Plan Administrator
shall be final and binding on all parties having an interest in the Plan.
III. STOCK SUBJECT TO PLAN
A. The stock purchasable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock, including shares of Common
Stock purchased on the open market. The maximum number of shares of Common Stock
which may be issued over the term of the Plan shall not exceed 3,000,000 shares.
B. The number of shares of Common Stock available for issuance
under the Plan shall automatically increase on the first trading day of January
each year during the term of the Plan, beginning January 1, 2001, by an amount
equal to two percent (2%) of the total number of shares of Common Stock
outstanding on the last trading day of the immediately preceding calendar year,
but in no event shall any such annual increase exceed 1,300,000 shares.
C. Should any change be made to the Common Stock by reason of
any stock split, stock dividend, recapitalization, combination of shares,
exchange of shares or other change affecting the outstanding Common Stock as a
class without the Corporation's receipt of consideration, appropriate
adjustments shall be made to (i) the maximum number and class of securities
issuable under the Plan, (ii) the maximum number and class of securities
purchasable per Participant and in the aggregate on any one Purchase Date and
(iii) the number and class of securities and the price per share in effect under
each outstanding purchase right in order to prevent the dilution or enlargement
of benefits thereunder.
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IV. OFFERING PERIODS
A. Shares of Common Stock shall be offered for purchase under
the Plan through a series of successive offering periods until such time as (i)
the maximum number of shares of Common Stock available for issuance under the
Plan shall have been purchased or (ii) the Plan shall have been sooner
terminated.
B. Each offering period shall be of such duration (not to
exceed twenty-four (24) months) as determined by the Plan Administrator prior to
the start date of such offering period. However, the initial offering period
shall commence at the Effective Time and terminate on the last business day in
April 2002. Subsequent offering periods shall commence as designated by the
Plan Administrator.
C. Each offering period shall be comprised of a series of one
or more successive Purchase Intervals. Purchase Intervals shall run from the
first business day in May each year to the last business day in October of the
same year and from the first business day in November each year to the last
business day in April of the following year. However, the first Purchase
Interval in effect under the initial offering period shall commence at the
Effective Time and terminate on the last business day in October 2000.
D. Should the Fair Market Value per share of Common Stock on
any Purchase Date within an offering period be less than the Fair Market Value
per share of Common Stock on the start date of that offering period, then that
offering period shall automatically terminate immediately after the purchase of
shares of Common Stock on such Purchase Date, and a new offering period shall
commence on the next business day following such Purchase Date. The new offering
period shall have a duration of twenty (24) months, unless a shorter duration is
established by the Plan Administrator within five (5) business days following
the start date of that offering period.
V. ELIGIBILITY
A. Each individual who is an Eligible Employee on the start
date of an offering period under the Plan may enter that offering period on such
start date or on any subsequent Semi-Annual Entry Date within that offering
period, provided he or she remains an Eligible Employee.
B. Each individual who first becomes an Eligible Employee
after the start date of an offering period may enter that offering period on any
subsequent Semi-Annual Entry Date within that offering period on which he or she
is an Eligible Employee.
C. The date an individual enters an offering period shall be
designated his or her Entry Date for purposes of that offering period.
D. To participate in the Plan for a particular offering
period, the Eligible Employee must complete the enrollment forms prescribed by
the Plan Administrator (including a
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stock purchase agreement and a payroll deduction authorization) and file such
forms with the Plan Administrator (or its designate) on or before his or her
scheduled Entry Date.
VI. PAYROLL DEDUCTIONS
A. The payroll deduction authorized by the Participant for
purposes of acquiring shares of Common Stock during an offering period may be
any multiple of one percent (1%) of the Cash Earnings paid to the Participant
during each Purchase Interval within that offering period, up to a maximum of
ten percent (10%). The deduction rate so authorized shall continue in effect
throughout the offering period, except to the extent such rate is changed in
accordance with the following guidelines:
(i) The Participant may, at any time during the offering
period, reduce his or her rate of payroll deduction to become
effective as soon as possible after filing the appropriate
form with the Plan Administrator. The Participant may not,
however, effect more than one (1) such reduction per Purchase
Interval.
(ii) The Participant may, prior to the commencement of
any new Purchase Interval within the offering period, increase
the rate of his or her payroll deduction by filing the
appropriate form with the Plan Administrator. The new rate
(which may not exceed the ten percent (10%) maximum) shall
become effective on the start date of the first Purchase
Interval following the filing of such form.
B. Payroll deductions shall begin on the first pay day
following the Participant's Entry Date into the offering period and shall
(unless sooner terminated by the Participant) continue through the pay day
ending with or immediately prior to the last day of that offering period. The
amounts so collected shall be credited to the Participant's book account under
the Plan, but no interest shall be paid on the balance from time to time
outstanding in such account. The amounts collected from the Participant shall
not be required to be held in any segregated account or trust fund and may be
commingled with the general assets of the Corporation and used for general
corporate purposes.
C. Payroll deductions shall automatically cease upon the
termination of the Participant's purchase right in accordance with the
provisions of the Plan.
D. The Participant's acquisition of Common Stock under the
Plan on any Purchase Date shall neither limit nor require the Participant's
acquisition of Common Stock on any subsequent Purchase Date, whether within the
same or a different offering period.
VII. PURCHASE RIGHTS
A. GRANT OF PURCHASE RIGHT. A Participant shall be granted a
separate purchase right for each offering period in which he or she
participates. The purchase right shall be granted on the Participant's Entry
Date into the offering period and shall provide the Participant with the right
to purchase shares of Common Stock, in a series of successive
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installments over the remainder of such offering period, upon the terms set
forth below. The Participant shall execute a stock purchase agreement embodying
such terms and such other provisions (not inconsistent with the Plan) as the
Plan Administrator may deem advisable.
Under no circumstances shall purchase rights be granted under
the Plan to any Eligible Employee if such individual would, immediately after
the grant, own (within the meaning of Code Section 424(d)) or hold outstanding
options or other rights to purchase, stock possessing five percent (5%) or more
of the total combined voting power or value of all classes of stock of the
Corporation or any Corporate Affiliate.
B. EXERCISE OF THE PURCHASE RIGHT. Each purchase right shall
be automatically exercised in installments on each successive Purchase Date
within the offering period, and shares of Common Stock shall accordingly be
purchased on behalf of each Participant (other than Participants whose payroll
deductions have previously been refunded pursuant to the Termination of Purchase
Right provisions below) on each such Purchase Date. The purchase shall be
effected by applying the Participant's payroll deductions for the Purchase
Interval ending on such Purchase Date to the purchase of whole shares of Common
Stock at the purchase price in effect for the Participant for that Purchase
Date.
C. PURCHASE PRICE. The purchase price per share at which
Common Stock will be purchased on the Participant's behalf on each Purchase Date
within the offering period shall be equal to eighty-five percent (85%) of the
LOWER of (i) the Fair Market Value per share of Common Stock on the
Participant's Entry Date into that offering period or (ii) the Fair Market Value
per share of Common Stock on that Purchase Date.
D. NUMBER OF PURCHASABLE SHARES. The number of shares of
Common Stock purchasable by a Participant on each Purchase Date during the
offering period shall be the number of whole shares obtained by dividing the
amount collected from the Participant through payroll deductions during the
Purchase Interval ending with that Purchase Date by the purchase price in effect
for the Participant for that Purchase Date. However, the maximum number of
shares of Common Stock purchasable per Participant on any one Purchase Date
shall not exceed 800 shares, subject to periodic adjustments in the event of
certain changes in the Corporation's capitalization. In addition, the maximum
number of shares of Common Stock purchasable in the aggregate by all
Participants on any one Purchase Date shall not exceed 150,000 shares, subject
to periodic adjustments in the event of certain changes in the corporation's
capitalization.
E. EXCESS PAYROLL DEDUCTIONS. Any payroll deductions not
applied to the purchase of shares of Common Stock on any Purchase Date because
they are not sufficient to purchase a whole share of Common Stock shall be held
for the purchase of Common Stock on the next Purchase Date. However, any payroll
deductions not applied to the purchase of Common Stock by reason of the
limitation on the maximum number of shares purchasable on the Purchase Date
shall be promptly refunded.
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F. TERMINATION OF PURCHASE RIGHT. The following provisions
shall govern the termination of outstanding purchase rights:
(i) A Participant may, at any time prior to the next
scheduled Purchase Date in the offering period, terminate his
or her outstanding purchase right by filing the appropriate
form with the Plan Administrator (or its designate), and no
further payroll deductions shall be collected from the
Participant with respect to the terminated purchase right. Any
payroll deductions collected during the Purchase Interval in
which such termination occurs shall, at the Participant's
election, be immediately refunded or held for the purchase of
shares on the next Purchase Date. If no such election is made
at the time such purchase right is terminated, then the
payroll deductions collected with respect to the terminated
right shall be refunded as soon as possible.
(ii) The termination of such purchase right shall be
irrevocable, and the Participant may not subsequently rejoin
the Plan during the Purchase Interval in which the purchase
right was terminated. In order to resume participation in any
subsequent Purchase Interval, such individual must re-enroll
in the Plan (by making a timely filing of the prescribed
enrollment forms) on or before his or her scheduled Entry
Date.
(iii) Should the Participant cease to remain an Eligible
Employee for any reason (including death, disability or change
in status) while his or her purchase right remains
outstanding, then that purchase right shall immediately
terminate, and all of the Participant's payroll deductions for
the Purchase Interval in which the purchase right so
terminates shall be immediately refunded. However, should the
Participant cease to remain in active service by reason of an
approved unpaid leave of absence, then the Participant shall
have the right, exercisable up until the last business day of
the Purchase Interval in which such leave commences, to (a)
withdraw all the payroll deductions collected to date on his
or her behalf for that Purchase Interval or (b) have such
funds held for the purchase of shares on his or her behalf on
the next scheduled Purchase Date. In no event, however, shall
any further payroll deductions be collected on the
Participant's behalf during such leave. Upon the Participant's
return to active service (x) within ninety (90) days following
the commencement of such leave or (y) prior to the expiration
of any longer period for which such Participant's right to
reemployment with the Corporation is guaranteed by statute or
contract, his or her payroll deductions under the Plan shall
automatically resume at the rate in effect at the time the
leave began, unless the Participant withdraws from the Plan
prior to his or her return. An individual who returns to
active employment following a leave of absence which exceeds
in duration the applicable (x) or (y) time period will be
treated as a new Employee for purposes of subsequent
participation in the Plan and must accordingly re-enroll in
the Plan (by making a timely filing of the prescribed
enrollment forms) on or before his or her scheduled Entry Date
into the offering period.
5
<PAGE>
G. CORPORATE TRANSACTION. Each outstanding purchase right
shall automatically be exercised, immediately prior to the effective date of any
Corporate Transaction, by applying the payroll deductions of each Participant
for the Purchase Interval in which such Corporate Transaction occurs to the
purchase of whole shares of Common Stock at a purchase price per share equal to
eighty-five percent (85%) of the LOWER of (i) the Fair Market Value per share of
Common Stock on the Participant's Entry Date into the offering period in which
such Corporate Transaction occurs or (ii) the Fair Market Value per share of
Common Stock immediately prior to the effective date of such Corporate
Transaction. However, the applicable limitations on the number of shares of
Common Stock purchasable per Participant and in the aggregate shall continue to
apply to any such purchase.
The Corporation shall use its best efforts to provide at least
ten (10)-days prior written notice of the occurrence of any Corporate
Transaction, and Participants shall, following the receipt of such notice, have
the right to terminate their outstanding purchase rights prior to the effective
date of the Corporate Transaction.
H. PRORATION OF PURCHASE RIGHTS. Should the total number of
shares of Common Stock to be purchased pursuant to outstanding purchase rights
on any particular date exceed the number of shares then available for issuance
under the Plan, the Plan Administrator shall make a pro-rata allocation of the
available shares on a uniform and nondiscriminatory basis, and the payroll
deductions of each Participant, to the extent in excess of the aggregate
purchase price payable for the Common Stock pro-rated to such individual, shall
be refunded.
I. ASSIGNABILITY. The purchase right shall be exercisable only
by the Participant and shall not be assignable or transferable by the
Participant.
J. STOCKHOLDER RIGHTS. A Participant shall have no stockholder
rights with respect to the shares subject to his or her outstanding purchase
right until the shares are purchased on the Participant's behalf in accordance
with the provisions of the Plan and the Participant has become a holder of
record of the purchased shares.
VIII. ACCRUAL LIMITATIONS
A. No Participant shall be entitled to accrue rights to
acquire Common Stock pursuant to any purchase right outstanding under this Plan
if and to the extent such accrual, when aggregated with (i) rights to purchase
Common Stock accrued under any other purchase right granted under this Plan and
(ii) similar rights accrued under other employee stock purchase plans (within
the meaning of Code Section 423) of the Corporation or any Corporate Affiliate,
would otherwise permit such Participant to purchase more than Twenty-Five
Thousand Dollars ($25,000) worth of stock of the Corporation or any Corporate
Affiliate (determined on the basis of the Fair Market Value per share on the
date or dates such rights are granted) for each calendar year such rights are at
any time outstanding.
B. For purposes of applying such accrual limitations to the
purchase rights granted under the Plan, the following provisions shall be in
effect:
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(i) The right to acquire Common Stock under each
outstanding purchase right shall accrue in a series of
installments on each successive Purchase Date during the
offering period on which such right remains outstanding.
(ii) No right to acquire Common Stock under any
outstanding purchase right shall accrue to the extent the
Participant has already accrued in the same calendar year the
right to acquire Common Stock under one (1) or more other
purchase rights at a rate equal to Twenty-Five Thousand
Dollars ($25,000) worth of Common Stock (determined on the
basis of the Fair Market Value per share on the date or dates
of grant) for each calendar year such rights were at any time
outstanding.
C. If by reason of such accrual limitations, any purchase
right of a Participant does not accrue for a particular Purchase Interval, then
the payroll deductions which the Participant made during that Purchase Interval
with respect to such purchase right shall be promptly refunded.
D. In the event there is any conflict between the provisions
of this Article and one or more provisions of the Plan or any instrument issued
thereunder, the provisions of this Article shall be controlling.
IX. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan was adopted by the Board on January __, 2000 and
shall become effective at the Effective Time, PROVIDED no purchase rights
granted under the Plan shall be exercised, and no shares of Common Stock shall
be issued hereunder, until (i) the Plan shall have been approved by the
stockholders of the Corporation and (ii) the Corporation shall have complied
with all applicable requirements of the 1933 Act (including the registration of
the shares of Common Stock issuable under the Plan on a Form S-8 registration
statement filed with the Securities and Exchange Commission), all applicable
listing requirements of any stock exchange (or the Nasdaq National Market, if
applicable) on which the Common Stock is listed for trading and all other
applicable requirements established by law or regulation. In the event such
stockholder approval is not obtained, or such compliance is not effected, within
twelve (12) months after the date on which the Plan is adopted by the Board, the
Plan shall terminate and have no further force or effect, and all sums collected
from Participants during the initial offering period hereunder shall be
refunded.
B. Unless sooner terminated by the Board, the Plan shall
terminate upon the EARLIEST of (i) the last business day in April 2010, (ii)
the date on which all shares available for issuance under the Plan shall have
been sold pursuant to purchase rights exercised under the Plan or (iii) the date
on which all purchase rights are exercised in connection with a Corporate
Transaction. No further purchase rights shall be granted or exercised, and no
further payroll deductions shall be collected, under the Plan following such
termination.
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X. AMENDMENT/TERMINATION OF THE PLAN
A. The Board may alter, amend, suspend or terminate the Plan
at any time to become effective immediately following the close of any Purchase
Interval. However, the Plan may be amended or terminated immediately upon Board
action, if and to the extent necessary to assure that the Corporation will not
recognize, for financial reporting purposes, any compensation expense in
connection with the shares of Common Stock offered for purchase under the Plan,
should the financial accounting rules applicable to the Plan at the Effective
Time be subsequently revised so as to require the recognition of compensation
expense in the absence of such amendment or termination.
B. In no event may the Board effect any of the following
amendments or revisions to the Plan without the approval of the Corporation's
stockholders: (i) increase the number of shares of Common Stock issuable under
the Plan or the maximum number of shares purchasable per Participant on any one
Purchase Date, except for permissible adjustments in the event of certain
changes in the Corporation's capitalization, (ii) alter the purchase price
formula so as to reduce the purchase price payable for the shares of Common
Stock purchasable under the Plan or (iii) modify eligibility requirements for
participation in the Plan.
XI. GENERAL PROVISIONS
A. Nothing in the Plan shall confer upon the Participant any
right to continue in the employ of the Corporation or any Corporate Affiliate
for any period of specific duration or interfere with or otherwise restrict in
any way the rights of the Corporation (or any Corporate Affiliate employing such
person) or of the Participant, which rights are hereby expressly reserved by
each, to terminate such person's employment at any time for any reason, with or
without cause.
B. All costs and expenses incurred in the administration of
the Plan shall be paid by the Corporation; however, each Plan Participant shall
bear all costs and expenses incurred by such individual in the sale or other
disposition of any shares purchased under the Plan.
C. The provisions of the Plan shall be governed by the laws of
the State of Colorado without regard to that State's conflict-of-laws rules.
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<PAGE>
SCHEDULE A
CORPORATIONS PARTICIPATING IN
EMPLOYEE STOCK PURCHASE PLAN
AS OF THE EFFECTIVE TIME
Wireless, Inc.
<PAGE>
APPENDIX
The following definitions shall be in effect under the Plan:
A. BOARD shall mean the Corporation's Board of Directors.
B. CASH EARNINGS shall mean the (i) base salary payable to a
Participant by one or more Participating Corporations during such individual's
period of participation in one or more offering periods under the Plan plus (ii)
all overtime payments, bonuses, commissions, current profit-sharing
distributions and other incentive-type payments. Such Cash Earnings shall be
calculated before deduction of (A) any income or employment tax withholdings or
(B) any pre-tax contributions made by the Participant to any Code Section 401(k)
salary deferral plan or any Code Section 125 cafeteria benefit program now or
hereafter established by the Corporation or any Corporate Affiliate. However,
Cash Earnings shall NOT include any contributions (other than Code Section
401(k) or Code Section 125 contributions) made on the Participant's behalf by
the Corporation or any Corporate Affiliate to any employee benefit or welfare
plan now or hereafter established.
C. CODE shall mean the Internal Revenue Code of 1986, as
amended.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATE AFFILIATE shall mean any parent or subsidiary
corporation of the Corporation (as determined in accordance with Code Section
424), whether now existing or subsequently established.
F. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined
voting power of the Corporation's outstanding securities are
transferred to a person or persons different from the persons
holding those securities immediately prior to such
transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation in complete
liquidation or dissolution of the Corporation, or
(iii) the acquisition, directly or indirectly by an
person or related group of persons (other than the Corporation
or a person that directly or indirectly controls, is
controlled by or is under common control with the Corporation)
of beneficial ownership (within the meaning of Rule 13d-3 of
the 1934 Act) of securities possessing more than fifty
percent (50%) of the total combined voting
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<PAGE>
power of the Corporation's outstanding securities pursuant to
a tender or exchange offer made directly to the Corporation's
stockholders.
G. CORPORATION shall mean Wireless, Inc., a Delaware
corporation, and any corporate successor to all or substantially all of the
assets or voting stock of Wireless, Inc. which shall by appropriate action adopt
the Plan.
H. EFFECTIVE TIME shall mean the time at which the
Underwriting Agreement is executed. Any Corporate Affiliate which becomes a
Participating Corporation after such Effective Time shall designate a subsequent
Effective Time with respect to its employee-Participants.
I. ELIGIBLE EMPLOYEE shall mean any person who is employed by
a Participating Corporation on a basis under which he or she is regularly
expected to render more than twenty (20) hours of service per week for more than
five (5) months per calendar year for earnings considered wages under Code
Section 3401(a).
J. ENTRY DATE shall mean the date an Eligible Employee first
commences participation in the offering period in effect under the Plan. The
earliest Entry Date under the Plan shall be the Effective Time.
K. FAIR MARKET VALUE per share of Common Stock on any relevant
date shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the
Nasdaq National Market, then the Fair Market Value shall be
the closing selling price per share of Common Stock on the
date in question, as such price is reported by the National
Association of Securities Dealers on the Nasdaq National
Market or any successor system. If there is no closing selling
price for the Common Stock on the date in question, then the
Fair Market Value shall be the closing selling price on the
last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any
Stock Exchange, then the Fair Market Value shall be the
closing selling price per share of Common Stock on the date in
question on the Stock Exchange determined by the Plan
Administrator to be the primary market for the Common Stock,
as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no closing selling
price for the Common Stock on the date in question, then the
Fair Market Value shall be the closing selling price on the
last preceding date for which such quotation exists.
(iii) For purposes of the initial offering period which
begins at the Effective Time, the Fair Market Value shall be
deemed to be equal to the price per share at which the Common
Stock is sold in the initial public offering pursuant to the
Underwriting Agreement.
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<PAGE>
L. 1933 ACT shall mean the Securities Act of 1933, as amended.
M. PARTICIPANT shall mean any Eligible Employee of a
Participating Corporation who is actively participating in the Plan.
N. PARTICIPATING CORPORATION shall mean the Corporation and
such Corporate Affiliate or Affiliates as may be authorized from time to time by
the Board to extend the benefits of the Plan to their Eligible Employees. The
Participating Corporations in the Plan are listed in attached Schedule A.
O. PLAN shall mean the Corporation's 2000 Employee Stock
Purchase Plan, as set forth in this document.
P. PLAN ADMINISTRATOR shall mean the committee of two (2) or
more Board members appointed by the Board to administer the Plan.
Q. PURCHASE DATE shall mean the last business day of each
Purchase Interval. The initial Purchase Date shall be July 31, 2000.
R. PURCHASE INTERVAL shall mean each successive six (6)-month
period within the offering period at the end of which there shall be purchased
shares of Common Stock on behalf of each Participant.
S. SEMI-ANNUAL ENTRY DATE shall mean the first business day in
August and February each year on which an Eligible Employee may first enter an
offering period.
T. STOCK EXCHANGE shall mean either the American Stock
Exchange or the New York Stock Exchange.
U. UNDERWRITING AGREEMENT shall mean the agreement between the
Corporation and the underwriter or underwriters managing the Corporation's
initial public offering of its Common Stock.
A-3
<PAGE>
EXHIBIT 10.3
WIRELESS, INC.
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (this "AGREEMENT") is made and
entered into this ____ day of ______, between Wireless, Inc., a Delaware
corporation (the "COMPANY"), and ___________________ ("INDEMNITEE").
WHEREAS, Indemnitee, a member of the Board of Directors or an
officer, employee or agent of the Company, performs a valuable service in such
capacity for the Company;
WHEREAS, the stockholders of the Company have adopted Bylaws
(the "BYLAWS") providing for the indemnification of the officers, directors,
employees and agents of the Company to the maximum extent authorized by Section
145 of the Delaware General Corporation Law, as amended (the "CODE");
WHEREAS, the Bylaws and the Code, by their non-exclusive
nature, permit contracts between the Company and the members of its Board of
Directors, officers, employees or agents with respect to indemnification of such
directors, officers, employees or agents;
WHEREAS, in accordance with the authorization as provided by
the Code, the Company either has purchased and presently maintains or intends to
purchase and maintain a policy or policies of Directors and Officers Liability
Insurance ("D & O INSURANCE") covering certain liabilities which may be incurred
by its directors and officers in the performance of their duties as directors
and officers of the Company;
WHEREAS, as a result of developments affecting the terms,
scope and availability of D & O Insurance there exists general uncertainty as to
the extent of protection afforded members of the Board of Directors or officers,
employees or agents by such D & O Insurance and by statutory and bylaw
indemnification provisions; and
WHEREAS, in order to induce Indemnitee to continue to serve as
a member of the Board of Directors, officer, employee or agent of the Company,
the Company has determined and agreed to enter into this contract with
Indemnitee.
NOW, THEREFORE, in consideration of Indemnitee's continued
service as a director, officer, employee or agent after the date hereof, and for
other good and valid consideration, the receipt and adequacy of which is hereby
acknowledged, the parties hereto agree as follows:
1. INDEMNIFICATION OF INDEMNITEE. The Company hereby agrees to
hold harmless and indemnify Indemnitee to the fullest extent authorized or
permitted by the provisions of the Code, as may be amended from time to time.
<PAGE>
2. ADDITIONAL INDEMNITY. Subject only to the exclusions set
forth in Sections 3 and 6(c) hereof, the Company hereby further agrees to hold
harmless and indemnify Indemnitee:
(a) against any and all expenses (including attorneys'
fees), witness fees, judgments, fines and amounts paid in settlement
actually and reasonably incurred by Indemnitee in connection with any
threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (including an action
by or in the right of the Company) to which Indemnitee is, was or at
any time becomes a party, or is threatened to be made a party, by
reason of the fact that Indemnitee is, was or at any time becomes a
director, officer, employee or agent of the Company or any subsidiary
of the Company, or is or was serving or at any time serves at the
request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise; and
(b) otherwise to the fullest extent as may be provided to
Indemnitee by the Company under the non-exclusivity provisions of
Article VII, Section 6 of the Bylaws of the Company and the Code.
3. LIMITATIONS ON ADDITIONAL INDEMNITY.
(a) No indemnity pursuant to Section 2 hereof shall be paid
by the Company:
i) in respect to remuneration paid to Indemnitee
if it shall be determined by a final judgment or other final
adjudication that such remuneration was in violation of law;
ii) on account of any suit in which judgment is
rendered against Indemnitee for an accounting of profits
made from the purchase or sale by Indemnitee of securities
of the Company pursuant to the provisions of Section 16(b)
of the Securities Exchange Act of 1934 and amendments
thereto or similar provisions of any federal, state or local
statutory law;
iii) on account of Indemnitee's conduct which is
finally adjudged to have been knowingly fraudulent or
deliberately dishonest or to constitute willful misconduct;
iv) on account of Indemnitee's conduct which is
the subject of an action, suit or proceeding described in
Section 6(c)(ii) hereof;
v) on account of any action, claim or proceeding
(other than a proceeding referred to in Section 7(b) hereof)
initiated by the Indemnitee unless such action, claim or
proceeding was authorized in the specific case by action of
the Board of Directors;
vi) if a final decision by a Court having
jurisdiction in the matter shall determine that such
indemnification is not lawful (and, in this respect, both
the Company and Indemnitee have been advised that the
Securities and Exchange Commission
2
<PAGE>
believes that indemnification for liabilities arising under
the federal securities laws is against public policy and is,
therefore, unenforceable and that claims for indemnification
should be submitted to appropriate courts for adjudication);
and
vii) except to the extent the aggregate of losses
to be indemnified thereunder exceeds the sum of (a) such
losses for which the Indemnitee is indemnified pursuant to
Section 1 hereof and (b) any additional amount paid to the
Indemnitee pursuant to any D & O Insurance purchased and
maintained by the Company.
(b) No indemnity pursuant to Section 1 or 2 hereof shall be
paid by the Company if the action, suit or proceeding with respect to
which a claim for indemnity hereunder is made arose from or is based
upon any of the following:
i) Any solicitation of proxies by Indemnitee, or
by a group of which he was or became a member consisting of
two or more persons that had agreed (whether formally or
informally and whether or not in writing) to act together
for the purpose of soliciting proxies, in opposition to any
solicitation of proxies approved by the Board of Directors.
ii) Any activities by Indemnitee that constitute a
breach of or default under any agreement between Indemnitee
and the Company.
4. CONTRIBUTION. If the indemnification provided in Sections 1
and 2 hereof is unavailable by reason of a Court decision described in Section
3(a)(vi) hereof based on grounds other than any of those set forth in paragraphs
(i) through (v) of Section 3 (a) hereof, then in respect of any threatened,
pending or completed action, suit or proceeding in which the Company is jointly
liable with Indemnitee (or would be if joined in such action, suit or
proceeding), the Company shall contribute to the amount of expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred and paid or payable by Indemnitee in such proportion as is
appropriate to reflect (i) the relative benefits received by the Company on the
one hand and Indemnitee on the other hand from the transaction from which such
action, suit or proceeding arose, and (ii) the relative fault of the Company on
the one hand and of Indemnitee on the other in connection with the events which
resulted in such expenses, judgments, fines or settlement amounts, as well as
any other relevant equitable considerations. The relative fault of the Company
on the one hand and of Indemnitee on the other shall be determined by reference
to, among other things, the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent the circumstances resulting in
such expenses, judgments, fines or settlement amounts. The Company agrees that
it would not be just and equitable if contribution pursuant to this Section 4
were determined by pro rata allocation or any other method of allocation which
does not take account of the foregoing equitable considerations.
5. NOTIFICATION AND DEFENSE OF CLAIM. Not later than thirty
(30) days after receipt by Indemnitee of notice of the commencement of any
action, suit or proceeding, Indemnitee shall, if a claim in respect thereof is
to be made against the Company under this Agreement, notify the Company of the
commencement thereof; but Indemnitee's omission so to notify the Company will
not relieve the Company from any liability which it may have to
3
<PAGE>
Indemnitee otherwise than under this Agreement. With respect to any such action,
suit or proceeding as to which Indemnitee notifies the Company of the
commencement thereof:
(a) The Company will be entitled to participate therein at
its own expense.
(b) Except as otherwise provided below, to the extent that
it may wish, the Company shall, jointly with any other indemnifying
party similarly notified, be entitled to assume the defense thereof,
with counsel reasonably satisfactory to Indemnitee. After notice from
the Company to Indemnitee of its election to assume the defense
thereof, the Company will not be liable to Indemnitee under this
Agreement for any legal or other expenses subsequently incurred by
Indemnitee in connection with the defense thereof, other than
reasonable costs of investigation or as otherwise provided below.
Indemnitee shall have the right to employ its own counsel in such
action, suit or proceeding, but the fees and expenses of such counsel
incurred after notice from the Company of the Company's assumption of
the defense thereof shall be at the expense of Indemnitee unless (i)
the employment of counsel by Indemnitee has been authorized by the
Company; (ii) Indemnitee shall have reasonably concluded that there
may be a conflict of interest between the Company and Indemnitee in
the conduct of the defense of such action; or (iii) the Company shall
not in fact have employed counsel to assume the defense of such
action; in each of which cases the fees and expenses of Indemnitee's
separate counsel shall be paid by the Company. The Company shall not
be entitled to assume the defense of any action, suit or proceeding
brought by or on behalf of the Company or as to which Indemnitee shall
have made the conclusion provided for in (ii) above.
(c) The Company shall not be liable to indemnify Indemnitee
under this Agreement for any amounts paid in settlement of any action
or claim effected without its written consent. The Company shall be
permitted to settle any action except that it shall not settle any
action or claim in any manner which would impose any penalty or
limitation on Indemnitee without Indemnitee's written consent. Neither
the Company nor Indemnitee will unreasonably withhold its consent to
any proposed settlement.
6. ADVANCEMENT AND REPAYMENT OF EXPENSES.
(a) In the event that Indemnitee employs his or her own
counsel pursuant to Sections 5(b)(i) through (iii) above, the Company
shall advance to Indemnitee, prior to any final disposition of any
threatened or pending action, suit or proceeding, whether civil,
criminal, administrative or investigative, any and all reasonable
expenses (including legal fees and expenses) incurred in investigating
or defending any such action, suit or proceeding within ten (10) days
after receiving from Indemnitee copies of invoices presented to
Indemnitee for such expenses.
(b) Indemnitee agrees that Indemnitee will reimburse the
Company for all reasonable expenses paid by the Company in
investigating or defending any civil or criminal action, suit or
proceeding against Indemnitee in the event and only to the extent it
shall be ultimately determined by a final judicial decision (from
which there is no right of appeal) that Indemnitee is not entitled,
under the provisions of the Code, the Bylaws, this Agreement or
otherwise, to be indemnified by the Company for such expenses.
4
<PAGE>
(c) Notwithstanding the foregoing, the Company shall not be
required to advance such expenses to Indemnitee in respect of any
action arising from or based upon any of the matters set forth in
subsection (b) of Section 3 or if Indemnitee (i) commences any action,
suit or proceeding as a plaintiff unless such advance is specifically
approved by a majority of the Board of Directors or (ii) is a party to
an action, suit or proceeding brought by the Company and approved by a
majority of the Board which alleges willful misappropriation of
corporate assets by Indemnitee, disclosure of confidential information
in violation of Indemnitee's fiduciary or contractual obligations to
the Company, or any other willful and deliberate breach in bad faith
of Indemnitee's duty to the Company or its shareholders.
7. ENFORCEMENT.
(a) The Company expressly confirms and agrees that it has
entered into this Agreement and assumed the obligations imposed on the
Company hereby in order to induce Indemnitee to continue as a
director, officer, employee or other agent of the Company, and
acknowledges that Indemnitee is relying upon this Agreement in
continuing in such capacity.
(b) In the event Indemnitee is required to bring any action
to enforce rights or to collect moneys due under this Agreement and is
successful in such action, the Company shall reimburse Indemnitee for
all Indemnitee's reasonable fees and expenses, including attorney's
fees, in bringing and pursuing such action.
8. SUBROGATION. In the event of payment under this agreement,
the Company shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnitee, who shall execute all documents required and
shall do all acts that may be necessary to secure such rights and to enable the
Company effectively to bring suit to enforce such rights.
9. CONTINUATION OF OBLIGATIONS. All agreements and obligations
of the Company contained herein shall commence upon the date that Indemnitee
first became a member of the Board of Directors or an officer, employee or agent
of the Company, as the case may be, and shall continue during the period
Indemnitee is a director, officer, employee or agent of the Company (or is or
was serving at the request of the Company as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise) and shall continue thereafter so long as
Indemnitee shall be subject to any possible claim or threatened, pending or
completed action, suit or proceeding, whether civil, criminal or investigative,
by reason of the fact that Indemnitee was a director, officer, employee or agent
of the Company or serving in any other capacity referred to herein.
10. SURVIVAL OF RIGHTS. The rights conferred on Indemnitee by
this Agreement shall continue after Indemnitee has ceased to be a director,
officer, employee or other agent of the Company and shall inure to the benefit
of Indemnitee's heirs, executors and administrators.
11. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on
Indemnitee by this Agreement shall not be exclusive of any other right which
Indemnitee may have or hereafter acquire under any statute, provision of the
Company's Certificate of Incorporation or Bylaws, agreement, vote of
stockholders or directors, or otherwise, both as to action in his official
capacity and as to action in another capacity while holding office; provided,
however, that this
5
<PAGE>
Agreement shall supersede and replace any prior indemnification agreements
entered into by and between the Company and Indemnitee and that any such prior
indemnification agreement shall be terminated upon the execution of this
Agreement.
12. SEPARABILITY. Each of the provisions of this Agreement is
a separate and distinct agreement and independent of the others, so that if any
or all of the provisions hereof shall be held to be invalid or unenforceable for
any reason, such invalidity or unenforceability shall not affect the validity or
enforceability of the other provisions hereof or the obligation of the Company
to indemnify the Indemnitee to the full extent provided by the Bylaws or the
Code.
13. GOVERNING LAW. This Agreement shall be interpreted and
enforced in accordance with the laws of the State of Delaware.
14. BINDING EFFECT. This Agreement shall be binding upon
Indemnitee and upon the Company, its successors and assigns, and shall inure to
the benefit of Indemnitee, his or her heirs, personal representatives and
assigns and to the benefit of the Company, its successors and assigns.
15. AMENDMENT AND TERMINATION. No amendment, modification,
termination or cancellation of this Agreement shall be effective unless it is in
writing and is signed by both parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on and as of the day and year first above written.
WIRELESS, INC.
a Delaware corporation
By:
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INDEMNITEE
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Address:
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EXHIBIT 10.4
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE--NET
(DO NOT USE THIS FORM FOR MULTI-TENANT BUILDINGS)
1. BASIC PROVISIONS ("BASIC PROVISIONS")
1.1 PARTIES: This Lease ("Lease"), dated for reference purposes only JUNE
4, 1999 , is made by and between W.F. BATTON & CO., INC., A CALIFORNIA
CORPORATION ("LESSOR") and WIRELESS, INC., A CALIFORNIA CORPORATION, AND
MOMENTUM LASER, INC., A CALIFORNIA CORPORATION ("LESSEE"), collectively the
"PARTIES" or individually a "PARTY").
1.2 PREMISES: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease, and commonly
known as 5452 BETSY ROSS DRIVE, SANTA CLARA , located in the County of SANTA
CLARA , State of CALIFORNIA , and generally described as (describe briefly the
nature of the property and, if applicable, the "PROJECT", if the property is
located within a Project) A PARCEL OF LAND CONTAINING 3.71 ACRES, MORE OR LESS,
WITH A BUILDING CONTAINING APPROXIMATELY 54,800 SQUARE FEET MORE PARTICULARLY
DESCRIBED ON EXHIBIT "A" ATTACHED HERETO ("PREMISES"). (Se also Paragraph 2)
1.3 TERM: SEVEN (7) years and 0 months ("ORIGINAL TERM") commencing AUGUST
1, 1999 ("COMMENCEMENT DATE") and ending JULY 31, 2006 (SEE ADDENDUM (EXPIRATION
DATE"). (See also Paragraph 3)
1.4 EARLY POSSESSION: N/A PARAGRAPH 52(A)) ("EARLY POSSESSION DATE" ). (See
also Paragraphs 3.2 and 3.3) Paragraph 50)
1.5 BASE RENT: $ SEE ADDENDUM per month ("BASE RENT"), payable on the FIRST
day of each month commencing AUGUST 1, 1999 (See also Paragraph 4) [ ] If this
box is checked, there are provisions in this Lease for the Base Rent to be
adjusted.
1.6 BASE RENT PAID UPON EXECUTION: $ 73,980 as Base Rent for the period
AUGUST 1, 1999.
1.7 SECURITY DEPOSIT: $(SEE ADDENDUM PARAGRAPH 51) ("SECURITY DEPOSIT").
(See also Paragraph 5)
1.8 AGREED USE: MANUFACTURING, STORAGE,DISTRIBUTION AND ASSEMBLY OF
COMPUTER RELATED PRODUCTS (See also Paragraph 6)
1.9 INSURING PARTY. Lessor is the "INSURING PARTY" unless otherwise stated
herein. (See also Paragraph 8)
1.10 REAL ESTATE BROKERS: (See also Paragraph 15)
(a) REPRESENTATION: The following real estate brokers (collectively,
the "BROKERS") and brokerage relationships exist in this transaction (check
applicable boxes):
[XX] WAYNE MASCIA ASSOCIATES represents Lessor Exclusively ("LESSOR'S BROKER");
[XX] COLLIERS PARRISH represents Lessor exclusively ("LESSOR'S
BROKER"); or [ ]represents both Lessor and Lessee ("DUAL AGENCY").
(b) PAYMENT TO BROKERS: upon execution and delivery of this Lease by
both Parties, Lessor shall pay to the Broker the fee agreed to in their separate
written agreement (or if there is no such agreement, the sum of N/A % of the
total Base Rent for the brokerage services rendered by said Broker).
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to be
guaranteed by N/A ("GUARANTOR"). (See also Paragraph 37)
1.12 ADDENDA AND EXHIBITS. Attached hereto is an Addendum or Addenda
consisting of Paragraphs 50 through 57 and Exhibits "A" LEGAL AND "B" TENANT;
IMPROVEMENTS, AND "B-2" FLOOR PLAN, AND "C" LESSEE'S HAZARDOUS MATERIALS, all of
which constitute a part of this Lease.
2. PREMISES.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, the Premises, for the term, at the rental, and upon all of the terms,
covenants and conditions set forth in this Lease. Unless otherwise provided
herein, any statement of size set forth in this Lease, or that may have been
used in calculating rental, is an approximation which the Parties agree is
reasonable and the rental based thereon is not subject to revision whether or
not the actual size is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee broom clean and
free of debris on the Commencement Date (See Addendum Paragraph 52) ("Start
Date"), and so long as the required service contracts described in Paragraph
7.1(b) below are obtained by Lessee within thirty (30) days following the Start
Date, warrants that the existing electrical plumbing, fire sprinkler, lighting,
heating, ventilating and air conditioning systems ("HVAC"), loading doors, if
any, and all other such elements in the Premises, other than those constructed
by Lessee, shall be in good operating condition on said date and that the
structural elements of the roof, bearing walls and foundation of any buildings
on the Premises (the "BUILDING") shall be free of material defects, if a
non-compliance with said warranty exists as of the Start Date, Lessor shall, as
Lessor's sole obligation with respect to such matter, except as otherwise
provided in this Lease, promptly after receipt of written notice from Lessee
setting forth with specificity the nature and extent of such non-compliance,
rectify same at Lessor's expense. If, after the Start Date, Lessee does not give
Lessor written notice of any non-compliance with this warranty within: (i) one
year as to the surface of the roof and the structural portions of the roof,
foundations and bearing walls, (ii) six (6) months as to the HVAC systems, (iii)
thirty (30) days as to the remaining systems and other elements of the Building,
correction of such non-compliance shall be the obligation of Lessee at Lessee's
sole cost and expense.
2.3 COMPLIANCE. Lessor warrants that the improvements on the Premises
comply with all applicable laws, covenants or restrictions of record, building
codes, regulations and ordinances ("APPLICABLE REQUIREMENTS") in effect on the
Start Date. Said warranty does not apply to the use to which Lessee will put the
Premises or to any Alterations or Utility Installations (as defined in Paragraph
7.3(a)) made or to be made by Lessee. NOTE: Lessee is responsible for
determining whether or not the zoning is appropriate for Lessee's intended use,
and acknowledges that past uses of the Premises may no longer be allowed. If the
Premises do not comply with said warranty, Lessor shall, except as otherwise
provided, promptly after receipt of written notice from Lessee setting forth
with specificity the nature and extent of such non-compliance, rectify the same
at Lessor's expense, If Lessee does not give Lessor written notice of a
non-compliance with this warranty within six (6) months following the Start
Date, correction of that non-compliance shall be the obligation of Lessee at
Lessee's sole cost and expense.
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2.4 ACKNOWLEDGEMENTS. Lessee acknowledges that: (a) it has been advised by
Lessor and/or Brokers to satisfy itself with respect the condition of the
Premises (including but not limited to the electrical, HVAC and fire sprinkler
systems, security, environmental aspects, and compliance with Applicable
Requirements), and their suitability for Lessee's intended use, (b) Lessee has
made such investigation as it deems necessary with reference to such matters and
assumes all responsibility therefor as the same relate to its occupancy of the
Premises, and (c) neither Lessor, Lessor's agents, nor any Broker has made any
oral or written representations or warranties with respect to said matters other
than as set forth in this Lease. In addition, Lessor acknowledges that: (a)
Broker has made no representations, promises or warranties, concerning Lessee's
ability to honor the Lease or suitability to occupy the Premises, and (b) it is
Lessor's sole responsibility to investigate the financial capability and/or
suitability of all proposed tenants.
3. TERM.
3.1 TERM. The Commencement Date. Expiration Date and Original Term of this
Lease are as specified in Paragraph 1.3.
3.3 DELAY IN POSSESSION. Lessor agrees to use its best commercially
reasonable efforts to deliver possession of the Premises to Lessee by the
Commencement Date. If, despite said efforts. Lessor is unable to deliver
possession as agreed, Lessor shall not be subject to any liability therefor, nor
shall such failure affect the validity of this Lease. Lessee shall not, however,
be obligated to pay Rent or perform its other obligations until it receives
possession of the Premises. If possession is not delivered within sixty (60)
days after the Commencement Date, Lessee may, at its option, by notice in
writing within ten (10) days after the end of such sixty (60) day period, cancel
this Lease, in which event the Parties shall be discharged from all obligations
hereunder. If such written notice is not received by Lessor within said ten (10)
day period, Lessee's right to cancel shall terminate. Except as otherwise
provided, if possession is not tendered to Lessee by the Start Date and LessXX
does not terminate this Lease, as aforesaid, any period of rent abatement that
Lessee would otherwise have enjoyed shall run from the date of delivery of
possession and continue for a period equal to what Lessee would otherwise have
enjoyed under the terms hereof, but minus a XXX days of delay caused by the acts
or omissions of Lessee. If possession of the Premises is not delivered within
four (4) months after the Commencement Date, this Lease shall terminate unless
other agreements are reached between Lessor and Lessee, in writing.
3.4 LESSEE COMPLIANCE. Lessor shall not be required to tender possession of
the Premises to Lessee until Lessee complies with the obligation to provide
evidence of insurance (Paragraph 8.5). Pending delivery of such evidence, Lessee
shall be required to perform all of the obligations under this Lease from and
after the Start Date, including the payment of Rent, notwithstanding Lessor's
election to withhold possession pending receipt of such evidence of insurance.
Further, if Lessee is required to perform any other conditions prior to or
concurrent with the Start Date, the Start Date shall occur but Lessor may elect
to withhold possession until such conditions are satisfied.
4. RENT.
4.1. RENT DEFINED. All monetary obligations of Lessee to Lessor under the
terms of this Lease (except for the Security Deposit) are deemed to be rent
("Rent").
4.2 PAYMENT. Lessee shall cause payment of Rent to be received by Lessor in
lawful money of the United States, without offset deduction (except as
specifically permitted in this Lease), on or before the day on which it is due.
Rent for any period during the term hereXX which is for less than one (1) full
calendar month shall be prorated based upon the actual number of days of said
month. Payment of Rent shall be made to Lessor at its address stated herein or
to such other persons or place as Lessor may from time to time designate in
writing. Acceptance of a payment which is less than the amount then due shall
not be a waiver of Lessor's rights to the balance of such Rent, regardless of
Lessor's endorsement of any check so stating.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof the
Security Deposit as security for Lessee's faithful performance of its
obligations under this Lease. If Lessee fails to pay Rent, or otherwise Defaults
under this Lease, Lessor may use, apply retain all or any portion of said
Security Deposit for the payment of any amount due Lessor or to reimburse or
compensate Lessor for any liability expense, loss or damage which Lessor may
suffer or incur by reason thereof. If Lessor uses or applies all or any portion
of said Security Deposit, Lessee shall within ten (10) days after written
request therefor deposit monies with Lessor sufficient to restore said Security
Deposit to the XXX amount required by this Lease. If the Base Rent Increases
during the term of this Lease, Lessee shall, upon written request from Lessor,
deposit additional moneys with Lessor so that the total amount of the Security
Deposit shall at all times bear the same proportion to the increased Base Rent
as the initial Security Deposit bore to the initial Base Rent. Lessor shall not
be required to keep the Security Deposit separate form its general accounts.
Within fourteen (14) days after the expiration or termination of this Lease. If
Lessor elects to apply the Security Deposit only to unpaid Rent, and otherwise
within thirty (30) days after the Premises have been vacated pursuant to
Paragraph XXX below, Lessor shall return that portion of the Security Deposit
not used or applied by Lessor. No part of the Security Deposit shall be
considered to be held in trust, to bear interest or to be prepayment for any
monies to be paid by Lessee under this Lease.
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6. USE.
6.1 USE. Lessee shall use and occupy the Premises only for the Agreed Use,
or any other legal use which is reasonably comparable thereto, and for no other
purpose. Lessee shall not use or permit the use of the Premises in a manner that
is unlawful, creates damage, waste or a nuisance, or that disturbs owners and/or
occupants of, or causes damage to neighboring properties. Lessor shall not
unreasonably withhold or delay its consent to any written request for a
modification of the Agreed Use, so long as the same will not impair the
structural integrity of the improvements on the Premises or the mechanical or
electrical systems therein, is not significantly more burdensome to the
Premises. If Lessor elects to withhold consent, Lessor shall within fifteen (15)
days after such request give written notification of same, which notice shall
include an explanation of Lessor's objections to the change in use.
6.2 HAZARDOUS SUBSTANCES.
a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS SUBSTANCE" as
used in this Lease shall mean any product, substance, or waste whose presence,
use, manufacture, disposal, transportation, or release, either by itself or in
combination with other materials expected to be on the Premises, is either: (i)
potentially injurious to the public health, safety or welfare, the environment
or the Premises, (ii) regulated or monitored by any governmental authority, or
(iii) a basis for potential liability of Lessor to any governmental agency or
third party under any applicable statute of law theory. Hazardous Substances
shall include, but not be limited to, hydrocarbons, petroleum, gasoline, and/or
crude oil or any products, by-products or fractions thereof. Lessee shall not
engage in any activity in or on the Premises which constitutes a Reportable Use
of Hazardous Substances without the express prior written consent of Lessor and
timely compliance (at Lessee's expense) with all Applicable Requirements.
"Reportable Use" shall mean (i) the installation or use of any above or below
ground storage tank, (ii) the generation, possession, storage, use,
transportation, or disposal of a Hazardous Substance that requires a permit
from, or with respect to which a report, notice, registration or business plan
is required to be filed with any governmental authority, and/or (iii) the
presence at the Premises of a Hazardous Substance with respect to which any
Applicable Requirements requires that a notice be given to persons entering or
occupying the Premises or neighboring properties. Notwithstanding the foregoing,
Lessee may use any ordinary and customary materials reasonably required to be
used in the normal course of the Agreed Use, so long as such use is in
compliance with all Applicable Requirements, is not a Reportable Use, and does
not expose the Premises or neighboring property to any meaningful risk of
contamination or damage or expose Lessor to any liability therefor. In addition,
Lessor may condition its consent to any Reportable Use upon receiving such
additional assurances as Lessor reasonably deems necessary to protect itself,
the public, the Premises and/or the environment against damage, contamination,
injury and/or liability, including, but not limited to, the installation (and
removal on or before Lease expiration or termination) of protective
modifications (such as concrete encasements) and/or increasing the Security
Deposit.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable cause to
believe, that a Hazardous Substance has come to be located in, on, under or
about the Premises, other than as previously consented to by Lessor, Lessee
shall immediately give written notice of such fact to Lessor, and provide Lessor
with a copy of any report, notice, claim or other documentation which it has
concerning the presence of such Hazardous Substance.
(c) LESSEE REMEDIATION. Lessee shall not cause or permit any Hazardous
Substance to be spilled or released in, on, under, or about the Premises
(including through the plumbing or sanitary sewer system) and shall promptly, at
Lessee's expense, take all investigatory and/or remedial action reasonably
recommended, whether or not formally ordered or required, for the cleanup of any
contamination of, and for the maintenance, security and/or monitoring of the
Premises or neighboring properties, that was caused or materially contributed to
by Lessee, or pertaining to or involving any Hazardous Substance brought onto
the Premises during the term of this Lease, by or for Lessee, or any related
third party.
(d) LESSEE INDEMNIFICATION. Lessee shall indemnify, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any, harmless from
and against any and all loss of rents and/or damages, liabilities, judgments,
claims, expenses, penalties, and attorneys' and consultants' fees arising out of
or involving any Hazardous Substance brought onto the Premises by or for Lessee,
or any related third party (provided, however, that Lessee shall have no
liability under this Lease with respect to underground migration of any
Hazardous Substance under the Premises from adjacent properties). Lessee's
obligations shall include, but not be limited to, the effects of any
contamination or injury to person, property or the environment created or
suffered by Lessee, and the cost of investigation, removal, remediation,
restoration and/or abatement, and shall survive the expiration or termination of
this Lease. NO TERMINATION, CANCELLATION OR RELEASE AGREEMENT ENTERED INTO BY
LESSOR AND LESSEE SHALL RELEASE LESSEE FROM ITS OBLIGATIONS UNDER THIS LEASE
WITH RESPECT TO HAZARDOUS SUBSTANCES, UNLESS SPECIFICALLY SO AGREED BY LESSOR IN
WRITING AT THE TIME OF SUCH AGREEMENT.
(e) LESSOR INDEMNIFICATION. Lessor and its successors and assigns shall
indemnify, defend, reimburse and hold Lessee, its employees and lenders,
harmless from and against any and all environmental damages, including the cost
of remediation, which existed as a result of Hazardous Substances on the
Premises prior to the Start Date or which are caused by the gross negligence or
willful misconduct of Lessor, its agents or employees. Lessor's obligations, as
and when required by the Applicable Requirements, shall include, but not be
limited to, the cost of investigation, removal, remediation, restoration and/or
abatement, and shall survive the expiration or termination of this Lease.
(f) INVESTIGATIONS AND REMEDIATIONS. Lessor shall retain the
responsibility and pay for any investigations or remediation measures required
by governmental entities having jurisdiction with respect to the existence of
Hazardous Substances on the Premises prior to the Start Date, unless such
remediation measure is required as a result of Lessee's use (including
"Alterations", as defined in paragraph 7.3(a) below) of the Premises, in which
event Lessee shall be responsible for such payment. Lessee shall cooperate fully
in any such activities at the request of Lessor, including allowing Lessor and
Lessor's agents to have reasonable access to the Premises at reasonable times in
order to carry out Lessor's investigative and remedial responsibilities.
(g) LESSOR TERMINATION OPTION. If a Hazardous Substance Condition
occurs during the term of this Lease, unless Lessee is legally responsible
therefor (in which case Lessee shall make the investigation and remediation
thereof required by the Applicable Requirements and this Lease shall continue in
full force and effect, but subject to Lessor's rights under Paragraph 6.2(d) and
Paragraph 13), Lessor may, at Lessor's option, either (i) investigate and
remediate such Hazardous Substance Condition, if required, as soon as reasonably
possible at Lessor's expense, in which event this Lease shall continue in full
force and effect, or (ii) if the estimated cost to remediate such condition
exceeds twelve (12) times the then monthly Base Rent or $100,000, whichever is
greater, give written notice to Lessee, within thirty (30) days after receipt by
Lessor of knowledge of the occurrence of such Hazardous Substance Condition, of
Lessor's desire to terminate this Lease as of the date sixty (60) days following
the date of such notice. In the event Lessor elects to give a termination
notice, Lessee may, within ten (10) days thereafter, give written notice to
Lessor of Lessee's commitment to pay the amount by which the cost of the
remediation of such Hazardous Substance Condition exceeds an amount equal to
twelve (12) times the then monthly Base Rent or $100,000, whichever is greater,
Lessee shall provide Lessor with said funds or satisfactory assurance thereof
within thirty (30) days following such commitment. In such event, this Lease
shall continue in full force and effect, and Lessor shall proceed to make such
remediation as soon as reasonably possible after the required funds are
available. If Lessee does not give such notice and provide the required funds or
assurance thereof within the time provided, this Lease shall terminate as of the
date specified in Lessor s notice of termination.
6.3 LESSEE'S COMPLIANCE WITH APPLICABLE REQUIREMENTS. Except as otherwise
provided in this Lease, Lessee shall, at Lessee sole expense, fully, diligently
and in a timely manner, materially comply with all Applicable Requirements, the
requirements of any applicable fire insurance underwriter or rating bureau, and
the recommendations of Lessor's engineers and/or consultants which relate in any
manner to the Premises, without regard to whether said requirements are now in
effect or become effective after the Start Date. Lessee shall, within ten (10)
days after receipt of Lessor's written request, provide Lessor with copies of
all permits and other documents, and other information evidencing Lessee's
compliance with any Applicable Requirements specified by Lessor, and shall
immediately upon receipt, notify Lessor in writing (with copies of any documents
involved) of any threatened or actual claim, notice, citation, warning,
complaint or report pertaining to or involving the failure of Lessee or the
Premises to comply with any Applicable Requirements.
6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's "Lender" (as defined in
Paragraph 30 below) and consultants shall have the right to enter into Premises
at any time, in the case of an emergency, and otherwise at reasonable times, for
the purpose of inspecting the condition of the Premises and for verifying
compliance by Lessee with this Lease. The cost of any such inspections shall be
paid by Lessor, unless a violation of Applicable Requirements, or a
contamination is found to exist or be imminent, or the inspection is requested
or ordered by a governmental authority. In such case, Lessee shall upon request
reimburse Lessor for the cost of such inspections, so long as such inspection is
reasonably related to the violation or contamination (See Addendum Paragraph 53)
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7. MAINTENANCE, REPAIRS, UTILITY INSTALLATIONS, TRADE FIXTURES AND
ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS. (See Addendum Paragraph 54)
(a) IN GENERAL. Subject to the provisions of Paragraph 2.2
(Condition), 2.3 (Compliance), 6.3 (Lessee's Compliance with Applicable
Requirements), 7.2 (Lessor's Obligations), 9 (Damage or Destruction), and 14
(Condemnation), Lessee shall, at Lessee's sole expense, keep the Premises,
Utility Installations, and Alterations in good order, condition and repair
(whether or not the portion of the Premises requiring repair or the means of
repairing the same, are reasonably or readily accessible to Lessee, and whether
or not the need for such repairs occurs as a result of Lessee's use, any prior
use, the elements or the age of such portion of the Premises), including, but
not limited to, all equipment, facilities, such as plumbing, heating,
ventilating, air-conditioning, electrical, lighting facilities, boilers,
pressure vessels, fire protection system, fixtures, walls (interior and
exterior), foundations, ceilings, roofs, floors, windows, doors, plate glass,
skylights, landscaping, driveways, parking lots, fences, retaining walls, signs,
sidewalks and parkways located in, on, or adjacent to the Premises. Lessee, in
keeping the Premises in good order, condition and repair, shall exercise and
perform good maintenance practices, specifically including the procurement and
maintenance of the service contracts required by Paragraph 7.1(b) below.
Lessee's obligations shall include restorations, replacements or renewals when
necessary to keep the Premises and all improvements thereon or a part thereof in
good order, condition and state of repair. Lessee shall, during the term of this
Lease, keep the exterior appearance of the Building in a first-class condition
consistent with the exterior appearance of other similar facilities of
comparable age and size in the vicinity, including, when necessary, the exterior
repainting of the Building.
(b) SERVICE CONTRACTS. Lessee shall, at Lessee's sole expense, procure
and maintain contracts, with copies to Lessor, in customary form and substance
for, and with contractors specializing and experienced in the maintenance of the
following equipment and improvements ("Basic Elements"), if any, if and when
installed on the Premises: (i) HVAC equipment, (ii) boiler, and pressure
vessels, (iii) fire extinguisher systems, including fire alarm and/or smoke
detection, (iv) landscaping and irrigation systems, (v) roof covering and
drains, (vi) driveways and parking lots, (vii) clarifiers (viii) basic utility
feed to the perimeter of the Building, and (ix) any other equipment, if
reasonably required by Lessor.
(c) REPLACEMENT. Subject to Lessee's indemnification of Lessor as set
forth in Paragraph 8.7 below, and without relieving Lessee of liability
resulting from Lessee's failure to exercise and perform good maintenance
practices, if the Basic Elements described in Paragraph 7.1(b) cannot be
repaired other than at a cost which is in excess of 50% of the cost of replacing
such Basic Elements, then such Basic Elements shall be replaced by Lessor, and
the cost thereof shall be prorated between the Parties and Lessee shall only be
obligated pay, each month during the remainder of the term of this Lease, on the
date on which Base Rent is due, an amount equal to the product multiplying the
cost of such replacement by a fraction, the numerator of which is one, and the
denominator of which is the number of months the useful life of such replacement
as such useful life is specified pursuant to Federal income tax regulations or
guidelines for depreciation thereof (including interest on the unamortized
balance as is then commercially reasonable in the judgment of Lessor's
accountants), with Lessee reserving the right to prepay its obligation at any
time.
7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance), 9 (Damage or Destruction) and 14 (Condemnation),
it is intended by the Parties hereto that Lessor have no obligation, in any
manner whatsoever, to repair and maintain the Premises, or the equipment
therein, all of which obligations are intended to be that of the Lessee. It is
the intention of the Parties that the term of this Lease govern the respective
obligations of the Parties as to maintenance and repair of the Premises, and
they expressly waive the benefit of any statute now or hereafter in effect to
the extent it is inconsistent with the terms of this Lease.
7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "Utility Installations"
refers to all floor and window coverings, air lines, power panels, electrical
distribution, security and fire protection systems, communication systems,
lighting fixtures, HVAC equipment, plumbing, and fencing in or on the Premises.
The term "TRADE FIXTURES" shall mean Lessee's machinery and equipment that can
be removed without doing material damage to the Premises. The term "ALTERATIONS"
shall mean any modification of the improvements, other than Utility
Installations and Trade Fixtures, whether by addition or deletion. "LESSEE OWNED
ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined as Alterations and/or
Utility Installations made by Lessee that are not yet owned by Lessor pursuant
to Paragraph 7.4(a). Lessee shall not make any Alterations to Utility
Installations to the Premises without Lessor's prior written consent. Lessee
may, however, make non-structural Utility Installations to the interior of the
Premises (excluding the roof) without such consent but upon notice to Lessor, as
long as they are not visible from the outside, do not involve puncturing,
relocating or removing the roof or any existing walls, and the cumulative cost
thereof during this Lease as extended does not exceed $50,000 in the aggregate
or $10,000 in any one year.
(b) CONSENT. Any Alterations or Utility Installations that Lessee shall
desire to make and which require the consent of the Lessee shall be presented to
Lessor in written form with detailed plans. Consent shall be deemed conditioned
upon Lessee's: (i) acquiring all applicable governmental permits, (ii)
furnishing Lessor with copies of both the permits and the plans and
specifications prior to commencement of the work and (iii) compliance with all
conditions of said permits and other Applicable Requirements in a prompt and
expeditious manner. Any Alterations or Utility Installations shall be performed
in a workmanlike manner with good and sufficient materials. Lessee shall
promptly upon completion furnish Lessor with as-built plans and specifications.
(c) INDEMNIFICATION. Lessee shall pay, when due, all claims for labor
or materials furnished or alleged to have been furnished or for Lessee at or for
use on the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in, on or about the Premises, and Lessor shall have the right to post
notices of non-responsibility. If Lessee shall contest the validity of any such
lien, claim or demand, then Lessee shall, at its sole expense defend and protect
itself. Lessor and the Premises against the same and shall pay and satisfy any
such adverse judgment that may be rendered thereon before the enforcement
thereof. If Lessor shall require, Lessee shall furnish a surety bond in an
amount equal to one and one-half times the amount of such contested lien, claim
or demand, indemnifying Lessor against liability for the same, if Lessor elects
to participate in any such action, Lessee shall pay Lessor's attorneys' fees and
costs.
7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require removal or elect
ownership as hereafter provided, all Alterations and Utility Installations made
by Lessee shall be the property of Lessee, but considered a part of the
Premises. Lessor may, at any time, elect in writing to be the owner of all or
any specified part of the Lessee Owned Alterations and Utility Installations.
Unless otherwise instructed per Paragraph 7.4 (b) hereof, all Lessee Owned
Alterations and Utility Installations shall, at the expiration or termination of
this Lease, become the property of Lessor and be surrendered by Lessee with the
Premises.
(b) REMOVAL. By delivery to Lessee of written notice from Lessor not
earlier than ninety (90) and not later than thirty (30) days prior to the end of
the term of this Lease. Lessor may require that any or all Lessee Owned
Alterations or Utility Installations be removed by the expiration or termination
of this Lease if Landlord requires removal as part of its consent. Lessor may
require the removal at any time of all or any part of any Lessee Owned
Alterations or Utility installations made without the required consent.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by the
Expiration Date or any earlier termination date, with all the improvements,
parts and surfaces thereof broom clean and free of debris, and in good operating
order, condition and state of repair, ordinary wear and tear excepted. Ordinary
wear and tear shall not include any damage or deterioration that would have been
prevented by good maintenance practice. Lessee shall repair any damage
occasioned by the installation, maintenance or removal of Trade Fixtures, Lessee
Owned Alterations and/or Utility installations, furnishings, and equipment as
well as the removal of any storage tank installed by or for Lessee, and the
removal, replacement, or remediation of any soil, material or groundwater
contaminated by Lessee. Trade Fixtures shall remain the property Lessee sand
shall be removed by Lessee. The failure by Lessee to timely vacate the Premises
pursuant to this Paragraph 7.4(c) without the express written consent of Lessor
shall constitute a holdover under the provisions of Paragraph 26 below.
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8. INSURANCE: INDEMNITY.
8.1 PAYMENT FOR INSURANCE. Lessee shall pay for all insurance required
under Paragraph 8 except to the extent of the cost attributable to liability
insurance carried by Lessor under Paragraph 8.2(b) in excess of $2,000,000 per
occurrence. Premiums for policy periods commencing prior to or extending beyond
the Lease term shall be prorated to correspond to the Lease term. Payment shall
be made by Lessee to Lessor within ten (10) days following receipt of an
invoice.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force a
Commercial General Liability Policy of Insurance protecting Lessee and Lessor
against claims for bodily injury, personal injury and property damage based upon
or arising out of the ownership, use, occupancy or maintenance of the Premises
and all areas appurtenant thereto. Such insurance shall be on an occurrence
basis providing single limit coverage in an amount not less than $2,000,000 per
occurrence with an "ADDITIONAL INSURED-MANAGERS OR LESSORS OF PREMISES
ENDORSEMENT" and contain the "AMENDMENT OF THE POLLUTION EXCLUSION ENDORSEMENT"
for damage caused by heat, smoke or fumes from a hostile fire. The Policy shall
not contain any intra-insured exclusions as between insured persons or
organizations, but shall include coverage for liability assumed under this Lease
as an "insured contract" for the performance of Lessee's indemnity obligations
under this Lease. The limits of such insurance shall not, however, limit the
liability of Lessee nor relieve Lessee of any obligation hereunder. All
insurance carried by Lessee shall be primary to and not contributory with any
similar insurance carried by Lessor, whose insurance shall be considered excess
insurance only.
(b) CARRIED BY LESSOR. Lessor shall maintain liability insurance as
described in Paragraph 8.2(a), in addition to, and not lieu of, the insurance
required to be maintained by Lessee. Lessee shall not be named as an additional
insured therein.
8.3 PROPERTY INSURANCE - BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. The Insuring Party shall obtain and
keep in force a policy or policies in the name of Lessor, with loss payable
to Lessor, any groundlessor, and to any Lender(s) insuring loss or damage
to the Premises. The amount of such insurance shall be equal to the full
replacement cost of the Premises, as the same shall exist from time to
time, or the amount required by any Lenders, but in no event more than the
commercially reasonable and available insurable value thereof. If Lessor is
the Insuring Party, however, Lessee Owned Alterations and Utility
Installations, Trade Fixtures, and Lessee's personal property shall be
insured by Lessee under Paragraph 8.4 rather than by Lessor. If the
coverage is available and commercially appropriate, such policy or policies
shall insure against all risks of direct physical loss or damage (except
the perils of flood and/or earthquake unless required by a Lender),
including coverage for debris removal and the enforcement of any Applicable
Requirements requiring the upgrading, demolition, reconstruction or
replacement of any portion of the Premises as the result of a covered loss.
Said policy or policies shall also contain an agreed valuation provision in
lieu of any coinsurance clause, waiver of subrogation, and inflation guard
protection causing an increase in the annual property insurance coverage
amount by a factor of not less than the adjusted U.S. Department of Labor
Consumer Price Index for All Urban Consumers for the city nearest to where
the Premises are located. If such insurance coverage has a deductible
clause, the deductible amount shall not exceed $1,000 per occurrence, and
Lessee shall be liable for such deductible amount in the event of an
Insured Loss.
(b) RENTAL VALUE. The Insuring Party shall obtain and keep in force a
policy or policies in the name of Lessor with loss payable to Lessor and
any Lender, insuring the loss of the full Rent for one (1) year. Said
insurance shall provide that in the event the Lease is terminated by reason
of an insured loss, the period of indemnity for such coverage shall be
extended beyond the date of the completion of repairs or replacement of the
Premises, to provide for one full year's loss of Rent from the date of any
such loss. Said insurance shall contain an agreed valuation provision in
lieu of any coinsurance clause, and the amount of coverage shall be
adjusted annually to reflect the projected Rent otherwise payable by
Lessee, for the next twelve (12) month period. Lessee shall be liable for
any deductible amount in the event of such loss.
(c) ADJACENT PREMISES. If the Premises are part of a larger building,
or of a group of buildings owned by Lessor which are adjacent to the
Premises, the Lessee shall pay for any increase in the premiums for the
property insurance of such building or buildings if said increase is caused
by Lessee's acts, omissions, use or occupancy of the Premises.
8.4 LESSEE'S PROPERTY/BUSINESS INTERRUPTION INSURANCE.
(a) PROPERTY DAMAGE. Lessee shall obtain and maintain insurance
coverage on all of Lessee's personal property, Trade Fixtures, and Lessee Owned
Alterations and Utility Installations. Such insurance shall be full replacement
cost coverage with a deductible of not to exceed $1,000 per occurrence. The
proceeds from any such insurance shall be used by Lessee for the replacement of
personal property, Trade Fixtures and Lessee Owned Alterations and Utility
Installations. Lessee shall provide Lessor with written evidence that such
insurance is in force.
(b) BUSINESS INTERRUPTION. Lessee shall obtain and maintain loss of
income and extra expense insurance in amounts as will reimburse Lessee for
direct or indirect loss of earnings attributable to all perils commonly insured
against by prudent lessees in the business of Lessee or attributable to
prevention of access to the Premises as a result of such perils.
(c) NO REPRESENTATION OF ADEQUATE COVERAGE. Lessor makes no
representation that the limits or forms of coverage of insurance specified
herein are adequate to cover Lessee's property, business operations or
obligations under this Lease.
8.5 INSURANCE POLICIES. Insurance required herein shall be by companies
duly licensed or admitted to transact business in the state where the Premises
are located, and maintaining during the policy term a "General Policyholders
Rating" of at least B+, V, as set forth in the most current issue of "Best's
Insurance Guide", or such other rating as may be required by a Lender. Lessee
shall not do or permit to be done anything which invalidates the required
insurance policies. Lessee shall, prior to the Start Date, deliver to Lessor
certified copies of policies of such insurance or certificates evidencing the
existence and amounts of the required insurance. No such policy shall be
cancelable or subject to modification except after thirty (30) days prior
written notice to Lessor. Lessee shall, at least thirty (30) days prior to the
expiration of such policies, furnish Lessor with evidence of renewals or
"insurance binders" evidencing renewal thereof, or Lessor may order such
insurance and charge the cost thereof to Lessee, which amount shall be payable
by Lessee to Lessor upon demand. Such policies shall be for a term of at least
one year, or the length of the remaining term of this Lease, whichever is less.
If either Party shall fail to procure and maintain the insurance required to be
carried by it, the other Party may, but shall not be required to, procure and
maintain the same.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or remedies,
Lessee and Lessor each hereby release and relieve the other, and waive their
entire right to recover damages against the other, for loss of or damage to its
property arising out of or incident to the perils required to be insured against
herein. The effect of such releases and waivers is not limited by the amount of
insurance carried or required, or by any deductibles applicable hereto. The
Parties agree to have their respective property damage insurance carriers waive
any right to subrogation that such companies may have against Lessor or Lessee,
as the case may be, so long as the insurance is not invalidated thereby.
8.7 INDEMNITY. Except for Lessor's gross negligence or willful misconduct,
Lessee shall indemnify, protect, defend and hold harmless the Premises, Lessor
and its agents, Lessor's master or ground lessor, partners and Lenders, from and
against any and all claims, loss of rents and/or damages, liens, judgments,
penalties, attorneys' and consultants' fees, expenses and/or liabilities arising
out of, involving, or in connection with, the use and/or occupancy of the
Premises by Lessee. If any action or proceeding is brought against Lessor by
reason of any of the foregoing matters, Lessee shall upon notice defend the same
at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor
shall cooperate with Lessee in such defense. Lessor need not have first paid any
such claim in order to be defended or indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee. Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects or pipes, fire sprinklers, wires,
appliances, plumbing, HVAC or lighting fixtures, or from any other cause,
whether the said injury or damage results from conditions arising upon the
Premises or upon other portions of the Building of which the Premises are a
part, or from other sources or places. Lessor shall not be liable for any damage
arising from any act or neglect of any other tenant of Lessor. Notwithstanding
Lessor's negligence or breach of this Lease, Lessor shall under no circumstances
be liable for injury to Lessee's business or for any loss of income or profit
therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to the
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations, which can reasonably be repaired in 270 days or less from the
date of the damage or destruction.
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Lessor shall notify Lessee in writing within thirty (30) days from the date of
the damage or destruction as to whether or not the damage is Partial or Total.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction to
the Premises, other than Lessee Owned Alterations and Utility Installations and
Trade Fixtures, which cannot reasonably be repaired 270 days or less from the
date of the damage or destruction. Lessor shall notify Lessee in writing within
thirty (30) days from the date of the damage or destruction as to whether or not
the damage is Partial or Total.
(c) "INSURED LOSS" shall mean damage or destruction to improvements on
the Premises, other than Lessee Owned Alterations and Utility Installations and
Trade Fixtures, which was caused by an event required to be covered by the
insurance described in Paragraph 8.3(a) irrespective of any deductible amounts
or coverage limits involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild the
improvements owned of Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of Applicable Requirements, and without
deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 PARTIAL DAMAGE - INSURED LOSS. If a Premises Partial Damage that is an
Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such damage
(but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect: provided, however, that Lessee shall, at Lessor's
election, make the repair of any damage or destruction the total cost to repair
of which is $10,000 or less, and, in such event, Lessor shall make any
applicable insurance proceeds available to Lessee on a reasonable basis for that
purpose. Notwithstanding the foregoing, if the required insurance was not in
force or the insurance proceeds are not sufficient to effect such repair, the
Insuring Party shall promptly contribute the shortage in proceeds (except as to
the deductible which is Lessee's responsibility) as and when required to
complete said repairs. In the event, however, such shortage was due to the fact
that, by reason of the unique nature of the improvements, full replacement cost
insurance coverage was not commercially reasonable and available, Lessor shall
have no obligation to pay for the shortage in insurance proceeds or to fully
restore the unique aspects of the Premises unless Lessee provides Lessor with
the funds to cover same, or adequate assurance thereof, within ten (10) days
following receipt of written notice of such shortage and request therefor. If
Lessor receives said funds or adequate assurance thereof within said ten (10)
day period, the party responsible for making the repairs shall complete them as
soon as reasonably possible and this Lease shall remain in full force and
effect. If such funds or assurance are not received, Lessor may nevertheless
elect by written notice to Lessee within ten (10) days thereafter to: (i) make
such restoration and repair as is commercially reasonable with Lessor paying any
shortage in proceeds, in which case this Lease shall remain in full force and
effect; or (ii) have this Lease terminate thirty (30) days thereafter. Lessee
shall not be entitled to reimbursement of any funds contributed by Lessee to
repair any such damage or destruction. Premises Partial Damage due to flood or
earthquake shall be subject to Paragraph 9.3, notwithstanding that there may be
some insurance coverage, but the net proceeds of any such insurance shall be
made available for the repairs if made by either Party
9.3 PARTIAL DAMAGE - UNINSURED LOSS. If a Premises Partial Damage that is
not an Insured Loss occurs, unless caused by a negligence or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense),
Lessor may either: (i) repair such damage as soon as reasonably possible at
Lessor's expense, in which event this Lease shall continue in full force and
effect, or (ii) terminate this Lease by giving written notice to Lessee within
thirty (30) days after receipt by Lessor of knowledge of the occurrence of such
damage. Such termination shall be effective sixty (60) days following the date
of such notice. In the event Lessor elects to terminate this Lease, Lessee shall
have the right within ten (10) days after receipt of the termination notice to
give written notice to Lessor of Lessee's commitment to pay for the repair of
such damage without reimbursement from Lessor. Lessee shall provide Lessor with
said funds or satisfactory assurance thereof within thirty (30) days after
making such commitment. In such event this Lease shall continue in full force
and effect, and Lessor shall proceed to make such repairs a soon as reasonably
possible after the required funds are available. If Lessee does not make the
required commitment, this Lease shall terminate as of the date specified in the
termination notice.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs, this Lease shall terminate sixty (60) days
following such Destruction. If the damage or destruction was caused by the gross
negligence or willful misconduct of Lessee, Lessor shall have the right to
recover Lessor's damages from Lessee, except as provided in Paragraph 8.6.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6) months
of this Lease there is damage for which the cost to repair exceeds one (1)
month's Base Rent, whether or not an Insured Loss, Lessor may terminate this
Lease effective sixty (60) days following the date of occurrence of such damage
by giving a written termination notice to Lessee within thirty (30) days after
the date of occurrence of such damage.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) ABATEMENT. In the event of Premises Partial Damage or Premises
Total Destruction or a Hazardous Substance Condition for which Lessee is not
responsible under this Lease, the Rent payable by Lessee for the period required
for the repair, remediation or restoration of such damage shall be abated in
proportion to the degree to which Lessee's use of the Premises is impaired. All
other obligations of Lessee hereunder shall be performed by Lessee, and Lessor
shall have no liability for any such damage, destruction, remediation, repair or
restoration except as provided herein.
(b) REMEDIES. If Lessor shall be obligated to repair or restore the
Premises and does not commence, in a substantial and meaningful way, such repair
or restoration within ninety (90) days after such obligation shall accrue,
Lessee may, at any time prior to the commencement of such repair or restoration,
give written notice to Lessor and to any Lenders of which Lessee has actual
notice, of Lessee's election to terminate this Lease on a date not less than
sixty (60) days following the giving of such notice, if Lessee gives such notice
and such repair or restoration is not commenced within thirty (30) days
thereafter, this Lease shall terminate as of the date specified in said notice.
If the repair or restoration is commenced within said thirty (30) days, this
Lease shall continue in full force and effect. "COMMENCE" shall mean either the
unconditional authorization of the preparation of the required plans, or the
beginning of the actual work on the Premises, whichever first occurs.
9.7 TERMINATION-ADVANCE PAYMENTS. Upon termination of this Lease pursuant
to Paragraph 6.2(g) or Paragraph 9, an equitable adjustment shall be made
concerning advance Base Rent and any other advance payments made by Lessee to
Lessor. Lessor shall, in addition, return to Lessee so much of Lessee's Security
Deposit as has not been, or is not then required to be, used by Lessor.
9.8 WAIVE STATUTES. Lessor and Lessee agree that the terms of this Lease
shall govern the effect of any damage to or destruction the Premises with
respect to the termination of this Lease and hereby waive the provisions of any
present or future statute to the extent inconsistent herewith.
10. REAL PROPERTY TAXES.
10.1 DEFINITION OF "REAL PROPERTY TAXES. As used herein, the term "Real
Property Taxes" shall include any form of assessment real estate, general,
special, ordinary or extraordinary, or rental levy or tax other than
inheritance, personal income or estate taxes); improvement bond; and/or license
fee imposed upon or levied against any legal or equitable interest of Lessor in
the Premises. Lessor's right to other income therefrom, and/or Lessor's business
of leasing, by any authority having the direct or indirect power to tax and
where the funds are generated
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with reference to the Building address and where the proceeds so generated
are to be applied by the city, county or other local taxing authority of a
jurisdiction within which the Premises are located. The term "Real Property
Taxes" shall also include any tax, fee, levy, assessment or charge, or any
increase therein, imposed by reason of events occurring during the term of this
Lease, including but not limited to, a change in the ownership of the Premises.
10.2
(a) PAYMENT OF TAXES. Lessee shall pay the Real Property Taxes
applicable to the Premises during the term of this Lease. Subject to Paragraph
10.2(b), all such payments shall be made at least ten (10) days prior to any
delinquency date. Lessee shall promptly furnish Lessor with satisfactory
evidence that such taxes have been paid. If any such taxes shall cover any
period of time prior to or after the expiration or termination of this Lease,
Lessee's share of such taxes shall be prorated to cover only that portion of the
tax bill applicable to the period that this Lease is in effect, and Lessor shall
reimburse Lessee for any overpayment. If Lessee shall fail to pay any required
Real Property Taxes, Lessor shall have the right to pay the same, and Lessee
shall reimburse Lessor therefor upon demand.
(b) ADVANCE PAYMENT. In the event Lessee incurs a late charge on any
Rent payment, Lessor may, at Lessor's option, estimate the current Real Property
Taxes, and require that such taxes be paid in advance to Lessor by Lessee,
either: (i) in a lump sum amount equal to the installment due, at least twenty
(20) days prior to the applicable delinquency date, or (ii) monthly in advance
with the payment of the Base Rent. If Lessor elects to require payment monthly
in advance, the monthly payment shall be an amount equal to the amount of the
estimated installment of taxes divided by the number of months remaining before
the month in which said installment becomes delinquent. When the actual amount
of the applicable tax bill is known, the amount of such equal monthly advance
payments shall be adjusted as required to provide the funds needed to pay the
applicable taxes. If the amount collected by Lessor is insufficient to pay such
Real Property Taxes when due, Lessee shall pay Lessor, upon demand, such
additional sums as are necessary to pay such obligations. All moneys paid to
Lessor under this Paragraph may be intermingled with other moneys of Lessor and
shall not bear interest. In the event of a Breach by Lessee in the performance
of its obligations under this Lease, then any balance of funds paid to Lessor
under the provisions of this Paragraph may at the option of Lessor, be treated
as an additional Security Deposit.
10.3 JOINT ASSESSMENT. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the Real Property Taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be conclusively determined by Lessor from the respective
valuations assigned in the assessor's work sheets or such other information as
may be reasonably available.
10.4 PERSONAL PROPERTY TAXES. Lessee shall pay, prior to delinquency, all
taxes assessed against and levied upon Lessee Owned Alterations, Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee. When possible, Lessee shall cause such property to be assessed and
billed separately from the real property of Lessor. If any of Lessee's said
personal property shall be assessed with Lessor's real property, Lessee shall
pay Lessor the taxes attributable to Lessee's property within ten (10) days
after receipt of a written statement.
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all charges jointly metered.
12. ASSIGNMENT AND SUBLETTING. (See Addendum Paragraph 55)
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or encumber (collectively, "ASSIGN OR ASSIGNMENT") or sublet
all or any part of Lessee's interest in this Lease or in the Premises without
Lessor's prior written consent.
(b) A change in the control of Lessee shall constitute an assignment
requiring consent. The transfer, on a cumulative basis, of fifty percent (50%)
or more of the voting control of Lessee shall constitute a change in control for
this purpose.
(d) An assignment or subletting without consent shall, at Lessor's
option, be a Default curable after notice per Paragraph 13.1(c), or a noncurable
Breach without the necessity of any notice and grace period. If Lessor elects to
treat such unapproved assignment or subletting as a noncurable Breach, Lessor
may either: (i) terminate this Lease, or (ii) upon thirty (30) days written
notice, increase the monthly Base Rent to one hundred ten percent (110%) of the
Base Rent then in effect. Further, in the event of such Breach and rental
adjustment, (i) the purchase price of any option to purchase the Premises held
by Lessee shall be subject to similar adjustment to one hundred ten percent
(110%) of the price previously in effect, and (ii) all fixed and non-fixed
rental adjustments scheduled during the remainder of the Lease term shall be
increased to One Hundred Ten Percent (110%) of the scheduled adjusted rent.
(e) Lessee's remedy for any breach of Paragraph 12.1 by Lessor shall be
limited to compensatory damages and/or injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING,
(a) Regardless of Lessor's consent, any assignment or subletting shall
not: (i) be effective without the express written assumption by such assignee or
sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of
any obligations hereunder, or (iii) alter the primary liability of Lessee for
the payment of Rent or for the performance of any other obligations to be
performed by Lessee.
(b) Lessor may accept Rent or performance of Lessee's obligations from
any person other than Lessee pending approval or disapproval of an assignment.
Neither a delay in the approval or disapproval of such assignment nor the
acceptance of Rent or performance shall constitute a waiver or estoppel of
Lessor's right to exercise its remedies for Lessee's Default or Breach.
(c) Lessor's consent to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting.
(d) In the event of any Default or Breach by Lessee, Lessor may proceed
directly against Lessee, any Guarantors or anyone else responsible for the
performance of Lessee's obligations under this Lease, including any assignee or
sublessee, without first exhausting Lessor's remedies against any other person
or entity, responsible therefore to Lessor, or any security held by Lessor.
(e) Each request for consent to an assignment or subletting shall be in
writing, accompanied by information relevant to Lessor's determination as to the
financial and operational responsibility and appropriateness of the proposed
assignee or sublessee, including but not limited to the intended use and/or
required modification of the Premises, if any (See Addendum Paragraph 55 (d))
(f) Any assignee of, or sublessee under, this Lease shall, by reason of
accepting such assignment or entering into such sublease, be deemed to have
assumed and agreed to conform and comply with each and every term, covenant,
condition and obligation herein to be observed or performed by Lessee during the
term of said assignment or sublease, other than such obligations as are contrary
to or inconsistent with provisions or an assignment or sublease to which Lessor
has specifically consented to in writing.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all Rent payable on any sublease, and Lessor may collect such Rent
and apply same toward Lessee's obligations under this Lease; provided, however,
that until a Breach shall occur in the performance of Lessee's obligations,
Lessee may collect said Rent. Lessor shall not, by reason of the foregoing or
any assignment of such sublease, nor by reason of the collection of Rent, be
deemed liable to the sublessee for any failure of Lessee to perform and comply
with any of Lessee's obligations to such sublessee. Lessee hereby irrevocably
authorizes and directs any such sublease, upon receipt of a written notice
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from Lessor stating that a Breach exists in the performance of Lessee's
obligations under this Lease, to pay to Lessor all Rent due and to become due
under the sublease. Sublessee shall rely upon any such notice from Lessor and
shall pay all Rents to Lessor without any obligation or right to inquire as to
whether such Breach exists, notwithstanding any claim from Lessee to the
contrary.
(b) In the event of a Breach by Lessee, Lessor may, at its option,
require sublessee to attorn to Lessor, in which event Lessor shall undertake the
obligations of the sublessor under such sublease from the time of the exercise
of said option to the expiration of such sublease; provided, however, Lessor
shall not be liable for any prepaid rents or security deposit paid by such
sublessee to such sublessor or for any prior Defaults or Breaches of such
sublessor.
(c) Any matter requiring the consent of the sublessor under a sublease
shall also require the consent of Lessor.
(d) No sublessee shall further assign or sublet all or any part of the
Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach by
Lessee to the sublessee, who shall have the right to cure the Default of
Lessee within the grace period, if any, specified in such notice. The
sublessee shall have a right of reimbursement and offset from and against
Lessee for any such Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. A "Default" is defined as a failure by the Lessee to
comply with or perform any of the terms, covenants, conditions or rules under
this Lease. A "Breach" is defined as the occurrence of one or more of the
following Defaults, and the failure of Lessee to cure such Default within any
applicable grace period:
(a) The abandonment of the Premises; or the vacating of the Premises
without providing a commercially reasonable level of security or where the
coverage of the property insurance described in Paragraph 8.3 is jeopardized as
a result thereof, or without providing reasonable assurances to minimize
potential vandalism.
(b) The failure of Lessee to make any payment of Rent or any Security
Deposit required to be made by Lessee hereunder, whether to Lessor or to a third
party, when due, to provide reasonable evidence of insurance or surety bond, or
to fulfill any obligation under this Lease which endangers or threatens life or
property, where such failure continues for a period of three (3) business days
following written notice to Lessee.
(c) The failure by Lessee to provide (i) reasonable written evidence
of compliance with Applicable Requirements, (ii) the service contracts, (iii)
the rescission of an unauthorized assignment or subletting, (iv) a Estoppel
Certificate, (v) a requested subordination, (vi) evidence concerning any
guaranty and/or Guarantor, (vii) any document requested under Paragraph 42
(easements), or (viii) any other documentation or information which Lessor may
reasonably require of Lessee under the terms of this Lease, where any such
failure continues for a period of ten (10) days following written notice to
Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
other than those described in subparagraphs 13.1(a), (b) or (c), above, where
such Default continues for a period of thirty (30) days after written notice;
provided, however, that if the nature of Lessee's Default is such that more than
thirty (30) days are reasonably required for its cure, then it shall not be
deemed to be a Breach if Lessee commences such cure within said thirty (30) day
period and thereafter diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the making of
any general arrangement or assignment for the benefit of creditors; (ii)
becoming a "debtor" as defined in 11 U.S.C. Section 101 or any successor statute
thereto (unless, in the case of a petition filed against Lessee, the same is
dismissed within sixty (60) days); (iii) the appointment of a trustee or
receiver to take possession of substantially all of Lessee's assets located at
the Premises or of Lessee's interest in this Lease, where possession is not
restored to Lessee within thirty (30) days; or (iv) the attachment, execution or
other judicial seizure of substantially all of Lessee's assets located at the
Premises or of Lessee's interest in this Lease, where such seizure is not
discharged within thirty (30) days; provided, however, in the event that any
provision of this subparagraph (e) is contrary to any applicable law, such
provision shall be of no force or effect, and not affect the validity of the
remaining provisions.
(f) The discovery that any financial statement of Lessee or of any
Guarantor given to Lessor was materially false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a Guarantor, (ii) the termination of Guarantor's
liability with respect to this Lease other than in accordance with the terms of
such guaranty, (iii) a Guarantor's becoming insolvent or the subject of a
bankruptcy filing, (iv) a Guarantor's refusal to honor the guaranty, or (v) a
Guarantor's breach of its guaranty obligation on an anticipatory basis, and
Lessee's failure, within sixty (60) days following written notice of any such
event, to provide written alternative assurance or security, which, when coupled
with the then existing resources of Lessee, equals or exceeds the combined
financial resources of Lessee and the Guarantors that existed at the time of
execution of this Lease.
13.2 REMEDIES. If Lessee fails to perform any of its affirmative duties or
obligations, within ten (10) days after written notice (or in case of an
emergency, without notice), Lessor may, at its option, perform such duty or
obligation on Lessee's behalf, including but not limited to the obtaining of
reasonably required bonds, insurance policies, or governmental licenses, permits
or approvals. The costs and expenses of any such performance by Lessor shall be
due and payable by Lessee upon receipt of invoice therefor. If any check given
to Lessor by Lessee shall not be honored by the bank upon which it is drawn,
Lessor, at its option, may require all future payments to be made by Lessee to
be by cashier's check. In the event of a Breach, Lessor may, with or without
further notice or demand, and without limiting Lessor in the exercise of any
right or remedy which Lessor may have by reason of such Breach:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease shall terminate and Lessee shall
immediately surrender possession to Lessor. In such event Lessor shall be
entitled to recover from Lessee: (i) the unpaid Rent which had been earned at
the time of termination; (ii) the worth at the time of award of the amount by
which the unpaid rent which would have been earned after termination until the
time of award exceeds the amount of such rental loss that the Lessee proves
could have been reasonably avoided; (iii) the worth at the time of award of the
amount by which the unpaid rent for the balance of the term after the time of
award exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided: and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorneys' fees, and that
portion of any leasing commission paid by Lessor in connection with this Lease
applicable to the unexpired term of this Lease. The worth at the time of award
of the amount referred to in provision (iii) of the immediately preceding
sentence shall be computed by discounting such amount at the discount rate of
the Federal Reserve Bank of the District within which the Premises are located
at the time of award plus one percent (1%). Efforts by Lessor to mitigate
damages caused by Lessee's Breach of this Lease shall not waive Lessor's right
to recover damages under Paragraph 12. If termination of this Lease obtained
through the provisional remedy of unlawful detainer, Lessor shall have the right
to recover in such proceeding any unpaid Rent and damages as are recoverable
therein, or Lessor may reserve the right to recover all or any part thereof in a
separate suit. If a notice and grace period required under Paragraph 13.1 was
not previously given, a notice to pay rent or quit, or to perform or quit given
to Lessee under the unlawful detainer statute shall also constitute the notice
required by Paragraph 13.1. In such case, the applicable grace period required
by Paragraph 13.1 and the unlawful detainer statute shall run concurrently, and
the failure of Lessee to cure the Default within the greater of the two such
grace periods shall constitute both an unlawful detainer and a Breach of this
Lease entitling Lessor to the remedies provided for in this Lease and/or by said
statute.
(b) Continue the Lease and Lessee's right to possession and recover the
Rent as it becomes due, in which event Lessee may sublet or assign, subject only
to reasonable limitations. Acts of maintenance, efforts to relet, and/or the
appointment of a receiver to protect the Lessor's interests, shall not
constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available under the laws
or judicial decisions of the state wherein the Premises are located. The
expiration or termination of this Lease and/or the termination of Lessee's right
to possession shall not relieve Lessee from liability
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under any indemnity provisions of this Lease as to matters occurring or
accruing during the term hereof or by reason of Lessee's occupancy of the
Premises.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee
of Rent will cause Lessor to incur costs not contemplated by this Lease, the
exact amount of which will be extremely difficult to ascertain. Such costs
include, but are not limited to, processing and accounting charges, and late
charges which may be imposed upon Lessor by any Lender. Accordingly, if any Rent
shall not be received by Lessor within five (5) days after such amount shall be
due, then, without any requirement for notice to Lessee, Lessee shall pay to
Lessor a one-time late charge equal to six percent (6%) of each such overdue
amount. The parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of such late
payment. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent the exercise of any of the other rights and remedies granted hereunder.
In the event that a late charge is payable hereunder, whether or not collected,
for three (3) consecutive installments of Base Rent, then notwithstanding any
provision of this Lease to the contrary, Base Rent shall, at Lessor's option,
become due and payable quarterly in advance.
13.5 INTEREST. Any monetary payment due Lessor hereunder, other than late
charges, not received by Lessor, when due as to scheduled payments (such as Base
Rent) or within thirty (30) days following the date on which it was due for
non-scheduled payment, shall bear interest from the date when due, as to
scheduled payments, or the thirty-first (31st) day after it was due as to
non-scheduled payments. The interest ("Interest") charged shall be equal to the
prime rate reported in the Wall Street Journal as published closest prior to the
date when due plus two percent (2%) but shall not exceed the maximum rate
allowed by law. Interest is payable in addition to the potential late charge
provided for in Paragraph 13.4.
13.6 BREACH BY LESSOR.
(a) NOTICE OF BREACH. Lessor shall not be deemed in breach of this
Lease unless Lessor fails within a reasonable time to perform an obligation
required to be performed by Lessor. For purposes of this Paragraph, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and any Lender whose name and address shall have been furnished Lessee in
writing for such purpose, of written notice specifying wherein such obligation
of Lessor has not been performed; provided, however, that if the nature of
Lessor's obligation is such that more than thirty (30) days are reasonably
required for its performance, then Lessor shall not be in breach if performance
is commenced within such thirty (30) day period and thereafter diligently
pursued to completion.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(collectively "Condemnation"), this Lease shall terminate as to the part taken
as of the date the condemning authority takes title or possession, whichever
first occurs. If more than ten percent (10%) of any building portion of the
premises, or more than twenty-five percent (25%) of the land area portion of the
premises not occupied by any building, is taken by Condemnation, Lessee may, at
Lessee's option, to be exercised in writing within ten (10) days after Lessor
shall have given Lessee written notice of such taking (or in the absence of such
notice, within ten (10) days after the condemning authority shall have taken
possession) terminate this Lease as of the date the condemning authority takes
such possession. If Lessee does not terminate this Lease in accordance with the
foregoing, this Lease shall remain in full force and effect as to the portion of
the Premises remaining, except that the Base Rent shall be reduced in proportion
to the reduction in utility of the Premises caused by such Condemnation.
Condemnation awards and/or payments shall be the property of Lessor, whether
such award shall be made as compensation for diminution in value of the
leasehold, the value of the part taken, or for severance damages; provided,
however, that Lessee shall be entitled to any compensation for Lessee's
relocation expenses, loss of business goodwill and/or Trade Fixtures, without
regard to whether or not this Lease is terminated pursuant to the provisions of
this Paragraph. All Alterations and Utility Installations made to the Premises
by Lessee, for purposes of Condemnation only, shall be considered the property
of the Lessee and Lessee shall be entitled to any and all compensation which is
payable therefor. In the event that this Lease is not terminated by reason of
the Condemnation, Lessor shall repair any damage to the Premises caused by such
Condemnation.
15. BROKERS' FEE.
15.3 REPRESENTATIONS AND INDEMNITIES OF BROKER RELATIONSHIPS. Lessee and
Lessor each represent and warrant to the other that it has had no dealings with
any person, firm, broker or finder (other than the Brokers, if any) in
connection with this Lease, and that no one other than said named Brokers is
entitled to any commission or finder's fee in connection herewith. Lessee and
Lessor do each hereby agree to indemnify, protect, defend and hold the other
harmless from and against liability, for compensation or charges which may be
claimed by any such unnamed broker, finder or other similar party by reason of
any dealings or actions of the Indemnifying Party, including any costs,
expenses, attorneys' fees reasonably incurred with respect thereto.
16. ESTOPPEL CERTIFICATES
(a) Each Party (as "RESPONDING PARTY") shall within ten (10) days after
written notice from the other Party (the "REQUESTING PARTY") execute,
acknowledge and deliver to the Requesting Party a statement in writing in form
similar to the then most current "ESTOPPEL CERTIFICATE" form published by the
American Industrial Real Estate Association, plus such additional information,
conformation and/or statements as may be reasonably requested by the Requesting
Party.
(b) If the Responding Party shall fail to execute or deliver the
Estoppel Certificate within such ten day period, the Requesting Party may
execute an Estoppel Certificate stating that: (i) the Lease is in full force and
effect without modification except as may be represented by the Requesting
Party, (ii) there are no uncured defaults in the Requesting Party's performance,
and (iii) if Lessor is the Requesting Party, not more than one month's rent has
been paid in advance. Prospective purchasers and encumbrancers may rely upon the
Requesting Party's Estoppel Certificate, and the Responding Party shall be
estopped from denying the truth of the facts contained in said Certificate.
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(c) If Lessor desires to finance, refinance, or sell the Premises, or
any part hereof, Lessee and all Guarantor shall deliver to any potential lender
or purchaser designated by Lessor such financial statements as may be reasonably
required by such lender or purchaser including but not limited to Lessee's
financial statements for the past three (3) years. All such financial statements
shall be received by Lessor and such lender or purchaser in confidence and shall
be used only for the purposes herein set forth.
17. DEFINITION OF LESSOR. The term "Lessor" as used herein shall mean the owner
or owners at the time in question of the fee title to the Premises, or, if this
is a sublease, of the Lessee's interest in the prior lease. In the event of a
transfer of Lessor's title or interest in the Premises or this Lease, Lessor
shall deliver to the transferee or assignee (in cash or by credit) any unused
Security Deposit held by Lessor. Except as provided in Paragraph 15, upon such
transfer or assignment and delivery of the Security Deposit, as aforesaid, the
prior Lessor shall be relieved of all liability with respect to the obligations
and/or covenants under this Lease thereafter to be performed by the Lessor.
Subject to the foregoing, the obligations and/or covenants in this Lease to be
performed by the Lessor shall be binding only upon the Lessor as hereinabove
defined. Notwithstanding the above, and subject to the provisions of Paragraph
20 below, the original Lessor under this Lease, and all subsequent holders of
the Lessor's interest in this Lease shall remain liable and responsible with
regard to the potential duties and liabilities of Lessor pertaining to Hazardous
Substances as outlined in Paragraph 6 above.
18. SEVERABILITY. The invalidity of any provision of this Lease, as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
19. DAYS. Unless otherwise specifically indicated to the contrary, the word
"days" as used in this Lease shall mean and refer to calendar days.
20. LIMITATION ON LIABILITY. Subject to the provisions of Paragraph 17
above, the obligations of Lessor under this Lease shall not constitute personal
obligations of Lessor, the individual partners of Lessor or its or their
individual partners, directors, officers or shareholders, and Lessee shall look
to the Premises, and to no other assets of Lessor, for the satisfaction of any
liability of Lessor with respect to this Lease. and shall not seek recourse
against the individual partners of Lessor, or its or their individual partners,
directors, officers or shareholders, or any of the personal assets for such
satisfaction.
21. TIME OF ESSENCE. Time is of the essence with respect to the performance
of all obligations to be performed or observed by the Parties under this Lease.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
23. NOTICES.
23.1 NOTICE REQUIREMENTS. All notices required or permitted by this Lease
shall be in writing and may be delivered in person (by hand or by courier) or
may be sent by regular, certified or registered mail or U.S. Postal Service
Express Mail, with postage prepaid, or by facsimile transmission, and shall be
deemed sufficiently given if served in a manner specified in this Paragraph 23.
The addresses noted adjacent to a Party's signature on this Lease shall be
that Party's address for delivery or mailing of notices. Either Party may by
written notice to the other specify a different address for notice, except that
upon Lessee's taking possession of the Premises, the Premises shall constitute
Lessee's address for notice. A copy of all notices to Lessor shall be
concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate in writing.
23.2 DATE OF NOTICE. Any notice sent by registered or certified mail,
return receipt requested, shall be deemed given on the date of delivery shown on
the receipt card, or if no delivery date is shown, the postmark thereon, if sent
by regular mail the notice shall be deemed given forty-eight (48) hours after
the same is addressed as required herein and mailed with postage prepaid.
Notices delivered by United State Express Mail or overnight courier that
guarantee next day delivery shall be deemed given twenty-four (24) hours after
delivery of the same to the Postal Service or courier. Notices transmitted by
facsimile transmission or similar means shall be deemed delivered upon telephone
confirmation of receipt, provided a copy is also delivered via delivery or mail.
If notice is received on a Saturday, Sunday or legal holiday, it shall be deemed
received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by Lessee
of the same or of any other term, covenant or condition hereof. Lessor's consent
to, or approval of, any act shall not be deemed to render unnecessary the
obtaining of Lessor's consent to or approval of, any subsequent or similar act
by Lessee, or be construed as the basis of an estoppel to enforce the provision
or provisions of this Lease requiring such consent. The acceptance of Rent by
Lessor shall not be a waiver of any Default or Breach by Lessee. Any payment by
Lessee may be accepted by Lessor on account of moneys or damages due Lessor,
notwithstanding any qualifying statements or condition made by Lessee in
connection therewith, which such statements and/or conditions shall be of no
force or effect whatsoever unless specifically agreed to in writing by Lessor at
or before the time of deposit of such payment.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or termination of this Lease.
In the event that Lessee holds over, then the Base Rent shall be increased to
one hundred fifty percent (150%) of the Base Rent applicable during the month
immediately preceding the expiration or termination. Nothing contained herein
shall be construed as consent to Lessor to any holding over by Lessee.
27.CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with any other remedies
at law or in equity.
28. COVENANTS AND CONDITIONS; CONSTRUCTION OF AGREEMENT. All provisions
of this Lease to be observed or performed by Lessee are both covenants and
conditions. In construing this Lease, all headings and titles are for the
convenience of the parties only and shall not be considered a part of this
Lease. Whenever required by the context, the singular shall include the plural
and vice versa. This Lease shall not be construed as if prepared by one of the
parties, but rather according to its fair meaning as a whole, as if both parties
had prepared it.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the
parties, their personal representatives, successors and assigns and be governed
by the laws of the State in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "SECURITY DEVICE"), now or
hereafter placed upon the Premises, to any and all advances made on the security
thereof, and to all renewals, modifications, and extensions thereof. Lessee
agrees that the holders of any such Security Devices (in this Lease together
referred to as "Lender") shall have no liability or obligations to perform any
of the obligations of Lessor under this Lease. Any Lender may elect to have this
Lease and/or any Option granted hereby superior to the lien of its Security
Device by giving written notice thereof to Lessee, whereupon this Lease and such
Options shall be deemed prior to such Security Device, notwithstanding the
relative dates of the documentation or recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender of any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new
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owner shall not: (i) be liable for any act or omission of any prior lessor
or with respect to events occurring prior to acquisition of ownership; (ii) be
subject to any offsets or defenses which Lessee might have against any prior
lessor, or (iii) be bound by prepayment of more than one (1) month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving a commercially reasonable non-disturbance
agreement (a "NON-DISTURBANCE AGREEMENT") from the Lender which Non-Disturbance
Agreement provides that Lessee's possession of the Premises, and this Lease,
including any options to extend the term hereof, will not be disturbed so long
as Lessee is not in Breach hereof and attorns to the record owner of the
Premises. Further, within sixty (60) days after the execution of this Lease,
Lessor shall use its commercially reasonable efforts to obtain a Non-Disturbance
Agreement from the holder of any pre-existing Security Device which is secured
by the Premises. In the event that Lessor is unable to provide the
Non-Disturbance Agreement within sixty (60) days, then Lessee may, at Lessees
option, directly contact Lessor's lender and attempt to negotiate for the
execution and delivery of a Non-Disturbance Agreement.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall be
effective without the execution of any further documents; provided, however,
that, upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of the Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any
subordination, attornment and/or Non-Disturbance Agreement provided for herein.
31. ATTORNEYS' FEES. If any Party or Broker brings an action or proceeding
involving the Premises to enforce the terms hereof or to declare rights
hereunder, the Prevailing Party (as hereafter defined) in any such proceeding,
action, or appeal thereon, shall be entitled to reasonable attorneys' fees. Such
fees may be awarded in the same suit or recovered in a separate suit, whether or
not such action or proceeding is pursued to decision or judgment. The term,
"Prevailing Party" shall include, without limitation, a Party or Broker who
substantially obtains or defeats the relief sought, as the case may be, whether
by compromise, settlement, judgment, or the abandonment by the other Party or
Broker of its claim or defense. The attorneys' fees award shall not be computed
in accordance with any court fee schedule, but shall be such as to fully
reimburse all attorneys' fees reasonably incurred. In addition, Lessor shall be
entitled to attorneys' fees, costs and expenses incurred in the preparation and
service of notices of Default and consultations in connection therewith, whether
or not a legal action is subsequently commenced in connection with such Default
or resulting Breach.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents shall
have the right to enter the Premises at any time, in the case of an emergency,
and otherwise at reasonable times after 24 hours prior notice for the purpose of
showing the same to prospective purchasers, lenders, or lessees, and making such
alterations, repairs, improvements or additions to the Premises as Lessor may
deem necessary. All such activities shall be without abatement of rent or
liability to Lessee. Lessor may at any time place on the Premises any ordinary
"For Sale" signs and Lessor may during the last six (6) months of the term
hereof place on the Premises any ordinary "For Lease" signs. Lessee may at any
time place on or about the Premises any ordinary "For Sublease" sign.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, any
auction upon the Premises without Lessor's prior written consent. Lessor shall
not be obligated to exercise any standard of reasonableness in determining
whether to permit an auction.
34. SIGNS. Except for ordinary "For Sublease" signs, Lessee shall not place
any sign upon the Premises without Lessor's prior written consent. All signs
must comply with all Applicable Requirements.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, that Lessor may elect to continue any one or all
existing subtenancies. Lessor's failure within ten (10) days following any such
event to elect to the contrary by written notice to the holder of any such
lesser interest, shall constitute Lessor's election to have such event
constitute the termination of such interest.
36. CONSENTS. Except as otherwise provided herein, wherever in this Lease the
consent of a Party is required to an act by or for the other Party, such consent
shall not be unreasonably withheld or delayed. Lessor's actual reasonable costs
and expenses (including but not limited to architects', attorneys', engineers'
and other consultants' fees) incurred in the consideration of, or response to, a
request by Lessee for any Lessor consent, including but not limited to consents
to an assignment, a subletting or the presence or use of a Hazardous Substance,
shall be paid by Lessee upon receipt of an invoice and supporting documentation
therefor. Lessor's consent to any act, assignment or subletting shall not
constitute an acknowledgment that no Default or Breach by Lessee of this Lease
exists, nor shall such consent be deemed a waiver of any then existing Default
or Breach, except as may be otherwise specifically stated in writing by Lessor
at the time of such consent. The failure to specify herein any particular
condition to Lessor's consent shall not preclude the imposition by Lessor at the
time of consent of such further or other conditions as are then reasonable with
reference to the particular matter for which consent is being given. In the
event that either Party disagrees with any determination made by the other
hereunder and reasonably requests the reasons for such determination, the
determining party shall furnish its reasons in writing and in reasonable detail
within ten (10) business days following such request.
38. QUIET POSSESSION. Subject to payment by Lessee of the Rent and
performance of all of the covenants, conditions and provisions on Lessee's part
to be observed and performed under this Lease. Lessee shall have quiet
possession and quiet enjoyment of the Premises during the term hereof.
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41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises. Lessee,
its agents and invitees and their property from the acts of third parties.
42. RESERVATIONS. Lessor reserves to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation the money is asserted shall have
the right to make payment "under protest" and such payment shall not be regarded
as a voluntary payment and there shall survive the right on the part of said
Party to institute or recovery of such sum. If it shall be adjudged that there
was no legal obligation on the part of said Party to pay such sum or any part
thereof, said Party shall be entitled to recover such sum or so much thereof as
it was not legally required to pay.
44. AUTHORITY. If either Party hereto is acorporation, trust, limited liability
company, partnership, or similar entity, each individual executing this Lease on
behalf of such entity represents and warrants that he or she is duly authorized
to execute and deliver this Lease on its behalf. Each party shall, within thirty
(30) days after request, deliver to the other party satisfactory evidence of
such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the typewritten
or handwritten provisions.
46. OFFER. Preparation of this Lease by either Party, or their agent and
submission of same to the other Party shall not be deemed an offer to lease to
the other Party. This Lease is not intended to be binding until executed and
delivered by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by a Lender in connection with the obtaining of normal financing or
refinancing of the Premises.
48. MULTIPLE PARTIES. If more than one person or entity is named herein as
either Lessor or Lessee, such multiple Parties shall have joint and several
responsibility to comply with the terms of this Lease. (See Addendum Paragraph
56)
49. MEDIATION AND ARBITRATION OF DISPUTES. An Addendum requiring the
Mediation and/or the Arbitration of all disputes between the Parties and/or
Brokers arising out of this Lease [ ] is [ x ] is not attached to this Lease.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
- -------------------------------------------------------------------------------
ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN
INDUSTRIAL REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL SUFFICIENCY,
LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT
RELATES. THE PARTIES ARE URGED TO:
1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS
LEASE.
2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION
OF THE PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE
POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PREMISES, THE
STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, AND THE
SUITABILITY OF THE PREMISES FOR LESSEE'S INTENDED USE.
WARNING: IF THE PREMISES IS LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN
PROVISIONS OF THE LEASE MAY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF THE
STATE IN WHICH THE PREMISES IS LOCATED.
- -------------------------------------------------------------------------------
The parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.
Executed at: Palo Alto, California Executed at: Belmont, CA
------------------------ ---------------------------
on: June 15, 1999 on: 1630 HRS 5 June 1999
-------------------------------- -----------------------------------
By LESSOR: By LESSEE:
W.F. BATTON & CO., INC., WIRELESS, INC.,
- ----------------------------------- --------------------------------------
A CALIFORNIA CORPORATION A CALIFORNIA CORPORATION
By: /s/ Marie A. Batton By: /s/ William E. Gibson
------------------------------ -----------------------------------
Name Printed: /s/ Marie A. Batton Name Printed: William E. Gibson
----------------------- -------------------------
Title: Vice President Title: President/CEO
------------------------------ ---------------------------------
By: /s/ Pamela Foley By: /s/ William Yang
Name Printed: Pamela Foley Name Printed: William Yang
----------------------- --------------------------
Title: Vice President Title: VP/Secretary
------------------------------ ---------------------------------
Address: Address:
---------------------------- -------------------------------
Telephone: ( ) Telephone: ( )
-------------------------- -----------------------------
Facsimile: ( ) Facsimile: ( )
-------------------------- -----------------------------
Federal ID No. Federal ID No.
---------------------- -------------------------
NOTE: These forms are often modified to meet changing requirements of law and
industry needs. Always write or call to make sure you are utilizing the
most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 700 So.
Flower Street, Suite 600, Los Angeles, CA 90017, (213) 687-8777. Fax No.
(213) 687-8616.
MOMENTUM LASER, INC.,
a California corporation
By: /s/ William E. Gibson
----------------------------------
Its President/CEO
By:
----------------------------------
Its
PAGE 12
<PAGE>
ADDENDUM TO LEASE
5452 Betsy Ross Drive
Santa Clara, California
This Addendum to Lease is entered into as of June 4, 1999, by and
between W.F. BATTON & CO., INC., a California corporation, Lessor, and WIRELESS,
INC., a California corporation, and MOMENTUM LASER, INC., a California
corporation, Lessee, for the Premises at 5452 Betsy Ross Drive, Santa Clara,
California.
Lessor and Lessee further agree as follows:
50. BASE RENT.
---------
(a) Lessee shall pay to Lessor Base Rent per month based upon
the Premises consisting of 54,800 square feet at the initial rate of $1.35 per
square foot per month, with annual increases of five cents ($.05) per square
foot per month, as follows:
PERIOD BASE RENT PER MONTH
------ -------------------
August 1 1999 - July 31, 2000 $73,980
August 1 2000 - July 31, 2001 $76,720
August 1 2001 - July 31. 2002 $79,460
August 1 2002 - July 31. 2003 $82,200
August 1 2003 - July 31, 2004 $84,940
August 1 2004 - July 31, 2005 $87,680
August 1 2005 - July 31. 2006 $90,420
(b) Lessee shall also pay to Lessor monthly in advance with
the Base Rent the monthly installment of the amortization of a portion of the
cost of the Tenant Improvements in accordance with Paragraph 52(f)(2) below.
(c) Lessee shall pay to Lessor upon the execution and delivery
of this Lease the sum of $73,980 as Base Rent for the month of August 1999.
51. SECURITY DEPOSIT.
----------------
(a) Concurrently with the execution and delivery of this Lease
by Lessor and Lessee. Lessee shall deliver to Lessor an unconditional,
irrevocable standby letter of credit issued by Silicon Valley Bank (the "BANK")
in the amount of Two Hundred Twenty-One Thousand Nine Hundred Forty Dollars
($221,940) (3 x $73,980) in favor of Lessor as beneficiary. with an expiration
date of one (1) year from the date of issuance. The letter of credit shall
provide that the Bank shall pay the amount of the letter of credit to Lessor
upon receipt by the Bank of a letter signed by an officer of Lessor certifying
that a breach of this Lease (as defined in Paragraph 13.1) by Lessee has
occurred and is
Initials: Lessor /s/ MAB Lessee /s/ WEG
-------- ---------
<PAGE>
continuing. The form of the letter of credit shall be subject to Lessor's
reasonable approval.
(b) Lessee shall deliver to Lessor annually during the entire
Lease term at least thirty (30) days prior to the expiration of the letter of
credit then outstanding a new one (1) year unconditional irrevocable standby
letter of credit issued by the Bank in the form previously approved by Lessor in
an amount equal to three (3) months of Base Rent at the new rate payable for the
Lease year beginning as of the following August 1st in accordance with Paragraph
50(a) above, in favor of Lessor as beneficiary, with the same provision for
payment by the Bank referred to in Paragraph 51(a) above. Failure of Lessee to
deliver to Lessor a new letter of credit which complies with the foregoing
provisions at least thirty (30) days prior to the expiration of the then
outstanding letter of credit shall constitute a breach by Lessee of this Lease,
which shall give Lessor the right to draw on the then outstanding letter of
credit.
(c) When Lessee's consolidated balance sheet dated as of the
end of Lessee's fiscal year prepared in accordance with generally accepted
accounting principles, certified by Lessee's independent certified public
accountants, shows that Lessee's current assets exceed Lessee's current
liabilities by more than Thirty Million Dollars ($30,000,000), the next letter
of credit delivered by Lessee to Lessor may be in an amount equal to two (2)
months of Base Rent at the new Base Rent payable for the Lease year beginning as
of the following August 1st; provided, that if any subsequent year end audited
balance sheet shows that Lessee's current assets do not exceed Lessee's current
liabilities by more than Thirty Million Dollars ($30,000,000), the next letter
of credit delivered by Lessee to Lessor shall be in an amount equal to three (3)
months of Base Rent at the Base Rent payable for the next Lease year commencing
August 1st.
(d) Lessor shall surrender the letter of credit to Lessee upon
the expiration or sooner termination of the lease term, provided that Lessee is
not in default hereunder. Lessee has performed all of Lessee's obligations under
this Lease, and this Lease was not terminated on account of Lessee's breach.
52. CONDITION OF THE PREMISES; TENANT IMPROVEMENTS.
----------------------------------------------
(a) Lessor shall deliver the Premises to Lessee broom clean
and free of debris on or before August 1, 1999 (the "Commencement Date") with
the improvements described in Paragraph 52(b) (the "Tenant Improvements")
completed. If the Tenant Improvements are not completed by August 1, 1999 due
solely to delays caused by Lessee which are documented by Lessor and/or the
Contractor, the Commencement Date and rent commencement shall be August 1, 1999.
(b) Prior to the occupancy of the Premises by Lessee, Lessor
shall cause to be constructed and completed the Tenant Improvements to the
Premises listed on Exhibit "B" and shown on the floor plan, Exhibit "B-2,"
attached hereto and incorporated by reference herein. Lessor shall cause the
Tenant Improvements to be constructed by
Initials: Lessor /s/ MAB Lessee /s/ WEG
-------- ---------
2
<PAGE>
Dymond Construction Group (the "Contractor") pursuant to an Agreement between
Lessor and the Contractor (the "Construction Contract") which shall provide for
a guaranteed maximum cost of items F, G, and H on Exhibit "B" in an amount
approved by Lessor and Lessee. Plans and specifications for the Tenant
Improvements shall be prepared by LRS Architects at Lessor's expense. The
Construction Contract and the plans and specifications for the Tenant
Improvements shall be subject to approval by Lessee, which approval shall not be
unreasonably withheld. The Construction Contract shall include a guarantee by
the Contractor against defects in workmanship or materials for one (1) year.
(c) The Contractor has obtained bids for the portion of the
work referred to as items F, G, and H on Exhibit "B" which is to be performed by
subcontractors. Lessor and Lessee have approved the Contractor's estimate of Two
Hundred Sixty-Seven Thousand Five Hundred Ninety-Five Dollars ($267,595) as the
cost to construct items F, G, and H. If the final bid of the Contractor for the
cost of items F, G, and H exceeds Two Hundred Sixty-Seven Thousand Five Hundred
Ninety-Five Dollars ($267,595), Lessor and Lessee have reviewed the bid and the
plans and are unable to agree upon changes to the plans to reduce the cost of
items F, G, and H to Two Hundred Sixty-Seven Thousand Five Hundred Ninety-Five
Dollars ($267,595) promptly after receipt of said bid after attempting in good
faith to do so, Lessor and Lessee shall approve the final bid of the Contractor
for items F, G, and H, and Lessee shall pay in a lump sum in cash to Lessor
promptly upon completion of the Tenant Improvements that portion of the cost of
items F, G, and H which exceeds Two Hundred Sixty-Seven Thousand Five Hundred
Ninety-Five Dollars ($267,595), in addition to the payments by Lessee to Lessor
pursuant to Paragraph 52(f) below.
(d) After the working drawings have been approved by Lessor
and Lessee in final form in writing as provided above, Lessee shall have the
right to request change orders to items F, G, and H. Any change order requested
by Lessee shall be subject to the prior written approval of Lessor, which
consent shall not be unreasonably withheld or delayed provided that the change
order does not increase the total improvement costs of items F, G, and H unless
Lessee agrees to pay such excess. Lessee shall not be entitled to request, and
Lessor shall not be obligated to approve, any change order which increases the
total cost of items F, G, and H to an amount which exceeds the cost previously
approved by Lessor and Lessee, unless Lessee agrees to pay such excess to Lessor
in a lump sum in cash promptly upon completion of the Tenant Improvements.
(e) The cost of items A through E, inclusive, on Exhibit "B"
shall be paid by Lessor.
(f) The cost of items F, G, and H on Exhibit "B" shall be
paid as follows:
(1) The initial One Hundred Sixty-Seven Thousand Five
Hundred Ninety-Five Dollars ($167,595) of the cost of items F, G, and H shall be
reimbursed by
Initials: Lessor /s/ MAB Lessee /s/ WEG
-------- ---------
3
<PAGE>
Lessee to Lessor, with Eighty-Three Thousand Seven Hundred Ninety-Seven and
Fifty One Hundredth Dollars ($83,797.50) thereof paid in cash by Lessee to
Lessor within five (5) days after Lessor gives written notice to Lessee of
completion of the Tenant Improvements, and the remaining Eighty-Three Thousand
Seven Hundred Ninety-Seven and Fifty One Hundredth Dollars ($83,797.50) thereof
shall be evidenced by Lessee's negotiable Promissory Note in said principal
amount in form approved by Lessor delivered by Lessee to Lessor with said cash
payment of Eighty-Three Thousand Seven Hundred Ninety-Seven and Fifty One
Hundredth Dollars ($83,797.50). Said Promissory Note shall bear interest at ten
percent (10%) per annum, with principal and accrued interest all due and payable
six (6) months after the date of Lessor's notice to Lessee of the completion of
the Tenant Improvements. Default by Lessee in payment of said Note shall
constitute a default by Lessee under this Lease.
(2) The next One Hundred Thousand Dollars ($100,000) of the
cost of items F, G, and H initially shall be paid by Lessor to the Contractor.
Said amount shall be reimbursed by Lessee to Lessor in eighty-four (84) equal
monthly installments, plus simple interest on the unpaid principal balance at
the rate of ten percent (10%) per annum, payable by Lessee to Lessor monthly in
advance together with monthly Base Rent. Failure by Lessee to pay any
installment when due shall constitute a default by Lessee under this Lease.
(3) Lessee shall pay to the Lessor in cash promptly upon
completion of the Tenant Improvements that portion of the cost, if any, of items
F, G, and H which exceeds Two Hundred Sixty-Seven Thousand Five Hundred
Ninety-Five Dollars ($267,595).
(g) All of the Tenant Improvements which are constructed with
funds of Lessor shall become the property of Lessor. Any furnishings, trade
fixtures, equipment installed in the Premises and paid for by Lessee shall
become the property of Lessee upon installation thereof in the Premises and
Lessee shall have the right to depreciate and claim and collect investment tax
credits on any such property throughout the term of the Lease.
(h) Provided that no default by Lessee occurs hereunder, items
F, G, and H on Exhibit "B" shall be deemed to have been constructed with
Lessee's funds and Lessee shall be entitled to claim the depreciation deductions
(and investment tax credit, if applicable) for such items for income tax
purposes. Notwithstanding the foregoing, items F, G, and H and any other Tenant
Improvements constructed with Lessee's funds shall become a part of the realty
and shall become Lessor's property upon the expiration or sooner termination of
this Lease, except for items which Lessor and Lessee agree in writing prior to
commencement of construction may be or shall be removed by Lessee.
53. HAZARDOUS MATERIALS MANAGEMENT PLAN. Lessee represents,
warrants and covenants with Lessor that Lessee will not conduct any
manufacturing or development processes on the Premises in which hazardous
materials are regularly used. Except as set forth on Exhibit "C" attached hereto
and incorporated herein by reference. Lessee shall
Initials: Lessor /s/ MAB Lessee /s/ WEG
-------- ---------
4
<PAGE>
not bring onto the Premises any hazardous materials. Lessee shall deliver to
Lessor (1) a copy of Lessee's current Hazardous Materials Management Plan, and
any amendments or supplements thereto, or replacements thereof, from time to
time during the term of this Lease, and (2) a copy of all Hazardous Materials
reports or plans filed by Lessee with the City of Santa Clara, even though
Lessee's Hazardous Materials Management Plan and any such reports on plans filed
with the City show that Lessee is not currently using any reportable hazardous
materials on the Premises.
54. MAINTENANCE: REPAIRS UTILITY INSTALLATIONS: TRADE FIXTURES
AND ALTERATIONS.
Pursuant to Paragraphs 7.1 and 7.2, Lessor's Obligations, of the printed portion
of this Lease, Lessor and Lessee agree that this Lease is a "NNN Lease" and that
it shall be solely Lessee's obligation to repair and maintain the Premises, and
the equipment therein. Lessee shall reimburse Lessor within fifteen (15) days
after demand for all operating expenses of the Premises, including, but not
limited to, real property taxes and assessments, and Lessor's property
insurance and liability insurance; Lessee shall directly contract for and shall
be responsible for all repairs and maintenance, including but not limited to,
repair and maintenance (and replacement, as necessary) of the parking area,
landscaping, common areas, building repairs and maintenance, mechanical systems
in the building, and utilities; structural and non-structural repair,
maintenance and replacement of the roof, and other structural and non-structural
repairs and replacement of building elements required as a result of the
installation, repair, maintenance, operation and removal of Lessee's
improvements, fixtures, and equipment. Lessee shall also pay to Lessor a
property management fee equal to ten percent (10%) of any operating costs or
capital improvement costs which are contracted for and administered by Lessor
and passed through to Lessee for reimbursement pursuant to the terms of this
Lease, but excluding property taxes, insurance premiums, and the repairs and
maintenance expenses which are contracted for and administered by Lessee.
54A. INSURANCE.
(a) The parties acknowledge and agree that Lessor is the
"Insuring Party" for purposes of Paragraph 1.9 and Paragraph 8.
(b) Paragraphs 8.3(a) and 8.3(b) of the printed portion of
this Lease (which Paragraphs shall remain in full force and effect) are
supplemented as follows:
The property insurance carried by Lessor pursuant to
Paragraph 8.3 shall include (i) property insurance insuring the building and
all improvements which now are or hereafter become a part of the Premises for
perils covered by a causes of loss-special form insurance policy containing both
replacement cost and agreed amount endorsements or options; (ii) boiler and
machinery insurance, if applicable; (iii) flood insurance; (iv) earthquake
insurance (if required by Lessor's mortgage lender in the future and Lessor's
mortgage lender determines that the cost and availability of earthquake
insurance is reasonable); (v) builders risk insurance during all periods of
construction; (vi) insurance against all other hazards as may be reasonably
required by Lessor's lender;
Initials: Lessor /s/ MAB Lessee /s/ WEG
-------- ---------
5
<PAGE>
and (vii) rental value insurance for the perils insured against by Lessor for
one hundred percent (100%) of the Rent (including operating expenses, real
estate taxes, assessments and insurance costs which are Lessee's liability) for
a period of twelve (12) months.
55. ASSIGNMENT AND SUBLETTING. Paragraph 12, Assignment and
Subletting, of the printed Lease form is amended as follows:
(a) Lessee shall have the right to sublease less than fifty
percent (50%) of the Premises without Lessor having the right to recapture said
portion of the Premises, provided that (1) upon the expiration of the sublease
term there are at least eighteen (18) months remaining on the term of this
Lease, (2) concurrently with Lessee's request to Lessor that Lessor approve the
sublease Lessee shall deliver to Lessor a certificate under penalty of perjury
stating that at the time of entering into the sublease Lessee intends to occupy
one hundred percent (100%) of the Premises upon the expiration of the sublease
term, and (3) during the entire term of the sublease Lessee shall occupy the
balance of the Premises which is not subject to said sublease. Vacation or
abandonment of the Premises by Lessee, or the surrender or termination of this
Lease shall automatically terminate the sublease.
(b) Lessee may sublet the entire Premises to a single
sublessee for the entire balance of the term of this Lease, subject to the
conditions set forth in Paragraph 12 of the printed Lease and subject to the
conditions set forth in subparagraph (c) below, including, but not limited to,
Lessor's right to recapture the Premises in lieu of consenting to such sublease.
(c) Any sublease entered into by Lessee pursuant to Paragraphs
55(a) or 55(b) above shall be subject to Lessor's prior written approval and
shall be subject to the conditions specified in Paragraph 12 of this Lease,
amended and supplemented as follows: (1) any sublease base rent in excess of the
amount Lessee is paying to Lessor shall be shared 50-50 by Lessor and Lessee,
without any deductions from such excess whatsoever; (2) any such sublease shall
provide that sub-subletting by the sublessee is expressly prohibited; (3) in
lieu of approving or disapproving a sublease referred to in Paragraph 55(b),
Lessor may terminate this Lease and recapture the Premises without any
liability to Lessee; and (4) Lessor shall have not less than fifteen (15)
business days after receipt by Lessor of (i) Lessee's written request for
consent to a sublease, and (ii) all relevant information requested by Lessor
including the transaction documentation, within which to give Lessor's approval
or disapproval of the sublease, or to terminate this Lease and recapture the
Premises.
(d) Lessee shall reimburse Lessor for Lessor's attorney's fees
incurred in connection with any assignment or sublease transaction. Said
attorney's fees shall be billed at the attorney's normal hourly rate, but such
fees shall not exceed the total of One Thousand Dollars ($1,000).
(e) Notwithstanding anything to the contrary in this Lease,
Lessee may, without Lessor's prior written consent, without any participation by
Lessor in assignment
Initials: Lessor /s/ MAB Lessee /s/ WEG
-------- ---------
6
<PAGE>
and subletting proceeds, and without Lessor's right of recapture the Premises,
sublet the Premises or assign this Lease to a subsidiary, affiliate, division,
or corporation controlling, controlled by or under common control with Lessee; a
successor corporation related to Lessee by merger, consolidation, nonbankruptcy
reorganization, or government action; or a purchaser of substantially all of
Lessee's assets located in the Premises; provided that in any such case each of
the following conditions is satisfied: no default by Lessee under this Lease
then remains uncured; Lessee shall provide Lessor with documentary, evidence
reasonably satisfactory, to Lessor that as of the effective date of such
transaction the assignee, sublessee or transferee has a positive net worth of at
least Five Million Dollars ($5,000,000); and the assignee, sublessee, or
transferee shall expressly assume and agree to perform all of the obligations of
Lessee under this Lease by a written assignment, acceptance of assignment and
assumption, a copy of which shall be delivered to Lessor concurrently with the
assignment, sublease, or transfer.
(f) For purposes of this Lease, the sale of Lessee's capital
stock through any public offering or over any stock exchange or other issuance
of securities for the purpose of raising financing shall not be deemed an
assignment, subletting, or any other transfer of this Lease or the Premises.
56. JOINT AND SEVERAL LIABILITY. Wireless, Inc. and Momentum Laser,
Inc. shall be jointly and severally liable to Lessor for the payment of rent and
all other sums payable by Lessee and for the performance of all obligations of
Lessee hereunder. Lessee shall submit one rent check and one insurance
certificate in behalf of the Lessee entities.
57. ADDENDUM TO GOVERN. In the event of any inconsistency between
the printed provisions of this Lease and this typed Addendum to Lease, the
provisions of this typed Addendum to Lease shall govern.
Initials: Lessor /s/ MAB Lessee /s/ WEG
-------- ---------
7
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Lease as of the date
set forth above.
LESSOR
W.F. BATTON & CO., INC.
a California corporation
By /s/ Marie A. Batton
----------------------------------------
Its President
By /s/ Pamela Foley
----------------------------------------
Its Vice President
LESSEE
WIRELESS, INC.
a California corporation
By /s/ William E. Gibson
----------------------------------------
Its President/CEO
By /s/ illegible
----------------------------------------
Its CFO
MOMENTUM LASER, INC.
a California corporation
By /s/ William E. Gibson
----------------------------------------
Its
By /s/ illegible
----------------------------------------
Its VP/Secretary
8
<PAGE>
LEGAL DESCRIPTION
All that certain real property situate in the City of Santa Clara, County of
Santa Clara, State of California, described as follows:
PARCEL ONE:
Parcel 107, as shown on that certain Map, which Map was filed for record in the
office of the Recorder of the County of Santa Clara, State of California, on
February 17, 1978 in Book 413 of Maps, page(s) 13, 14 and 15.
Reserving therefrom a reciprocal easement for ingress and egress lying over the
Westerly 30 feet of said land, as disclosed by that certain instrument executed
by W.F. Batton and Co., Inc., a California Corporation and W.F. Batton and Marie
A. Batton, Husband and Wife, recorded on July 7, 1983 in Book H 695, page 49,
Official Records.
PARCEL TWO:
An appurtenant easement for ingress and egress as disclosed by that certain
instrument executed by W.F. Barton and Co., Inc., a California Corporation and
W.F. Batton and Marie A. Batton, Husband and Wife recorded July 7, 1983 in Book
H 695, page 49, Official Records, and being described therein as follows:
An easement for ingress and egress over the Westerly 30 feet of Parcel 107, 108,
109, the Easterly 30 feet of Parcels 111, 112 and 113, and the Southerly 30 feet
of Parcel 108, and the Northerly 30 feet of Parcel 109, as said parcels are
shown on the Parcel Map Filed for record on February 17, 1978 in Book 413 of
Maps, at pages 13, 14 and 15, Santa Clara Records.
Excepting therefrom all that portion thereof lying within the bounds of the
above described Parcel One.
ARB No: 104-02-016.07
APN No: 104-50-401
EXHIBIT "A"
<PAGE>
TENANT IMPROVEMENTS
ITEM DESCRIPTION
(A) New carpet and new ceiling files and existing light fixtures to be in
good operating condition
(B) VCT Floor Covering, including cafeteria (not Including warehouse)
(C) Painting (includes removing selected wallpaper; bathrooms and kitchen
area; wood in lobby
area to remain)
(D) ADA Work (including door latches; bathrooms)
(E) Refurbishment of kitchen/break area
(F) Modification of five (5) existing offices
(G) Seven (7) new offices in manufacturing area
(H) All other tenant specific improvements which are requested by Lessee
and approved by Lessor
EXHIBIT "B"
<PAGE>
EXHIBIT 10.5
SILICON VALLEY BANK
LOAN AND SECURITY AGREEMENT
BORROWER: WIRELESS, INC.
ADDRESS: 19 DAVIS DRIVE
BELMONT, CALIFORNIA 94002
DATE: FEBRUARY 27, 1999
THIS LOAN AND SECURITY AGREEMENT is entered into on the above date between
SILICON VALLEY BANK, COMMERCIAL FINANCE DIVISION ("Silicon"), whose address is
3003 Tasman Drive, Santa Clara, California 95054 and the borrower(s) named above
(jointly and severally, the "Borrower"), whose chief executive office is located
at the above address ("Borrower's Address"). The Schedule to this Agreement (the
"Schedule") shall for all purposes be deemed to be a part of this Agreement, and
the same is an integral part of this Agreement. (Definitions of certain terms
used in this Agreement are set forth in Section 8 below.)
1. LOANS.
1.1 LOANS. Silicon will make loans to Borrower (the "Loans"), in
amounts determined by Silicon in its sole discretion, up to the amounts (the
"Credit Limit") shown on the Schedule, provided no Default or Event of Default
has occurred and is continuing, and subject to deduction of any Reserves for
accrued interest and such other Reserves as Silicon deems proper from time to
time.
1.2 INTEREST. All Loans and all other monetary obligations shall bear
interest at the rate shown on the Schedule, except where expressly set forth to
the contrary in this Agreement. Interest shall be payable monthly, on the last
day of the month. Interest may, in Silicon's discretion, be charged to
Borrower's loan account, and the same shall thereafter bear interest at the same
rate as the other Loans. Silicon may, in its discretion, charge interest to
Borrower's Deposit Accounts maintained with Silicon. Regardless of the amount of
Obligations that may be outstanding from time to time, Borrower shall pay
Silicon minimum monthly interest during the term of this Agreement in the amount
set forth on the Schedule (the "Minimum Monthly Interest").
1.3 OVERADVANCES. If at any time or for any reason the total of all
outstanding Loans and all other Obligations exceeds the Credit Limit (an
"Overadvance"), Borrower shall immediately pay the amount of the excess to
Silicon, without notice or demand. Without limiting Borrowers obligation to
repay to Silicon on demand the amount of any Overadvance, Borrower agrees to pay
Silicon interest on the outstanding amount of any Overadvance, on demand, at a
rote equal to the interest rate which would otherwise be applicable to the
Overadvance, plus an additional 2% per annum.
1.4 FEES. Borrower shall pay Silicon the fee(s) shown on the Schedule,
which are in addition to all interest and other sums payable to Silicon and are
not refundable.
1.5 LETTERS OF CREDIT. At the request of Borrower, Silicon may, in its
sole discretion, issue or arrange for the issuance of letters of credit for the
account of Borrower, in each case in form and substance satisfactory to Silicon
in its sole discretion (collectively, "Letters of Credit"). The aggregate face
amount of all outstanding Letters of Credit from time to time shall not exceed
the amount shown on the Schedule (the "Letter of Credit Sublimit"), and shall be
reserved against Loans which would otherwise be available hereunder. Borrower
shall pay all bank charges (including charges of Silicon) for the issuance of
Letters of Credit, together with such additional fee as Silicon's letter of
credit department shall charge in connection with the issuance of the Letters of
Credit. Any payment by Silicon under or in connection with a Letter of Credit
shall constitute a Loan hereunder on the date such payment is made. Each Letter
of Credit shall have an expiry date no later than thirty days prior to the
Maturity Date. Borrower hereby agrees to indemnify, save, and hold Silicon
harmless from any loss, cost, expense, or liability, including payments made by
Silicon expenses, and reasonable attorneys' fees incurred by Silicon arising out
of or in connection with any Letters of Credit. Borrower agrees to be bound by
the regulations and interpretations of the issuer of any Letters of Credit
guarantied by Silicon and opened for Borrower's account or by Silicon's
interpretations of any Letter of Credit issued by Silicon for Borrower's
account, and Borrower understands and agrees that Silicon shall not be liable
for any error, negligence, or mistake, whether of omission or commission, in
following Borrower's instructions or those contained in the Letters of Credit
or any modifications,
<PAGE>
amendments, or supplements thereto. Borrower understands that Letters of Credit
may require Silicon to indemnify the issuing bank for certain costs or
liabilities arising out of claims by Borrower against such issuing bank.
Borrower hereby agrees to indemnify and hold Silicon harmless with respect to
any loss, cost, expense, or liability incurred by Silicon under any Letter of
Credit as a result of Silicon's indemnification of any such issuing bank. The
provisions of this Loan Agreement, as it pertains to Letters of Credit, and any
other present or future documents or agreements between Borrower and Silicon
relating to Letters of Credit are cumulative.
2. SECURITY INTEREST.
2.1 SECURITY INTEREST. To secure the payment and performance of all of
the Obligations when due, Borrower hereby grants to Silicon a security interest
in all of Borrower's interest in the following, whether now owned or hereafter
acquired, and wherever located (collectively, the "Collateral"): All Inventory,
Equipment, Receivables, and General Intangibles, including, without limitation,
all of Borrower's Deposit Accounts, and all money, and all property now or at
any time in the future in Silicon's possession (including claims and credit
balances), and all proceeds (including proceeds of any insurance policies,
proceeds of proceeds and claims against third parties), all products and all
books and records related to any of the foregoing (all of the foregoing,
together with all other property in which Silicon may now or in the future be
granted a lien or security, interest, is referred to herein, collectively, as
the "Collateral").
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER.
In order to induce Silicon to enter into this Agreement and to make
Loans, Borrower represents and warrants to Silicon as follows, and Borrower
covenants that the following representations will continue to be true, and that
Borrower will at all times comply with all of the following covenants:
3.1 CORPORATE EXISTENCE AND AUTHORITY. Borrower, if a corporation, is
and will continue to be, duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation. Borrower is and will
continue to be qualified and licensed to do business in all jurisdictions in
which any failure to do so would have a material adverse effect on Borrower. The
execution, delivery and performance by Borrower of this Agreement, and all other
documents contemplated hereby (i) have been duly and validly authorized, (ii)
are enforceable against Borrower in accordance with their terms (except as
enforcement may be limited by equitable principles and by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to creditors'
rights generally), and (iii) do not violate Borrower's articles or certificate
of incorporation, or Borrower's by-laws, or any law or any material agreement or
instrument which is binding upon Borrower or its property, and (iv) do not
constitute grounds for acceleration of any material indebtedness or obligation
under any material agreement or instrument which is binding upon Borrower or its
property.
3.2 NAME; TRADE NAMES AND STYLES. The name of Borrower set forth in the
heading to this Agreement is its correct name. Listed on the Schedule are all
prior names of Borrower and all of Borrower's present and prior trade names.
Borrower shall give Silicon 30 days prior written notice before changing its
name or doing business under any other name. Borrower has complied, and will in
the future comply, with all laws relating to the conduct of business under a
fictitious business name.
3.3 PLACE OF BUSINESS; LOCATION OF COLLATERAL. The address set forth
in the heading to this Agreement is Borrower's chief executive office. In
addition, Borrower has places of business and Collateral is located only at the
locations set forth on the Schedule. Borrower will give Silicon at least 30 days
prior written notice before opening any additional place of business, changing
its chief executive office, or moving any of the Collateral to a location other
than Borrower's Address or one of the locations set forth on the Schedule.
3.4 TITLE TO COLLATERAL; PERMITTED LIENS. Borrower is now, and will at
all times in the future be, the sole owner of all the Collateral, except for
items of Equipment which are leased by Borrower. The Collateral now is and will
remain free and clear of any and all liens, charges, security interests,
encumbrances and adverse claims, except for Permitted Liens. Silicon now has,
and will continue to have, a first-priority perfected and enforceable security
interest in all of the Collateral, subject only to the Permitted Liens, and
Borrower will at all times defend Silicon and the Collateral against all claims
of others. None of the Collateral now is or will be affixed to any real property
in such a manner, or with such intent, as to become a fixture. Borrower is not
and will not become a lessee under any real property lease pursuant to which the
lessor may obtain any rights in any of the Collateral and no such lease now
prohibits, restrains, impairs or will prohibit, restrain or impair Borrower's
right to remove any Collateral from the leased premises. Whenever any Collateral
is located upon premises in which any third party has an interest (whether as
owner, mortgagee beneficiary under a deed of trust, lien or otherwise), Borrower
shall, whenever requested by Silicon, use its best efforts to cause such third
party to execute and deliver to Silicon, in form acceptable to Silicon, such
waivers and subordinations as Silicon shall specify, so as to ensure that
Silicon's rights in the Collateral are, and will continue to be, superior to the
rights of any such third party. Borrower will keep in full force and effect, and
will comply with all the terms of, any lease of real property where any of the
Collateral now or in the future may be located.
3.5 MAINTENANCE OF COLLATERAL. Borrower will maintain the Collateral in
good working condition, and Borrower will not use the Collateral for any
unlawful purpose. Borrower will immediately advise Silicon in writing of any
material loss or damage to the Collateral.
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3.6 BOOKS AND RECORDS. Borrower has maintained and will maintain at
Borrower's Address complete and accurate books and records, comprising an
accounting system in accordance with generally accepted accounting principles.
3.7 FINANCIAL CONDITION, STATEMENTS AND REPORTS. All financial
statements now or in the future delivered to Silicon have been, and will be,
prepared in conformity with generally accepted accounting principles and now and
in the future will completely and accurately reflect the financial condition of
Borrower, at the times and for the periods therein stated. Between the last date
covered by any such statement provided to Silicon and the date hereof, there has
been no material adverse change in the financial condition or business of
Borrower. Borrower is now and will continue to be solvent.
3.8 TAX RETURNS AND PAYMENTS; PENSION CONTRIBUTIONS. Borrower has
timely filed, and will timely file, all tax returns and reports required by
foreign, federal, state and local law, and Borrower has timely paid, and will
timely pay, all foreign, federal, state and local taxes, assessments, deposits
and contributions now or in the future owed by Borrower. Borrower may, however,
defer payment of any contested taxes, provided that Borrower (i) in good faith
contests Borrowers obligation to pay the taxes by appropriate proceedings
promptly and diligently instituted and conducted, (ii) notifies Silicon in
writing of the commencement of, and any material development in, the
proceedings, and (iii) posts bonds or takes any other steps required to keep the
contested taxes from becoming a lien upon any of the Collateral. Borrower is
unaware of any claims or adjustments proposed for any of Borrower's prior tax
years which could result in additional taxes becoming due and payable by
Borrower. Borrower has paid, and shall continue to pay all amounts necessary to
fund all present and future pension, profit sharing and deferred compensation
plans in accordance with their terms, and Borrower has not and will not withdraw
from participation in, permit partial or complete termination of, or permit the
occurrence of any other event with respect to, any such plan which could result
in any liability of Borrower, including any liability to the Pension Benefit
Guaranty Corporation or its successors or any other governmental agency.
Borrower shall, at all times, utilize the services of an outside payroll service
providing for the automatic deposit of all payroll taxes payable by Borrower.
3.9 COMPLIANCE WITH LAW. Borrower has complied, and will comply, in all
material respects, with all provisions of all foreign, federal, state and local
laws and regulations relating to Borrower, including, but not limited to, those
relating to Borrower's ownership of real or personal property, the conduct and
licensing of Borrower's business, and all environmental matters.
3.10 LITIGATION. Except as disclosed in the Schedule, there is no
claim, suit, litigation, proceeding or investigation pending or (to best of
Borrower's knowledge) threatened by or against or affecting Borrower in any
court or before any governmental agency (or any basis therefor known to
Borrower) which may result, either separately or in the aggregate, in any
material adverse change in the financial condition or business of Borrower, or
in any material impairment in the ability of Borrower to carry on its business
in substantially the same manner as it is now being conducted. Borrower will
promptly inform Silicon in writing, of any claim, proceeding, litigation or
investigation in the future threatened or instituted by or against Borrower
involving any single claim of $50,000 or more, or involving $100,000 or more in
the aggregate.
3.11 USE OF PROCEEDS. All proceeds of all Loans shall be used solely
for lawful business purposes. Borrower is not purchasing or carrying any "margin
stock" (as defined in Regulation U of the Board of Governors of the Federal
Reserve System) and no part of the proceeds of any Loan will be used to purchase
or carry any "margin stock" or to extend credit to others for the purpose of
purchasing or carrying any "margin stock."
4. RECEIVABLES.
4.1 REPRESENTATIONS RELATING TO RECEIVABLES. Borrower represents and
warrants to Silicon as follows: Each Receivable with respect to which Loans are
requested by Borrower shall, on the date each Loan is requested and made, (i)
represent an undisputed bona fide existing unconditional obligation of the
Account Debtor created by the sale, delivery, and acceptance of goods or the
rendition of services in the ordinary course of Borrower's business, and (ii)
meet the Minimum Eligibility Requirements set forth in Section 8 below.
4.2 REPRESENTATIONS RELATING TO DOCUMENTS AND LEGAL COMPLIANCE.
Borrower represents and warrants to Silicon as follows: All statements made and
all unpaid balances appearing in all invoices, instruments and other documents
evidencing the Receivables are and shall be true and correct and all such
invoices, instruments and other documents and all of Borrowers books and records
are and shall be genuine and in all respects what they purport to be, and all
signatories and endorsers have the capacity to contract. All sales and other
transactions underlying or giving rise to each Receivable shall comply with all
applicable laws and governmental rules and regulations. All signatures and
endorsements on all documents, instruments, and agreements relating to all
Receivables are and shall be genuine, and all such documents, instruments and
agreements are and shall be legally enforceable in accordance with their terms.
4.3 SCHEDULES AND DOCUMENTS RELATING TO RECEIVABLES. Borrower shall
deliver to Silicon transaction reports and loan requests, schedules and
assignments of all Receivables, and schedules of collections, all on Silicon's
standard forms; provided, however, that Borrower's failure to execute and
deliver the same shall not affect or limit Silicon's security interest and other
rights in all of Borrower's Receivables, nor shall Silicon's failure to advance
or lend against a specific Receivable affect or limit Silicon's security
interest and other rights therein. Loan requests received after 12:00 Noon will
not be considered by Silicon until the next Business Day. Together with
<PAGE>
each such schedule and assignment, or later if requested by Silicon. Borrower
shall furnish Silicon with copies (or, at Silicon's request, originals) of all
contracts, orders, invoices, and other similar documents, and all original
shipping instructions, delivery receipts, bills of lading, and other evidence
of delivery, for any goods the sale or disposition of which gave rise to such
Receivables, and Borrower warrants the genuineness of all of the foregoing.
Borrower shall also furnish to Silicon an aged accounts receivable trial balance
in such form and at such intervals as Silicon shall request. In addition,
Borrower shall deliver to Silicon the originals of all instruments, chattel
paper, security agreements, guarantees and other documents and property
evidencing or securing any Receivables, immediately upon receipt thereof and in
the same form as received, with all necessary indorsements, all of which shall
be with recourse. Borrower shall also provide Silicon with copies of all credit
memos within two days after the date issued.
4.4 COLLECTION OF RECEIVABLES. Borrower shall have the right to collect
all Receivables, unless and until a Default or an Event of Default has occurred.
Borrower shall hold all payments on, and proceeds of, Receivables in trust for
Silicon, and Borrower shall immediately deliver all such payments and proceeds
to Silicon in their original form, duly endorsed in blank, to be applied to the
Obligations in such order as Silicon shall determine. Silicon may, in its
discretion, require that all proceeds of Collateral be deposited by Borrower
into a lockbox account, or such other "blocked account" as Silicon may specify,
pursuant to a blocked account agreement in such form as Silicon may specify.
Silicon or its designee may, at any time, notify Account Debtors that the
Receivables have been assigned to Silicon.
4.5.REMITTANCE OF PROCEEDS. All proceeds arising from the disposition
of any Collateral shall be delivered, in kind, by Borrower to Silicon in the
original form in which received by Borrower not later than the following
Business Day after receipt by Borrower, to be applied to the Obligations in such
order as Silicon shall determine; provided that, if no Default or Event of
Default has occurred, Borrower shall not be obligated to remit to Silicon the
proceeds of the sale of worn out or obsolete equipment disposed of by Borrower
in good faith in an arm's length transaction for an aggregate purchase price of
$25,000 or less (for all such transactions in any fiscal year). Borrower agrees
that it will not commingle proceeds of Collateral with any of Borrower's other
funds or property, but will hold such proceeds separate and apart from such
other funds and property and in an express trust for Silicon. Nothing in this
Section limits the restrictions on disposition of Collateral set forth elsewhere
in this Agreement.
4.6 DISPUTES. Borrower shall notify Silicon promptly of all disputes or
claims relating to Receivables. Borrower shall not forgive (completely or
partially), compromise or settle any Receivable for less than payment in full,
or agree to do any of the foregoing, except that Borrower may do so, provided
that: (i) Borrower does so in good faith, in a commercially reasonable manner,
in the ordinary course of business, and in arm's length transactions, which are
reported to Silicon on the regular reports provided to Silicon; (ii) no Default
or Event of Default has occurred and is continuing; and (iii) taking into
account all such discounts settlements and forgiveness, the total outstanding
Loans will not exceed the Credit Limit. Silicon may, at any time after the
occurrence of an Event of Default, settle or adjust disputes or claims directly
with Account Debtors for amounts and upon terms which Silicon considers
advisable in its reasonable credit judgment and, in all cases, Silicon shall
credit Borrower's Loan account with only the net amounts received by Silicon in
payment of any Receivables.
4.7 RETURNS. Provided no Event of Default has occurred and is
continuing, if any Account Debtor returns any Inventory to Borrower in the
ordinary course of its business, Borrower shall promptly determine the reason
for such return and promptly issue a credit memorandum to the Account Debtor in
the appropriate amount (sending a copy to Silicon). In the event any attempted
return occurs after the occurrence of any Event of Default, Borrower shall (i)
hold the returned Inventory in trust for Silicon, (ii) segregate all returned
Inventory from all of Borrower's other property, (iii) conspicuously label the
returned Inventory as Silicon's property, and (iv) immediately notify Silicon of
the return of any Inventory, specifying the reason for such return, the location
and condition of the returned Inventory, and on Silicon's request deliver such
returned Inventory to Silicon.
4.8 VERIFICATION. Silicon may, from time to time, verify directly with
the respective Account Debtors the validity, amount and other matters relating
to the Receivables, by means of mail, telephone or otherwise, either in the name
of Borrower or Silicon or such other name as Silicon may choose.
4.9 NO LIABILITY. Silicon shall not under any circumstances be
responsible or liable for any shortage or discrepancy in, damage to, or loss or
destruction of, any goods, the sale or other disposition of which gives rise to
a Receivable, or for any error, act, omission, or delay of any kind occurring in
the settlement, failure to settle, collection or failure to collect any
Receivable, or for settling any Receivable in good faith for less than the full
amount thereof, nor shall Silicon be deemed to be responsible for any of
Borrowers obligations under any contract or agreement giving rise to a
Receivable. Nothing hereto shall, however, relieve Silicon from liability for
its own gross negligence or willful misconduct.
5. ADDITIONAL DUTIES OF THE BORROWER.
5.1 FINANCIAL AND OTHER COVENANTS. Borrower shall at all times comply
with the financial and other covenants set forth in the Schedule.
5.2 INSURANCE. Borrower shall, at all times insure all of the tangible
personal property Collateral and carry such
<PAGE>
other business insurance, with insurers reasonably acceptable to Silicon, in
such form and amounts as Silicon may reasonably require, and Borrower shall
provide evidence of such insurance to Silicon, so that Silicon is satisfied that
such insurance is, at all times, in full force and effect. All such insurance
policies shall name Silicon as an additional loss payee, and shall contain a
lenders loss payee endorsement in form reasonably acceptable to Silicon. Upon
receipt of the proceeds of any such insurance, Silicon shall apply such proceeds
in reduction of the Obligations as Silicon shall determine in its sole
discretion, except that, provided no Default or Event of Default has occurred
and is continuing, Silicon shall release to Borrower insurance proceeds with
respect to Equipment totaling less than $100,000, which shall be utilized by
Borrower for the replacement of the Equipment with respect to which the
insurance proceeds were paid. Silicon may require reasonable assurance that the
insurance proceeds so released will be so used. If Borrower fails to provide or
pay for any insurance. Silicon may, but is not obligated to, obtain the same at
Borrower's expense. Borrower shall promptly deliver to Silicon copies of all
reports made to insurance companies.
5.3 REPORTS. Borrower, at its expense, shall provide Silicon with the
written reports set forth in the Schedule, and such other written reports with
respect to Borrower (including budgets, sales projections, operating plans and
other financial documentation), as Silicon shall from time to time reasonably
specify.
5.4 ACCESS TO COLLATERAL, BOOKS AND RECORDS. At reasonable times, and
on one Business Day's notice, Silicon, or its agents, shall have the right to
inspect the Collateral, and the right to audit and copy Borrower's books and
records. Silicon shall take reasonable steps to keep confidential all
information obtained in any such inspection or audit, but Silicon shall have the
right to disclose any such information to its auditors, regulatory agencies, and
attorneys, and pursuant to any subpoena or other legal process. The foregoing
inspections and audits shall be at Borrower's expense and the charge therefor
shall be $500 per person per day (or such higher amount as shall represent
Silicon's then current standard charge for the same), plus reasonable out of
pocket expenses. Borrower will not enter into any agreement with any accounting
firm, service bureau or third party to store Borrower's books or records at any
location other than Borrower's Address, without first obtaining Silicon's
written consent, which may be conditioned upon such accounting firm, service
bureau or other third party agreeing to give Silicon the same rights with
respect to access to books and records and related rights as Silicon has under
this Loan Agreement. Borrower waives the benefit of any accountant-client
privilege or other evidentiary privilege precluding or limiting the disclosure,
divulgence or delivery, of any of its books and records (except that Borrower
does not waive any attorney-client privilege).
5.5 NEGATIVE COVENANTS. Except as may be permitted in the Schedule,
Borrower shall not, without Silicon's prior written consent, do any of the
following: (i) merge or consolidate with another corporation or entity; (ii)
acquire any assets, except in the ordinary course of business; (iii) enter into
any other transaction outside the ordinary, course of business; (iv) sell or
transfer any Collateral, except for the sale of finished Inventory in the
ordinary course of Borrower's business, and except for the sale of obsolete or
unneeded Equipment in the ordinary course of business; (v) store any Inventory
or other Collateral with any warehouseman or other third party; (vi) sell any
Inventory on a sale-or-return, guaranteed sale, consignment, or other contingent
basis; (vii) make any loans of any money or other assets; (viii) incur any
debts, outside the ordinary course of business, which would have a material,
adverse effect on Borrower or on the prospect of repayment of the Obligations;
(ix) guarantee or otherwise become liable with respect to obligations of another
party or entity; (x) pay or declare any dividends on Borrower's stock (except
for dividends payable solely in stock of Borrower); (xi) redeem, retire,
purchase or otherwise acquire, directly or indirectly, any of Borrower's stock;
(xii) make any change in Borrower's capital structure which would have a
material adverse effect on Borrower or on the prospect of repayment of the
Obligations; or (xiii) pay total compensation, including salaries, fees,
bonuses, commissions, and all other payments, whether directly or indirectly, in
money or otherwise, to Borrower's executives, officers and directors (or any
relative thereof) in an amount in excess of the amount set forth on the
Schedule; or (xiv) dissolve or elect to dissolve. Transactions permitted by the
foregoing provisions of this Section are only permitted if no Default or Event
of Default would occur as a result of such transaction.
5.6 LITIGATION COOPERATION. Should any third-party suit or proceeding
be instituted by or against Silicon with respect to any Collateral or in any
manner relating to Borrower, Borrower shall without expense to Silicon, make
available Borrower and its officers, employees and agents and Borrower's books
and records, to the extent that Silicon may deem them reasonably necessary in
order to prosecute or defend any such suit or proceeding.
5.7 FURTHER ASSURANCES. Borrower agrees, at its expense, on request by
Silicon, to execute all documents and take all actions, as Silicon, may deem
reasonably necessary or useful in order to perfect and maintain Silicon's
perfected security interest in the Collateral, and in order to fully consummate
the transactions contemplated by Agreement.
6. TERM.
6.1 MATURITY DATE. This Agreement shall continue in effect until the
maturity date set forth on the Schedule (the "Maturity, Date"); provided that
the Maturity Date shall automatically be extended, and this Agreement shall
automatically and continuously renew, for successive additional terms of one
year each unless one party gives written notice to the other, not less than
sixty days prior to the next Maturity Date, that such party elects to terminate
this Agreement effective on the next Maturity Date.
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6.2 EARLY TERMINATION. This Agreement may be terminated prior to the
Maturity Date as follows: (i) by Borrower, effective three Business Days after
written notice of termination is given to Silicon: or (ii) by Silicon at any
time after the occurrence of an Event of Default, without notice, effective
immediately. If this Agreement is terminated by Borrower or by Silicon under
this Section 6.2, Borrower shall pay to Silicon a termination fee in an amount
equal to two percent (2.0%) of the Maximum Credit Limit. The termination fee
shall be due and payable on the effective date of termination and thereafter
shall bear interest at a rate equal to the highest rate applicable to any of the
Obligations.
6.2 PAYMENT OF OBLIGATIONS. On the Maturity Date or on any earlier
effective date of termination, Borrower shall pay and perform in full all
Obligations, whether evidenced by installment notes or otherwise, and whether or
not all or any part of such Obligations are otherwise then due and payable.
Without limiting the generality of the foregoing, if on the Maturity Date, or on
any earlier effective date of termination, there are any outstanding Letters of
Credit issued by Silicon or issued by another institution based upon an
application, guarantee, indemnity or similar agreement on the part of Silicon,
then on such date Borrower shall provide to Silicon cash collateral in an amount
equal to the face amount of all such Letters of Credit plus all interest, fees
and cost due or to become due in connection therewith, to secure all of the
Obligations relating to said Letters of Credit, pursuant to Silicon's then
standard form cash pledge agreement. Notwithstanding any termination of this
Agreement, all of Silicon's security interests in all of the Collateral and all
of the terms and provisions of this Agreement shall continue in full force and
effect until all Obligations have been paid and performed in full; provided
that, without limiting the fact that Loans are subject to the discretion of
Silicon, Silicon may, in its sole discretion, refuse to make any further Loans
after termination. No termination shall in any way affect or impair any right or
remedy of Silicon, nor shall any such termination relieve Borrower of any
Obligation to Silicon, until all of the Obligations have been paid and performed
in full. Upon payment and performance in full of all the Obligations and
termination of this Agreement, Silicon shall promptly deliver to Borrower
termination statements, requests for re-conveyances and such other documents as
may be required to fully terminate Silicon's security interests.
7. EVENTS OF DEFAULT AND REMEDIES.
7.1 EVENTS OF DEFAULT. The occurrence of any of the following events
shall constitute an "Event of Default" under this Agreement, and Borrower shall
give Silicon immediate written notice thereof: (a) Any warranty, representation,
statement, report or certificate made or delivered to Silicon by Borrower or any
of Borrower's officers, employees or agents, now or in the future, shall be
untrue or misleading in a material respect: or (b) Borrower shall fail to pay
when due any Loan or any interest thereon or any other monetary Obligation: or
(c) the total Loans and other Obligations outstanding at any time shall exceed
the Credit Limit: or (d) Borrower shall fail to comply with any of the financial
covenants set forth in the Schedule or shall fail to perform any other
non-monetary Obligation which by its nature cannot be cured; or (e) Borrower
shall fail to perform any other non-monetary Obligation, which failure is not
cured within 5 Business Days after the date due; or (f) Any levy, assessment,
attachment, seizure, lien or encumbrance (other than a Permitted Lien) is made
on all or any part of the Collateral which is not cured within 10 days after the
occurrence of the same; or (g) any default or event of default occurs under any
obligation secured by a Permitted Lien, which is not cured within any applicable
cure period or waived in writing by the holder of the Permitted Lien; or (h)
Borrower breaches any material contract or obligation, which has or may expected
to have a material adverse effect on Borrower's business or financial condition;
or (i) Dissolution, termination of existence, insolvency or business failure of
Borrower, or appointment of a receiver, trustee or custodian, for all or any
part of the property of, assignment for the benefit of creditors by, or the
commencement of any proceeding by Borrower under any reorganization, bankruptcy,
insolvency, arrangement, readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction, now or in the future in effect; or (j) the
commencement of any proceeding against Borrower or any guarantor of any of the
Obligations under any reorganization, bankruptcy, insolvency, arrangement,
readjustment of debt, dissolution or liquidation law or statute of any
jurisdiction, now or in the future in effect, which is not cured by the
dismissal thereof within 30 days after the date commenced; or (k) revocation or
termination of, or limitation or denial of liability upon, any guaranty of the
Obligations or any attempt to do any of the foregoing, or commencement of
proceedings by any guarantor of any of the Obligations under any bankruptcy or
insolvency law; or (1) revocation or termination of, or limitation or denial of
liability upon, any pledge of any certificate of deposit, securities or other
property or asset of any kind pledged by any third party to secure any or all of
the Obligations or any attempt to do any of the foregoing, or commencement of
proceedings by or against any such third party under any bankruptcy or
insolvency law; or (m) Borrower makes any payment on account of any indebtedness
or obligation which has been subordinated to the Obligations other than as
permitted in the applicable subordination agreement, or if any Person who has
subordinated such indebtedness or obligations terminates or in any way limits
his subordination agreement: or (n) there shall be a change in the record or
beneficial ownership of an aggregate of more than 20% of the outstanding shares
of stock of Borrower, in one or more transactions, compared to the ownership of
outstanding shares of stock of Borrower in effect on the date hereof, without
the prior written consent of Silicon; or (o) Borrower shall generally not pay
its debts as they become due, or Borrower shall conceal, remove or transfer any
part of its property, with intent to hinder, delay or defraud its creditors, or
make or suffer any transfer of any of its property, which may be fraudulent
<PAGE>
under any bankruptcy, fraudulent conveyance or similar law or (p) there shall be
a material adverse change in Borrower's business or financial condition: or (q)
Silicon, acting in good faith and in a commercially reasonable manner, deems
itself insecure because of the occurrence of an event prior to the effective
date hereof of which Silicon had no knowledge on the effective date or because
of the occurrence of an event on or subsequent to the effective date. Silicon
may cease making any Loans hereunder during any of the above cure periods, and
their if an Event of Default has occurred.
7.2 REMEDIES. Upon the occurrence of any Event of Default, and at any
time thereafter, Silicon, at its option, and without notice or demand of any
kind (all of which are hereby expressly waived by Borrower), may do any one or
more of the following: (a) Cease making Loans or otherwise extending credit to
Borrower under this Agreement or any other document or agreement; (b) Accelerate
and declare all or any part of the Obligations to be immediately due, payable,
and performable, notwithstanding any deferred or installment payments allowed by
any instrument evidencing or relating to any Obligation; (c) Take possession of
any or all of the Collateral wherever it may be found, and for that purpose
Borrower hereby authorizes Silicon without judicial process to enter onto any of
Borrowers premises without interference to search for, take possession of, keep,
store, or remove any of the Collateral, and remain on the premises or cause a
custodian to remain on the premises in exclusive control thereof, without charge
for so long as Silicon deems it reasonably necessary in order to complete the
enforcement of its rights under this Agreement or any other agreement; provided,
however, that should Silicon seek to take possession of any of the Collateral by
Court process, Borrower hereby irrevocably waives: (i) any bond and any surety,
or security, relating thereto required by any statute, court role or otherwise
as an incident to such possession; (ii) any demand for possession prior to the
commencement of any suit or action to recover possession thereof; and (iii) any
requirement that Silicon retain possession of, and not dispose of, any such
Collateral until after trial or final judgment; (d) Require Borrower to assemble
any or all of the Collateral and make it available to Silicon at places
designated by Silicon which are reasonably convenient to Silicon and Borrower,
and to remove the Collateral to such locations as Silicon may deem advisable;
(e) Complete the processing, manufacturing or repair of any Collateral prior to
a disposition thereof and, for such purpose and for the purpose of removal,
Silicon shall have the right to use Borrower's premises, vehicles, hoists,
lifts, cranes, equipment and all other property, without charge; (f) Sell, lease
or otherwise dispose of any of the Collateral, in its condition at the time
Silicon obtains possession of it or after further manufacturing, processing or
repair, at one or more public and/or private sales, in lots or in bulk, for
cash, exchange or other property, or on credit, and to adjourn any such sale
from time to time without notice other than oral announcement at the time
scheduled for sale. Silicon shall have the right to conduct Loan and Security
Agreement such disposition on Borrowers premises without charge, for such time
or times as Silicon deems reasonable, or on Silicon's premises, or elsewhere and
the Collateral need not be located at the place of disposition. Silicon may
directly or through any affiliated company purchase or lease any Collateral at
any such public disposition, and if permissible under applicable law, at any
private disposition. Any sale or other disposition of Collateral shall not
relieve Borrower of any liability Borrower may have if any Collateral is
defective as to title or physical condition or otherwise at the time of sale;
(g) Demand payment of, and collect any Receivables and General Intangibles
comprising Collateral and, in connection therewith, Borrower irrevocably
authorizes Silicon to endorse or sign Borrower's name on all collections,
receipts, instruments and other documents, to take possession of and open mail
addressed to Borrower and remove therefrom payments made with respect to any
item of the Collateral or proceeds thereof, and, in Silicon's sole discretion,
to grant extensions of time to pay, compromise claims and settle Receivables and
the like for less than face value; (h) Offset against any sums in any of
Borrower's general, special or other Deposit Accounts with Silicon; and (i)
Demand and receive possession of any of Borrowers federal and state income tax
returns and the books and records utilized in the preparation thereof or
referring thereto. All reasonable attorneys' fees, expenses, costs, liabilities
and obligations incurred by Silicon with respect to the foregoing shall be added
to and become part of the Obligations, shall be due on demand, and shall bear
interest at a rate equal to the highest interest rate applicable to any of the
Obligations. Without limiting any of Silicon's rights and remedies from and
after the occurrence of any Event of Default, the interest rate applicable to
the Obligations shall be increased by an additional four percent per annum.
7.3 STANDARDS FOR DETERMINING COMMERCIAL REASONABLENESS. Borrower and
Silicon agree that a sale or other disposition (collectively, "sale") of any
Collateral which complies with the following standards will conclusively be
deemed to be commercially reasonable: (i) Notice of the sale is given to
Borrower at least seven days prior to the sale, and, in the case of a public
sale, notice of the sale is published at least seven days before the sale in a
newspaper of general circulation in the county where the sale is to be
conducted; (ii) Notice of the sale describes the collateral in general,
non-specific terms; (iii) The sale is conducted at a place designated by
Silicon, with or without the Collateral being present; (iv) The sale commences
at any time between 8:00 a.m. and 6:00 p.m; (v) Payment of the purchase price in
cash or by cashier's check or wire transfer is required; (vi) With respect to
any sale of any of the Collateral, Silicon may (but is not obligated to) direct
any prospective purchaser to ascertain directly from Borrower any and all
information concerning the same. Silicon shall be free to employ other methods
of noticing and selling the Collateral in its discretion, if they are
commercially reasonable.
7.4 POWER OF ATTORNEY. Upon the occurrence of any Event of Default,
without limiting Silicon's other rights
<PAGE>
and remedies, Borrower grants to Silicon an irrevocable power of attorney
coupled with an interest, authorizing and permitting Silicon (acting through any
of its employees, attorneys or agents) at any time, at its option, but without
obligation, with or without notice to Borrower, and at Borrower's expense, to do
any or all of the following, in Borrower's name or otherwise, but Silicon agrees
to exercise the following powers in a commercially reasonable manner: (a)
Execute on behalf of Borrower any documents that Silicon may, in its sole
discretion, deem advisable in order to perfect and maintain Silicon's security
interest in the Collateral, or in order to exercise a right of Borrower or
Silicon, or in order to fully consummate all the transactions contemplated under
this Agreement and all other present and future agreements; (b) Execute on
behalf of Borrower any document exercising, transferring or assigning any option
to purchase, sell or otherwise dispose of or to lease (as lessor or lessee) any
real or personal property which is part of Silicon's Collateral or in which
Silicon has an interest; (c) Execute on behalf of Borrower, any invoices
relating to any Receivable, any draft against any Account Debtor and any notice
to any Account Debtor, any proof of claim in bankruptcy, any Notice of Lien,
claim of mechanic's, materialman's or other lien, or assignment or satisfaction
of mechanic's, materialman's or other lien; (d) Take control in any manner of
any cash or non-cash items of payment or proceeds of Collateral; endorse the
name of Borrower upon any instruments, or documents, evidence of payment or
Collateral that may come into Silicon's possession; (e) Endorse all checks and
other forms of remittances received by Silicon; (f) Pay, contest or settle any
lien, charge, encumbrance, security interest and adverse claim in or to any of
the Collateral, or any judgment based thereon, or otherwise take any action to
terminate or discharge the same; (g) Grant extensions of time to pay, compromise
claims and settle Receivables and General Intangibles for less than face value
and execute all releases and other documents in connection therewith; (h) Pay
any sums required on account of Borrowers taxes or to secure the release of any
liens therefor, or both; (i) Settle and adjust, and give releases of, any
insurance claim that relates to any of the Collateral and obtain payment
therefor, (j) Instruct any third party having custody or control of any books or
records belonging to, or relating to, Borrower to give Silicon the same rights
of access and other rights with respect thereto as Silicon has under this
Agreement; and (k) Take any action or pay any sum required of Borrower pursuant
to this Agreement and any other present or future agreements. Any and all
reasonable sums paid and any and all reasonable costs, expenses, liabilities,
obligations and attorneys' fees incurred by Silicon with respect to the
foregoing shall be added to and become part of the Obligations, shall be payable
on demand, and shall bear interest at a rate equal to the highest interest rate
applicable to any of the Obligations. In no event shall Silicon's rights under
the foregoing power of attorney or any of Silicon's other rights under this
Agreement be deemed to indicate that Silicon is in control of the business,
management or properties of Borrower.
7.5 APPLICATION OF PROCEEDS. All proceeds realized as the result of any
sale of the Collateral shall be applied by Silicon first to the reasonable
costs, expenses, liabilities, obligations and attorneys' fees incurred by
Silicon in the exercise of its rights under this Agreement, second to the
interest due upon any of the Obligations, and third to the principal of the
Obligations, in such order as Silicon shall determine in its sole discretion.
Any surplus shall be paid to Borrower or other persons legally entitled thereto;
Borrower shall remain liable to Silicon for any deficiency. If, Silicon, in its
sole discretion, directly or indirectly enters into a deferred payment or other
credit transaction with any purchaser at any sale of Collateral Silicon shall
have the option, exercisable at any time, in its sole discretion, of either
reducing the Obligations by the principal amount of purchase price or deferring
the reduction of the Obligations until the actual receipt by Silicon of the cash
therefor.
7.6 REMEDIES CUMULATIVE. In addition to the rights and remedies set
forth in this Agreement, Silicon shall have all the other rights and remedies
accorded a secured party under the California Uniform Commercial Code and under
all other applicable laws, and under any other instrument or agreement now or in
the future entered into between Silicon and Borrower, and all of such rights and
remedies are cumulative and none is exclusive. Exercise or partial exercise by
Silicon of one or more of its or remedies shall not be deemed an election, nor
bar Silicon from subsequent exercise or partial exercise of any other rights or
remedies. The failure or delay of Silicon to exercise any rights or remedies
shall not operate as a waiver thereof, but all rights and remedies shall
continue in full force and effect until all of the Obligations have been fully
paid and performed.
8. DEFINITIONS. As used in this Agreement, the following terms have the
following meanings:
"ACCOUNT DEBTOR" means the obligor on a Receivable.
"AFFILIATE" means, with respect to any Person, a relative, partner,
shareholder, director, officer, or employee of such Person, or any parent or
subsidiary of such Person, or any Person controlling, controlled by or under
common control with such Person.
"BUSINESS DAY" means a day on which Silicon is open for business.
"CODE" means the Uniform Commercial Code as adopted and in effect in
the State of California from time to time.
"COLLATERAL" has the meaning set forth in Section 2.1 above.
"DEFAULT" means any event which with notice or passage of time or both,
would constitute an Event of Default.
"DEPOSIT ACCOUNT" has the meaning set forth in Section 9105 of the
Code.
"ELIGIBLE INVENTORY" [NOT APPLICABLE].
<PAGE>
"ELIGIBLE RECEIVABLES" means Receivables arising in the ordinary course
of Borrowers business from the sale of goods or rendition of services, which
Silicon, in its sole judgment, shall deem eligible for borrowing, based on such
considerations as Silicon may from time to time deem appropriate. Without
limiting the fact that the determination of which Receivables are eligible for
borrowing is a matter of Silicon's discretion, the following (the "MINIMUM
ELIGIBILITY REQUIREMENT") are the minimum requirements for a Receivable to be an
Eligible Receivable (i) the Receivable must not be outstanding for more than 90
days from its invoice date, (ii) the Receivable must not represent progress
billings, or be due under a fulfillment or requirements contract with the
Account Debtor, (iii) the Receivable must not be subject to any contingencies
(including Receivables arising from sales on consignment, guaranteed sale or
other terms pursuant to which payment by the Account Debtor may be conditional),
(iv) the Receivable must not be owing from an Account Debtor with whom the
Borrower has any dispute (whether or not relating to the particular Receivable),
(v) the Receivable must not be owing from an Affiliate of Borrower, (vi) the
Receivable must not be owing from an Account Debtor which is subject to any
insolvency or bankruptcy proceeding, or whose financial condition is not
acceptable to Silicon, or which, fails or goes out of a material portion of its
business, (vii) the Receivable must not be owing from the United States or any
department, agency or instrumentality thereof (unless there has been compliance,
to Silicon's satisfaction, with the United States Assignment of Claims Act),
(viii) * the Receivable must not be owing from an Account Debtor located outside
the United States or Canada (unless pre-approved by Silicon in its discretion in
writing, or backed by a letter of credit satisfactory to Silicon, or FCIA
insured satisfactory to Silicon), (ix) the Receivable must not be owing from an
Account Debtor to whom Borrower is or may be liable for goods purchased from
such Account Debtor or otherwise. Receivables owing from one Account Debtor will
not be deemed Eligible Receivables to the extent they exceed 25% of the total
Receivables outstanding. In addition, if more than 50% of the Receivables owing
from an Account Debtor are outstanding more than 90 days from their invoice date
(without regard to unapplied credits) or are otherwise not eligible Receivables,
then all Receivables owing from that Account Debtor will be deemed ineligible
for borrowing. Silicon may, from time to time, in its discretion, revise the
Minimum Eligibility Requirements, upon written notice to the Borrower.
* EXCEPT FOR RECEIVABLES OWING FROM CELLULAR MEXICANA, MOVITEL DEL
NOROESTE, CELLULAR DE TELEPHONA, COASIN CHILIE, TELEPHONA CELLULAR DEL NORTE,
AND SMART COMMUNICATIONS,
"EQUIPMENT" means all of Borrower's present and hereafter acquired
machinery, molds, machine tools, motors, furniture, equipment, furnishings,
fixtures, trade fixtures, motor vehicles, tools, pans, dyes. jigs, goods and
other tangible personal property (other than Inventory) of every kind and
description used in Borrower's operations or owned by Borrower and any interest
in any of the foregoing, and all attachments, accessories, accessions,
replacements, substitutions, additions or improvements to any of the foregoing,
wherever located.
"EVENT OF DEFAULT" means any of the events set forth in Section 7.1 of
this Agreement.
"GENERAL INTANGIBLES" means all general intangibles of Borrower,
whether now owned or hereafter created or acquired by Borrower, including,
without limitation, all choses in action, causes of action, corporate or other
business records, Deposit Accounts, inventions, designs drawings, blueprints,
patents, patent applications, trademarks and the goodwill of the business
symbolized thereby, names, trade names, trade secrets, goodwill copyrights,
registrations, licenses, franchises, customer lists, security and other
deposits, rights in all litigation presently or hereafter pending for any cause
or claim (whether in contract, tort or otherwise), and all judgments now or
hereafter arising therefrom, all claims of Borrower against Silicon, rights to
purchase or sell real or property, rights as a licensor or licensee of any kind,
royalties, telephone numbers, proprietary information, purchase orders, and all
insurance policies and claims (including without limitation life insurance, key
man insurance, credit insurance, liability insurance, property insurance and
other insurance), tax refunds and claims, computer programs, discs, tapes and
tape files, claims under guaranties, security interests or other security held
by or granted to Borrower, all rights to indemnification and all other
intangible property, of every kind and nature (other than Receivables).
"INVENTORY" means all of Borrower's now owned and hereafter acquired
goods, merchandise or other personal property, wherever located, to be furnished
under any contract of service or held for sale or lease (including without
limitation all raw materials, work in process, finished goods and goods in
transit), and all materials and supplies of every kind, nature and description
which are or might be used or consumed in Borrower's business or used in
connection with the manufacture, packing, shipping advertising, selling or
finishing of goods, merchandise or other personal property, and all warehouse
receipts, documents of title and other documents representing any of the
foregoing.
"OBLIGATIONS" means all present and future Loans, advances, debts,
liabilities, obligations, guaranties, covenants, duties and indebtedness at any
time owing by Borrower to Silicon, whether evidenced by this Agreement or any
note or other instrument or document, whether arising from an extension of
credit, opening of a letter of credit, banker's acceptance, loan, guaranty,
indemnification or otherwise, whether direct or indirect (including, without
limitation, those acquired by assignment and any participation by Silicon in
Borrower's debts owing to others), absolute or contingent, due or to become due,
including, without limitation, all interest, charges, expenses, fees, attorney's
fees, expert witness fees, audit fees, letter of credit fees, collateral
monitoring
<PAGE>
fees, closing fees, facility fees, termination fees, minimum interest charges
and any other sums chargeable to Borrower under this Agreement or under any
other present or future instrument or agreement between Borrower and Silicon.
"PERMITTED LIENS" means the following: (i) purchase money security,
interests in specific items of Equipment; (ii) leases of specific items of
Equipment; (iii) liens for taxes not yet payable; (iv) additional security
interests and liens consented to in writing by Silicon, which consent shall not
be unreasonably withheld; (v) security interests being terminated substantially
concurrently with this Agreement; (vi) liens of materialmen mechanics,
warehousemen, carriers, or other similar liens arising in the ordinary course of
business and securing obligations which are not delinquent; (vii) liens incurred
in connection with the extension, renewal or refinancing of the indebtedness
secured by liens of the type described above in clauses (i) or (ii) above,
provided that any extension renewal or replacement lien is limited to the
property, encumbered by the existing lien and the principal amount of the
indebtedness being extended, renewed or refinanced does not increase; (viii)
Liens in favor of customs and revenue authorities which secure payment of
customs duties in connection with the importation of goods. Silicon will have
the right to require, as a condition to its consent under subparagraph (iv)
above, that the holder of the additional security interest or lien sign an
intercreditor agreement on Silicon's then standard form, acknowledge that the
security, interest is subordinate to the security, interest in favor of Silicon,
and agree not to take any action to enforce its subordinate security, interest
so long as any Obligations remain outstanding, and that Borrower agree that any
uncured default in any obligation secured by the subordinate security interest
shall also constitute an Event of Default under this Agreement.
"PERSON" means any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation,
government, or any agency or political division thereof, or any other entity.
"RECEIVABLES" means all of Borrower's now owned and hereafter acquired
accounts (whether or not earned by performance), letters of credit, contract
rights, chattel paper, instruments, securities, securities accounts, investment
property, documents and all other forms of obligations at any time owing to
Borrower, all guaranties and other security, therefor, all merchandise returned
to or repossessed by Borrower, and all rights of stoppage in transit and all
other rights or remedies of an unpaid vendor, lienor or secured party.
"RESERVES" means, as of any date of determination such amounts as
Silicon may from time to time establish and revise in good faith reducing the
amount of Loans and Letters of Credit which would otherwise be available to
Borrower under the lending formula(s) provided in the Schedule: (a) to reflect
events, conditions, contingencies or risks which, as determined by Silicon in
good faith, do or may affect either (i) the Collateral or any other property
which is security for the Obligations or its value, (ii) the assets, business or
prospects of Borrower or any Guarantor or (iii) the security interests and other
rights of Silicon in the Collateral (including rite enforceability, perfection
and priority, thereof), or (b) to reflect Silicon's good faith belief that any
collateral report or financial information furnished by or on behalf of Borrower
or any Guarantor to Silicon is or may have been incomplete, inaccurate or
misleading in any material respect, or (c) in respect of any state of facts
which Silicon determines in good faith constitutes an Event of Default or may,
with notice or passage of time or both, constitute an Event of Default.
OTHER TERMS. All accounting terms used in this Agreement, unless
otherwise indicated, shall have the meanings given to such terms in accordance
with generally accepted accounting principles, consistently applied. All other
terms contained in this Agreement, unless otherwise indicated, shall have the
meanings provided by the Code, to the extent such terms are defined therein.
9. GENERAL PROVISIONS.
9.1 INTEREST COMPUTATION. In computing interest on the Obligations, all
checks, wire transfers and other items of payment received by Silicon (including
proceeds of Receivables and payment of the Obligations in full) shall be deemed
applied by Silicon on account of the Obligations three Business Days after
receipt by Silicon of immediately available funds, and, for purposes of the
foregoing, any such funds received after 12:00 Noon on any day shall be deemed
received on the next Business Day. Silicon shall not, however, be required to
Borrower's account for the amount of any item of payment which is unsatisfactory
to Silicon in its sole discretion, and Silicon may charge Borrower's loan
account for the amount of any item of payment which is returned to Silicon
unpaid.
9.2 APPLICATION OF PAYMENTS. All payments with respect to the
Obligations may be applied, and in Silicon's sole discretion reversed and
reapplied, to the Obligations, in such order and manner as Silicon shall
determine in its sole discretion.
9.3 CHARGES TO ACCOUNTS. Silicon may, in its discretion, require that
Borrower pay monetary Obligations in cash to Silicon, or charge them to
Borrower's Loan account, in which event they will bear interest at the same rate
applicable to the Loans. Silicon may also, in its discretion, charge any
monetary Obligations to Borrower's Deposit Accounts maintained with Silicon.
9.4 MONTHLY ACCOUNTINGS. Silicon shall provide Borrower monthly with an
account of advances, charges, expenses and payments made pursuant to this
Agreement. Such account shall be deemed correct, accurate and binding on
Borrower and an account stated (except for reverses and reapplications of
payments made and corrections of errors discovered by Silicon), unless
<PAGE>
Borrower notifies Silicon in writing to the contrary within thirty days after
each account is rendered, describing the nature of any alleged errors or
admissions.
9.5 NOTICES. All notices to be given under this Agreement shall be in
writing and shall be given either personally or by reputable private delivery
service or by regular first-class mail, or certified mail return receipt
requested, addressed to Silicon or Borrower at the addresses shown in the
heading to this Agreement, or at any other address designated in writing by one
party to the other party. Notices to Silicon shall be directed to the Commercial
Finance Division, to the attention of the Division Manager or the Division
Credit Manager. All notices shall be deemed to have been given upon delivery in
the case of notices personally delivered, or at the expiration of one Business
Day following delivery to the private delivery service, or two Business Days
following the deposit thereof in the United States mail, with postage prepaid.
9.6 SEVERABILITY. Should any provision of this Agreement be held by any
court of competent jurisdiction to be void or unenforceable, such defect shall
not affect the remainder of this Agreement, which shall continue in full force
and effect.
9.7 INTEGRATION. This Agreement and such other written agreements,
documents and instruments as may be executed in connection herewith are the
final, entire and complete agreement between Borrower and Silicon and supersede
all prior and contemporaneous negotiations and oral representations and
agreements, all of which are merged and integrated in this Agreement. THERE ARE
NO ORAL UNDERSTANDINGS, REPRESENTATIONS OR AGREEMENTS BETWEEN THE PARTIES WHICH
ARE NOT SET FORTH IN THIS AGREEMENT OR IN OTHER WRITTEN AGREEMENTS SIGNED BY THE
PARTIES IN CONNECTION HEREWITH.
9.8 WAIVERS. The failure of Silicon at any time or times to require
Borrower to strictly comply with any of the provisions of this Agreement or any
other present or future agreement between Borrower and Silicon shall not waive
or diminish any right of Silicon later to demand and receive strict compliance
therewith. Any waiver of any default shall not waive or affect any other
default, whether prior or subsequent, and whether or not similar. None of the
provisions of this Agreement or any other agreement now or in the future
executed by Borrower and delivered to Silicon shall be deemed to have been
waived by any act or knowledge of Silicon or its agents or employees, but only
by a specific written waiver signed by an authorized officer of Silicon and
delivered to Borrower. Borrower waives demand, protest, notice of protest and
notice of default or dishonor, notice of payment and nonpayment, release,
compromise, settlement, extension or renewal of any commercial paper,
instrument, account. General Intangible, document or guaranty at any time held
by Silicon on which Borrower is or may in any way be liable, and notice of any
action taken by Silicon, unless expressly required by this Agreement.
9.9 NO LIABILITY FOR ORDINARY NEGLIGENCE. Neither Silicon, nor any of
its directors, officers, employees, agents, attorneys or any other Person
affiliated with or representing Silicon shall be liable for any claims, demands,
losses or damages, of any kind whatsoever, made, claimed, incurred or suffered
by Borrower or any other party through the ordinary negligence of Silicon, or
any of its directors, officers, employees, agents, attorneys or any other Person
affiliated with or representing Silicon, but nothing hereto shall relieve
Silicon from liability for its own gross negligence or willful misconduct.
9.10 AMENDMENT. The terms and provisions of this Agreement may not be
waived or amended, except in a writing executed by Borrower and a duly
authorized officer of Silicon.
9.11 TIME OF ESSENCE. Time is of the essence in the performance by
Borrower of each and every obligation under this Agreement.
9.12 ATTORNEYS FEES AND COSTS. Borrower shall reimburse Silicon for
all reasonable attorneys' fees and all filing, recording, search, title
insurance, appraisal, audit, and other reasonable costs incurred by Silicon,
pursuant to, or in connection with, or relating to this Agreement (whether or
not a lawsuit is filed), including, but not limited to, any reasonable
attorneys' fees and costs Silicon incurs in order to do the following: prepare
and negotiate this Agreement and the documents relating to this Agreement;
obtain legal advice in connection with this Agreement or Borrower, enforce, or
seek to enforce, any of its rights; prosecute actions against, or defend actions
by, Account Debtors; commence, intervene in, or defend any action or proceeding,
initiate any complaint to be relieved of the automatic stay in bankruptcy; file
or prosecute any probate claim, bankruptcy claim, third-party claim, or other
claim; examine, audit, copy, and inspect any of the Collateral or any of
Borrowers books and records; protect, obtain possession of, lease, dispose of,
or otherwise enforce Silicon's security interest in, the Collateral; and
otherwise represent Silicon in any litigation relating to Borrower. IN
SATISFYING BORROWER'S OBLIGATION HEREUNDER TO REIMBURSE SILICON FOR ATTORNEYS
FEES, BORROWER MAY, FOR CONVENIENCE, ISSUE CHECKS DIRECTLY TO SILICON'S
ATTORNEYS, LEVY, SMALL & LALLAS, BUT BORROWER ACKNOWLEDGES AND AGREES THAT LEVY,
SMALL & LALLAS IS REPRESENTING ONLY SILICON AND NOT BORROWER IN CONNECTION WITH
THIS AGREEMENT. If either Silicon or Borrower files any lawsuit against the
other predicated on a breach of this Agreement, the prevailing party in such
action shall be entitled to recover its reasonable costs and attorneys' fees,
including (but not limited to) reasonable attorneys' fees and costs incurred in
the enforcement of, execution upon or defense of any order, decree, award or
judgment. All attorneys' fees and costs to which Silicon may be entitled
pursuant to this Paragraph shall immediately become part of Borrower's
Obligations, shall be due on demand, and shall bear interest at a rate equal to
the highest interest rate applicable to any of the Obligations.
<PAGE>
9.13 BENEFIT OF AGREEMENT . The provisions of this Agreement shall be
binding upon and inure to the benefit of the respective successors, assigns,
heirs, beneficiaries and representatives of Borrower and Silicon; provided,
however, that Borrower may not assign or transfer any of its rights under this
Agreement without the prior written consent of Silicon, and any prohibited
assignment shall be void. No consent by Silicon to any assignment shall
release Borrower from its liability for the Obligations.
9.14 JOINT AND SEVERAL LIABILITY. If Borrower consists of more than one
Person, their liability shall be joint and several, and the compromise of any
claim with, or the release of, any Borrower shall not constitute a compromise
with, or a release of, any other Borrower.
9.15 LIMITATION OF ACTIONS. Any claim or cause of action by Borrower
against Silicon, its directors, officers, employees, agents, accountants or
attorneys, based upon, arising from, or relating to this Loan Agreement, or any
other present or future document or agreement, or any other transaction
contemplated hereby or thereby or relating hereto or thereto, or any other
matter, cause or thing whatsoever, occurred, done, omitted or suffered to be
done by Silicon, its directors, officers, employees, agents, accountants or
attorneys, shall be barred unless asserted by Borrower by the commencement of an
action or proceeding in a court of competent jurisdiction by the filing of a
complaint within one year after the first act, occurrence or omission upon which
such claim or cause of action, or any part thereof, is based, and the service of
a summons and complaint on an officer of Silicon, or on any other person
authorized to accept service on behalf of Silicon, within thirty (30) days
thereafter. Borrower agrees that such one-year period is a reasonable and
sufficient time for borrower to investigate and act upon any such claim or cause
of action. The one-year period provided herein shall not be waived, tolled, or
extended except by the written consent of Silicon in its sole discretion. This
provision shall survive any termination of this Loan Agreement or any other
present or future agreement.
9.16 PARAGRAPH HEADINGS; CONSTRUCTION. Paragraph headings are only used
in this Agreement for convenience. Borrower and Silicon acknowledge that the
headings may not describe completely the subject matter of the applicable
paragraph, and the headings shall not be used in any manner to construe, limit,
define or interpret any term or provision of this Agreement. The term
"including", whenever used in this Agreement, shall mean "including (but not
limited to)". This Agreement has been fully reviewed and negotiated between the
parties and no uncertainty or ambiguity in any term or provision of this
Agreement shall be construed strictly against Silicon or Borrower under any role
of construction or otherwise.
9.17 GOVERNING LAW; JURISDICTION; VENUE. This Agreement and all acts
and transactions hereunder and all rights and obligations of Silicon and
Borrower shall be governed by the laws of the State of California. As a material
part of the consideration to Silicon to enter into this Agreement. Borrower (i)
agrees that all actions and proceedings relating directly or indirectly to this
Agreement shall, at Silicon's option, be litigated in courts located within
California, and that the exclusive venue therefor shall be Santa Clara County;
(ii) consents to the jurisdiction and venue of any such court and consents to
service of process in any such action or proceeding by personal delivery, or any
other method permitted by law; and (iii) waives any and all rights Borrower may
have to object to the jurisdiction of any such court, or to transfer or change
the venue of any such action or proceeding.
9.18 MUTUAL WAIVER OF JURY TRIAL. BORROWER AND SILICON EACH HEREBY
WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING
OUT OF, OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FUTURE
INSTRUMENT OR AGREEMENT BETWEEN SILICON AND BORROWER, OR ANY CONDUCT, ACTS OR
OMISSIONS OF SILICON OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES,
AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH SILICON OR BORROWER, IN
ALL OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
BORROWER:
WIRELESS, INC.
BY /s/: William Gibson
----------------------------
PRESIDENT OR VICE PRESIDENT
BY /s/: Charlie Pai
----------------------------
SECRETARY OR ASS'T SECRETARY
SILICON --------------------------
<PAGE>
SILICON VALLEY BANK
SCHEDULE TO
LOAN AND SECURITY AGREEMENT
BORROWER: WIRELESS, INC.
ADDRESS: 19 DAVIS DRIVE
BELMONT, CALIFORNIA 94002
DATE: FEBRUARY 27, 1999
This Schedule forms an integral part of the Loan and Security Agreement between
Silicon Valley Bank and the above-borrower of even date.
================================================================================
1. CREDIT LIMIT
(Section 1.1): An amount not to exceed the lesser of (i)
$2,000,000 at any one time outstanding (the
"Maximum Credit Limit"); or (ii) 80% of the
amount of Borrower's Eligible Receivables (as
defined in Section 8 above).
LETTER OF CREDIT SUBLIMIT
(Section 1.5): $500,000
================================================================================
2. INTEREST.
INTEREST RATE
(Section 1.2): A rate equal to the "Prime Rate" in effect from
time to time, plus 2.50% per annum. Interest
shall be calculated on the basis of a 360-day
year for the actual number of days elapsed.
"Prime Rate" means the rate announced from time
to time by Silicon as its "prime rate;" it is a
base rate upon which other rates charged by
Silicon are based, and it is not necessarily the
best rate available at Silicon. The interest
rate applicable to the Obligations shall change
on each date there is a change in the Prime
Rate.
MINIMUM MONTHLY
INTEREST (Section 1.2): N/A.
================================================================================
3. FEES (Section 1.4):
Loan Fee: $20,000, payable concurrently herewith.
Collateral Monitoring
Fee: $1,000 per calendar month, payable in arrears
(prorated for any partial calendar month at the
beginning and at termination of this Agreement).
<PAGE>
================================================================================
4. MATURITY DATE
(Section 6.1 ): One year from the date of this Agreement,
subject to automatic renewal as provided in
Section 6.1 above, and early termination as
provided in Section 6.2 above.
================================================================================
5. FINANCIAL COVENANTS
(Section 5.1 ): Borrower shall comply with the following
covenant. Compliance shall be determined as of
the end of each month.
MINIMUM TANGIBLE
NET WORTH: Borrower shall maintain a Tangible Net Worth of
not less than $1,250,000 beginning April 1999.
DEFINITIONS. For purposes of the foregoing financial
covenant, the following terms shall have the
following meanings:
"Liabilities" shall have the meaning ascribed
thereto by generally accepted accounting
principles.
"Tangible Net Worth" shall mean the excess of
total assets over total liabilities, determined
in accordance with generally accepted accounting
principles, with the following adjustments:
(A) there shall be excluded from assets: (i)
notes, accounts receivable and other
obligations owing to the Borrower from its
officers or other Affiliates, and (ii) all
assets which would be classified as
intangible assets under generally accepted
accounting principles, including without
limitation goodwill, licenses, patents,
trademarks, trade names, copyrights,
capitalized software and organizational
costs, licenses and franchises
(B) there shall be excluded from
liabilities: all indebtedness which is
subordinated to the Obligations under a
subordination agreement in form specified by
Silicon or by language in the instrument
evidencing the indebtedness which is
acceptable to Silicon in its discretion.
================================================================================
6. REPORTING.
(Section 5.3):
Borrower shall provide Silicon with the
following:
1. Monthly Receivable agings, aged by invoice
date, within fifteen days after the end of
each month.
2. Monthly accounts payable agings, aged by
invoice date, and outstanding or held check
registers, if any, within fifteen days after
the end of each month.
3. Monthly reconciliations of Receivable
agings (aged by invoice date), transaction
reports, and general ledger, within fifteen
days after the end of each month.
<PAGE>
4. Monthly perpetual inventory reports for
the Inventory valued on a first-in, first-out
basis at the lower of cost or market (in
accordance with generally accepted
accounting principles) or such other
inventory reports as are reasonably
requested by Silicon, all within fifteen
days after the end of each month.
5. Monthly unaudited financial statements, as
soon as available, and in any event within
thirty days after the end of each month.
6. Monthly Compliance Certificates, within
thirty days after the end of each month, in
such form as Silicon shall reasonably
specify, signed by the by the Chief
Financial Officer of Borrower, certifying
that as of the end of such month Borrower was
in full compliance with all of the terms and
conditions of this Agreement, and setting
forth calculations showing compliance with
the financial covenants set forth in this
Agreement and such other information as
Silicon shall reasonably request, including,
without limitation, a statement that at the
end of such month there were no held checks.
7. Quarterly unaudited financial statements,
as soon as available, and in any event within
forty-five days after the end of each fiscal
quarter of Borrower.
8. Annual operating budgets (including income
statements, balance sheets and cash flow
statements, by month) for the upcoming
fiscal year of Borrower within thirty days
prior to the end of each fiscal year of
Borrower.
9 Annual financial statements, as soon as
available, and in any event within 120 days
following the end of Borrower's fiscal year,
certified by independent certified public
accountants acceptable to Silicon.
================================================================================
7. COMPENSATION
(Section 5.5): Without Silicon's prior written
consent, Borrower shall not pay total
compensation, including salaries,
withdrawals, fees, bonuses, commissions,
drawing accounts and other payments, whether
directly or indirectly, in money or
otherwise, during any fiscal year to all of
Borrower's executives, officers and
directors (or any relative thereof) as a
group in excess of 115% of the total amount
thereof in the prior fiscal year.
================================================================================
8. BORROWER INFORMATION:
PRIOR NAMES OF
BORROWER
(Section 3.2): None.
PRIOR TRADE
NAMES OF BORROWER
(Section 3.2): None.
EXISTING TRADE
NAMES OF BORROWER
(Section 3.2): None.
<PAGE>
OTHER LOCATIONS AND
ADDRESSES (Section 3.3): None.
MATERIAL ADVERSE
LITIGATION (Section 3.10): None.
================================================================================
9. OTHER COVENANTS
(Section 5.1): Borrower shall at all times comply with all of
the following additional covenants:
(1) BANKING RELATIONSHIP. Borrower shall at
all times maintain its primary banking
relationship with Silicon.
(2)GUARANTY. Concurrently with the execution
of this Agreement, Borrower shall cause
William Gibson to execute and deliver to
Silicon a Continuing Guaranty with
respect to all of the Obligations, on
Silicon's standard form. Throughout the
term of this Agreement, Borrower shall
cause such Guaranty to continue in full
force and effect for so long as this
Agreement remains in effect.
(3) WARRANTS. Pursuant to the terms set forth
in that certain Warrant to Purchase Stock
(the "Warrant") and related documents
executed OCT. 16, 1998, Borrower has
provided Silicon with 5-year warrants, to
purchase 48,000 shares of common stock of
the Borrower, at $1.25 per share (which
Borrower represents and warrants is the
last price at which Borrower issued and
sold its Preferred "D" stock, which sale
was a sale of ________ shares to
_________ on ________). Borrower agrees
to cause the Warrant and all related
documents to continue in full force and
effect for so long as this Agreement
remains in effect.
Borrower: Silicon:
WIRELESS, INC. SILICON VALLEY BANK
By /s/ William Gibson By
-------------------------------------- -----------------------
President or Vice President Title
--------------------
By /s/ Charlie Pai
--------------------------------------
Secretary or Ass't Secretary
<PAGE>
EXHIBIT 10.6
SILICON VALLEY BANK
AMENDMENT TO LOAN DOCUMENTS
BORROWER: WIRELESS, INC.
DATE: SEPTEMBER 13, 1999
THIS AMENDMENT TO LOAN DOCUMENTS is entered into between SILICON VALLEY
BANK ("Silicon") and the borrower named above (" Borrower").
The Parties agree to amend the Loan and Security Agreement between
them, dated February 27, 1999 (as amended, the "Loan Agreement"), as follows,
effective as of the date hereof. (Capitalized terms used but not defined in this
Amendment shall have the meanings set forth in the Loan Agreement.)
1. TERM LOAN. Section 1 of the Schedule is hereby amended to read as
follows:
"1. CREDIT LIMIT
(Section 1.1): An amount (the "Maximum Credit Limit")
not to exceed the sum of (a) and (b)
below:
(a) TERM LOAN. The unpaid
principal balance from
time to time
outstanding of the
term loan (the "Term
Loan") being made on
or about September 13,
1999, in the original
principal amount of
$1,000,000, as
evidenced by that
certain Secured
Promissory Note being
executed by Borrower
on or about September
13, 1999 (the "Term
Note"); plus
(b) REVOLVING LOANS. Loans
(the "Revolving
Loans") in an amount
not to exceed the
lesser of (i)
$2,000,000 at any one
time outstanding; or
(ii) 80% of the amount
of Borrower's Eligible
Receivables (as
defined in Section 8
above).
Notwithstanding the definition
of "Maturity Date" set forth
herein, the maturity date of
the Term Loan shall be as set
forth in the Term Note."
-1-
<PAGE>
2. INTEREST. Section 2 of the Schedule is hereby amended to read as
follows:
"2. INTEREST.
INTEREST RATE
(Section 1.2): On the Revolving Loans, a rate equal
to the "Prime Rate" in effect from
time to time, plus 2.50% per annum.
On the Term Loan, a rate equal to
the "Prime Rate" in effect from time
to time, plus 3.0% per annum.
Interest shall be calculated on the
basis of a 360-day year for the
actual number of days elapsed.
"Prime Rate" mean the rate announced
from time to time by Silicon as its
"prime rate;" it is a base rate upon
which other rates charged by Silicon
are based, and it is not necessarily
the best rate available at Silicon.
The interest rate applicable to the
Obligations shall change on each
date there is a change in the Prime
Rate.
MINIMUM MONTHLY
INTEREST (Section 1.2): N/A."
3. WARRANTS. Concurrently herewith, Borrower shall provide Silicon with
five-year warrants to purchase 20,000 shares of Borrower's Series E Preferred
stock, at $2.50 per share (the "Initial Series E Warrants"), on terms acceptable
to Silicon, as set forth in the Warrant to Purchase Stock and related documents
(including but not limited to an Anti-Dilution Agreement and Registration Rights
Agreement) being executed concurrently with this Agreement. If between the date
hereof and October 8, 1999, Borrower does not receive cash proceeds of at least
$7,000,000 in consideration of Borrower's issuance of Series E Preferred stock,
(i) Borrower shall provide Silicon with five-year warranty to purchase an
additional 8,000 shares of Borrower's Series E Preferred stock at $1.25 per
share (the "Additional Series E Warrants"), on terms acceptable to Silicon, and
(ii) the strike price of the Initial Series E Warrants shall be amended from
$2.50 per share to $1.25 per share. The Initial Series E Warrants and the
Additional Series E Warrants shall be deemed fully earned on the date(s) of
issuance thereof, shall be in addition to all interest and other fees, and shall
be non-refundable.
4. FEE. In consideration for Silicon entering into this Amendment,
Borrower shall concurrently pay Silicon a fee in the amount of $25,000, which
shall be non-refundable and in addition to all interest and other fees payable
to Silicon under the Loan Documents. Silicon is authorized to charge said fee to
Borrower's loan account.
-2-
<PAGE>
5. REPRESENTATIONS TRUE. Borrower represents and warrants to Silicon
that representation and warranties set forth in the Loan Agreement, as amended
hereby, are true and correct.
6. GENERAL PROVISIONS. This Amendment, the Loan Agreement, any prior
written amendments to the Loan Agreement signed by Silicon and Borrower, and the
other written documents and agreements between Silicon and Borrower set forth in
full all of the representations and agreements of the parties with respect to
the subject matter hereof and supersede all prior and contemporaneous
discussions, representations, agreements and understandings between the parties
with respect to the subject hereof. Except as herein expressly amended, all of
the terms and provisions of the Loan Agreement, and all other documents and
agreements between Silicon and Borrower shall continue in full force and effect
and the same are hereby ratified and confirmed.
Borrower: Silicon:
WIRELESS, INC, SILICON VALLEY BANK
By /s/ William Gibson By /s/ Matthew Grignon
-------------------------------- -----------------------------
President or Vice President Title AVP
-----------------
By /s/ Charlie Pai
--------------------------------
Secretary or Ass't Secretary
-3-
<PAGE>
CONSENT
The undersigned acknowledges that his consent to the foregoing
Agreement is not required, but the undersigned nevertheless does hereby consent
to the foregoing Agreement and to the documents and agreements referred to
therein and to all further modifications and amendments thereto, and any
termination thereof, and to any and all other present and future documents and
agreements between or among the foregoing parties. Nothing herein shall in any
way limit any of the terms or provisions of the Continuing Guarantee of the
undersigned, all of which are hereby ratified and affirmed.
/s/ William Gibson
-------------------------
WILLIAM GIBSON
-4-
<PAGE>
SILICON VALLEY BANK
ANTI-DILUTION AGREEMENT
THIS ANTIDILUTION AGREEMENT is entered into as of September 13, 1999,
by and between SILICON VALLEY BANK ("Purchaser") and WIRELESS, INC..
RECITALS
A. Concurrently with the execution of this Antidilution
Agreement, the Purchaser is purchasing from the Company a Warrant to Purchase
Stock (the "Warrant") pursuant to which Purchaser has the right to acquire from
the Company the Shares (as defined in the Warrant).
B. By this Antidilution Agreement, the Purchaser and the Company
desire to set forth the adjustment in the number of Shares issuable upon
exercise of the Warrant as a result of a Diluting Issuance (as defined in
Exhibit A to the Warrant).
C. Capitalized terms used herein shall have the same meaning as
set forth in the Warrant.
NOW, THEREFORE, in consideration of the mutual promises,
covenants and conditions hereinafter set forth, the parties hereto mutually
agree as follows:
1. DEFINITIONS. As used in this Antidilutian Agreement,
the following terms have the following respective meanings:
(a) "Option" means any right, option, or warrant
to subscribe for, purchase, or otherwise acquire common stock or Convertible
Securities.
(b) "Convertible Securities" means any evidences
of indebtedness, shares of stock, or other securities directly or indirectly
convertible into or exchangeable for common stock.
(c) "Issue" means to grant, issue, sell, assume,
or fix a record date for determining persons entitled to receive, any security
(including Options), whichever of the foregoing is the first to occur.
(d) "Additional Common Shares" means all common
stock (including reissued shares) issued (or deemed to be issued pursuant to
Section 2) after the date of the Warrant. Additional Common Shares does not
include, however, any common stock issued in a transaction described in Sections
2.1 and 2.2 of the Warrant; any common stock Issued upon conversion of preferred
stock outstanding on the date of the Warrant; the Shares: or common stock Issued
as incentive or in a nonfinancing transaction to employees, officers, directors,
or consultants to the Company.
<PAGE>
10.6 TITLES AND SUBTITLES. The titles of the sections
Agreement are for convenience of reference only and are not to be conxxx
Antidilution Agreement.
10.7 COUNTERPARTS. This Antidilution Agreement xxx xxx
number of counterparts, each of which shall be an original, but all constitute
one instrument.
PURCHASER COMPANY
SILICON VALLEY BANK WIRELESS, INC.
By: /s/ Matthew Grignon By: /s/ William E. Gibson
--------------------------- -------------------------------
Name: Matthew Grignon Name: William E. Gibson
--------------------------- -------------------------------
(print) (print)
Title: AVP Title: Chairman of the
Board, President
or Vice President
Address: 3003 Tasman Dr. Address:
Santa Clara, CA -------------------------------
95054 -------------------------------
-------------------------------
<PAGE>
SILICON VALLEY BANK
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is entered into as of September
13, 1999, by and between SILICON VALLEY BANK ("Purchaser") and WIRELESS,
INC..
RECITALS
A. Concurrently with the execution of this Agreement, the
Purchaser is purchasing from the Company a Warrant to Purchase Stock (the
"Warrant") pursuant to which Purchaser has the right to acquire from the Company
the Shares (as defined in the Warrant).
B. By this Agreement, the Purchaser and the Company desire to set
forth the registration rights of the Shares all as provided herein.
NOW, THEREFORE, in consideration of the mutual promises,
covenants and conditions hereinafter set forth, the parties hereto mutually
agree as follows:
1.1 REGISTRATION RIGHTS. The Company covenants and agrees as
follows:
1.1 DEFINITIONS. For purposes of this Section 1:
(a) The term "register," "registered," and
"registration" refer to a registration effected by preparing and filing a
registration statement or similar document in compliance with the Securities Act
of 1933, as amended (the "Securities Act"), and the declaration or ordering of
effectiveness of such registration statement or document;
(b) The term "Registrable Securities" means (i)
the Shares (if Common Stock) or all shares of Common Stock of the Company
issuable or issued upon conversion of the Shares and (ii) any Common Stock of
the Company issued as (or issuable upon the conversion or exercise of any
warrant, right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of, any stock
referred to in (i).
(c) The terms "Holder" or "Holders" means the
Purchaser or qualifying transferees under subsection 1.8 hereof who hold
Registrable Securities.
(d) The term "SEC" means the Securities and
Exchange Commission.
<PAGE>
1.2 COMPANY REGISTRATION.
(a) REGISTRATION. If at any time or from time to
time, the Company shall determine to register any of its securities, for its own
account or the account of any of its shareholders, other than a registration on
Form S-1 or S-8 relating solely to employee stock option or purchase plans, or a
registration on Form S-4 relating solely to an SEC Rule 145 transaction, or a
registration on any other form (other than Form S-1, S-2, S-3 or S-18, or their
successor forms) or any successor to such forms, which does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of Registrable Securities, the Company
will:
(i) promptly give to each Holder written
notice thereof (which shall include a list of the jurisdictions in which the
Company intends to attempt to qualify such securities under the applicable blue
sky or other state securities laws); and
(ii) include in such registration (and
compliance), and in any underwriting involved therein, all the Registrable
Securities specified in a written request or requests, made within 30 days after
receipt of such written notice from the Company, by any Holder or Holders,
except as set forth in subsection 1.2(b) below.
(b) UNDERWRITING. If the registration of which the
Company gives notice is for a registered public offering involving an
underwriting, the Company shall so advise the Holders as a part of the written
notice given pursuant to subsection 1.2(a)(i). In such event the right of any
Holder to registration pursuant to this subsection 1.2 shall be conditioned upon
such Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting to the extent provided
herein. All Holders proposing to distribute their securities through such
underwriting shall (together with the Company and the other shareholders
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by the Company.
1.3 EXPENSES OF REGISTRATION. All expenses incurred in
connection with any registration, qualification or compliance pursuant to this
Section 1 including without limitation, all registration, filing and
qualification fees, printing expenses, fees and disbursements of counsel for the
Company and expenses of any special audits incidental to or required by such
registration, shall be borne by the Company except the Company shall not be
required to pay underwriters' fees, discounts or commissions relating to
Registrable Securities. All expenses of any registered offering not otherwise
borne by the Company shall be borne pro rata among the Holders participating in
the offering and the Company.
1.4 REGISTRATION PROCEDURES. In the case of each
registration, qualification or compliance effected by the Company pursuant to
this Registration Rights Agreement, the Company will keep each Holder
participating therein advised in writing as to the initiation of each
registration, qualification and compliance and as to the completion thereof.
Except as otherwise provided in subsection 1.3, at its expense the Company will:
<PAGE>
(a) Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use its best efforts
to cause such registration statement to become effective, and, upon the request
of the Holders of a majority of the Registrable Securities registered
thereunder, keep such registration statement effective for up to 120 days.
(b) Prepare and file with the SEC such amendments
and supplement to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply with
the provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
(c) Furnish to the Holders such numbers of copies
of a prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(d) Use its best efforts to register and qualify
the securities covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by the Holders, provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such state or jurisdictions.
(e) In the event of any underwritten public
offering, enter into and perform its obligations under an underwriting
agreement, in usual and customary form, with the managing underwriter of such
offering. Each Holder participating in such underwriting shall also enter into
and perform its obligations under such an agreement.
(f) Notify each Holder of Registrable Securities
covered by such registration statement at any time when a prospectus relating
thereto is required to be delivered under the Securities Act or the happening of
any event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstance then
existing.
1.5 INDEMNIFICATION.
(a) The Company will indemnify each Holder of
Registrable Securities and each of its officers, directors and partners, and
each person controlling such Holder, with respect to which such registration,
qualification or compliance has been effected pursuant to this Rights Agreement,
and each underwriter, if any, and each person who controls any underwriter of
the Registrable Securities held by or issuable to such Holder, against all
claims, losses, expenses, damages and liabilities (or actions in respect
thereto) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any prospectus, offering circular or
other document (including any related registration statement, notification or
the like) incident to any such registration, qualification or compliance, or
based on
<PAGE>
any omission (or alleged omission) to state therein a material fact required
to be stated therein or necessary to make the statement therein not misleading,
or any violation or alleged violation by the Company of the Securities Act, the
Securities Exchange Act of 1934, as amended ("Exchange Act") or any state
securities law applicable to the Company or any rule or regulation promulgated
under the Securities Act, the Exchange Act or any such state law and relating to
action or inaction required of the Company in connection with any such
registration, qualification of compliance, and will reimburse each such Holder,
each of its officers, directors and partners, and each person controlling such
Holder, each such underwriter and each person who controls any such underwriter,
within a reasonable amount of time after incurred for any reasonable legal and
any other expenses incurred in connection with investigating, defending or
settling any such claim, loss, damage, liability or action; provided, however,
that the indemnity agreement contained in this subsection 1.5(a) shall not apply
to amounts paid in settlement of any such claim, loss, damage, liability, or
action if such settlement is effected without the consent of the Company (which
consent shall not be unreasonably withheld); and provided further, that the
Company will not be liable in any such case to the extent that any such claim,
loss, damage or liability arises out of or is based on any untrue statement or
omission based upon written information furnished to the Company by an
instrument duly executed by such Holder or underwriter specifically for use
therein.
(b) Each Holder will, if Registrable Securities
held by or issuable to such Holder are included in the securities, as to which
such registration, qualification or compliance is being effected, indemnify the
Company, each of its directors and officers, each underwriter, if any, of the
Company's securities covered by such a registration statement, each person who
controls the Company within the meaning of the Securities Act, and each other
such Holder, each of its officers, directors and partners and each person
controlling such Holder, against all claims, losses, expenses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Company, such Holders, such directors,
officers, partners, persons or underwriters for any reasonable legal or any
other expenses incurred in connection with investigating, defending or settling
any such claim, loss, damage, liability or action, in each case to the extent,
but only to the extent, that such untrue statements (or alleged untrue
statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon and
in conformity with written information furnished to the Company by an instrument
duly executed by such Holder specifically for use therein; provided, however,
that the indemnity agreement contained in this subsection 1.5(b) shall not apply
to amounts paid in settlement of any such claim, loss, damage, liability or
action if such settlement is effected without the consent of the Holder, (which
consent shall not be unreasonably withheld); and provided further, that the
total amount for which any Holder shall be liable under this subsection 1.5(b)
shall not in any event exceed the aggregate proceeds received by such Holder
from the sale of Registrable Securities held by such Holder in such
registration.
<PAGE>
(c) Each party entitled to indemnification under
this subsection 1.5 (the "Indemnified Party") shall give notice to the party
required to provide indemnification (the "Indemnifying Party") promptly after
such Indemnified Party has actual knowledge of any claim as to which indemnity
may be sought, and shall permit the Indemnifying Party to assume the defense of
any such claim or any litigation resulting therefrom; provided that counsel for
the Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be approved by the Indemnified Party (whose approval shall not
be unreasonably withheld), and the Indemnified Party may participate in such
defense at such party's expense; and provided further, that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations hereunder, unless such failure resulted in
prejudice to the Indemnifying Party; and provided further, that an Indemnified
Party (together with all other Indemnified Parties which may be represented
without conflict by one counsel) shall have the right to retain one separate
counsel, with the fees and expenses to be paid by the Indemnifying Party, if
representation of such Indemnified Party by the counsel retained by the
Indemnifying Party would be inappropriate due to actual or potential differing
interests between such Indemnified Party and any other party represented by such
counsel in such proceeding. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability in respect to such
claim or litigation.
1.6 INFORMATION BY HOLDER. Any Holder or Holders of
Registrable Securities included in any registration shall promptly furnish to
the Company such information regarding such Holder or Holders and the
distribution proposed by such Holder or Holders as the Company may request in
writing and as shall be required in connection with any registration,
qualification or compliance referred to herein.
1.7 RULE 144 REPORTING. With a view to making available to
Holders the benefits of certain rules and regulations of the SEC which may
permit the sale of the Registrable Securities to the public without
registration, the Company agrees at all times to:
(a) make and keep public information available,
as those terms are understood and defined in SEC Rule 144, after 90 days after
the effective date of the first registration filed by the Company for an
offering of its securities to the general public;
(b) file with the SEC in a timely manner all
reports and other documents required of the Company under the Securities Act and
the Exchange Act (at any time after it has become subject to such reporting
requirements); and
(c) so long as a Holder owns any Registrable
Securities, to furnish to such Holder forthwith upon request a written statement
by the Company as to its compliance with the reporting requirements of said Rule
144 (at any time after 90 days after the effective date of the first
registration statement filed by the Company for an offering of its securities to
the general public), and of the Securities Act and the Exchange Act (at any time
after it has become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of
<PAGE>
the Company, and such other reports and documents so filed by the Company as
the Holder may reasonably request in complying with any rule or regulation of
the SEC allowing the Holder to sell any such securities without registration.
1.8 TRANSFER OF REGISTRATION RIGHTS. Holders' rights to
cause the Company to register their securities and keep information available,
granted to them by the Company under subsections 1.2 and 1.7 may be assigned to
a transferee or assignee of a Holder's Registrable Securities not sold to the
public, provided, that the Company is given written notice by such Holder at the
time of or within a reasonable time after said transfer, stating the name and
address of said transferee or assignee and identifying the securities with
respect to which such registration rights are being assigned. The Company may
prohibit the transfer of any Holders' rights under this subsection 1.8 to any
proposed transferee or assignee who the Company reasonably believes is a
competitor of the Company.
2. GENERAL.
2.1 WAIVERS AND AMENDMENTS. With the written consent of the
record or beneficial holders of at least a majority of the Registrable
Securities, the obligations of the Company and the rights of the Holders of the
Registrable Securities under this agreement may be waived (either generally or
in a particular instance, either retroactively or prospectively, and either for
a specified period of time or indefinitely), and with the same consent the
Company, when authorized by resolution of its Board of Directors, may enter into
a supplementary agreement for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Agreement;
provided, however, that no such modification, amendment or waiver shall reduce
the aforesaid percentage of Registrable Securities without the consent of all of
the Holders of the Registrable Securities. Upon the effectuation of each such
waiver, consent, agreement of amendment or modification, the Company shall
promptly give written notice thereof to the record holders of the Registrable
Securities who have not previously consented thereto in writing. This Agreement
or any provision hereof may be changed, waived, discharged, or terminated only
by a statement in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought, except to the extent
provided in this subsection 2.1.
2.2 GOVERNING LAW. This Agreement shall be governed in all
respects by the laws of the State of California as such laws are applied to
agreements between California residents entered into and to be performed
entirely within California.
2.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, assigns, heirs, executors and administrators of
the parties hereto.
2.4 ENTIRE AGREEMENT. Except as set forth below, this
Agreement and the other documents delivered pursuant hereto constitute the full
and entire understanding and agreement between the parties with regard to the
subjects hereof and thereof.
<PAGE>
2.5 NOTICES, ETC. All notices and other communications
required or permitted hereunder shall be in writing and shall be mailed by first
class mail, postage prepaid, certified or registered mail, return receipt
requested, addressed (a) if to Holder, at such Holder's address as set forth
below, or at such other address as such Holder shall have furnished to the
Company in writing, or (b) if to the Company, at the Company's address set forth
below, or at such other address as the Company shall have furnished to the
Holder in writing.
2.6 SEVERABILITY. In case any provision of this Agreement
shall be invalid, illegal, or unenforceable, the validity, legality and
enforceability of the remaining provisions of this Agreement or any provision of
the other Agreements shall not in any way be affected or impaired thereby,
2.7 TITLES AND SUBTITLES. The titles of the sections and
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
2.8 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
PURCHASER COMPANY
SILICON VALLEY BANK WIRELESS, INC.
By: /s/ Mathew Grignon By: /s/ William E. Gibson
--------------------------------------------- -----------------------
Name: Mathew Grignon Name:
--------------------------------------------- ----------------------
(print) (print)
Title: AVP Title: Chairman of the
- ------------------------------------------------- Board, President or
Address 3003 Tasman Drive Vice President
- ------------------------------------------------- Address:
Santa Clara, CA 95054
- ------------------------------------------------- -----------------------
- ------------------------------------------------- -----------------------
<PAGE>
EXHIBIT 10.7
SILICON VALLEY BANK
AMENDMENT TO LOAN DOCUMENTS
BORROWER: WIRELESS, INC.
5452 BETSY ROSS DRIVE
SANTA CLARA, CALIFORNIA 95054-1101
DATE: FEBRUARY 23, 2000
THIS AMENDMENT TO LOAN DOCUMENTS is entered into between SILICON VALLEY
BANK ("Silicon") and the borrower named above ("Borrower").
The Parties agree to amend the Loan and Security Agreement between them,
dated February 27, 1999 (as amended, the "Loan Agreement"), as follows,
effective as of the date hereof. (Capitalized terms used but not defined in this
Amendment shall have the meanings set forth in the Loan Agreement.)
1. AMENDMENT TO SCHEDULE. The Schedule to the Loan Agreement is hereby
deleted and replaced with the Schedule attached hereto.
2. MODIFICATION TO AUDIT FEE. The sentence in Section 5.4 of the Loan
Agreement that currently reads as follows:
The foregoing inspections and audits shall be at Borrower's expense
and the charge therefor shall be $500 per person per day (or such
higher amount as shall represent Silicon's then current standard
charge for the same), plus reasonable out of pocket expenses.
is hereby amended to read as follows:
The foregoing inspections and audits shall be at Borrower's expense
and the charge therefor shall be $600 per person per day (or such
higher amount as shall represent Silicon's then current standard
charge for the same), plus reasonable out of pocket expenses.
3. MODIFICATION TO EARLY TERMINATION FEE. The sentence in Section 6.2 of
the Loan Agreement that currently reads as follows:
If this Agreement is terminated by Borrower or by Silicon under this
Section 6.2, Borrower shall pay to Silicon a termination fee in an
amount equal to two percent (2.0%) of the Maximum Credit Limit.
is hereby amended to read as follows:
If this Agreement is terminated by Borrower or by Silicon under this
Section 6.2, Borrower shall pay to Silicon a termination fee in an
amount equal to one percent (1.0%) of the Maximum Credit Limit,
provided that
-1-
<PAGE>
no termination fee shall be charged if the credit facility hereunder
is replaced with a new facility from another division of Silicon
Valley Bank or if the Obligations are indefeasibly paid in full from
the proceeds of Borrower's initial public offering of its equity
securities.
4. FEE. Borrower shall pay to Silicon a fee of $20,000 in connection with
this Amendment, and one percent (1.0%) of the amount of increase in the Maximum
Credit Limit, if any, as set forth in the Schedule to Loan and Security
Agreement of even date herewith, which fee(s) are in addition to all other
amounts payable under the Loan Agreement and which are not refundable.
5. REPRESENTATIONS TRUE. Borrower represents and warrants to Silicon that
all representations and warranties set forth in the Loan Agreement, as amended
hereby, are true and correct.
6. GENERAL PROVISIONS. This Amendment, the Loan Agreement, any prior
written amendments to the Loan Agreement signed by Silicon and Borrower, and the
other written documents and agreements between Silicon and Borrower set forth in
full all of the representations and agreements of the parties with respect to
the subject matter hereof and supersede all prior and contemporaneous
discussions, representations, agreements and understandings between the
parties with respect to the subject hereof. Except as herein expressly amended,
all of the terms and provisions of the Loan Agreement, and all other documents
and agreements between Silicon and Borrower shall continue in full force and
effect and the same are hereby ratified and confirmed.
BORROWER: SILICON:
WIRELESS, INC. SILICON VALLEY BANK
BY /s/ William E. Gibson BY /s/ Jack Groat
-------------------------------- --------------------------------
PRESIDENT OR VICE PRESIDENT TITLE SVP
-----------------------------
BY /s/ Charles Pai
--------------------------------
SECRETARY OR ASS'T SECRETARY
-2-
<PAGE>
SILICON VALLEY BANK
SCHEDULE TO
LOAN AND SECURITY AGREEMENT
BORROWER: WIRELESS, INC.
ADDRESS: 5452 BETSY ROSS DRIVE
SANTA CLARA, CALIFORNIA 95054-1101
DATE: FEBRUARY 23, 2000
This Schedule forms an integral part of the Loan and Security Agreement between
Silicon Valley Bank and the above-borrower dated February 27, 1999 and as
amended from time to time.
- --------------------------------------------------------------------------------
1. CREDIT LIMIT
(Section 1.1): An amount not to exceed the lesser of: (i) $2,000,000 at any
one time outstanding (the "Maximum Credit Limit"); or (ii)
80% of the amount of Borrower's Eligible Receivables (as
defined in Section 8 above).
Upon Silicon's receipt of evidence, satisfactory to Silicon
in its sole discretion, of Borrower's satisfaction of either
of the following conditions, the Maximum Credit Limit shall
be increased from $2,000,000 to $5,000,000:
(i) Borrower's receipt of at least $10,000,000 in net cash
proceeds from (a) the issuance, after the date hereof,
of its equity securities (other than an initial public
offering) or (b) the issuance, after the date hereof,
of subordinated debt (which subordinated debt shall be
subordinated to the Obligations in form satisfactory to
Silicon in its discretion); or
(ii) Borrower's receipt by May 31, 2000 of at least
$50,000,000 in net cash proceeds from Borrower's
initial public offering of its equity securities.
LETTER OF CREDIT SUBLIMIT
(Section 1.5): $500,000
- --------------------------------------------------------------------------------
2. INTEREST.
INTEREST RATE
(Section 1.2): A rate equal to the "Prime Rate" in effect from time to
time, plus 2.50% per annum. Interest shall be calculated on
the basis of a 360-day year for the actual number of days
elapsed. "Prime Rate" means the rate announced from time to
time by Silicon as its "prime rate;" it is a base rate upon
which other rates charged by Silicon are based, and it is
not necessarily the best rate available at Silicon. The
interest rate
-1-
<PAGE>
applicable to the Obligations shall change on each date
there is a change in the Prime Rate.
MINIMUM MONTHLY
INTEREST
(Section 1.2): N/A.
- --------------------------------------------------------------------------------
3. FEES (Section 1.4):
Loan Fee: See Amendment to Loan Documents of even date herewith.
Collateral Monitoring
Fee: $1,000 per calendar month, payable in arrears (prorated for
any partial calendar month at the beginning and at
termination of this Agreement).
- --------------------------------------------------------------------------------
4. MATURITY DATE
(Section 6.1) February 23, 2001, subject to early termination as provided
in Section 6.2 above.
- --------------------------------------------------------------------------------
5. FINANCIAL COVENANTS
(Section 5.1): Borrower shall comply with the following covenant.
Compliance shall be determined as of the end of each month.
MINIMUM TANGIBLE
NET WORTH: Commencing with the Borrower's financial statements dated as
of February 29, 2000, Borrower shall maintain a Tangible Net
Worth of not less than $15,000,000.
DEFINITIONS.
For purposes of the foregoing financial covenant, the
following terms shall have the following meanings:
"Liabilities" shall have the meaning ascribed thereto by
generally accepted accounting principles.
"Tangible Net Worth" shall mean the excess of total assets
over total liabilities, determined in accordance with
generally accepted accounting principles, with the following
adjustments:
(A) there shall be excluded from assets: (i) notes,
accounts receivable and other obligations owing to the
Borrower from its officers or other Affiliates, and (ii)
all assets which would be classified as intangible
assets under generally accepted accounting principles,
including without limitation goodwill, licenses,
patents, trademarks, trade names, copyrights,
capitalized software and organizational costs, licenses
and franchises
(B) there shall be excluded from liabilities: all
indebtedness which is subordinated to the Obligations
under a subordination agreement in form specified by
Silicon or by language in the instrument evidencing the
indebtedness which is acceptable to Silicon in its
discretion.
-2-
<PAGE>
- --------------------------------------------------------------------------------
6. REPORTING.
(Section 5.3):
Borrower shall provide Silicon with the following:
1. Monthly Receivable agings, aged by invoice date, within
fifteen days after the end of each month.
2. Monthly accounts payable agings, aged by invoice date,
and outstanding or held check registers, if any, within
fifteen days after the end of each month.
3. Monthly reconciliations of Receivable agings (aged by
invoice date), transaction reports, and general ledger,
within fifteen days after the end of each month.
4. Monthly perpetual inventory reports for the Inventory
valued on a first-in, first-out basis at the lower of
cost or market (in accordance with generally accepted
accounting principles) or such other inventory reports
as are reasonably requested by Silicon, all within
fifteen days after the end of each month.
5. Monthly unaudited financial statements, as soon as
available, and in any event within thirty days after
the end of each month.
6. Monthly Compliance Certificates, within thirty days
after the end of each month, in such form as Silicon
shall reasonably specify, signed by the Chief Financial
Officer of Borrower, certifying that as of the end of
such month Borrower was in full compliance with all of
the terms and conditions of this Agreement, and setting
forth calculations showing compliance with the
financial covenants set forth in this Agreement and
such other information as Silicon shall reasonably
request, including, without limitation, a statement
that at the end of such month there were no held
checks.
7. Quarterly unaudited financial statements, as soon as
available, and in any event within forty-five days
after the end of each fiscal quarter of Borrower.
8. Annual operating budgets (including income statements,
balance sheets and cash flow statements, by month) for
the upcoming fiscal year of Borrower within thirty days
prior to the end of each fiscal year of Borrower.
9. Annual financial statements, as soon as available, and
in any event within 120 days following the end of
Borrower's fiscal year, certified by independent
certified public accountants acceptable to Silicon.
- --------------------------------------------------------------------------------
7. COMPENSATION
(Section 5.5): Without Silicon's prior written consent, Borrower shall
not pay total compensation, including salaries,
withdrawals, fees, bonuses, commissions, drawing
accounts and other payments, whether directly or
indirectly, in money or otherwise, during any fiscal
year to all of Borrower's executives, officers and
directors (or any relative thereof) as a group in excess
of 115% of the total amount thereof in the prior fiscal
year.
-3-
<PAGE>
- --------------------------------------------------------------------------------
8. BORROWER INFORMATION:
PRIOR NAMES OF
BORROWER
(Section 3.2): None.
PRIOR TRADE
NAMES OF BORROWER
(Section 3.2): None.
EXISTING TRADE
NAMES OF BORROWER
(Section 3.2): None.
OTHER LOCATIONS AND
ADDRESSES (Section 3.3): None.
MATERIAL ADVERSE
LITIGATION (Section 3.10): None.
- --------------------------------------------------------------------------------
9. OTHER COVENANTS
(Section 5.1): Borrower shall at all times comply with all of the
following additional covenants:
(1) BANKING RELATIONSHIP. Borrower shall at all
times maintain its primary banking relationship
with Silicon.
(2) SUBORDINATION OF INSIDE DEBT. All present and
future indebtedness of the Borrower to its
officers, directors and shareholders ("Inside
Debt") shall, at all times, be subordinated to
the Obligations pursuant to a subordination
agreement on Silicon's standard form. Borrower
represents and warrants that there is no Inside
Debt presently outstanding, except for the
following: $1,000,000 in favor of AMT Venture
Partners, Ltd. Prior to incurring any Inside
Debt in the future, Borrower shall cause the
person to whom such Inside Debt will be owed to
execute and deliver to Silicon a subordination
agreement on Silicon's standard form.
(3) OCTOBER 1998 WARRANTS. Pursuant to the terms set
forth in that certain Warrant to Purchase Stock
(the "October 1998 Warrant") and related
documents executed October 16, 1998, Borrower
has provided Silicon with five-year warrants, to
purchase 48,000 shares of Series D preferred
stock of the Borrower, at $1.25 per share (which
Borrower represents and warrants is the last
price at which Borrower issued and sold its
Series D preferred stock). Borrower agrees to
cause the October 1998 Warrant and all related
documents to continue in full force and effect
for so long as this Agreement remains in effect.
(4) SEPTEMBER 1999 WARRANTS. Pursuant to the terms
set forth in that certain Warrant to Purchase
Stock (the "September 1999 Warrant") and related
documents executed September 13, 1999, Borrower
has provided Silicon with five-year warrants, to
-4-
<PAGE>
purchase 20,000 shares of Series E preferred
stock of the Borrower, at $2.50 per share.
Borrower agrees to cause the September 1999
Warrant and all related documents to continue in
full force and effect for so long as this
Agreement remains in effect.
(5) INVESTOR COMMON STOCK WARRANT. Pursuant to the
terms of that certain Waiver and Amendment
Agreement dated October 8, 1999 (the "October
Amendment"), upon the conversion by the holder
of the Bank Series E Warrant (as defined in the
October Amendment), Borrower shall issue
Silicon a New Warrant (as defined in the October
Amendment). Borrower agrees to cause the October
Amendment to continue in full force and effect
for so long as this Agreement remains in effect.
(6) ADDITIONAL WARRANTS. If Borrower's initial
public offering of its equity securities is not
completed by May 31, 2000, or such initial
public offering fails to result in the
Borrower's receipt of at least $50,000,000 in
net cash proceeds therefrom, Borrower shall
immediately provide Silicon with five-year
warrants (the "Warrants") to purchase 37,500
shares of common stock of Borrower, on the terms
set forth in Silicon's standard form of Warrant
to Purchase Stock and related documents, at a
price per share equal to $4.00 per share. In
addition, concurrently therewith, Borrower and
Silicon shall enter into an Anti-Dilution
Agreement and Registration Rights Agreement on
Silicon's standard forms. The aforementioned
warrants shall consist of the terms and
provisions of Silicon's standard form Warrant to
Purchase Stock and related documents, with such
changes therein as Silicon may agree to.
Borrower: Silicon:
WIRELESS, INC. SILICON VALLEY BANK
By By /s/ Jack Groat
--------------------------------- ---------------------------------
President or Vice President Title SVP
------------------------------
By /s/ Charles Pai
---------------------------------
Secretary or Ass't Secretary
-5-
<PAGE>
EXHIBIT 10.8
PURCHASE AND LICENSE AGREEMENT
This PURCHASE AND LICENSE AGREEMENT is made and entered into on the
14th day of January, 2000, between TRW Inc., an Ohio corporation, acting on
behalf of its Systems and Information Technology Group ("TRW"), and Wireless,
Inc., a California corporation ("WI").
WHEREAS, TRW has designed and developed a point to multipoint wireless
networking technology generally referred to as the Spitfire technology; and
WHEREAS, WI desires to purchase certain assets related to the Spitfire
technology and to obtain certain license rights in the Spitfire technology.
NOW THEREFORE, in consideration of the mutual promises contained herein
and the mutual benefits to be derived therefrom, TRW and WI agree as follows:
ARTICLE 1. DEFINITIONS
The following words and phrases will have the meanings set forth below:
1.1 ACCESS POINT. A common connection point through which multiple wireless
devices may connect to each other, to other Access Points, to other wireless or
wired devices on a network, or to other networks. An Access Point consists of at
least one of each of the following components: (i) antenna, (ii) transceiver,
(iii) switching and/or routing device. These Access Point components need not be
housed together in a single unit (for example, the antenna may be separate from
the electronics).
1.2 AFFILIATE. A corporation, joint venture, partnership or other entity
that, now or hereafter, directly or indirectly controls, is controlled by, or is
under common control with the particular party; but only so long as such control
continues to exist. For purposes of this definition, "control" means beneficial
ownership of at least twenty percent (20%) of the equity or outstanding shares
or securities (representing the right to vote for the election of directors or
other managing authority) of, or at least twenty percent (20%) interest in the
income of, an entity; or the right to vote for or appoint at least twenty
percent (20%) of the directors, general partners or other controlling persons or
governing body of such entity; or other interest representing the right to make
the decisions for such corporation, company or other entity.
1.3 AGREEMENT. This Purchase and License Agreement and the following
Schedules attached hereto:
<TABLE>
<S> <C>
Schedule 1 Spitfire Technical Information and Software
</TABLE>
[*] CERTAIN INFORMATION OF THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
1
<PAGE>
<TABLE>
<S> <C>
Schedule 2 Spitfire Patents
Schedule 3 Bill of Sale
Schedule 4 Exceptions to TRW's Representations and Warranties
Schedule 5 Proprietary Information Exchange Agreement
Schedule 6 Exceptions to WI's Representations and Warranties
Schedule 7 Teaming Agreement
Schedule 8 Time and Materials Proposal
Schedule 9 Additional Spitfire Technical Information and Software
</TABLE>
1.4 CAPITAL ASSETS. The capital equipment and other tangible assets of TRW
sold to WI pursuant to the Bill of Sale attached as Schedule 3 (Bill of Sale).
1.5 CAPITALIZATION EVENT. Any of the following: (i) A firm-commitment,
underwritten public offering of WI common stock, at a price per share exceeding
$7.50, pursuant to an effective registration statement under the Securities Act
of 1933, as amended, resulting in at least $25,000,000 in gross proceeds to WI;
or (ii) a private placement of WI preferred shares, closing at least nine (9)
months after the Effective Date.
1.6 CONCURRENT AGREEMENTS. The Series F Preferred Stock Purchase Agreement
and the Sixth Amended and Restated Investors' Rights Agreement between the
parties signed concurrently herewith.
1.7 CONFIDENTIAL INFORMATION. Information maintained by a party as
confidential, including (to the extent so maintained) trade secrets, know-how,
inventions, techniques, processes, algorithms, software programs, schematics,
designs, contracts, customer lists, product plans and specifications, schedules,
product availability information, cost and profit data, other financial
information, sales and marketing plans and other business information.
1.8 CORE TEAM. The TRW employees and contractors that TRW and WI have
agreed will initially be assigned to the Program Office.
1.9 DERIVATIVE WORK. This term is defined in Section 101 of the Copyright
Act of 1976, and includes any translation or abridgment, the inclusion of some
or all of a work as part of a different work, or any other form in which a work
may be recast, transformed, or adapted.
1.10 EMPLOYEE. A person who is then employed by the relevant party, or who
was employed by that party at any time during the preceding one (1) year period.
1.11 EFFECTIVE DATE. The date of the "Closing" of the Series F Preferred
Stock Purchase Agreement (as such term is defined therein).
1.12 EQUIPMENT. The design tools, test equipment, cell libraries and other
items made available by TRW for WI's use in connection with Spitfire product
2
<PAGE>
development pursuant to Section 3.9 (Use of TRW Design Tools and Equipment).
Notwithstanding the foregoing, "Equipment" excludes the Capital Assets.
1.13 EXCLUDED PRODUCT. A point to multipoint Wireless Communications system
that is designed to provide bi-directional high speed transmission of voice,
video and/or data, and that:
(i) uses at least one Access Point the antenna of which: (a) is not
located inside a building, and (b) is connected directly or
indirectly to the earth (such as to a roof top, mountain peak, light
pole, car, ship or pier); AND
(ii) uses the following techniques in the point to multipoint air
interface:
(a) Code Division Multiple Access; AND
(b) Asynchronous Transfer Mode and/or Packatized Physical Layer; AND
(c) Time Division Duplex and/or Frequency Division Duplex; AND
(iii) contains or was developed using any TRW Spitfire Technical
Information, TRW Spitfire Software, WI Future Improvement, Program
Office Technology or Spitfire Invention; and
(iv) is not a Mobile System.
1.14 FLYSPEC. The document, labeled "WISP System Summary Specification" and
dated 11/17/99, included in the documents listed on Schedule 1 (Spitfire
Technical Information and Software).
1.15 GOVERNMENT. Any department, agency, organization, office or the like
("Agency") of the United States Government or in which the United States is a
member (such as NATO or the United Nations); and any Agency of the government of
another sovereign state or country throughout the world or in which such
government is a member. Notwithstanding the foregoing, "Government" excludes any
Agency, company or organization (or Affiliate thereof) that provides any kind of
telecommunications or data communications product or service other than
exclusively for its own internal use or the use of other Governments.
1.16 GOVERNMENT FIELD. Use of any product in any location, including both
Indoor Access Points, Outdoor Access Points, or any combination thereof, solely
by one or more Governments.
1.17 INDOOR ACCESS POINT. An Access Point each component of which is
located inside the same building on earth.
3
<PAGE>
1.18 INDOOR FIELD. Wireless Communications using one or more Indoor Access
Points, and no Outdoor Access Points. The term does not encompass the Government
Field.
1.19 INTELLECTUAL PROPERTY. All rights under Patents and copyrights; mask
work rights; rights to exploit know-how, trade secret and other non-public or
confidential information, including the right to use and exploit Confidential
Information: and rights under any other form of intellectual property.
1.20 LICENSED PRODUCT. The Spitfire Products and any other product
developed by or for WI that incorporates any Spitfire IP or any TRW Future
Improvement.
1.21 MOBILE SYSTEM. A system for Wireless Communications that: (i) uses
handoff protocols to maintain a continuous connection, permitting the
transmission and reception of data while an end user device transfers its
wireless connection from at least one Access Point to a different Access Point,
and (ii) does not contain, and was not developed using, any TRW Spitfire
Technical Information, TRW Spitfire Software, WI Future Improvement, Program
Office Technology or invention covered by a Spitfire Patent.
1.22 OUTDOOR ACCESS POINT. An Access Point which: (i) is designed to have a
minimum radiated RF signal range (through free space) of at least 1 kilometer;
(ii) the antenna of which is not located inside a building; and (iii) the
antenna of which is connected directly or indirectly to the earth (such as to a
roof top, mountain peak, light pole, car, ship or pier).
1.23 OUTDOOR FIELD. Wireless Communications using one or more Outdoor
Access Points, and no Indoor Access Points, but excluding the Government Field.
1.24 PATENTS. All United States or foreign patents and pending patent
applications and utility models, including any continuations, continuations in
part, divisions, reissues, extensions or foreign country counterparts thereof.
1.25 PERSON MONTH. A measure of time equal to 176 person hours.
1.26 PROGRAM OFFICE. An engineering organization which TRW will, at WI's
request, establish to continue development of Spitfire products. Further
specifications concerning the Program Office are set forth in Article 3 (Program
Office) herein.
1.27 PROGRAM OFFICE INVENTION. An invention invented, by any Program Office
Person in the course of performing work for the Program Office.
1.28 PROGRAM OFFICE IP. All Intellectual Property covering or relating to
the Program Office Technology.
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1.29 PROGRAM OFFICE PATENT. Any Patent issuing or applied for on a Program
Office Invention.
1.30 PROGRAM OFFICE PERSON. Any one or more of the following: (i) a TRW or
WI employee assigned to the Program Office created pursuant to Article 3
(Program Office); (ii) an employee of a TRW contractor providing services to the
Program Office; or (iii) a TRW employee or contractor providing services under
the Time and Materials Contract.
1.31 PROGRAM OFFICE SOFTWARE. All Software created by any Program Office
Person in the course of performing work for the Program Office, including
Derivative Works of TRW Spitfire Software so created.
1.32 PROGRAM OFFICE TECHNICAL INFORMATION. Technical Information developed
by any Program Office Person. in the course of performing work for the Program
Office.
1.33 PROGRAM OFFICE TECHNOLOGY. The Program Office Technical Information,
the Program Office Software, and the Program Office Inventions.
1.34 RESIDUAL INFORMATION. Information retained in non-tangible form (i.e.,
in a person's memory) by a person who rightfully had access to such information
and who did not make an effort to purposely retain such information in memory in
order to avoid the field of use restrictions otherwise applicable to the Sale of
products developed with the use of such information. "Residual Information" may
include, for example, data, know-how, ideas, concepts, inventions, methods,
processes and techniques.
1.35 RF. Radio Frequency (wireless).
1.36 SALE, SELL, SOLD. The sale, licensing, distribution, rental or other
disposition of a product, directly to end users, or indirectly though any sales
representative, sales agent, reseller or remarketer of a product or service, at
any tier, including to OEMs, VARs, system integrators and distributors and other
third party sales channels employed from time to time.
1.37 SERIES F PREFERRED STOCK PURCHASE AGREEMENT. The agreement bearing
such title, by and between WI and TRW, and signed concurrently with this
Agreement.
1.38 SOFTWARE. Computer programming in any form, including microcode,
firmware, object code, source code and documentation therefor.
1.39 SPITFIRE. The TRW Systems & Information Technology Group's
point-to-multipoint wireless communications system in existence on the Effective
Date that is designed to provide bi-directional transmission of high speed data
and that allows multiple service offerings, including voice, video and data, and
the components that comprise such system; and the future versions of such system
and components developed from time to time by TRW and/or WI or any of their
contractors or licensees.
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1.40 SPITFIRE INVENTION. An invention that: (i) on the Effective Date, is a
subject of a Spitfire Patent; or (ii) is selected by WI pursuant to Section 9.1
(WI May Patent Spitfire Inventions).
1.41 SPITFIRE IP. All Intellectual Property covering or relating to the
Spitfire Technology.
1.42 SPITFIRE PATENT. A Patent (including a pending patent application)
listed on Schedule 2 (Spitfire Patents)).
1.43 SPITFIRE PRODUCT. The most recent version of each product, subsystem
or component, in existence on the Effective Date, that incorporates any TRW
Spitfire Technical Information, any TRW Spitfire Software or any invention
described in a Spitfire Patent.
1.44 SPITFIRE TECHNOLOGY. The TRW Spitfire Technical Information, the TRW
Spitfire Software and all other technology in existence on the Effective Date
that is embodied in any Spitfire Product. Notwithstanding the foregoing,
"Spitfire Technology" excludes the inventions described in the Spitfire Patents.
1.45 STOCK. The shares of common stock of WI issued to TRW in exchange for
the rights granted to WI under this Agreement.
1.46 TEAMING AGREEMENT. The agreement attached as Schedule 7 (Teaming
Agreement).
1.47 TECHNICAL INFORMATION. Proprietary information, data and confidential
know-how, including methods, processes, algorithms, databases, formulae,
devices, specifications and drawings pertaining to the design or manufacture of
a Spitfire product, including any mask works developed in connection therewith.
1.48 TIME AND MATERIALS CONTRACT. Any contract awarded by WI to TRW for
continued development of the Spitfire products, including the Letter Contract
signed concurrently herewith.
1.49 TRW FUTURE IMPROVEMENT. Any Patent issued or issuing to TRW (or to a
TRW Affiliate if TRW is entitled to license such Patent without payment of a
royalty to such Affiliate) on a patent application entitled to an effective
filing date on or after the Effective Date and prior to the fifth anniversary of
the Effective Date, to the extent a claim under any such Patent covers an
invention that improves: (i) any Spitfire Technology; (ii) any invention that is
the subject of a Spitfire Patent; (iii) any WI Future Improvement; or (iv) any
TRW Future Improvement; and all TRW Spitfire Technical Information or TRW
Software that constitutes an improvement to any Spitfire Technology, to any
invention that is the subject of a Spitfire Patent, to any WI Future
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Improvement or to any TRW Future Improvement. Notwithstanding the foregoing,
"TRW Future Improvement" excludes the Program Office Technology.
1.50 TRW SPITFIRE SOFTWARE. All Software that is incorporated into any
Spitfire Product, listed on Schedule 1 (Spitfire Technical Information and
Software) or on Schedule 9 (Additional Spitfire Technical Information and
Software), or provided by TRW to WI in any form, or that constitutes or is
incorporated into any TRW Future Improvement. Notwithstanding the foregoing,
"TRW Software" excludes all Program Office Software and all Software that is
either an off-the-shelf commercial product (such
as Microsoft Word) or is identified by TRW as a third party product at the time
it provides such Software to WI.
1.51 TRW SPITFIRE TECHNICAL INFORMATION. The Technical Information of TRW
(or of a TRW Affiliate if TRW is entitled to license such information without
payment of a royalty to such Affiliate) pertaining to any Spitfire Product; all
information, provided in any form to WI by TRW relating to any Spitfire product;
the information, documents and other items listed in Schedule 1 (Spitfire
Technical Information and Software), and the information, documents and other
items listed in Schedule 9 (Additional Spitfire Technical Information and
Software). Notwithstanding the foregoing, "TRW Technical Information" excludes
the Spitfire Patents, the TRW Spitfire Software, and all Program Office
Technical Information.
1.52 WI FUTURE IMPROVEMENT. Any Patent issued or issuing to WI (or to a WI
Affiliate if WI is entitled to license such Patent without payment of a royalty
to such Affiliate) on a patent application entitled to an effective filing date
on or after the Effective Date and prior to the fifth anniversary of the
Effective Date, to the extent a claim under any such Patent covers an invention
that improves; (i) any Spitfire Technology; (ii) any invention that is the
subject of a Spitfire Patent; (iii) any WI Future Improvement; or (iv) any TRW
Future Improvement; and all WI Technical Information and WI Software that
constitutes an improvement to any Spitfire Technology, to any invention that is
the subject of a Spitfire Patent, to any WI Future Improvement or to any TRW
Future Improvement. Notwithstanding the foregoing, "WI Future Improvement"
excludes the Program Office Technology.
1.53 WI SOFTWARE. All Software that constitutes or is incorporated into any
WI Future Improvement. Notwithstanding the foregoing, "WI Software" excludes all
Program Office Software.
1.54 WIRELESS COMMUNICATIONS. The transmission/reception of radio frequency
(RF) signals propagating through the atmosphere and not by way of wires, cables
or other such physical interconnection means.
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ARTICLE 2. PATENT ASSIGNMENT, LICENSES, NONCOMPETITION
AND COVENANT NOT TO SUE
2.1 ASSIGNMENT OF INTEREST IN SPITFIRE INVENTIONS
2.1.1 ASSIGNMENT. Except for Spitfire Inventions included within the
documentation listed on Schedule 9 (Additional Spitfire Technical Information
and Software), TRW hereby sells and assigns to WI, without further compensation,
*. With respect to inventions included within the documentation listed on
Schedule 9 (Additional Spitfire Technical Information and Software), *. Neither
party will have an obligation of accounting with respect to any such inventions.
2.1.2 LIMITED USE BY WI. WI agrees that unless otherwise agreed by TRW in
writing, Licensed Products may be Sold by WI for use only in the Outdoor Field
and not for use in either the Indoor Field or the Government Field.
Notwithstanding the foregoing, WI may sell such Licensed Products to TRW and its
Affiliates for use in the Indoor Field, and for Sale by TRW and its Affiliates
(with or without modification) for use in the Indoor Field and/or the Government
Field.
2.1.3 LIMITED USE BY TRW. TRW agrees that unless otherwise agreed by WI in
writing, products containing any Spitfire Invention may not be Sold by TRW for
use in the Outdoor Field, except in the Government Field.
2.1.4 LICENSING AND TRANSFER OF SPITFIRE PATENTS. Each party agrees that
except as permitted in Section 19.3 (Assignments), it will not grant a license
under any issued United States Spitfire Patent, or transfer its interest in any
such Patent, without first obtaining the other party's written consent, which
will not be unreasonably withheld or delayed. The preceding undertaking does not
apply, however, to the licensing by TRW of rights to Spitfire Patents to TRW
Affiliates, but only as such rights pertain to the Indoor Field or the
Government Field.
2.2 PROGRAM OFFICE IP AND TECHNOLOGY
2.2.1 *
2.2.2 LIMITED USE BY WI. WI agrees that unless otherwise agreed by TRW in
writing, products containing any Program Office IP or Program Office Technology
may be Sold by WI for use only in the Outdoor Field and not in either the Indoor
Field or the Government Field. Notwithstanding the foregoing, WI may sell such
products to TRW and its Affiliates for use in the Indoor Field, and for Sale by
TRW and its Affiliates (with or without modification) for use in the Indoor
Field and/or the Government Field.
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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2.2.3 LIMITED USE BY TRW. TRW agrees that unless otherwise agreed by WI in
writing, products containing any Program Office IP or Program Office Technology
may be Sold by TRW only for use in the Government Field.
2.2.4 LICENSING AND TRANSFER OF PROGRAM OFFICE PATENTS. Each party agrees
that except as permitted in Section 19.3 (Assignments), it will not grant a
license under any issued United States Program Office Patent, or transfer its
interest in any such Patent, without first obtaining the other party's written
consent, which will not be unreasonably withheld or delayed.
2.3 LICENSE TO WI
TRW hereby grants to WI a fully paid up, perpetual, royalty free, worldwide
right and license under the Spitfire IP and each TRW Future Improvement to
reproduce, modify and prepare Derivative Works of TRW Spitfire Software, and to
make, have made, manufacture, import, use and Sell products, and to authorize
others to do some or all of the foregoing (except as set forth in Section 2.8
(Sublicenses)) consistent with the licenses granted to WI herein; provided that
unless otherwise agreed by TRW in writing, such products may be Sold for use
only in the Outdoor Field and not in either the Indoor Field or in the
Government Field. Notwithstanding the foregoing: (i) the license granted herein
to WI is applicable for Spitfire IP included in the documentation listed on
Schedule 9 (Additional Spitfire Technical Information and Software) only if and
to the extent TRW has the right to grant licenses thereto, and (ii)WI may Sell
Licensed Products to TRW and its Affiliates for use in the Indoor Field, and for
Sale by TRW and its Affiliates (with or without modification) for use in the
Government Field. The license granted herein to WI does not extend to, nor does
it grant any rights to, any TRW manufacturing processes relating to, or TRW
products that are compound semiconductors or integrated circuits.
2.4 EXCLUSIVITY, CONVERSION TO NON-EXCLUSIVE LICENSE
The license to WI set forth in Section 2.3 (License to WI) will be
exclusive (even as to TRW) to the extent, but only to the extent, it permits the
manufacture, use, importation or Sale of Excluded Products; provided such
license will become non-exclusive if, within eighteen (18) months of the
Effective Date, WI has not offered for Sale a commercial (non-beta) version of
any Licensed Product or product containing a Spitfire Invention, and such
failure is not due to the fault or negligence of TRW or to any cause that under
Section 12.2 (Excusable Delay) would constitute an excuse for non-performance of
an obligation under this Agreement. This provision does not prohibit TRW from
making, having made, importing, using or Selling Excluded Products for use in
the Government Field, or from reselling * WI Spitfire products purchased under
a Purchase Agreement to be negotiated.
2.5 LICENSE TO TRW
WI hereby grants to TRW a fully paid up, perpetual, royalty free,
non-exclusive, worldwide right and license under each WI Future Improvement to
reproduce, modify and prepare Derivative Works of WI Software, to make, have
made, manufacture,
[*] CERTAIN INFORMATION OF THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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import, use and Sell products for use in the Government Field, and to authorize
others to do some or all of the foregoing (except as set forth in Section 2.8
(Sublicenses)) consistent with the licenses granted to TRW herein, provided such
products may be Sold only for use in the Government Field.
2.6 RESIDUALS LICENSE
Notwithstanding any other provision of this Agreement, except as provided
in this Section 2.6 (Residuals License), Residual Information retained in human
memory by an employee or contractor of a party may be used by that person (e.g.,
on behalf of an employer) for any purpose and without restriction, and products
containing or developed using such Residual Information may be Sold for use in
any field of use. This Section 2.6 (Residuals License) does not grant either
party a license under any issued Patent.
2.7 NONCOMPETITION
During the time that WI's license under Section 2.3 (License to WI) remains
exclusive under Section 2.4 (Exclusivity, Conversion to Non-Exclusive License),
TRW agrees that it will not make, have made, import, use or Sell, nor license
any third party to make, have made, import, use or Sell, any Excluded Product,
other than for use in the Government Field. This provision does not prohibit TRW
from reselling * WI Spitfire products purchased under a Purchase
Agreement to be negotiated.
2.8 SUBLICENSES
2.8.1 SUBLICENSING BY WI. The right and license granted under Section 2.3
(License to WI) do not confer the right, and WI will have no right, to
sublicense any third party: (i) under any United States Patent issued to TRW on
an invention that is a TRW Future Improvement, unless otherwise agreed by TRW in
writing, or (ii) under any of the licenses granted herein unless such sublicense
is consistent with the rights granted herein.
2.8.2 NOTICE BY WI. If WI licenses any third party under any Spitfire IP or
any TRW Future Improvement to manufacture and sell products, WI will, within
sixty (60) days of the execution of the sublicense agreement, inform TRW in
writing of the name and address of the sublicensee.
2.8.3 SUBLICENSING BY TRW. The right and license granted under Section 2.5
(License to TRW) do not confer the right, and TRW will have no right, to
sublicense any third party: (i) under any United States Patent issued to TRW on
an invention that is a WI Future Improvement, unless otherwise agreed by WI in
writing, or (ii) under any of the licenses granted herein unless such sublicense
is consistent with the rights granted herein.
2.8.4 NOTICE BY TRW. If TRW licenses any third party under any WI Future
Improvement or Spitfire Patent to manufacture and sell products, TRW will,
within
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
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sixty (60) days of the execution of the sublicense agreement, inform WI
in writing of the name and address of the sublicensee.
2.9 DUTY OF DISCLOSURE
In addition to any other obligation under this Agreement, each party
agrees, during the first five (5) years after the Effective Date and subject to
the provisions of the Mutual Confidentiality Agreement attached as Schedule 5,
to disclose to the other party any WI Future Improvement or TRW Future
Improvement (as applicable); provided that this duty of disclosure will apply
only if and to the extent necessary to answer specific technical questions
submitted by the other party.
2.10 COVENANT NOT TO SUE
TRW covenants and agrees not to bring or assert any claim suit or action:
(i) against WI, its customers, licensees or sublicensees (at any tier), or its
or any of their officers, employees, agents, contractors, successors or assigns,
alleging that the manufacturing of any Licensed Product or product containing a
Spitfire Invention, the use of any such product in the Outdoor Field, or the
Sale of any such product for use in the Outdoor Field, infringes any Patent on
which TRW has the right to file suit; or (ii) against WI or any of its officers,
employees, agents, contractors, successors or assigns, alleging that the Sale of
any such product infringes any Patent on which TRW has the right to file suit,
if such Sale would not constitute a breach of this Agreement under the
provisions of Section 14.2 (Use Outside WI's Appropriate Field: When Not a
Breach). Notwithstanding the foregoing, this covenant not to sue will not apply
to any Patent, not owned by TRW, if as a result of TRW's failure to file suit
TRW would incur a financial obligation to a third party.
ARTICLE 3. PROGRAM OFFICE
3.1 ESTABLISHMENT AND TERM OF PROGRAM OFFICE
TRW will, at WI's request, establish a Program Office to continue
development of Spitfire products. This office will exist so long as WI deems the
office to be useful, but in no event longer than eighteen months unless
otherwise agreed by the parties.
3.2 STAFFING AND MANAGEMENT OF PROGRAM OFFICE
WI will have sole responsibility for managing the Program Office. TRW will,
at WI's request from time to time, promptly provide staff for the Program Office
with the skill sets reasonably requested by WI. WI will also assign to the
Program Office such WI employees as WI in its sole discretion deems appropriate.
3.3 CORE TEAM, INCENTIVES
TRW will initially assign to the Program Office, on a full-time basis, the
Core Team (consisting of a Program Manager, and adequate staff to complete
development of the Spitfire products). TRW agrees to provide an appropriate
incentive compensation
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package to the Core Team to entice the Core Team to remain with the Program
Office throughout its existence, to complete the development of Spitfire
products, and to meet the development and other specifications, milestones and
budgets reasonably specified by WI.
3.4 FACILITIES, SUPPLIES, SERVICES
The Program Office will be located in mutually agreed facilities. TRW will
provide all supplies (e.g., desks and chairs, computers and software, printers,
copier, fax, test equipment, office supplies), infrastructure (e.g., computer
network and telephone lines with appropriate network access restrictions
consistent with TRW security policies and procedures) and services (e.g.,
maintenance, lighting, heat, security, phone service and internet access) needed
by the Program Office related to Spitfire product development requirements,
including those items needed by WI employees; except that WI will provide
computers for its own employees.
3.5 TERMS APPLICABLE TO PROGRAM OFFICE SERVICES
TRW will offer to provide services to WI under a Time and Materials
Contract to be negotiated and signed by the parties no later than February 15,
2000. The terms of that contract will be consistent with the terms set forth in
this Agreement.
3.6 CHARGES AND PAYMENTS
3.6.1 TRW will invoice WI for services rendered by TRW employees assigned
to the Program Office, and by TRW contractors providing services to the Program
Office, in accordance with the rates set forth in Schedule 8 (Time and Materials
Proposal). These rates will remain in effect for at least 12 months from the
Effective Date, except as set forth in Section 3.7 (Additional Overhead). For
the next six months, there rates may be increased by TRW, provided the increase
will not exceed 4%.
3.6.2 Except as set forth in Section 3.9 (Use of TRW Design Tools and
Equipment), and on Schedule 8 (Time and Materials Proposal), these rates include
all overhead, general and administrative expenses, charges for facilities, and
charges for use of equipment, and WI will have no other responsibility for any
costs, expenses or liabilities incurred by or in connection with the Program
Office.
3.6.3 All payments will be in United States dollars and will be made at the
offices of TRW or such other place as TRW may designate, within forty five (45)
days of WI's receipt of TRW's invoice.
3.7 ADDITIONAL OVERHEAD
If in any calendar quarter the average ratio of: (i) WI employees assigned
to the Program Office (excluding WI's Program Office manager and his or her
assistant) to (ii) non-WI employees assigned to that office exceeds 1:3, and the
parties expect that that ratio will be exceeded in any subsequent calendar
quarter, then the parties will renegotiate the overhead charges used in
calculating the hourly rates set forth in
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Schedule 8 (Time and Materials Proposal), and the new hourly rates will apply
to services rendered in any subsequent quarter in which such ratio is exceeded.
3.8 WARRANTY REGARDING WORK OF TRW EMPLOYEES AND CONTRACTORS
TRW will warrant that the work done by TRW employees and contractors
assigned to the Program Office or performing services in connection with the
Spitfire development will be performed in accordance with the TRW Code of
Conduct and the policies, practices and requirements set forth in TRW's Legal
and Ethical Compliance Program binder provided to WI prior to the Effective
Date.
3.9 USE OF TRW DESIGN TOOLS AND EQUIPMENT
3.9.1 While the Program Office is in operation, at WI's request from time
to time, TRW will make available to WI without charge, at TRW's facilities and
at mutually convenient times, Equipment used by the Program Office and useful to
WI in completing the development of the Spitfire Products (including
modifications to such products that WI deems necessary or appropriate).
3.9.2 TRW will permit WI reasonable access to its facilities such that WI
is able to use the Equipment. WI will use the Equipment only in connection with
the development of Spitfire products.
3.10
*
3.11 PAYMENTS BY TRW FOR SERVICES RENDERED BEFORE THE EFFECTIVE DATE
TRW will pay for all services rendered by or to TRW, and all assets ordered
by TRW, prior to the Effective Date in connection with the development of the
Spitfire Products. WI has no obligation to reimburse TRW for any such costs or
expenses, except to the extent specified in Section 6.2 (Cash).
3.12 PAYMENTS BY TRW * FIELD TRIALS
TRW will pay for all services rendered by or to TRW prior to and after the
Effective Date to meet TRW's obligation to conduct field trials of Spitfire
Products *, and for all products purchased or manufactured for use in
such field trials; provided, however, that if WI elects to participate in such
field trials other than at the request of TRW, TRW has no obligation to pay any
WI costs or expenses associated with participating in the* field trials.
WI has no obligation to reimburse TRW for any such costs or expenses.
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
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3.13 ASSISTANCE WITH DRAFTING IPO DOCUMENTS
Without charge to WI, at WI's request from time to time, TRW will assist WI
in drafting and reviewing the technical portions of the IPO offering documents
related to the Spitfire products. The assistance provided in this subsection
3.13 is limited to one person month, after which such assistance will be
provided at WI's expense.
ARTICLE 4. TERM AND TERMINATION
The Agreement commences as of the Effective Date and will remain in effect
for the life of the last to expire Patent licensed herein, except as provided in
Article 14 (Default and Termination).
ARTICLE 5. CAPITAL ASSETS, DELIVERY, TECHNICAL ASSISTANCE AND
OTHER SERVICES
5.1 CAPITAL ASSETS
5.1.1 On the Effective Date, TRW will deliver to WI the Bill of Sale and
title to the Capital Assets.
5.1.2 WI agrees, for nine (9) months from the Effective Date ("TRANSITION
PERIOD"), not to move the Capital Assets from their respective locations on the
Effective Date without TRW's consent. During the Transition Period, TRW will use
reasonable efforts to ensure that WI is given control of and access to such
assets, and at TRW's request from time to time, WI will use reasonable efforts
to make available to TRW without charge, at mutually convenient times, the
Capital Assets for use by TRW.
5.1.3 During the Transition Period: (i) TRW will permit WI reasonable
access to its facilities such that WI is able to use the Capital Assets then in
such facilities as and when needed, (ii) TRW will not charge WI any storage,
facilities or other fees in connection with the Capital Assets, and (iii) TRW
will maintain at its sole cost and expense the Capital Assets in good working
order, subject to normal wear and tear.
5.1.4 WI will have no liability to TRW or any third party for damage to
persons or property (including death of any person or any loss, destruction or
loss of use of any property) to the extent caused by any Capital Asset or any
use thereof during the Transition Period (unless caused by WI's negligence), and
TRW will indemnify and hold WI harmless from and against any and all claims,
costs, expenses (including reasonable attorneys' fees and costs of defense as
such fees and costs are incurred), damages, losses and liabilities arising
during the Transition Period from or in connection with any Capital Asset, or
arising from or in connection with the use of any Capital Asset during the
Transition Period.
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5.2 DELIVERY
On the Effective Date, TRW will deliver to WI the documents, software and
other items listed in Schedule 1 (Spitfire Technical Information and Software)
and on ). In addition, TRW will furnish to WI, as requested by WI from time to
time, copies of such documents and other materials as are reasonably necessary
or useful for WI to understand the design of the Spitfire Products, to be able
to modify the Spitfire Products as contemplated in the Flyspec, and to be able
to use the Capital Assets.
5.3 TECHNOLOGY TRANSFER
During the first twelve (12) months after the Effective Date, in addition
to the services provided pursuant to Article 3 (Program Office), TRW will
provide to WI, at WI's request from time to time, at mutually convenient times,
and without charge for the first 24 person-months of such services, technology
transfer and engineering advice and support services by TRW employees who are
not assigned to the Program Office but who have expertise needed in connection
with the development of Spitfire products. These services will include answering
questions concerning the Spitfire Technology, the Capital Assets, the Spitfire
Inventions and the documents, Software and other items delivered to WI pursuant
to this Agreement or the Time and Materials Agreement.
5.4 INTELLECTUAL PROPERTY
At WI's request from time to time, TRW will assist WI in analyzing and
responding to actual and potential claims that the manufacture, use, Sale,
importation, or reproduction of any Licensed Product or any portion thereof
infringes or misappropriates any intellectual property of a third party, or that
any Spitfire-related Patent, copyright or trade secret is invalid or
unenforceable, such assistance to be provided as follows: TRW will:
(i) conduct searches of TRW documents to identify prior art or to locate
other helpful information requested by WI, and release relevant documents to the
fullest extent permitted by applicable U.S. government security regulations;
(ii) assist WI in designing around any Patent; and
(iii) provide legal support and analysis related to items (i) and (ii)
above as requested by WI.
Such assistance will be provided without charge for the first 12 person-months
of services rendered under this Section 5.4 (Intellectual Property). Thereafter,
such assistance will be provided for a reasonable charge.
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ARTICLE 6. CONSIDERATION
6.1 SHARES
In consideration of the sale of the Capital Assets, all rights and licenses
conferred to WI hereunder and the technical assistance to be provided hereunder,
on the Effective Date, WI will issue to TRW 3,429,352 shares of WI's common
stock.
6.2 CASH
In consideration of the rights and licenses conferred to WI hereunder and
the technical assistance to be provided hereunder, within forty-five (45) days
after each Capitalization Event, WI will make a payment to TRW of ten percent
(10%) of the net proceeds to WI as a result of such Capitalization Event, until
a total of $2,500,000 has been paid to TRW. If all or any portion of the
$2,500,000 has not been paid by January 1, 2001, then the remainder of such sum
will be due on that date.
6.3 TAXES
Each party agrees to pay and promptly discharge when due all excise, sales,
use, transfer, stamp, registration or other similar taxes imposed or levied by
reason of or in connection with or attributable to payments made by it to the
other party under this Agreement, except for taxes based on the other party's
net income.
ARTICLE 7. USE AND PROTECTION OF CONFIDENTIAL INFORMATION
The provisions of Schedule 5 (Proprietary Information Exchange Agreement)
are incorporated in this Agreement.
ARTICLE 8.
*
ARTICLE 9. PATENTS
9.1 WI MAY PATENT SPITFIRE INVENTIONS
WI may seek to patent any invention included in the Spitfire Technology in
one or more countries selected by WI. If WI notifies TRW in writing that WI
elects to pursue United States patents on one or more such inventions, it will
specifically identify the particular inventions for which WI will seek such
protection. The inventions so identified will thereupon become "Spitfire
Inventions", without further compensation to
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
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TRW, and TRW will promptly execute and cause to be executed any documents
required * . Notwithstanding the foregoing, the right to pursue United States
patents for the documentation listed on Schedule 9 (Additional Spitfire
Technical Information and Software) is applicable only if and to the extent that
TRW has the right to grant that right, * in inventions included in such
documentation is applicable only to the extent (if any) that TRW has an interest
in such inventions.
9.2 WI AND TRW MAY PATENT PROGRAM OFFICE INVENTIONS
9.2.1 COOPERATION REGARDING FILING. The Parties agree to cooperate
reasonably concerning decisions as to whether and in which countries patent
applications should be filed to protect Program Office Inventions.
9.2.2 DISAGREEMENT REGARDING WHETHER TO FILE A PATENT APPLICATION IN A
PARTICULAR COUNTRY OR WITH A PARTICULAR ORGANIZATION.
9.2.2.1 In the event that the parties do not agree on a decision
concerning the filing of patent applications to protect a Program Office
Invention, a party desiring to file a U.S. or foreign patent application to
protect such invention will have the right to make such application(s); however,
such party will bear all costs for preparing and prosecuting such application,
issuing any Patents, and maintaining such Patents. The other party will
cooperate reasonably with the preparation, execution, filing or prosecution of
such applications or the enforcement or defense of any such Patents, but will
have no obligation to incur any costs for any such actions. The filing party
grants to the other party a worldwide, non-exclusive, royalty-free, fully paid
up, perpetual right and license, without the right to grant sublicenses, under
any Patent issuing which was filed to protect such Program Office Invention, to
make, have made, manufacture, import, use and Sell products covered by such
Program Office Invention, the license being limited: (i) if to WI, to the
Outdoor Field; or, (ii) if to TRW, to the Government Field.
9.2.2.2 In the case where one party files an application on a Program
Office Invention, Confidential Information of a non-filing party will not be
used in such application without the prior written consent of the non-filing
party whose Confidential Information is to be used. The filing party will permit
the non-filing party to review and edit any application prior to its execution
and filing. If the non-filing party will not consent to use of its Confidential
Information that the filing party deems necessary to provide an adequate
application, an application will not be filed to protect such Program Office
Invention.
9.2.3 AGREEMENT REGARDING WHETHER TO FILE A PATENT APPLICATION IN A
PARTICULAR COUNTRY OR WITH A PARTICULAR ORGANIZATION. In the event that the
parties agree that U.S. and/or foreign patent applications will be filed on a
Program Office Invention, WI will be primarily responsible as further detailed
herein for preparing, filing and prosecuting such applications and for issuing
and maintaining any Patents based upon such applications. The applications will
be filed in the names of both parties or will be filed
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
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in the names of the actual inventors * Program Office Patent(s), except that
products covered by any such Program Office Patent(s) may be Sold by WI only for
use in the Outdoor Field and not in either the Indoor Field or in the Government
Field, and products covered by any such Program Office Patent(s) may be Sold by
TRW only for use in the Government Field. The provisions of Section 2.2.4
(Licensing and Transfer of Program Office Patents) concerning sublicenses will
be applicable to any such Program Office Patent(s).
9.3 PREPARATION AND PROSECUTION OF PATENT APPLICATIONS
9.3.1 COOPERATION. TRW agrees to communicate to WI or its representatives
any information known to TRW or its employees or contractors respecting the
Spitfire Inventions and Program Office Inventions.
9.3.2 EXECUTION OF DOCUMENTS. TRW and WI, as appropriate, will execute all
assignments, sign all lawful papers, execute all divisional, continuing, and
reissue applications, make all rightful oaths, and request any official whose
duty it is to issue patents to issue any Patent on the Spitfire Inventions or
Program Office Inventions to TRW and WI, all as reasonably requested by WI or
TRW, as the case may be, from time to time. TRW and WI both agree to require
their respective employees and contractors (and to the fullest extent possible,
their former employees and contractors) who are inventors of any Spitfire
Invention or Program Office Invention to perform all of the foregoing
obligations of TRW and WI, as the case may be.
9.3.3 AGREEMENT TO PROSECUTE. For so long as both parties agree to file, or
to continue prosecution of, a patent application in a particular country:
9.3.3.1 DRAFTING. WI will be primarily responsible for drafting the
patent applications for Spitfire Inventions and Program Office Inventions.
9.3.3.2 TRW REVIEW AND ADDITIONAL CLAIMS. WI will provide drafts of
the patent applications to TRW for review at least twenty (20) days prior to the
filing of the applications. TRW may provide claims and/or other information to
be included in such applications that TRW wants to be pursued. WI will insert
such claims and other information into the application, provided the inventors
agree that such claims and other information accurately reflect the invention,
the proposed claims are received at least ten (10) days before the proposed
filing date for the patent application, and WI does not have good reason for
rejecting the proposed claim. At WI's option, TRW will be responsible for
prosecution of claims that TRW provides.
9.3.3.3 CORRESPONDENCE, ARGUMENTS AND AMENDMENTS. WI will promptly,
within seven (7) days of receipt, provide to TRW copies of all correspondence
between the United States Patent and Trademark Office (and international offices
and associates, if any) and WI concerning such applications. Copies of
correspondence by WI will be provided in advance to TRW in a timely manner to
enable TRW to review and comment
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
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on such correspondence. TRW will supply any arguments or amendments of claims
and/or other information to WI for presentation to the United States Patent and
Trademark Office (and international offices, if any). WI will not be required to
delay any response beyond normal periods for response set forth in any official
action while waiting for TRW's submissions. TRW will be responsible for all fees
for addition of claims, fees for extension of time, and other fees charged by
the United States Patent and Trademark Office (and international offices, if
any) required solely for prosecution of TRW's claims.
9.3.3.4 FEE SHARING. The parties will each bear one-half of the fees,
costs and expenses (including WI's attorneys', agents' and consultants' fees,
translation expenses, costs of filing and examination, costs of searches, and
other statutory or official fees and costs) incurred by WI in connection with
Spitfire Patents and Program Office Patents. TRW will promptly reimburse WI
one-half of all such fees, costs and expenses, and will at WI's request directly
pay one-half of the invoices rendered by attorneys, agents and consultants in
connection with the Spitfire Patents and Program Office Patents.
9.3.3.5 MAINTENANCE. The parties will equally share all maintenance
and similar fees imposed by any authority *. WI may invoice TRW for such fees
quarterly in advance, and TRW will promptly pay such invoices. WI will then
promptly pay any such maintenance and similar fees to the appropriate authority.
9.4 CONTINUED PATENTING EXPENSES
No party is obligated to incur any costs for maintaining any Program Office
Patent. If a party decides that it no longer desires to continue to prosecute,
obtain or maintain a Patent in a particular country, then it will assign its
ownership rights to the Patent in that country to the other party, but will
retain a worldwide, non-exclusive, royalty-free, fully paid up, perpetual right
and license, without the right to grant sublicenses, under any Patent issuing to
make, have made, manufacture, import, use and Sell products covered by such
Spitfire Invention or Program Office Invention, as the case may be, the license
being limited: (i) if to WI, to the Outdoor Field; or, (ii) if to TRW, in the
Government Field Once a party surrenders its ownership interest to a particular
patent application, it will no longer be entitled to review or comment upon
office actions or proposed responses thereto, nor will it be entitled to receive
notice of such office actions received, and the other party shall have complete
authority and control to prosecute the patent application.
9.5 ENFORCEMENT
No party is obligated to incur any costs for policing any Program Office
Patent or Spitfire Patent, or for enforcing any Program Office Patent or
Spitfire Patent against any third party for infringement. Either party may seek
to enforce a Spitfire Patent or Program Office Patent to which it retains an
ownership interest, and the other party will
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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fully cooperate with such efforts. All expenses of such enforcement efforts will
be borne by the party seeking such enforcement.
9.6 ACCESS TO EMPLOYEES - BEFORE SUBMISSION OF APPLICATION
Each party agrees to use all reasonable efforts to provide access to its
employees and contractors who are inventors of the Spitfire Inventions and
Program Office Inventions in connection with the drafting and review of
applications for Patents, and to make such employees and contractors available
to the drafting party at mutually agreeable times during normal business hours.
Each party will bear one-half the cost of such services, provided that WI may
elect to pay its portion by reducing the balance of free hours remaining (if
any) under Section 5.3 (Technology Transfer).
9.7 ACCESS TO EMPLOYEES - AFTER SUBMISSION OF APPLICATION
With respect to each application for a Spitfire Patent or Program Office
Patent, and with respect to each such issued Spitfire Patent and Program Office
Patent, each party agree to use all reasonable efforts to make its employees and
contractors who are inventors of the Spitfire Inventions and Program Office
Inventions available, at mutually convenient times, to testify in any legal
proceedings, and generally to aid the other party and its permitted assigns to
obtain and enforce Spitfire Patents and Program Office Patents in all countries
selected. Each party will bill the other party for such services at one-half the
normal billing rates for such employees and contractors.
9.8 COPYRIGHT AND MASK WORK RIGHT FILINGS
The parties agree to cooperate reasonably concerning decisions as to
whether and in which countries applications should be filed to protect any
copyrightable works or mask works for Program Office Technical Information or
for any Derivative Works of Spitfire Technology. *
ARTICLE 10. REPRESENTATIONS AND WARRANTIES
10.1 TRW'S WARRANTIES
Subject to the exceptions set forth on Schedule 4 (Exceptions to TRW's
Representations and Warranties), TRW represents and warrants as follows:
(i) The Spitfire Technology listed on Schedule 1 (Spitfire Technical
Information and Software), the Spitfire IP related to the Spitfire Technology
listed on Schedule 1 (Spitfire Technical Information and Software) and the
Spitfire Inventions are the sole property of TRW.
(ii) *
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
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(iii) *
(iv) None of the representations or warranties made by TRW herein
contains any untrue statement of a material fact, or intentionally omits to
state any material fact necessary in order to make the statements contained
herein or therein not misleading as of the Effective Date.
(v) To the best of TRW's knowledge: (a) no claim by any third party
involving potential infringement of any third party's Intellectual Property has
been made to or against TRW with respect to any Spitfire Technology, Spitfire IP
or Spitfire Invention; (b) no proceedings have been instituted or threatened,
and no notice has been given to TRW, alleging any such infringement or
violation; and (c) TRW has received no offer of a patent license with respect to
any such product, technology or IP.
(vi) Except with respect to any rights that may have been granted to the
United States Government as a result of contractual activities performed by TRW,
TRW has not previously granted any rights or licenses to any third party with
respect to any Spitfire Technology, Spitfire IP or Spitfire Invention.
(vii) TRW is not a party to any agreement pursuant to which the grant or
the exercise of any of the rights and licenses granted herein requires any
payment by TRW, or by WI or any of its customers at any tier, of any royalty or
other payment. There are no existing agreements, options, commitments,
entitlements or rights of or to any person to obtain from TRW, directly or
indirectly, any rights, obligations, grants or licenses inconsistent with the
licenses and rights granted to WI under this Agreement.
(viii) To the best of its knowledge, TRW employees and contractors
performing services in connection with the Spitfire development project prior to
the Effective Date complied with the TRW Code of Conduct and the policies,
practices and requirements set forth in TRW's Legal and Ethical Compliance
Program binder provided to WI prior to the Effective Date.
(ix) The execution, delivery and performance of this Agreement do not and
will not violate, conflict with or result in the breach of any term, condition
or provision of TRW's articles of incorporation or bylaws (or their equivalent)
nor a breach or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or to loss of a material benefit under any term, condition or
provision of any contract, agreement, license, document, commitment, undertaking
or understanding between TRW and any other person or entity.
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
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(x) TRW has the requisite corporate and other power, authority and legal
right to execute and deliver this Agreement and to perform each and every of
TRW's obligations hereunder and to consummate the transactions contemplated by
this Agreement. The execution, delivery and performance of this Agreement has
been duly authorized by all necessary corporate action. This Agreement has been
duly executed and delivered by TRW and constitutes the valid and binding
obligation of TRW.
(xi) TRW acknowledges that it has had an opportunity to discuss the
business, affairs and current prospects of WI with its officers. TRW further
acknowledges having had access to information about WI that it has requested.
TRW acknowledges that it is able to fend for itself in the transactions
contemplated by this Agreement and has the ability to bear the economic risks of
its investment pursuant to this Agreement, and is an "accredited investor" as
defined in Rule 501(a) under the Securities Act. TRW is fully competent to
evaluate the market, management, business and prospects of WI and to evaluate
the value of the Stock and the substantial risks inherent in purchasing and
owning such Stock.
(xii) TRW represents and warrants that the Stock will be acquired for its
own account, not as a nominee or agent, and not with a view to or in connection
with the sale or distribution of any part thereof.
(xiii) TRW understands that the Stock being purchased hereunder will not
be registered under the Act, on the ground that the sale provided for in this
Agreement is exempt from registration under the Act, and that the reliance of WI
on such exemption is predicated in part on TRW's representations set forth in
this Agreement. TRW understands that the Stock being purchased hereunder
constitutes restricted securities within the meaning of Rule 144 under the Act;
that the Stock is not registered and must be held indefinitely unless it is
subsequently registered or an exemption from such registration is available.
(xiv) It is understood that each certificate representing the Stock being
purchased hereunder and any other securities issued in respect of the any of the
foregoing upon any stock split, stock dividend, recapitalization, merger or
similar event will be stamped or otherwise imprinted with a legend substantially
in the following form: THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER
THE SECURITIES LAWS OF ANY STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS
ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS
PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE
REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD
OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN
FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY
PROPOSED
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TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE
STATE SECURITIES LAWS.
The legend set forth above will be removed by WI from any certificate
evidencing Stock upon delivery to WI of an opinion by counsel, reasonably
satisfactory to WI, that a registration statement under the Act is at that time
in effect with respect to the legended security or that such security can be
freely transferred in a public sale without such a registration statement being
in effect and that such transfer will not jeopardize the exemption or exemptions
from registration pursuant to which the WI issued the Stock.
(xv) The patent applications listed on Schedule 2 (Spitfire Patents) are
the only patent applications filed by TRW that protect inventions made by TRW
employees and/or contractors in the course of working on, and that cover the
Spitfire Product and/or the Spitfire Technology.
(xvi) TRW has good and marketable title to the Purchased Assets, owns the
Purchased Asset free and clear of all claims, liens, security interests,
restrictions or other encumbrances, and has the right to transfer title to the
Purchased Assets to WI. On the Effective Date, TRW will sell and transfer the
Purchased Assets to WI and deliver to WI a Bill of Sale, in the form of Exhibit
3 (Bill of Sale). Upon receipt by WI of the bill of sale therefor, WI will
acquire complete right, title and ownership in and to the Purchased Asset, free
and clear of any liens, encumbrances, claims, restrictions or reversionary
rights.
(xvii) As of the Effective Date, except with respect to any rights that may
have been granted to the United States Government as a result of contractual
activities performed by TRW, TRW has not granted a license, or sold or otherwise
transferred, to any third party, any item listed on Schedule 9 (Additional
Spitfire Technical Information and Software), or rights to any invention,
information or software described therein.
(xviii) The items listed on Schedule 9 (Additional Spitfire Technical
Information and Software) have not, since the receipt thereof by TRW from L3,
been modified by a third party in such a manner that such third party has
obtained any ownership interest in, or license to, any such item or any
invention, information or software described therein.
10.2 WI'S WARRANTIES
Subject to the exceptions set forth on Schedule 6 (Exceptions to WI's
Representations and Warranties), WI represents and warrants as follows:
(i) The execution, delivery and performance of this Agreement do not and
will not violate, conflict with or result in the breach of any term, condition
or provision of WI's articles of incorporation or bylaws (or their equivalent)
nor a breach or default
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(with or without notice or lapse of time, or both) under, or give rise to a
right of termination, cancellation or acceleration of any obligation or to loss
of a material benefit under any term, condition or provision of any contract,
agreement, license, document, commitment, undertaking or understanding between
WI and any other person or entity.
(ii) WI has the requisite corporate and other power, authority and legal
right to execute and deliver this Agreement and to perform each and every of
WI's obligations hereunder and to consummate the transactions contemplated by
this Agreement. The execution, delivery and performance of this Agreement has
been duly authorized by all necessary corporate action. This Agreement has been
duly executed and delivered by WI and constitutes the valid and binding
obligation of WI.
(iii) Except as set forth on a Schedule of Exceptions attached as Schedule
A to the Series F Preferred Stock Purchase Agreement, which exceptions shall be
deemed to be representations and warranties as if made hereunder:
(a) Organization: Good Standing; Qualification. WI is a corporation
duly organized, validly existing, and in good standing under the laws of the
State of California, and has all requisite corporate power and authority to
carry on its business as now conducted. WI is duly qualified to transact
business and is in good standing in each jurisdiction in which the failure to so
qualify would have a material adverse effect on its business, results of
operation or financial condition.
(b) Subsidiaries. WI does not presently own or control, directly or
indirectly, any interest in any other corporation, association, or other
business entity. WI is not a participant, directly or indirectly, in any joint
venture, partnership, or similar arrangement.
(c) Shareholders, Warrant Holders, and Option Holders List. Section
2.3 of the Schedule of Exceptions contains a list of each of WI's shareholders,
warrant holders, and option holders, who individually hold at least 5,000 shares
of the Common Stock (either directly or on an as converted basis) and holders of
subscription or other rights (contingent or other) to purchase or otherwise
acquire from WI or any other person or entity any equity securities of WI and
the number of such shares, warrants, options, subscriptions or other rights held
by them.
(d) Authorization. All corporate action on the part of WI, its
officers, directors, and shareholders necessary for the authorization, execution
and delivery of this Agreement, the performance of all obligations of WI
hereunder and the authorization, issuance (or reservation for issuance), sale,
and delivery of the Common Stock issuable hereunder has been taken or will be
taken prior to the Closing, and this Agreement constitutes the valid and legally
binding obligation of WI, enforceable in accordance with its terms, except (i)
as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and
other laws of general application affecting
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enforcement of creditors' rights generally and (ii) as limited by laws relating
to the availability of specific performance, injunctive relief, or other
equitable remedies.
(e) Valid Issuance of Common Stock. The Common Stock to be delivered
hereunder, when issued and delivered in accordance with the terms hereof for the
consideration expressed herein, will be duly and validly issued, fully paid, and
nonassessable, will be free of restrictions on transfer other than restrictions
on transfer under this Agreement and TRW' Rights Agreement and under applicable
state and federal securities laws, and, assuming the accuracy of the
representations of TRW in this Agreement, will be issued in compliance with
applicable state and federal securities laws. All preemptive or similar rights
arising from WI's execution and performance of this Agreement have been waived.
(f) Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration, or
filing with, any local, state, or federal governmental authority is required on
the part of WI in connection with the consummation of the transactions
contemplated by this Agreement.
(g) Capitalization and Voting Rights. The Immediately prior to the
Closing, the authorized capital of WI or will consist of:
(i) Preferred Stock. 25,000,000 authorized shares of Preferred
Stock issuable in series (the "Preferred Stock"), of which (i) 4,300,000 shares
have been designated Series A Preferred Stock, all of which are issued and
outstanding, (ii) 750,000 shares have been designated Series B Preferred Stock,
all of which are outstanding (iii) 2,400,000 shares have been designated Series
C Preferred Stock, of which 2,081,402 are outstanding, (iv) 6,600,000 shares
have been designated Series D Preferred Stock of which 6,541,013 are
outstanding, (v) 4,000,000 shares have been designated Series E Preferred Stock,
of which (A) 3,600,000 are outstanding and (B) 360,000 are issuable upon the
conversion of securities convertible thereinto, (vi) 400,000 shares of Series
E-1 Preferred Stock, of which none are outstanding and (vii) 3,000,000 shares
have been designated Series F Preferred Stock all of which shares may be issued
pursuant to this Agreement. The rights, privileges and preferences of the Series
F Preferred Stock will be on parity with those of the Series A Preferred Stock,
the Series B Preferred Stock and, the Series C Preferred Stock, the Series D
Preferred Stock, the Series E Preferred Stock and the Series E-1 Preferred Stock
as set forth in WI's Amended and Restated Articles of Incorporation, the
Certificate of Determination of Preferences and Rights of Series D Preferred
Stock (the "Series D Certificate of Determination"), the Certificate of
Determination of Preferences and Rights of Series E Preferred Stock (the "Series
E Certificate of Determination") and the Certificate of Determination of
Preferences and Rights of Series F Preferred Stock (the "Certificate of
Determination, collectively, unless the context dictates otherwise, the
"Articles"), respectively.
(ii) Common Stock. 50,000,000 shares of Common Stock ("Common
Stock"), of which 5,712,854 shares are issued and outstanding (including shares
issued upon the exercise of Options described below). WI has reserved up to (i)
4,300,000 shares of Common Stock issuable upon conversion of the Series A
Preferred
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Stock, (ii) 750,000 shares of Common Stock issuable upon conversion of
the Series B Preferred Stock, (iii) 2,146,867 shares of Common Stock issuable
upon conversion of the Series C Preferred Stock, (iv) 6,600,000 shares of Common
Stock issuable upon conversion of the Series D Preferred Stock, (v) 4,000,000
shares of Common Stock issuable upon conversion of the Series E Preferred Stock
and (vi) 400,000 shares of Common Stock issuable upon conversion of the Series
E-1 Preferred Stock. As of the Closing, WI will have reserved 3,000,000 shares
of Common Stock issuable upon conversion of the Series F Preferred Stock.
(iii) Except as set forth in the Schedule of Exceptions and as
provided in TRW' Rights Agreement, and the Fifth Amended and Restated Investors'
Rights Agreement, dated September 30, 1999 between WI and the shareholders
listed as signatories thereto ("Former Investors' Rights Agreement"), there are
no outstanding options, warrants, rights (including conversion or preemptive
rights and rights of first refusal) or agreements for the purchase or
acquisition from WI of any shares of its capital stock. Other than as provided
in the Articles, WI is not a party or subject to any agreement or understanding,
and, to the best of WI's knowledge, there is no agreement or understanding
between any persons that affects or relates to the voting or giving of written
consents with respect to any security or the voting by a director of WI.
(iv) The execution and performance by WI of this Agreement will
not result in any adjustment in the number of shares of Common Stock into which
the Series A, Series B, Series C, Series D, Series E or Series E-1 Preferred
Stock is convertible.
(h) Litigation. There is no action, suit, proceeding or investigation
pending or currently threatened against WI (i) that questions the validity of
this Agreement or TRW' Rights Agreement, or the right of WI to enter into such
agreements, or to consummate the transactions contemplated hereby or thereby, or
(ii) that might result, either individually or in the aggregate, in any material
adverse change in the assets, prospects, results of operation or financial
condition of WI, or in any material change in the current equity ownership of WI
nor is WI aware that there is any basis for the foregoing. The foregoing
includes, without limitation, actions pending or threatened involving the prior
employment of any of WI's employees, their use in connection with WI's business
of any information or techniques allegedly proprietary to any of their former
employers, or their obligations under any agreements with prior employers. WI is
not a party to, or to the best of its knowledge, named in any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit or proceeding by WI currently pending
or that WI currently intends to initiate.
(i) Offering. Assuming the accuracy of TRW's representations set forth
in Section 10.1 (TRW's Warranties) of this Agreement, the offer, sale and
issuance of the Common Stock as contemplated by this Agreement are exempt from
the registration requirements of the Securities Act of 1933, as amended (the
"Act"), and the qualification requirements of the California Corporate
Securities Act of 1968, as
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amended, and neither WI nor any authorized agent acting on its behalf will take
any action hereafter that would cause the loss of such exemption.
(j) Disclosure. WI has fully provided the TRW with all the information
that it has requested for deciding whether accept the Common Stock as
consideration hereunder and all information that WI believes is reasonably
necessary to enable the TRW to make such decision. Neither this Agreement nor
any other statements or certificates made or delivered in connection herewith or
therewith contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements herein or therein not misleading.
(k) Corporate Documents. Except for amendments necessary to satisfy
representations and warranties or conditions contained herein (the form of which
amendments has been approved by TRW), the Articles and Bylaws of WI are in the
form previously provided to TRW. The minute books of WI provided to TRW contain
a complete summary of all meetings of directors and shareholders since the time
of incorporation.
(l) Proprietary Information and Employee Stock Purchase Agreements.
Each employee, officer and consultant of WI has executed a Proprietary
Information and Inventions Agreement in the form provided to special counsel to
TRW. WI, after reasonable investigation, is not aware that any of its employees,
officers or consultants are in violation thereof, and WI will use its best
efforts to prevent any such violation.
(m) Patents and Trademarks. WI has sufficient title and ownership of
all patents, trademarks, service marks, trade names, copyrights, trade secrets,
information, proprietary rights and processes necessary for its business as now
conducted and as proposed to be conducted without any conflict with or
infringement of the rights of others. There are no outstanding options,
licenses, or agreements of any kind relating to the foregoing, nor is WI bound
by or a party to any options, licenses or agreements of any kind with respect to
the patents, trademarks, service marks, trade names, copyrights, trade secrets,
licenses, information, proprietary rights and processes of any other person or
entity. WI has not received any communications alleging that WI has violated or,
by conducting its business as presently conducted or proposed to be conducted,
would violate any of the patents, trademarks, service marks, trade names,
copyrights or trade secrets or other proprietary rights of any other person or
entity, or that any intellectual property owned by WI is invalid or
unenforceable. WI is not aware that any of its employees is obligated under any
contract (including licenses, covenants or commitments of any nature) or other
agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with the use of his or her best
efforts to promote the interests of WI or that would conflict with WI's business
as presently conducted or proposed to be conducted. Neither the execution nor
delivery of this Agreement, nor the carrying on of WI's business by the
employees of WI, nor the conduct of WI's business as presently conducted or
proposed to be conducted, will, to the best of WI's knowledge, conflict with or
result in a breach of the
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terms, conditions or provisions of, or constitute a default under, any contract,
covenant or instrument under which any of such employees is now obligated. WI
does not believe it is or will be necessary to utilize any inventions of any of
its employees (or people it currently intends to hire) made prior to their
employment by WI.
(n) Compliance with Other Instruments.
(a) WI is not in violation or default of any provision of its
Articles or Bylaws, or of any instrument, judgment, order, writ, decree or
contract to which it is a party or by which it is bound, or, to the best of its
knowledge, of any provision of any federal or state statute, rule or regulation
applicable to WI. The
execution, delivery and performance of this Agreement and TRW' Rights Agreement,
and the consummation of the transactions contemplated hereby and thereby will
not result in any such violation or be in conflict with or constitute, with or
without the passage of time and giving of notice, either a default under any
such provision, instrument, judgment, order, writ, decree or contract or an
event that results in the creation of any lien, charge or encumbrance upon any
assets of WI or the suspension, revocation, impairment, forfeiture, or
nonrenewal of any material permit, license, authorization, or approval
applicable to WI, its business or operations or any of its assets or properties.
(b) To the knowledge of WI, WI has avoided every condition, and
has not performed any act, the occurrence of which would result in WI's loss of
any right granted under any license, distribution or other agreement.
(o) Agreements; Action.
(a) Except for (i) as provided in Section 2.15 of the Schedule of
Exceptions, and (ii) TRW' Rights Agreement, there are no agreements,
understandings or proposed transactions between WI and any of its officers,
directors, affiliates, or any affiliate thereof.
(b) There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees to which
WI is a party or by which it is bound that may involve (i) obligations
(contingent or otherwise) of, or payments to WI in excess of, $20,000, or (ii)
the license of any patent, copyright, trade secret or other proprietary right to
or from WI, or (iii) provisions restricting or affecting the development,
manufacture or distribution of WI's products or services, or (iv)
indemnification by WI with respect to infringements of proprietary rights, or
(v) the required repurchase or redemption by WI of any capital stock, or (vi)
any voting trust, preemptive rights or right of first refusal involving WI's
capital stock.
(c) WI has not (i) declared or paid any dividends or authorized
or made any distribution upon or with respect to any class or series of its
capital stock, (ii) incurred any indebtedness for money borrowed or any other
liabilities individually in excess of $20,000 or, in the case of indebtedness
and/or liabilities individually less than $20,000, in excess of $75,000 in the
aggregate, (iii) made any loans or advances to or
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guaranteed any liabilities of any person, other than ordinary advances to
employees or consultants for travel expenses, or (iv) sold, exchanged or
otherwise disposed of any of its assets or rights, other than the sale of its
inventory in the ordinary course of business.
(d) For the purposes of subsections (b) and (c) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including persons
or entities WI has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual minimum dollar amounts of
such subsections.
(e) WI has not engaged in the past three (3) months in any
discussion (i) with any representative of any corporation or corporations
regarding the consolidation or merger of WI with or into any such corporation or
corporations, (ii) with any corporation, partnership, association or other
business entity or any individual regarding the sale, conveyance or disposition
of all or substantially all of the assets of WI or a transaction or series of
related transactions in which more than fifty percent (50%) of the voting power
of WI is disposed of, or (iii) regarding any other form of acquisition,
liquidation, dissolution or winding up of WI.
(f) WI is not a party to and is not bound by any contract,
agreement or instrument, or subject to any restrictions under its Articles or
Bylaws that presently adversely affects its business as now conducted.
(p) Related-Party Transactions. No employee, officer, director or
stockholder of WI or member of his or her immediate family is indebted to WI,
nor is WI indebted (or comitted to make loans or extend or guarantee credit) to
any of them. To the best of WI's knowledge, none of such persons has any direct
or indirect ownership interest in any firm or corporation with which WI is
affiliated or with which WI has a business relationship, or any firm or
corporation that competes with WI, except that employees, officers, or directors
of WI and members of their immediate families may own stock in publicly traded
companies that compete with WI. No member of the immediate family of any officer
or director of WI is directly or indirectly interested in any material contract
with WI.
(q) Permits. WI has all franchises, permits, licenses, and any similar
authority necessary for the conduct of its business as now being conducted by
it, the lack of which could materially and adversely affect the business,
properties, prospects, results of operations or financial condition of WI, and
WI believes it can obtain, without undue burden or expense, any similar
authority for the conduct of its business as planned to be conducted. WI is not
in default in any material respect under any of such franchises, permits,
licenses, or other similar authority.
(r) Environmental and Safety Laws. To the best of its knowledge, WI is
not in violation of any applicable statute, law or regulation relating to the
environment or occupational health and safety, and to the best of its knowledge,
no material expenditures are or will be required in order to comply with any
such existing statute, law or regulation.
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(s) Manufacturing and Marketing Rights. WI has not granted rights to
manufacture, produce, assemble, license, market, or sell its products to any
other person and is not bound by any agreement that affects WI's exclusive right
to develop, manufacture, assemble, distribute, market or sell its products.
(t) Registration Rights. Except as provided in TRW' Rights Agreement,
WI has not granted or agreed to grant any registration rights, including
piggyback rights, to any person or entity.
(u) Title to Property and Assets. WI owns its property and assets free
and clear of all mortgages, liens, loans and encumbrances, except such
encumbrances and liens that arise in the ordinary course of business and do not
materially impair WI's ownership or use of such property or assets. With respect
to the property and assets it leases, WI is in compliance with such leases and,
to the best of its knowledge, holds a valid leasehold interest free of any
liens, claims or encumbrances.
(v) Financial Statements.
(a) WI has delivered to TRW its unaudited financial statements
(balance sheet and profit and loss statement, statement of stockholders' equity
and statement of cash flows, including notes thereto) at December 31, 1998 and
for the fiscal year then ended, and its unaudited financial statements (balance
sheet and profit and loss statement) as at and for the nine month period ended
September 30, 1999 (the "Financial Statements") (i) the pro forma consolidated
balance sheet of WI and its Subsidiaries as at September 30, 1999 and the pro
forma combined historical income statements dated September 30, 1999, each such
balance sheets and income statements taking into account all transactions
contemplated hereby and by the Related Agreements, such balance sheet and income
statements being attached hereto as Schedule 2.22(a)(ii); and (iii) the
projections of the future performance of WI and its Subsidiaries for the
five-year period following the Closing Date, on a consolidated basis, including
income, net profits, and cash flows, as attached hereto as Schedule 2.22(a)(iii)
(the "Projections"). The Financial Statements have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis
throughout the periods indicated and with each other, except that unaudited
Financial Statements may not contain all footnotes required by generally
accepted accounting principles applicable to audited annual financial
statements. The Financial Statements fairly present the financial condition and
operating results of WI as of the dates, and for the periods, indicated therein,
subject in the case of unaudited Financial Statements to normal year-end audit
adjustments. Except as set forth in the Financial Statements, WI has no material
liabilities, contingent or otherwise, other than (i) liabilities incurred in the
ordinary course of business subsequent to September 30, 1999 and (ii)
obligations under contracts and commitments incurred in the ordinary course of
business and not required under generally accepted accounting principles to be
reflected in the Financial Statements, which, in both cases, individually or in
the aggregate, are not material to the financial condition or operating results
of WI. Except as disclosed in the Financial Statements, WI is not a guarantor or
indemnitor of any indebtedness of any other
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person, firm or corporation. WI maintains and will continue to maintain a
standard system of accounting established and administered in accordance with
generally accepted accounting principles.
(b) The pro forma consolidated balance sheet of WI and its
Subsidiaries and the pro forma consolidated income statements referred to in
Section 2.22(a)(ii) have been prepared by management of WI on a reasonable
basis, taking into consideration the effect of the transactions contemplated
hereby and by the Related Agreements, and WI is not aware of any fact which
casts any doubt on the accuracy or completeness thereof. After giving effect to
the transactions contemplated hereby and by the Related Agreements, WI and its
Subsidiaries will have no material liabilities, contingent or otherwise, which
are not referred to in such balance sheet or in the notes thereto.
(c) The Projections constitute a reasonable basis for the
assessment of the future performance of WI and its Subsidiaries, on a
consolidated basis, during the periods indicated therein, and all material
assumptions used in the preparation of the Projections are set forth in the
notes thereto.
(w) Changes. Since September 30, 1999 there has not been:
(a) any change in the assets, liabilities, financial condition or
operating results of WI from that reflected in the Financial Statements, except
changes in the ordinary course of business that have not been, in the aggregate,
materially adverse;
(b) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the assets, properties, financial
condition, operating results, prospects or business of WI (as such business is
presently conducted and as it is proposed to be conducted);
(c) any waiver by WI of a material right or of a material debt
owed to it;
(d) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by WI, except in the ordinary course of
business and that is not material to the assets, properties, financial
condition, operating results or business of WI (as such business is presently
conducted and as it is proposed to be conducted);
(e) any material change or amendment to a material contract or
arrangement by which WI or any of its assets or properties is bound or subject;
(f) any change in any material compensation arrangement or
agreement with any employee;
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(g) any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets;
(h) any resignation or termination of employment of any key
officer of WI; and WI, to the best of its knowledge, does not know of the
impending resignation or termination of employment of any such officer;
(i) receipt of notice that there has been a loss of, or material
order cancellation by, any customer of WI;
(j) any mortgage, pledge, transfer of a security interest in, or
lien, created by WI, with respect to any of its material properties or assets,
except liens for taxes not yet due or payable;
(k) any loans or guarantees made by WI to or for the benefit of
its employees, officers or directors, or stockholders or any members of their
immediate families, other than travel advances and other advances made in the
ordinary course of its business;
(l) any declaration, setting aside or payment or other
distribution in respect of any of WI's capital stock, or any direct or indirect
redemption, purchase or other acquisition of any of such stock by WI;
(m) to the best of WI's knowledge, any other event or condition
of any character that might materially and adversely affect the assets,
properties, financial condition, operating results or business of WI (as such
business is presently conducted and as it is proposed to be conducted); or
(n) any agreement or commitment by WI to do any of the things
described in the Section 2.24.
(x) Employee Benefit Plans. WI does not have any Employee Benefit Plan
as defined in the Employee Retirement Income Security Act of 1974.
(y) Tax Returns, Payments and Elections. WI has filed all tax returns
and reports as required by law. These returns and reports are true and correct
in all material respects. WI has timely paid all taxes and other assessments
due, except those contested by it in good faith that are listed in the Schedule
of Exceptions. The provision for taxes of WI as shown in the Financial
Statements is adequate for taxes due or accrued as of the date thereof. WI has
not elected pursuant to the Internal Revenue Code of 1986, as amended (the
"Code"), to be treated as a Subchapter S corporation or a collapsible
corporation pursuant to Section 1362(a) or Section 341(f) of the Code, nor has
it made any other elections pursuant to the Code (other than elections that
relate solely to methods of accounting, depreciation or amortization) that would
have a material effect on WI, its financial condition, its business as presently
conducted or proposed to be conducted or any of its properties or material
assets. WI has never had any tax deficiency proposed or assessed against it and
has not executed any waiver of any
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statute of limitations on the assessment or collection of any tax or
governmental charge.
None of WI's federal income tax returns and none of its state income or
franchise tax or sales or use tax returns has ever been audited by governmental
authorities. Since the date of the Financial Statements, WI has made adequate
provisions on its books of account for all taxes, assessments and governmental
charges with respect to its business, properties and operations for such period.
WI has withheld or collected from each payment made to each of its employees,
the amount of all taxes (including, but not limited to, federal income taxes,
Federal Insurance Contribution Act taxes and Federal Unemployment Tax Act taxes)
required to be withheld or collected therefrom, and has timely paid the same to
the proper tax receiving officers or authorized depositaries.
(z) Insurance. WI has in full force and effect fire and casualty
insurance policies, with extended coverage, sufficient in amount (subject to
reasonable deductibles) to allow it to replace any of its properties that might
be damaged or destroyed. WI does not have any term life insurance, payable to
WI, on the lives of any of its officers, directors or employees. WI has in full
force and effect products liability and errors and omissions insurance in
amounts customary for companies similarly situated.
(aa) Minute Books. The minute books of WI provided to TRW contain a
complete summary of all meetings directors and stockholders since the time of
incorporation and reflect all transactions referred to in such minutes
accurately in all material respects.
(bb) Labor Agreements and Actions. WI is not bound by or subject to
(and none of its assets or properties is bound by or subject to) any written or
oral, express or implied, contract, commitment or arrangement with any labor
union, and no labor union has requested or, to the best of WI's knowledge, has
sought to represent any of the employees, representatives or agents of WI. There
is no strike or other labor dispute involving WI pending, or to the best of WI's
knowledge, threatened, that could have a material adverse effect on the assets,
properties, financial condition, operating results, or business of WI (as such
business is presently conducted and as it is proposed to be conducted), nor is
WI aware of any labor organization activity involving its employees. WI is not
aware that any officer or key employee, or that any group of key employees,
intends to terminate their employment with WI, nor does WI have a present
intention to terminate the employment of any of the foregoing. The employment of
each officer and employee of WI is terminable at the will of WI. To the best of
its knowledge, WI has complied in all material respects with all applicable
state and federal equal employment opportunity and other laws related to
employment.
(cc) Section 83(b) Elections. To the best of WI's knowledge, all
individuals who have purchased shares of WI's Common Stock have timely filed
elections under Section 83(b) of the Code and any analogous provisions of
applicable state tax laws.
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(dd) Real Property Holding Company. WI is not a real property holding
company within the meaning of Section 897 of the Code and Section 1.897-2(b) of
the Treasury Regulations promulgated by the Internal Revenue Service.
(ee) Solvency. Prior to, upon and immediately after consummation of
the transactions contemplated hereby, WI is solvent, has tangible and intangible
assets having a fair value in excess of the amount required to pay its probable
liabilities on its existing debts as they become absolute and matured, and has
access to adequate capital for the conduct of its business and the ability to
pay its debts from time to time incurred in connection therewith as such debts
mature.
(ff) Defaults. No Default or Event of Default exists on the date
hereof. WI is not in default under any provisions of its Articles or under any
material provisions of any franchise, contract, agreement, lease or other
instrument to which it is a party or by which it or its property is bound or in
material violation of any law, judgment, decree or governmental order, rule or
regulation.
(gg) Year 2000. To WI's knowledge, all hardware and software products
used by WI in the administration and the business operations of WI will be able
to accurately process date data (including, but not limited to calculating,
comparing and sequencing) from, into and between the twentieth century (through
year 1999), the year 2000 and the twenty-first century, including leap year
calculations, when used in accordance with the product documentation
accompanying such hardware and software products. Undefined capitalized terms
used in this Section 10.2 (WI's Warranties) will have the meaning ascribed to
them in the Series F Preferred Stock Purchase Agreement.
10.3 NO COMMITMENT TO DEVELOP LICENSED PRODUCTS
WI represents that as of the Effective Date, it is WI's intention to
continue development of the Spitfire Products, and to manufacture and market
commercial versions of such products. Nothing contained in this Agreement will
be construed to require WI to perform any development using any Spitfire IP or
any Spitfire Invention, to market any product incorporating any such
Intellectual Property or invention, or to have an Initial Public Offering, and
WI has made no representation or warranty to TRW regarding these or any other
subjects, except for the specific representations set forth in Section 10.2
(WI's Warranties) and 10.3 (No Commitment) of this Agreement and in Section 2 of
the Series F Preferred Stock Purchase Agreement.
10.4 *
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
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10.5 EXCLUSION OF WARRANTIES AND DAMAGES. LIMITS OF LIABILITY.
10.5.1 EXCLUSION OF WARRANTIES AND DAMAGES. THE WARRANTIES PROVIDED IN THIS
Article 10 (REPRESENTATIONS AND WARRANTIES) ARE IN LIEU OF ALL OTHER WARRANTIES,
WHETHER STATUTORY, EXPRESS OR IMPLIED, AT LAW OR IN EQUITY, INCLUDING BUT NOT
LIMITED TO WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE ALL
OF WHICH ARE EXPRESSLY EXCLUDED. EXCEPT AS PROVIDED IN THIS AGREEMENT, IN NO
CASE WILL TRW OR WIRELESS BE LIABLE FOR ANY SPECIAL, INDIRECT, INCIDENTAL OR
CONSEQUENTIAL DAMAGES, WHETHER ARISING IN CONTRACT, WARRANTY, TORT, NEGLIGENCE,
STRICT LIABILITY, OR OTHER LEGAL OR EQUITABLE THEORY. TRW DOES NOT MAKE ANY
WARRANTY AS TO THE VALIDITY OF THE SPITFIRE PATENTS.
10.5.2 EXCEPTION. Section 10.5.1 (Exclusion of Warranties and Damages) does
not preclude WI from recovering the following types of damages (subject to the
liability limit set forth below) for the breach or material falseness of any
representation and warranty of TRW contained in subsections (i), (v), (vi),
(vii), (viii), (ix) and (x) of Section 10.1 (TRW's Warranties) of this
Agreement, or of subsection (iv) to the extent applicable to the aforementioned
subsections: (a) amounts incurred by WI in connection with any third party claim
or suit, (b) judgments and royalties payable to third parties, and (c) amounts
incurred by WI in developing Spitfire products to the extent such amounts are
not recouped by WI from profits from the Sale of Spitfire products.
10.5.3 LIMIT OF LIABILITY. Each party's entire monetary liability to the
other arising out of or connection with this Agreement will not exceed the total
of (i) $17,000,000 plus (ii) any monetary amounts paid by WI to TRW under this
Agreement or under a Time and Materials Contract.
ARTICLE 11. PRODUCT LIABILITY AND INDEMNIFICATION
11.1 PRODUCT DEFECTS
WI will have full responsibility for determining that the designs of the
Licensed Products and that components made by or for WI (other than by TRW or
its Affiliates) are manufactured in accordance with customary commercial
standards.
11.2 INDEMNIFICATION
TRW will indemnify and hold WI harmless from and against any and all costs,
expenses (including reasonable attorneys' fees and costs of defense as such fees
and costs are incurred), damages, losses and liabilities that may arise from or
in connection with any claim made against WI by any TRW employee or contractor
or by any governmental agency with respect to employee compensation or benefits,
withholding taxes, worker's compensation, or the like, or by any TRW employee or
contractor for
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any compensation in any form from WI for work done, intellectual property
created or services performed while an employee or contractor of TRW.
ARTICLE 12. EXCUSABLE DELAY
12.1 NOTICE
If either party is unable to perform any of its respective obligations as
herein provided then such party will give the other party notice thereof as soon
as reasonably possible under the circumstances and information regarding the
cause or reason therefor.
12.2 EXCUSABLE DELAY
If a party is unable to perform any of its obligations as herein provided,
due to any circumstances beyond its reasonable control (including strikes, war,
an act of God, a public enemy, interference by any civil or military authority,
or inability to secure governmental approval, materials or services despite
reasonable advance contingency planning) but not due to its negligence, and
gives notice to the other party as provided in Section 12.1 (Notice), then the
time of performance of any such obligation will be extended for a period equal
to the number of days during which performance thereof was prevented or delayed,
and during such period such party will not be deemed in default of the
Agreement.
ARTICLE 13. GOVERNMENT APPROVAL
13.1 GOVERNMENTAL APPROVAL
The Agreement will not become effective until any required governmental
authorities have approved performance of, or the action required to perform, the
Agreement.
13.2 COOPERATION
TRW and WI promptly will seek all necessary governmental approvals and
licenses that may be required in connection herewith and will cooperate with
each other in every reasonable way to obtain such approval. Nothing in the
Agreement will be deemed to require either party to agree to any revision or
modification of the Agreement that may be required to obtain any governmental
approval.
ARTICLE 14. DEFAULT AND TERMINATION
14.1 DEFAULT
In addition to any other remedy available at law or in equity, either party
may terminate the Agreement in accordance with the provisions of this Article 14
(Default
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and Termination) in the event the other party fails to perform any
material obligation to be performed by it hereunder within thirty (30) days
after receipt of notice from the other party that time for such performance has
passed or, if no such time is prescribed, within thirty (30) days after notice
from the other party.
14.2 USE OUTSIDE WI'S APPROPRIATE FIELD: WHEN NOT A BREACH
Notwithstanding any other provision of this Agreement, WI will not be
deemed in breach of the restrictions on the field into which a product may be
Sold so long as: (i) the product is designed for use in a permitted field and is
not advertised or promoted by WI for use in an excluded field; and (ii) WI's
senior management does not know that the product is being Sold for use in an
excluded field (provided WI management will be presumed to know about activities
of WI's own sales force).
14.3 USE OUTSIDE TRW'S APPROPRIATE FIELD: WHEN NOT A BREACH
Notwithstanding any other provision of this Agreement, TRW will not be
deemed in breach of the restrictions on the field into which a product may be
Sold so long as: (i) the product is designed for use in a permitted field and is
not advertised or promoted by TRW for use in an excluded field; and (ii) TRW's
senior management of any involved TRW business organization does not know that
the product is being Sold for use in an excluded field (provided TRW management
will be presumed to know about activities of TRW's own sales force).
ARTICLE 15. TRW TECHNOLOGY PARTNER
On the Effective Date, TRW will designate WI a TRW technology partner.
ARTICLE 16. MANUFACTURING AND PURCHASE AGREEMENT
WI agrees to sell to TRW, and TRW agrees to purchase from WI, under terms
and conditions to be negotiated, Licensed Products for sale in the Government
Field, where WI's standard commercial version of such products meets the
requirements of TRW's Government customer. Such requirements include
specifications, packaging, delivery dates, certifications and price.
ARTICLE 17. L3 COMMUNICATIONS
For three (3) years after the Effective Date, at WI's option, TRW will from
time to time purchase from L3 Communications, Inc. ("L3") and resell to WI,
products and components for use in Spitfire products, and services to develop
and/or manufacture such products and components. * TRW will enter into a written
contract with L3, which must approved by WI in writing in advance. WI will be a
third
[*] Certain Information on this page has been omitted and filed separately with
the Commission. Confidential Treatment has been requested with respect to the
omitted portions.
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party beneficiary of such contract, and TRW will pass through to WI all
representations, warranties and indemnities provided by L3 in such contract or
otherwise. If L3 provides TRW exclusivity in any field for any purchased product
or component, or any licensed intellectual property, TRW will assign or
otherwise pass through to WI such exclusive rights for Spitfire product, in the
Outdoor Field, to the extent TRW has such rights.
ARTICLE 18. SURVIVAL OF OBLIGATIONS
Other provisions of this Agreement notwithstanding, the rights, licenses
and obligations of the parties under Article 2 (Patent Assignment, Licenses,
Noncompetition and Covenant Not to Sue), Section 3.8 (Warranty Regarding Work of
TRW Employees and Contractors), Section 3.10 *, Section 3.11 (Payments by TRW
for Services Rendered Before the Effective Date) Section 3.12 (Payments by TRW
for * Field Trials), Section 5.1 (Capital Assets), Section 5.4 (Intellectual
Property), Section 6.2 (Cash), Section 6.3 (Taxes), Article 7 (Use and
Protection of Confidential Information), Article 9 (Patents), Article 10
(Representations and Warranties), Article 11 (Product Liability and
Indemnification), Article 14 (Default and Termination), Article 17 (L3
Communications) and Article 19 (Miscellaneous) will survive any termination of
the Agreement for any reason.
ARTICLE 19. MISCELLANEOUS
19.1 EXPORT REGULATIONS
Neither party will export, directly or indirectly, any Software or
Technical Information provided by the other party under this Agreement, or the
direct product of any such Software or Technical Information, to any country for
which the United States Government or any agency thereof, at the time of export,
requires an export license or other government approval, without first obtaining
such license or approval. The parties agree to cooperate, in any reasonable
manner, to effect compliance with all applicable export regulations in able to
enable the export of such Software and Technical Information.
19.2 NOTICES
All notices and communications required or permitted to be given under the
Agreement will be written in English and will be (a) delivered personally, (b)
sent by confirmed telecopy, with confirmation by one of the other methods
specified in this Section 19.2 (Notices), (c) sent by commercial overnight
courier with written verification of receipt, or (d)mailed as registered or
certified airmail, postage prepaid and addressed to the other party at their
respective addresses set forth below (unless by such notice a different person
or address will have been designated):
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
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WI: Wireless, Inc.
5452 Betsy Ross Dr.
Santa Clara, California 95054-1101
Attention: Chief Executive Officer
With copy to:
Warren Lazarow
Brobeck, Phleger & Harrison
Two Embarcadero Place
2200 Geng Rd.
Palo Alto, CA 94303
TRW: TRW Inc.
Law Department
12011 Sunset Hills Road
Reston, Virginia 20190-3285
Attention: Marsha Klontz
Each notice will be effective upon receipt.
19.3 ASSIGNMENTS
Either party may assign this Agreement to any person or entity to whom it
transfers a majority of its assets, and WI may assign this agreement to any
person or entity that acquires a majority of the assets related to the Spitfire
Products. Otherwise, neither party will have the right to assign or transfer any
of its rights or to delegate any of its duties under the Agreement without the
prior written consent of the other party.
19.4 HEADINGS
The headings and titles to the Articles and Sections of the Agreement are
inserted for convenience only and will not be deemed a part hereof or affect the
construction or interpretation of any provision hereof.
19.5 REMEDIES
Unless otherwise expressly provided herein, the rights and remedies
hereunder are in addition to, and not in limitation of, other rights and
remedies under the Agreement, and exercise of one right or remedy will not be
deemed a waiver of any other right or remedy.
19.6 MODIFICATION - WAIVER
No cancellation, modification, amendment, deletion, addition or other
change in
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the Agreement or any provision hereof, or any consent to any action or
breach or any wavier of any right or remedy herein provided, will be effective
for any purpose unless specifically set forth in a writing signed by the party
to be bound thereby. No consent by either party to, or waiver of any right or
remedy or of a breach by either party, whether express or implied, in respect of
any occurrence or event on one occasion will be deemed a consent to, a waiver or
excuse of any other, different, or subsequent breach by either party.
19.7 ENTIRE AGREEMENT
The Concurrent AgreementS supersede all other agreements, oral or written,
heretofore or contemporaneously made with respect to the subject hereof and
thereof, and the transactions contemplated hereby and thereby, and contain the
entire agreement of the parties with respect to such transactions.
19.8 CONTROLLING LAW, CHOICE OF FORUM
All questions concerning the validity and operation of the Agreement and
performance of the obligations imposed upon the parties hereunder will be
governed by the substantive laws of the State of California, United States of
America. Each party hereto hereby agrees that any action that, in whole or in
part, in any way arises under or in connection with the Agreement will be
brought in the United States District Court for the Northern District of
California San Jose Branch or the Superior or Municipal Courts of the State of
California, Santa Clara County. The parties hereby submit to the jurisdiction
of, and waive any venue objections against such courts in any litigation arising
out of the Agreement.
19.9 SUCCESSORS AND ASSIGNS
The provisions of the Agreement will be binding upon and inure to the
benefit of TRW and WI and their respective successors and authorized assigns.
This provision will not be deemed to expand or otherwise affect the limitations
on assignment and delegation set forth in Section 19.3 Assignments).
19.10 PRODUCT MARKING
WI will make reasonable efforts to mark all Licensed Products manufactured,
delivered or sold by WI in conformance with the patent and copyright laws of the
countries of manufacture, use and sale. WI will, upon written request and with
reasonable notice, modify any such markings as TRW reasonably may request,
provided that if TRW requests WI to change markings previously applied to a
Licensed Product or to add Markings to previously manufactured Licensed
Products, then TRW will bear all costs and expenses incurred by WI in complying
with such request.
19.11 DISPUTE RESOLUTION
An informal dispute resolution procedure will be followed in all
disputes that arise under this Agreement, prior to the institution of any court
action or demand for arbitration, except for actions seeking temporary
injunctive relief. Either party may
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notify the other of a dispute. Such notice will be in writing, specifying the
nature of the dispute in as much detail as possible. One or more senior
representatives of the parties will meet within seven (7) calendar days of the
date of such notice to attempt to resolve the dispute. If the parties are unable
to reach agreement, then the Chief Executive Officer of WI and the Executive
Vice President of the TRW group primarily responsible for the development and
sale of telecommunications products will meet (in person or by telephone) to
attempt to resolve the matter within fourteen (14) days of the date of the
original written notification of the dispute. If the parties cannot resolve the
dispute in writing within seven (7) days after this meeting, or if either party
fails to comply with any such written settlement agreement, the other party may
seek any remedy available under this Agreement.
19.12 PUBLICITY
19.12.1 The parties will jointly announce the signing of this Agreement and
the Concurrent Agreements (excluding the Teaming Agreement) within 10 days of
the Effective Date. Except as the other party gives its prior written consent
neither TRW nor WI will use the name, logo or any trademark of the other party
in any publicity, product announcement, brochure, advertising, product labeling,
promotion or otherwise for any purpose provided, however that WI will disclose
that TRW is the source of the Spitfire Technology and will promote the
relationship in a manner that enhances the views and perceptions of both TRW and
WI.
19.12.2 A party may disclose the terms of this Agreement where required by
law, provided that such party makes reasonable effort to obtain confidential
treatment or similar protection to the fullest extent available to avoid public
disclosure of the terms of this Agreement. A party required by law to make
disclosure of the terms of
this Agreement will promptly notify the other party and permit the other party
to review and participate in the application process seeking confidential
treatment.
19.13 CONSTRUCTION AND INTERPRETATION OF AGREEMENT
This Agreement has been negotiated by the parties and their attorneys and
the language hereof will not be construed for or against any party. The words
"INCLUDE", "INCLUDES" and "INCLUDING" will be deemed in each case to be followed
by the words "without limitation."
19.14 COUNTERPARTS
The Agreement may be executed in two counterparts, each of which will be
deemed to be an original, but both of which together will constitute one and the
same instrument. If this Agreement is executed in counterparts, no signatory
hereto will be bound until both the parties have duly executed a counterpart of
this Agreement.
19.15 SEVERABILITY
If any provision of this Agreement is held invalid or unenforceable for any
reason, the remainder of that provision will be amended to achieve as closely as
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possible the economic effect of the original provision, and all other provisions
of this Agreement will continue in full force and effect.
19.16 RELATIONSHIP OF THE PARTIES
The parties to this Agreement are licensors and licensees. There is no
relationship of agency, partnership, joint venture, employment, or franchise
between the parties. Neither party has the authority to bind the other or to
incur any obligation on its behalf.
ARTICLE 20. CONDITIONS TO CLOSING
The rights and obligations of the parties under this Agreement are subject
to the fulfillment on or before the Closing (as defined in Series F Stock
Purchase Agreement) of each of the following conditions:
(i) WI REPRESENTATIONS AND WARRANTIES. The representations and warranties
of WI contained in Section 10.2 (WI's Warranties) shall be true on and as of the
Effective Date with the same effect as though such representations and
warranties had been made on and as of the Effective Date.
(ii) WI COMPLIANCE CERTIFICATE. The President of WI shall deliver to TRW at
the Closing a certificate certifying that the conditions specified in subsection
(i) of this Article 20 (Conditions to Closing) have been fulfilled.
(iii) TRW REPRESENTATIONS AND WARRANTIES. The representations and
warranties of TRW contained in Section 10.1 (TRW's Warranties) shall be true on
and as of the Effective Date with the same effect as though such representations
and warranties had been made on and as of the Effective Date.
(iv) TRW COMPLIANCE CERTIFICATE. An Executive Vice President of TRW shall
deliver to WI at the Closing a certificate certifying that the conditions
specified in subsection (i) of this Article 20 (Conditions to Closing) have been
fulfilled.
(v) OTHER AGREEMENTS. Each of TRW and WI shall have executed and delivered
the Investors' Rights Agreement of even date herewith and the Series F Stock
Purchase Agreement, and the Closing of the Series F Stock Purchase Agreement
shall have occurred.
/ /
/ /
/ /
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(vii) HART-SCOTT-RODINO. Each party hereto shall have completed and filed
all necessary reports and forms, and responded to all requests or further
requests for additional information, if any, and all applicable time periods
shall have lapsed as may be required or authorized under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended.
IN WITNESS WHEREOF, the parties have executed the Agreement as of the
Effective Date.
WIRELESS, INC. TRW INC.
by: /s/ Bill J. Palumbo by: /s/ Donald Winter
-------------------------------- --------------------------------
William J. Palumbo Don Winter
Chief Executive Officer Executive Vice President
1/15/00 1/14/00
- ----------------------------------- -----------------------------------
Date Date
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EXHIBIT 10.9
MASTER DISTRIBUTOR AGREEMENT
This Agreement is entered into on April 1, 1999 (the "Effective Date")
by and between Digital Microwave Corporation ("Manufacturer") having its
principal place of business at 170 Rose Orchard Way, San Jose, California 95134
and Wireless Inc, ("Distributor") having its principal place of business at 19
Davis Drive, Belmont, CA 94002-3001.
1.0 PRODUCTS. Wherever used herein, the term "Products" shall mean only
those products which are specifically identified in Exhibit A attached hereto.
2.0 APPOINTMENT/TERRITORY/DISTRIBUTION.
2.1 APPOINTMENT. Except for customers specifically excluded and identified
in Exhibit B attached hereto, Manufacturer hereby appoints Distributor and
Distributor hereby accepts the appointment, as the nonexclusive distributor for
the Products within the Territory described in Exhibit B. Distributor agrees not
to sell or represent any products that compete with Manufacturer's products.
2.2 EXCLUSIVITY. Distributor will not have any exclusivity to a customer in
the Territory, except as set forth in Exhibit B. Manufacturer may appoint more
than one distributor or sales representative or may sell direct to the customer.
If more than one distributor is appointed, Manufacturer will support all
distributors equally, including the furnishing of any distributor price lists or
discounts.
2.3 PUBLIC TENDERS. If only one distributor is allowed to bid for
Manufacturer in a public tender, Manufacturer will decide which distributor will
submit the bid.
2.4 OTHER DISTRIBUTORS. It is Manufacturer's intent that there will be only
one Distributor involved with a customer or project. If a customer does go out
for bids to more than one distributor, then it is the customer's option to award
the contract or purchase order.
3.0 TERM. Except as provided in the section of this Agreement entitled
"Termination", this Agreement shall remain in effect for a period of one (1)
year from the Effective Date. At the end of such one (1) year period, this
Agreement shall automatically expire unless expressly renewed in writing. During
the term of this Agreement, in the event it is desirable that Manufacturer sell
directly to a customer, the Terms of Sales Representative Agreement set forth in
Exhibit D shall apply in lieu of those in Articles 5, 6.1, 7, 8, 10, and 11 and
Sections 14.2 and 14.3.
4.0 DUTIES OF DISTRIBUTOR.
4.1 EFFORTS. Distributor shall use its best efforts to introduce and
promote the sales of Products. Distributor shall devote as much time and
attention as shall be necessary to properly conduct such activities, take
actions as Manufacturer advises will be helpful to that end, and conduct its
activities in accordance with general instructions as Manufacturer may issue
from time to time.
[*] CERTAIN INFORMATION OF THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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4.2. ORGANIZATION. Distributor shall maintain at all times
business office facilities, a private fax, mailing lists and facilities for
catalog distribution. The Distributor shall provide after sales support to
customers within the Territory and shall coordinate between customers and
Manufacturer as is customary in the telecommunications industry.
4.3 RETURNS. Distributor shall make no allowance or adjustments in accounts,
or authorize any customer to return any Products, unless given specific advance
"Return Material Authorization" (RMA) in writing by Manufacturer to do so.
4.2 QUOTATIONS. Distributor agrees to send copies of all quotations
(non-private label) to Manufacturer for prior approval by the appropriate
Country Manager upon request. All products will be distributed as a Manufacturer
branded product unless otherwise agreed
4.4 POINT OF SALE REPORTS. Distributor agrees to send to Manufacturer a
monthly detailed report which includes the customer name, address, type of
Equipment sold, quantity and sales price.
4.6 REGISTRATION. All accounts, including private label products, shall be
registered with the appropriate Manufacturer's Country Manager and Corporate
Sales Organization. The list of all active accounts, including those in backlog
or forecast, is set forth in Schedule E. The list of existing distributors of
Distributor is also set forth in Exhibit E.
4.7 FORECASTS. Distributor agrees to provide a quarterly forecast of the
business opportunities. The forecast should be by account, name of country,
product and quantity and total dollars.
4.8 SUB-DISTRIBUTORS. Distributor shall not appoint any sub-distributors or
representatives within the Territory without the consent of Manufacturer, which
consent may be arbitrarily withheld. Any such attempt shall be deemed a breach
of this Agreement, and Distributor waives the notice period provided in Section
13.1.2.
5.0 ORDER ACCEPTANCE AND DELIVERY.
5.1 ORDERS. Deliveries by Manufacturer shall only be made after written
purchase orders under this Agreement are received by Manufacturer from
Distributor. Any purchase order received by Manufacturer associated with written
prior approval will be deemed acceptable by Manufacturer. Such orders shall
specify the items to be delivered, the quantity and the prices, and the
requested delivery schedule.
5.2 SCHEDULES. All orders in Section 5.1 above shall become binding on
Manufacturer only upon acceptance in writing by Manufacturer, which acceptance
shall acknowledge the delivery dates of the orders. Unless frequency/channel
plans are provided by Distributor with the placement of the order, Distributor
shall provide such plans at or before a time, as determined by Manufacturer,
prior to the delivery as acknowledged by Manufacturer. Failure of Distributor to
timely meet this obligation shall be cause for adjustment to the schedule and/or
contract prices.
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5.3 DELIVERY. Shipments are made F.O.B. point of shipment, freight collect.
Title passes to Distributor and Distributor assumes risk of loss upon delivery
to the carrier at the F.O.B. point, the carrier acting as Distributor's agent.
Absent specific instructions from Distributor in selecting a carrier,
Manufacturer will exercise its own discretion.
5.4 CANCELLATION. Items scheduled for shipment within thirty (30) days of
the receipt of Distributors notice of cancellation or rescheduling may not be
terminated or rescheduled and must be accepted and paid for at the agreed upon
prices. Otherwise Distributor may terminate an order upon payment of all
Distributor reasonably incurred costs, including profit, which are allocable to
the terminated portion of the order.
6.0 COMPENSATION.
6.1 PRICES AND PAYMENTS. All prices and amounts paid under this Agreement
are in United States dollars. Such amounts in the United States are payable in
accordance with Exhibit C. Manufacturer may elect to make partial shipments and
bill Distributor upon delivery of each shipment.
6.2 EXPENSES. Distributor shall have no right to any compensation from
Manufacturer for services rendered pursuant to this Agreement or for the
reimbursement of any expenses, incurred by Distributor, including, but not
limited to, travel to Manufacturers facilities for training.
7.0 LICENSES AND PERMITS. Manufacturer shall have no responsibility for the
securing of permits, licenses or other local, state or federal governmental
approvals required in connection with any purchases hereunder.
8.0 PRODUCT ACCEPTANCE. Unless otherwise agreed, Distributor's acceptance of
Products shall be deemed complete if Distributor fails to notify Manufacturer in
writing of its rejection of Products within thirty (30) days from shipment.
9.0 CONFIDENTIALITY. If either party hereto receives from the other party
written information which is marked "Confidential" or "Proprietary", the
receiving party agrees not to use such information except in the performance of
this Agreement, and to treat such information in the same manner as it treats
its own confidential information for a period of three (3) years from the date
of disclosure. The obligation to keep information confidential shall not apply
to or shall cease to apply to any information that: (i) is already rightfully in
the possession of Distributor, (ii) is or becomes publicly available through no
wrongful act of Distributor, (iii) is rightfully received by Distributor from a
third party without an obligation of confidentiality to Manufacturer, (iv) is
disclosed to a third party by Manufacturer without restriction; or (v) is
approved for release by written authorization of Manufacturer. Without limiting
the foregoing, it is agreed that all communications between Manufacturer and
Distributor relating to bidding or sales activities of the Distributor are
confidential.
10.0 LIMITED WARRANTY. MANUFACTURER warrants to Distributor at the time of
delivery
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that the equipment will be free from defects in material and workmanship under
normal use and service. Manufacturer's sole obligation under this Warranty is
limited to replacing or repairing, at its option, at its factory, any equipment
which is returned to Manufacturer, transportation, duties, and taxes prepaid, *.
In the case of Equipment not of Manufacturers own manufacture, the warranty
under the terms of this Paragraph is available only for a period of one (1) year
after delivery. Manufacturer shall return the equipment to Distributor freight
prepaid. THIS WARRANTY IS EXPRESSED IN LIEU OF ALL OTHER WARRANTIES, EXPRESS,
IMPLIED OR STATUTORY, INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE, AND OF ALL OTHER OBLIGATIONS OR LIABILITIES ON
THE PART OF MANUFACTURER AND IT NEITHER ASSUMES NOR AUTHORIZES ANY OTHER PERSON
TO ASSUME FOR MANUFACTURER ANY OTHER LIABILITIES IN CONNECTION WITH THE SALE OF
EQUIPMENT. IN NO EVENT WILL MANUFACTURER BE LIABLE FOR CONSEQUENTIAL DAMAGES
EVEN IF MANUFACTURER HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. This
Warranty does not apply to any of such Equipment which shall have been repaired
or altered, except by Manufacturer, or which shall have been subjected to
misuse, negligence, or accident or operation outside the environmental
specifications. Repairs or replacements of Equipment made during the warranty
period or thereafter will be warranted, as provided above, for the remainder of
the original warranty period or for ninety days from the date of return, as
applicable, whichever is longer.
11.0 PATENT INFRINGEMENT. Manufacturer will defend any action, including a
claim or suit, against Distributor claiming that Products infringe any patent,
and will pay all costs and damages finally awarded in any such action, provided
that Manufacturer is notified promptly in writing of the action and at
Manufacturer's request and at its expense is given control of such action and
all requested information and assistance to settle or defend the same. Should
use of Products be enjoined as a result of such action, then Manufacturer shall
in a reasonable time either: (a) obtain for Distributor the right to continue to
use the Products; (b) modify or replace the Products with noninfringing
Products; or (c) request the return of the Products and upon their return refund
the value of the Products as amortized over a presumed five (5) year
depreciation period, as well as transportation costs. Manufacturer shall have no
obligation to defend any claims arising out of combinations of the Products when
used in combination with other products not supplied by Manufacturer. THE
FOREGOING STATES THE SOLE AND EXCLUSIVE LIABILITY OF MANUFACTURER FOR PATENT
INFRINGEMENT AND IS IN LIEU OF ANY OTHER WARRANTY AGAINST INFRINGEMENT OF ANY
KIND, EXPRESS, IMPLIED, OR STATUTORY.
12.0 DAMAGE LIMITATION. INDEPENDENTLY OF ANY OTHER LIMITATION HEREOF AND
REGARDLESS OF WHETHER THE PURPOSE OF ANY REMEDY SET FORTH HEREIN IS SERVED, IT
IS AGREED THAT IN NO EVENT SHALL MANUFACTURER BE LIABLE FOR SPECIAL, INCIDENTAL
OR CONSEQUENTIAL DAMAGES OF ANY KIND UNDER THIS AGREEMENT.
13.0 TERMINATION AND CONSEQUENCES.
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
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13.1 TERMINATION. This Agreement may be terminated by either party as
follows:
13.1.1 CONVENIENCE. For any reason upon ninety (90) days prior
written notice.
13.1.2 BREACH. Upon breach of a material provision by the other party
and such party does not cure such breach within thirty (30) days after
notice from the terminating party.
13.1.3 INSOLVENCY. Immediately should the other party (a) become
insolvent; (b) make an assignment for the benefit of creditors; (c)
file or have filed against it a petition in bankruptcy or seeking
reorganization; (d) have a receiver appointed; (e) institute any
proceedings for liquidation or winding up.
13.2 CONSEQUENCES
13.2.1 SOLICITATION. Manufacturer shall have the right after any
termination of this Agreement to deal with, and solicit orders from any
and all persons who dealt with or placed orders with Distributor
without liability of any kind to Distributor.
13.2.2 PRODUCTS. Unless Manufacturer terminates the Agreement under
Section 13.1.2 or 13.1.3 above, Manufacturers only obligation to sell
Products to Distributor are those Products which Distributor is
contractually obligated to furnish to a customer subject to
Manufacturer having previously agreed to such sales on a case by case
basis.
13.3.2 ORDERS. For termination under 13.1.2 or 13.1.3 above, the
terminating party may terminate any outstanding orders placed hereunder
and cease all performance.
13.3 SURVIVAL. The obligations and duties trader Sections 6, 9, 10, 11, 12,
13.2, and 14.5 shall survive and remain in effect beyond any expiration or
termination hereof.
14.0 GENERAL.
14.1 AGENCY. Neither party shall have, nor shall represent that it has, any
power, right, or authority to bind the other party, or to assume or create any
obligation or responsibility, express or implied, on behalf the other party or
in the other parties name except as expressly set forth herein. Nothing stated
in this Agreement shall be construed as constituting Manufacturer and
Distributor as partners, or as creating the relationships of employer and
employee, franchiser and franchisee, master and servant, or principal and agent
between the parties hereto.
14.2 TAXES. All prices set forth in this Agreement are exclusive of any
sales, use, excise, property or any other taxes imposed by any government
applicable to the sales, use, or delivery of the Products, including import
duties and withholding taxes, now or hereafter enacted, all of which will be
paid by Distributor separately or added by Manufacturer to the invoice where
Manufacturer is required by law
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to collect the same, unless Distributor provides Manufacturer with a proper
tax-exemption certificate.
14.3 FORCE MAJEURE. The failure of either party to perform any obligation
otherwise due as a result of governmental action, law, order, regulation,
direction or request, or as a result of events, such as war, act of public
enemy, strike or other labor disturbance, delays of subcontractors, fire, flood,
acts of God or any causes of like or different kind beyond the control of the
Manufacturer is excused for so long as said cause exists to the extent such
failure is caused by any such event.
14.4 TRADEMARKS. The name, Digital Microwave Corporation, and any trademarks,
trade names and logos associated with Manufacturer's Products may only be used
as authorized in writing by Manufacturer.
14.5 PUBLICITY. All notices to third parties and all other publicity
concerning this Agreement or using either parties name must be approved in
writing in advance by the other party, such approval not to be unreasonably
withheld. The parties hereto further agree that neither party shall disclose
either the existence, the terms or conditions, or the subject matter of this
Agreement without prior written consent of the other party.
14.6 LANGUAGE. This Agreement is in the English language only, which language
shall be controlling in all respects, and all versions hereof in any other
language shall be for accommodation only and shall not be binding upon the
parties hereto.
14.7 GOVERNING LAW. This Agreement is deemed entered into in San Jose,
California, and shall in all respects be governed by and construed under the
laws of the state of California as such laws are applied to agreements between
California residents entered into and performed entirely within California. Any
litigation or other dispute resolution between the parties relating to this
Agreement will take place in Santa Clara County, California.
14.8 COMPLIANCE WITH LAW. Distributor warrants with respect to any export of
Manufacturer Products that Distributor will comply fully with the export control
laws and regulations of the United States Government.
14.9 CORRUPT PRACTICES. Distributor agrees to comply in all respects with the
U.S. Foreign Corrupt Practices Act of 1977 (FPCA), as amended, which provides
generally that: under no circumstances will foreign officials, representatives,
political parties or holders of public offices be offered, promised or paid any
money, remuneration, things of value, or provided any other benefit, direct or
indirect in connection with obtaining or maintaining contracts or orders
hereunder.
14.10 ASSIGNMENT. Neither party shall assign any of its rights or privileges
hereunder without the prior written consent of the other party except to a
successor in ownership of all or substantially all of the assets of the
assigning party and provided further that the successor shall expressly assume
in writing the performance of all of the terms and conditions of this Agreement
to be performed by the assigning party.
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14.11 WRITTEN NOTICE. Written notice provided for any reason pursuant to this
Agreement shall be effective as of the date of mailing when sent to the other
party via registered or certified mail, return receipt requested to the address
shown below:
To Manufacturer To Distributor
Digital Microwave Corp. Wireless Inc.
170 Rose Orchard Way 5452 Betsy Ross Dr.
San Jose, CA 95134 Santa Clara, CA 95054-1101
Attn: C.F.O. Attn: CFO
14.12 WAIVER. The failure of either party at any time to require performance
by the other of any provision hereof shall not affect the right of such party to
require performance at any time thereafter, nor shall the waiver of either party
of a breach of any provision hereof be taken or held to be a waiver of a
provision itself.
14.13 SEVERABILITY. If any provision of this Agreement is held to be
ineffective, unenforceable or illegal for any reason, such decision shall not
affect the validity or enforceability of any or all of the remaining portions
thereof.
14.14 DISPUTES. The Vice Presidents of Sales of both parties will arbitrate
all issues that cannot be settled at a lower level in the organizations.
14.15 INTEGRATION. This Agreement embodies the entire understanding of the
parties as it relates to the subject matter hereof. This Agreement supersedes
any prior agreements or understandings between the parties as to this subject
matter. No amendment or modification of this Agreement shall be valid or binding
upon the parties unless in writing and signed by an officer of each party.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed in their respective corporate names.
DIGITAL MICROWAVE CORPORATION DISTRIBUTOR
By /s/ Ryan Panos By /s/ Donald MacLeod
-------------------------------------- ----------------------------------
Title VP Global Accounts Title Sr. Vice President Sales &
Marketing
------------------------------------ -------------------------------
Date April 16, 1999 Date Aug 10, 1999
------------------------------------ -------------------------------
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EXHIBIT A: PRODUCTS
PRODUCTS DISTRIBUTION/REPRESENTATIVE PRIVATE LABEL
- -------- --------------------------- -------------
Altium YES NO
Spectrum II YES NO
XP-4 YES YES
XP-2 (Dart) YES YES
DXR-100 YES NO
DXR-200 YES NO
DXR-700 YES NO
EXHIBIT B: TERRITORY/CUSTOMERS
[*]
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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EXHIBIT C: PAYMENT TERMS
THE APPROPRIATE PAYMENT TERM IS TO BE INSERTED AFTER CREDIT APPROVAL.
All invoices are due and payable thirty (30) days from the date of invoice,
subject to a $750,000 credit limit.
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EXHIBIT D: TERMS OF SALES REPRESENTATIVE AGREEMENT
4.0 DUTIES OF REPRESENTATIVE
4.7 QUOTATIONS. Representative shall quote only such prices, terms and
conditions and make only such representations about the Products, including but
not limited to any warranty, as are expressly authorized in writing by
Manufacturer.
4.8 COLLECTION. Representative shall forward immediately to Manufacturer any
and all monies or remittances in any form which may be sent to it by Customers
or accounts in the Territory in payment of Manufacturer invoices. Representative
shall assist Manufacturer, upon Manufacturers request, in the collection of
overdue accounts by making available to Manufacturer all data regarding any
Customer to which Representative may reasonably have access.
5.0 ORDER ACCEPTANCE AND SHIPMENT
5.1 ORDERS. All orders solicited by Representative shall become binding on
Manufacturer only upon acceptance in writing by Manufacturer. Manufacturer may,
at any time, reject any order submitted by Representative or any Customer and
shall have no liability to Representative as a result of its rejection of any
such orders.
5.2 SHIPMENTS. All Products for which orders are accepted by Manufacturer
will be shipped and billed by Manufacturer directly to the Customer. All
payments shall be made directly to Manufacturer. Representative shall have no
authority to collect funds or accept payment of any invoices issued by
Manufacturer.
5.3 CHANGES. Manufacturer may change or withdraw any quotation made by it,
or acceptance of any order, at any time without obtaining the consent of
Representative, and Manufacturer shall have no liability to Representative, nor
shall Representative be entitled to any compensation, by reason thereof.
6.0 COMPENSATION.
COMPENSATION. Representative's sole source of compensation shall be the
commissions payable pursuant to the terms of this Agreement. Commission will be
paid on the Net Sales within thirty (30) days after receipt of payment by
Manufacturer of the proceeds of the sale to a customer in the Territory. As used
in this Exhibit D, "Net Sales" means the gross sales revenue received by
Manufacturer from the sale, lease or license of a product or any transfer
thereof for value, accounted for in accordance with generally accepted
accounting principles, after deduction for rebates, allowances, discounts,
returns, freight, costs of packing, freight insurance, taxes, duties and similar
charges, if any. Commissions shall be at the rate of *. Where DMC is calling on
an account and decides that Representative's participation is involved, a
commission will be payable at the rate of * for all orders booked in that
account for a one year period.
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
11
<PAGE>
CREDITS. If any amount collected by Manufacturer is credited to a Customer
because of a Product return or other reason (at the sole discretion of
Manufacturer) commissions already paid to Representative on such amounts shall
be returned to Manufacturer by Representative. Manufacturer may charge back such
commissions against any monies which Manufacturer shall then or thereafter owe
to Representative.
12
<PAGE>
EXHIBIT E
LIST OF ACTIVE ACCOUNTS
List of Distributors Existing Distributors
[*]
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
13
<PAGE>
EXHIBIT F
* Unit Prices and Ordering Information
[*]
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
14
<PAGE>
Price *
[*]
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
15
<PAGE>
[DIGITAL MICROWAVE LETTERHEAD]
April 14, 2000
Wireless Inc.
5452 Betsy Ross Dr.
Santa Clara, CA 95054
Attn: Mr. Bill Palumbo
President & CEO
Subject: Master Distributor Agreement extension
Reference: DMC/Wireless MDA Dated 4/1/99
Dear Mr. Palumbo,
Digital Microwave Corporation hereby extends the validity of the
above referenced agreement for one (1) year as defined in paragraph 3.0 TERM.
The Effective Date of the agreement will now be April 1, 2000 with termination
scheduled for March 31, 2001 unless otherwise extended.
Regards,
/s/ Ryan Panos
- ----------------------------
Ryan Panos
Vice-PResident Global Accounts
RP/sm
<PAGE>
EXHIBIT 10.10
PROMISSORY NOTE
$168.750 December 10, 1999
FOR VALUE RECEIVED, Bill Palumbo (the "Payor") hereby promises to pay
on the tenth anniversary of the date of this Purchase Note or earlier as
provided in, Paragraphs 3 and 4 hereof to Wireless, Inc., a California
corporation (the "Payee"), at 5452 Betsy Ross Drive, Santa Clara, California
95054, or at such other place as may be designated from time to time in writing
by Payee, in lawful money of the United States, the principal sum of $168,750.
This Note shall bear interest at the lower of 6.39% minimum rate of
interest required to avoid imputation of income to Payor, payable at maturity
and in accordance with the provisions of Paragraphs 3 and 4 hereof. Interest
shall accrue daily and compound annually.
1. This Note is the full recourse promissory note referred to
in, and is entitled to the benefits of, the Pledge Agreement dated as of
the date hereof between Payor and Payee with respect to 625,000 shares of Common
Stock of Payee (the "Securities") issued to Payor.
2. This Note may be prepaid at the option of Payor, in full or in part,
at any time and from time to time without premium or penalty.
3. Payor shall prepay all or a portion of the principal and
interest due on this Note in the amounts set forth below. Such payments shall be
made within three business days of receipt by Payor.
(i) 50% of any and all cash dividends or interest received in respect
of the Securities:
(ii) 100% of any and all liquidating or other extraordinary
distributions received in respect of the Securities, net of taxes at an
assumed marginal rate of 40%; and
(iii) 100% of the cash proceeds of any sale, transfer or other
disposition (including by merger) of the Securities. Payor agrees to sell
any non-cash proceeds consisting of publicly tradable securities received
upon any sale, transfer or other disposition (including by merger) of the
Securities as soon as reasonably practicable thereafter without Payor
incurring adverse tax (other than normal taxes due on a disposition,
securities law or similar consequences and use such proceeds to prepay
principal and interest on this Note.
All payments and pre-payments (whether voluntary or mandatory) shall be
allocated first to accrued but unpaid interest and then to principal.
4. Principal and interest on this Note are immediately due and payable
upon the occurrence of either of the following events prior to the tenth
anniversary, of the date hereof:
<PAGE>
(a) the termination of Payor's employment by Payee, whether
voluntarily or involuntarily, for any reason or no reason: or
(b) sale of the Securities by Payor.
5. In the event Payor defaults in the payment when due of the
principal or interest on this Note, Payee, at its option, without notice, may
declare all principal and accrued interest to be immediately due and payable.
6. If this Note is not paid in accordance with its terms and is
placed in the hands of an attorney for collection, or if suit be instituted
hereon, Payor shall pay to Payee, in addition to principal and accrued interest,
all costs of collection of the principal and accrued interest, including,
without limitation, reasonable attorneys' fees for the enforcement of this Note.
7. Payor hereby expressly waives presentment, protest and demand,
notice of protest, demand, dishonor and nonpayment of this Note and all other
notices of any kind. This Note shall be governed by California law.
/s/ WILLIAM J. PALUMBO
----------------------------
William J. Palumbo
2
<PAGE>
PLEDGE AGREEMENT
This Pledge Agreement (this "Agreement") is made and entered into by
and between Wireless, Inc., a California corporation ("Secured Party") and
William J. Palumbo (the "Debtor"), effective as of December 10, 1999.
RECITALS
1. Secured Party is a corporation with its principal place of business
at 5452 Betsy Ross Drive, Santa Clara, California 95054.
2. Debtor's address for purposes of this Agreement is 5452 Betsy Ross
Drive, Santa Clara, California 95054.
3. Secured Party has agreed to sell to Debtor 1,250,000 shares
of the Common Stock of the company (the "Securities"), for an aggregate purchase
price of $337,500 (the "Purchase Price"), of which 50% has been paid in cash,
pursuant to a certain [Common Stock Purchase Agreement], dated as of the date
hereof, by and between Secured Party and Debtor (the "Common Stock Purchase
Agreement").
4. Debtor has given Secured Party a full recourse promissory
note, dated as of the date hereof, in the principal amount of $168,750 (the
"Purchase Note"), as consideration for 50% of the Purchase Price.
5. As a condition to Debtor's purchase of the Securities, he
has agreed to grant Secured Party a security interest in that portion of the
Securities for which the Purchase Price was paid by delivery of the Purchase
Note, as collateral for Debtor's obligations under the Purchase Note.
AGREEMENT
In consideration of the foregoing recitals and the terms, conditions,
and covenants contained herein, Secured Party and Debtor agree as follows:
Section 1. GRANT OF SECURITY INTEREST. Debtor hereby pledges to Secured
Party, and grants to Secured Party, a security interest in the following
(collectively, the "Pledged Collateral"):
(i) 625,000 shares of Common Stock, the certificates or other
instruments representing the pledged Securities, and all non-cash dividends,
instruments and other property from time to time received, receivable or
otherwise distributed in respect of or upon sale, transfer, exchange or other
disposition of any or all of the pledged Securities: and
(ii) All additional shares of stock issued to Debtor by Secured
Party in respect of the pledged Securities and the certificates or other
instruments representing such additional shares, and all non-cash dividends,
instruments and other property from time to time received,
<PAGE>
receivable or otherwise distributed in respect of or in exchange for any or all
of such pledged Securities.
Section 2. DEBTOR'S OBLIGATIONS SECURED HEREBY. The obligations of
Debtor that are secured by this Agreement are as follows:
(i) Payment or performance of all existing and future obligations of
Debtor to Secured Party arising under the Purchase Note, or this
Agreement; and
(ii) All expenses, including attorneys' fees and legal expenses,
incurred or paid by Secured Party in the preservation or enforcement
of its rights or the obligations of Debtor under the Purchase Note or this
Agreement.
Section 3. PLEDGED COLLATERAL - SALE, TRANSFER OR CREATION OF
LIEN. Debtor represents and warrants that Debtor is the sole owner of the
Pledged Collateral, free and clear of any lien, claim, charge, option or other
encumbrance, except as provided in this Agreement and the Common Stock Purchase
Agreement, and has authority, to pledge, transfer and deliver any interest
therein. Debtor shall not sell or offer to sell or otherwise transfer the
Pledged Collateral, or any part thereof or interest therein, encumber the
Pledged Collateral or allow a lien to be placed on the Pledged Collateral,
without the prior written consent of Secured Party, and in accordance with the
provisions of the Common Stock Purchase Agreement.
Section 4. POSSESSION OF PLEDGED COLLATERAL. Secured Party
shall retain possession of the Pledged Collateral until all of Debtor's
obligations under the Purchase Note, the Common Stock Purchase Agreement and
this Agreement have been performed.
Section 5. DEFAULT DEFINED. Debtor shall be in default under this
Agreement upon the occurrence of any of the following events or conditions (each
of which is referred to hereinafter as an "Event of Default"):
(i) Debtor fails to perform any of his obligations under the Purchase
Note, the Common Stock Purchase Agreement or this Agreement, including, without
limitation, his obligation to make any and all payments, when due, under the
Purchase Note;
(ii) Any warranty, representation or statement made or furnished to
Secured Party by or on behalf of Debtor in connection with this Agreement or the
Common Stock Purchase Agreement or to induce Secured Party to extend credit to
Debtor proves to have been false in any material respect when made or furnished;
(iii) Any sale or assignment of, or the placing of any lien or
encumbrance on, the Pledged Collateral occurs, except as is permitted in this
Agreement or the Securities Purchase Agreement, or a suit is filed for the
purpose of, or the making of, any levy on, or seizure or attachment of, the
Pledged Collateral; or
2
<PAGE>
(iv) Debtor makes an assignment for the benefit of creditors, or
commences a proceeding under any bankruptcy or insolvency laws, or any
proceeding under any bankruptcy laws is commenced against Debtor.
Section 6. ACCELERATION. Upon the occurrence of an Event of Default
hereunder or a default under the terms of the Purchase Note, Secured Party may,
without notice to Debtor, accelerate the payment or performance of any or all of
Debtor's obligations hereunder or under the Purchase Note and shall have, in
addition to all rights and remedies under this Agreement, the rights and
remedies of a Secured Party under Article 9 of the California Uniform Commercial
Code (the "Code"), including, without limitation, the right to sell or otherwise
dispose of any or all of the Pledged Collateral.
Section 7. VOTING RIGHTS: DIVIDENDS. ETC. (i) So long as no Event of
Default or event which, with the giving of notice or lapse of time, or both,
would constitute an Event of Default shall have occurred and be continuing:
(a) Debtor shall be entitled to exercise any and all
voting and other consensual rights pertaining to the Pledged Collateral or any
part thereof for any purpose not inconsistent with the terms of this Agreement;
(b) Debtor shall be entitled to receive and retain
dividends and interest paid in respect of the Pledged Collateral, except that
Debtor shall make payments to Secured Party in the amounts set forth below
within three days of receipt.
(A) 50% of any and all cash dividends or interest received in
respect of the Pledged Collateral;
(B) 100% of any and all liquidating or other extraordinary
distributions received in respect of the Pledged Collateral, net of
taxes at an assumed marginal rate of 40%; and
(C)100% of the cash proceeds of any sale, transfer or other
disposition (including by merger) of the Pledged Collateral.
In addition, Debtor agrees to sell any non-cash proceeds consisting of publicly
tradable securities received upon any sale, transfer or other disposition
(including by merger) of the Pledged Collateral as soon as reasonably
practicable thereafter without Debtor incurring adverse tax (other than normal
taxes due on a disposition), securities law or similar consequences, and to
transfer the proceeds of any such sale to Secured Party, within three days of
receipt.
(ii) Upon the occurrence and during the continuance of
an Event of Default or an event which, with the giving of notice or the lapse of
time, or both, would become an Event of Default, all rights of Debtor to
exercise the voting and other consensual rights to which he or she would
otherwise be entitled to exercise pursuant to Section 7(i)(a) and to receive the
dividends and interest payments which he or she would otherwise be authorized to
receive and retain pursuant to Section 7(i)(b) shall cease, and all such rights
shall thereupon become vested in
3
<PAGE>
Secured Party who shall thereupon have the sole right to exercise such voting
and other consensual rights and to receive and hold as Pledged Collateral such
dividends and interest payments.
Section 8. REMEDIES UPON DEFAULT. If any Event of Default shall have
occurred and be continuing:
(i) Secured Party may exercise in respect of the Pledged
Collateral, in addition to other rights and remedies provided for herein or
otherwise available to it, all the rights and remedies of a secured party on
default under the Code at that time, and Secured Party may also, without notice
except as specified below, sell the Pledged Collateral or any part thereof in
one or more parcels at public of private sale, at any exchange, brokers board or
at any of Secured Party's offices or elsewhere, for cash, on credit or for
future delivery, and upon such other terms as Secured Party may deem
commercially reasonable. Debtor agrees that at least ten (10) days notice of the
time and place of any public sale or the date on which any private sale is to be
made shall constitute reasonable notification. Secured Party shall not be
obligated to make any sale of the Pledged Collateral regardless of notice of
sale having been given. Secured Party may adjourn any public or private sale
from time to time by announcement at the time and place fixed therefor, and such
sale may, without further notice, be made at the time and place to which it was
so adjourned.
(ii) Any cash held by Secured Party as Pledged Collateral and
all cash proceeds received by Secured Party in respect of any sale of,
collection from, or other realization upon all or any part of the Pledged
Collateral may, in the discretion of Secured Party, be held by Secured Party as
collateral for, and/or then or at any time thereafter applied in whole or in
part by Secured Party against, all or any part of the obligations in such order
as Secured Party shall elect. Any surplus of such cash or cash proceeds held by
Secured Party and remaining after payment in full of all obligations shall be
paid over to Debtor or to whomsoever may be lawfully entitled to receive such
surplus.
Section 9. NOTICE OF SALE. Secured Party shall give Debtor
written notice of the time and place of any public sale of the Collateral, or of
the date on which a private sale or other intended disposition thereof is to be
made, at least ten (10) days before the sale or disposition.
Section 10. POWER OF ATTORNEY. Debtor appoints Secured Party
its attorney-in-fact to transfer the Pledged Collateral to Secured Party or to
any other person pursuant to Sections 7 and 8 hereof in the event Debtor shall
default hereunder.
Section 11. TERMINATION OF AGREEMENT. This Agreement shall
terminate upon Debtor paying Secured Party all principal and accrued interest on
the Purchase Note and fulfilling all of its obligations to Secured Party under
this Agreement.
Section 12. WAIVER. No waiver of any obligation of Debtor under the
Purchase Note or this Agreement shall be effective unless it is in a writing
signed by Secured Party. A waiver by Secured Party of any right or remedy under
this Agreement on any occasion shall not be a bar
4
<PAGE>
to exercise of the same right or remedy on any subsequent occasion or of any
other right or remedy at any time.
Section 13. NOTICES. All notices, consents, requests,
instructions, approvals and other communications under this Agreement shall be
in writing and shall be deemed to have been delivered (i) on the date indicated
on the return receipt as the date of delivery or refusal if mailed by registered
or certified mail, postage prepaid, return receipt requested, (ii) upon courier
confirmation of receipt if sent by overnight courier, (iii) when receipt is
acknowledged when sent or delivered by telex or facsimile, and (iv) upon
delivery at the addresses set forth in the first page of this Agreement. Any
party may change its address for notice purposes by complying with the notice
provisions of this Section 13.
Section 14. OTHER ACTS OF DEBTOR. Debtor shall execute and
deliver such documents and perform all acts as are necessary or convenient for
Secured Party to perfect the security interest of Secured Party in the Pledged
Collateral or sell the Pledged Collateral in the event of a default by Debtor
under this Agreement or the Purchase Note.
Section 15. ENTIRE AGREEMENT. This Agreement, together with
the Purchase Note and the Common Stock Purchase Agreement, constitute the entire
agreement between the parties with respect to the subject matter hereof,
superseding all negotiations, prior discussions and preliminary agreements. All
modifications and amendments hereto must be in a writing specifying the
modification or amendment and executed by both parties hereto.
Section 16. SUCCESSORS. This Agreement shall be binding upon and
inure to the benefit of the heirs, executors, administrators, assigns and
successors of the respective parties hereto.
Section 17. GOVERNING LAW. The interpretation, performance and
enforcement of this Agreement shall be governed by the laws of the State of
California with respect to agreements entered into and performed within such
state.
IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the date first set forth above.
SECURED PARTY:
WIRELESS, INC.
By: /s/ William E. Gibson
---------------------------------
Name: ---------------------------------
Title: ---------------------------------
DEBTOR:
/s/ William J. Palumbo
---------------------------------
William J. Palumbo
5
<PAGE>
SPOUSAL CONSENT
I, the spouse of Bill Palumbo, hereby acknowledge I have read the
Common Stock Purchase Agreement, the full recourse Purchase Note and the Pledge
Agreement (the "Agreements") between Bill Palumbo and Wireless, Inc. (the
"Company") and know the contents thereof, including those provisions that (i)
establish the rights of the Company to purchase, under various circumstances,
any interest in the securities of the Company held by my spouse, including any
interest acquired by or awarded to me pursuant to a decree of divorce,
dissolution, or separate maintenance, or pursuant, to any property settlement or
separate agreement and, (ii) if applicable, establish a pledge of such
securities to secure the Purchase Note. In accordance with the Agreements, I
hereby agree on behalf of myself and all my successors in interest that the
Agreements shall bind my community interest, if any, in all such securities and
any interests therein that are at any time registered on the books of the
Company in the name of my spouse.
/s/ Sue Palumbo
---------------------------------
(signature)
Sue Palumbo
---------------------------------
(please print name)
Dated:
<PAGE>
EXHIBIT 10.11
BASIC LEASE INFORMATION
LEASE DATE: May 12,1997
TENANT: Wireless, Inc., a California corporation
ADDRESS OF TENANT: 3285 Scott Boulevard, Santa Clara, California 95054
LANDLORD: Spieker Properties, L.P. a California limited
partnership
ADDRESS OF LANDLORD: 2180 Sand Hill Road, Suite 200, Menlo Park, CA
94025
Project Description: One one-story building totaling 48,000 square feet
commonly known as 3281 - 3285 Scott Boulevard,
Santa Clara, California. The Project is shown
outlined in green on Exhibit A.
Building Description: A 48,000 square foot one-story building commonly
known as 3281 - 3285 Scott Boulevard, Santa Clara,
California. The building is shown outlined in blue
on Exhibit A.
Premises: Approximately 12,800 square feet of rentable area
at the western end of the one-story building
commonly known as 3285 Scott Boulevard, Santa
Clara, California. The demised Premises is shown
outlined in red on Exhibit A.
Permitted Use: A business engaged in the telecommunications/
electronics industry, including sales, marketing,
R&D, general office and light assembly, in
compliance with all laws and ordinances of the City
of Santa Clara.
Occupant Density: One person per 333 square feet
Parking Density: One person per 333 square feet
Scheduled Term
Commencement Date: July 1, 1997 (See additional Paragraph 38)
Length of Term: Sixty (60) months
Rent:
Base Rent: See Addendum 2 $-------------------
--------------------
Estimated First Year
Basic Operating Costs: $1,664.00 per month
Security Deposit: See Addendum 4
Forty Thousand Dollars ($40,000.00)
Tenant's Proportionate Share:
Of Building: 26.67%
Of Project: 26.67%
The forgoing Basic Lease information is incorporated into and made part of this
Lease. Each reference in this lease to any Basic Lease information shall mean
the respective information above and shall be construed to incorporate all of
the terms provided under the particular Lease paragraph pertaining to such
information. In the event of any conflict between the Basic Lease Information
and the lease, the latter shall control.
-1-
<PAGE>
TABLE OF CONTENTS
PAGE
Basic Lease Information ..................................................1
Table of Contents ........................................................2
1. Premises .................................................................3
2. Possession and Lease Commencement ........................................3
3. Term .....................................................................3
4. Use ......................................................................3
5. Rules and Regulations ....................................................3
6. Rent .....................................................................3
7. Basic Operating Cost .....................................................4
8. Insurance and Indemnification ............................................5
9. Waiver of Subrogation ....................................................5
10. Landlord's Repairs and Services ..........................................5
11. Tenant's Repairs .........................................................5
12 Alterations ..............................................................5
13. Signs ....................................................................6
14. Inspection/Posting Notices ...............................................6
15. Utilities ................................................................6
16. Subordination ............................................................6
17. Financial Statements .....................................................6
18. Estoppel Certificate .....................................................6
19. Security Deposit .........................................................6
20. Tenant's Remedies ........................................................6
21. Assignment and Subletting ................................................7
22. Quiet Enjoyment ..........................................................7
23. Condemnation .............................................................7
24. Casualty Damage ..........................................................7
25. Holding Over .............................................................8
26. Default ..................................................................8
27. Liens ....................................................................9
28. Substitution .............................................................9
29. Transfers by Landlord ....................................................9
30. Right of Landlord to Perform Tenant's Covenants ..........................9
31. Waiver ...................................................................9
32. Notices ..................................................................9
33. Attorneys' Fees ..........................................................9
34. Successors and Assigns ...................................................9
35. Force Majeure ............................................................9
36. Miscellaneous ............................................................9
37. Additional Provisions ...................................................10
EXHIBIT "A". ..................................Site Plan, Legal Description
EXHIBIT "B". ...........................................Existing Floor Plan
-2-
<PAGE>
LEASE
THIS LEASE is made as of this 12TH day of MAY, 1997, between SPIEKER
PROPERTIES, L.P., A CALIFORNIA LIMITED PARTNERSHIP (hereinafter called
"Landlord") and WIRELESS, INC., A CALIFORNIA CORPORATION (hereinafter called
"Tenant").
PREMISES
1. Landlord leases to Tenant and Tenant leases from Landlord, upon the terms
and conditions hereinafter set forth, those premises (the "Premises")
outlined in red on Exhibit "A" and described in the Basic Lease
Information. The Premises may be all or part of the building (the
"Building") or of the project (the "Project") which may consist of more
than one building. The Building and Project are outlined in blue and green
respectively on Exhibit "A".
POSSESSION AND LEASE COMMENCEMENT
See Addendum 1
2. A. In the event this Lease pertains to a Premises in which the interior
improvements have already been constructed (existing improvements) the
provisions of this subparagraph 2A shall apply and the Term Commencement
Date shall be the earlier of the date on which (1) Tenant takes
possession of some or all of the Premises or (2) Landlord delivers the
Premises to Tenant. If for any reason Landlord cannot deliver possession of
the Premises to Tenant on the Scheduled Term Commencement Date, Landlord
shall not be subject to any liability therefore, nor shall Landlord be in
default hereunder, and Tenant agrees to accept possession of the Premises
at such time as Landlord is able to deliver the same, which date shall then
be deemed the Term Commencement Date. Tenant shall not be liable for any
Rent for any period prior to delivery of the Premises. Tenant acknowledges
that it has inspected and accepts the Premises in their present condition
as suitable for the purpose for which the Premises are leased. Tenant
agrees that said Premises and other improvements are in good and
satisfactory condition as of when possession was taken. Tenant further
acknowledges that no representations as to the condition or repair of the
Premises nor promises to alter, remodel or improve the Premises have been
made by Landlord, unless such are expressly set forth in this Lease. Tenant
shall, upon demand, execute and deliver to Landlord a letter of acceptance
of delivery of the Premises.
TERM
3. The Term of this Lease shall commence on the Term Commencement Date and
continue in full force and effect for the number of months specified as the
Length of Term in the Basic Lease Information or until this Lease is
terminated as otherwise provided herein. If the Term Commencement Date is a
date other than the first day of the calendar month, the Term shall be the
number of months of the Length of Term in addition to the remainder of the
calendar month following the Term Commencement Date.
USE
4. A. Tenant shall use the Premises for the Permitted Use and for no other use
or purpose without prior written consent of Landlord. Tenant and its
employees, customers, visitors, and licensees shall have the nonexclusive
right to use, in common with other parties occupying the Buildings or
Project, the parking areas and driveways of the project, subject to such
reasonable rules and regulations as Landlord may from time to time
prescribe.
B. Tenant shall not permit any odors, smoke, dust, gas, substances, noise
or vibrations to emanate from the Premises, nor take any action which would
constitute a nuisance or would disturb, obstruct or endanger any other
tenants of the Building or Project in which the Premises are situated or
unreasonably interfere with their use of their respective premises. Tenant
shall not receive, store or otherwise handle any product, material or
merchandise which is toxic, harmful, explosive, highly inflammable or
combustible. Storage outside the Premises of materials, vehicles or any
other items Landlord deems objectionable is prohibited without Landlord's
prior written consent. Tenant shall not use or allow the Premises to be
used for any improper, immoral, unlawful or objectionable purpose, nor
shall Tenant cause or maintain or permit any nuisance in, on or about the
Premises. Tenant shall not commit or suffer the commission of any waste in,
on or about the Premises. Tenant shall not allow any sale by auction upon
the Premises, or place any loads upon the floors, walls or ceilings which
endanger the structure, or place any harmful liquids in the drainage system
of the Building or Project. No waste, materials or refuse shall be dumped
upon or permitted to remain outside the Premises except in trash containers
placed inside exterior enclosures designated for that purpose by Landlord.
C. Tenant shall not use the Premises or permit anything to be done in or
about the Premises which will in any way conflict with any law, statute,
ordinance or governmental rule or regulation now in force or which may
hereafter be enacted or promulgated. Tenant shall at its sole cost and
expense obtain any and all licenses or permits necessary for Tenant's use
of the Premises. Tenant shall promptly comply with the requirements of any
board of fire underwriters or other similar body now or hereafter
constituted relating to or affecting the condition, use or occupancy of the
Premises. The judgement of any court of competent jurisdiction or the
admission of Tenant in any actions against Tenant, whether Landlord be a
party thereto or not, that Tenant has so violated any such law, statute,
ordinance, rule, regulation or requirement, shall be conclusive of such
violation as between Landlord and Tenant. Tenant shall not do or permit
anything to be done in, on, or about the Premises or bring or keep anything
which will in any way increase the rate of any insurance upon the Premises,
Building or Project, or upon any contents therein or cause a cancellation
of said insurance or otherwise affect said insurance in any manner. Tenant
shall indemnify Landlord and hold Landlord harmless against any loss,
expense, damage, attorneys' fees or liability arising out of the failure of
Tenant to comply with any applicable law or comply with the requirements as
set forth herein.
RULES AND REGULATIONS
5. Tenant and Tenant's agents, employees, and invitees shall faithfully
observe and comply with any rules and regulations Landlord may from time to
time prescribe in writing for the purpose of maintaining the proper care,
cleanliness, safety, traffic flow and general order of the Premises or
Project. Landlord shall not be responsible to Tenant for the non-compliance
by any other tenant or occupant of the Building or Project with any of the
rules and regulations.
RENT
See Addendum 2
6. Tenant shall pay to Landlord, without demand throughout the Term, Rent as
specified in the Basic Lease Information, payable in monthly installments
in advance on or before the first day of each calendar month, in lawful
money of the United States, without deduction or offset whatsoever to
Landlord at the address specified in the Basic Lease information or to such
other firm or to such other place as Landlord may from time to time
designate in writing. Rent for the first full month of the Term shall be
paid by Tenant upon Tenant's execution of this Lease. If the obligation for
payment of Rent commences on other than the first day of a month, then Rent
shall be prorated and the prorated installment shall be paid on the first
day of the calendar month next succeeding the Term Commencement Date.
-3-
<PAGE>
BASIC OPERATING COST
7. A. BASIC OPERATING COST. In addition to the Base Rent required to be paid
hereunder, Tenant shall pay as additional Rent, Tenant's Proportionate
Share, as defined in the Basic Lease Information, of Basic Operating Cost
in the manner set forth below. Basic Operating Cost shall mean all expenses
and costs of every kind and nature which Landlord shall pay or become
obligated to pay, or would be required to pay if the Project were fully
occupied, because of or in connection with the management, maintenance,
preservation and operation of the Project and its supporting facilities
servicing the Project (determined in accordance with generally accepted
accounting principles, consistently applied) including but not limited to
the following:
(1) All real estate taxes, possessory interest taxes, business or license
taxes or fees, service payment in lieu of such taxes or fees, annual or
periodic license or use fees, excises, transit charges, housing fund
assessments, open space charge, assessments, levies, fees or charges,
general and special, ordinary and extraordinary, unforeseen as well as
foreseen, of any kind (including fees "in-lieu" of any such tax or
assessment) which are assessed, levied, charged, confirmed, or imposed by
any public authority upon the Project, its operations or the rent (or any
portion or component thereof), except (a) inheritance or estate taxes
imposed upon or assessed against the Project, or any part thereof or
interest therein, and (b) taxes computed upon the basis of the net income
of Landlord or the owner of any interest therein.
(2) All insurance premiums and costs, including but not limited to, any
deductible amounts, premiums and cost of fire, casualty and liability
coverage, rental abatement and special hazard insurance applicable to the
Project and Landlord's personal property used in connection therewith;
provided, however, that Landlord may, but shall not be obligated to, carry
special hazard insurance covering losses caused by casualty not insured
under standard fire and extended coverage insurance.
(3) Repairs, replacements and general maintenance for the Premises,
Building and Project (except for those repairs expressly the responsibility
of Landlord, those repairs paid for by proceeds of insurance or by Tenant
or other third parties, and alterations attributable solely to tenants of
the Project other than Tenant).
(4) All maintenance, janitorial and service agreements and used in
maintaining the Premises, Building and Project and the equipment therein
and the adjacent sidewalks, driveways, parking and service areas,
including, without limitation, alarm service, window cleaning, elevator
maintenance, Building exterior maintenance and landscaping.
(5) Utilities which benefit all or a portion of the Premises.
(6) A management and accounting cost recovery equal to three percent (3%) of
Base Rent.
In the event that the building is not fully occupied during any fiscal year
of the Term as determined by Landlord, an adjustment shall be made in
computing the Basic Operating Cost for such year so that Basic Operating
Cost shall be computed as though the building had been one hundred percent
(100%) occupied; provided, however, that in no event shall Landlord be
entitled to collect in excess of one hundred percent (100%) of the total
Basic Operating Cost from all of the tenants in the Building including
Tenant.
All costs and expenses shall be determined in accordance with generally
accepted accounting principles which shall be consistently applied. Basic
Operating Cost shall not include specific costs incurred for the account
of, separately billed to and paid by specific tenants. Notwithstanding
anything herein to the contrary, any instance wherein Landlord, at
Landlord's sole discretion, deems Tenant to be responsible for any amounts
greater than its Proportionate Share, Landlord shall have the right to
allocate costs in any manner Landlord deems appropriate.
B. PAYMENT OF ESTIMATED BASIC OPERATING COST. "Estimated Basic Operating
Cost" for any particular year shall mean Landlord's estimate of the Basic
Operating Cost for such fiscal year made prior to commencement of such
fiscal year as hereinafter provided. Landlord shall have the right from
time to time to revise its fiscal year and interim accounting periods so
long as the periods as so revised are reconciled with prior periods in
accordance with generally accepted accounting principles applied in a
consistent manner. During the last month of each fiscal year during the
Term, or as soon thereafter as practicable, Landlord shall give Tenant
written notice of the Estimated Basic Operating Cost for the ensuing fiscal
year. Tenant shall pay Tenant's Proportionate Share of the Estimated Basic
Operating Costs with installments of Base Rent for the fiscal year to which
the Estimated Basic Operating Cost applies in monthly installments on the
first day of each calendar month during such year, in advance. If at any
time during the course of the fiscal year, Landlord determines that Basic
Operating Cost will apparently vary from the then Estimated Basic Operating
Cost by more than ten percent (10%), Landlord may, by written notice to
Tenant, revise the Estimated Basic Operating Cost for the balance of such
fiscal year and Tenant shall pay Tenant's Proportionate Share of the
Estimated Basic Operating Cost as so revised for the balance of the then
current year on the first of each calendar month thereafter.
C. COMPUTATION OF BASIC OPERATING COST ADJUSTMENT. "Basic Operating Cost
Adjustment" shall mean the difference between Estimated Basic Operating
Cost and Basic Operating Cost for any fiscal year determined as hereinafter
provided. Within one hundred twenty (120) days after the end of each fiscal
year, as determined by Landlord, or as soon thereafter as practicable,
Landlord shall deliver to Tenant a statement of Basic Operating Cost for
the fiscal year just ended accompanied by a computation of Basic Operating
Cost Adjustment. If such statement shows that Tenant's payment based upon
Estimated Basic Operating Cost is less than Tenant's Proportionate Share of
Basic Operating Cost, then Tenant shall pay to Landlord the difference
within twenty (20) days after receipt of such statement. If such statement
shows that Tenant's payments of Estimated Basic Operating Cost exceed
Tenant's Proportionate Share of Basic Operating costs, then (provided that
Tenant is not in default under this Lease), Landlord shall pay to Tenant
the difference within twenty (20) days of such statement. If this Lease has
been terminated or the Term hereof has expired prior to the date of such
statement, then the Basic Operating Cost Adjustment shall be paid by the
appropriate party within twenty (20) days after the date of delivery of the
statement. Should this Lease commence or terminate at any time other than
the first day of the fiscal year, Tenant's Proportionate Share of the Basic
Operating Cost adjustment shall be prorated by reference to the exact
number of calendar days during such fiscal year for which Tenant is
obligated to pay Base Rent.
D. NET LEASE. This shall be a net Lease and Base Rent shall be paid to
Landlord absolutely net of all costs and expenses except as herein
provided. The provisions for payment of Basic Operating Cost and the Basic
Operating Cost Adjustment are intended to pass on to Tenant and reimburse
Landlord for all costs and expenses of the nature described in paragraph 7A
incurred in connection with ownership and operation of the Building or
Project and such additional facilities now and in subsequent years as may
be determined by Landlord to be necessary to the Building or Project.
E. TENANT AUDIT. Tenant shall have the right, at Tenant's expense and upon
not less than five (5) days prior written notice to Landlord, to review at
reasonable times, in Landlord's office, Landlord's books and records
applicable to Tenant's Lease for purposes of verifying Landlord's
calculation of the Basic Operating Cost and Basic Operating Cost
Adjustment.
In the event that Tenant shall dispute the amount set forth in any
statement provided by Landlord under paragraph 7B or 7C above, Tenant shall
have the right, not later than twenty (20) days following the receipt of
such statement and upon condition that Tenant shall first deposit with
Landlord the full amount in dispute, to cause Landlord's books and records
with respect to such fiscal year to be audited by certified public
accountants selected by Tenant and subject to Landlord's reasonable right
of approval. The Basic Operating Cost Adjustment shall be appropriately
adjusted on the basis of such audit. If such audit discloses a liability
for a refund in excess of ten percent (10%) of Tenant's Proportionate Share
of the Basic Operating Cost Adjustment previously reported, the cost of
such audit shall be borne by Landlord; otherwise the cost of such audit
shall be paid by Tenant. If Tenant shall not request an audit in accordance
with the provisions of this paragraph 7E within twenty (20) days of receipt
of Landlord's statement provided pursuant to paragraph 7B or 7C, such
statement shall be final and binding for all purposes hereof.
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INSURANCE AND INDEMNIFICATION
8. A. CASUALTY INSURANCE. Landlord agrees to maintain insurance insuring
the Buildings of the Project, of which the Premises are a part,
against fire, lightning, extended coverage, vandalism and malicious
mischief in an amount not less than eighty percent (80%) of the
replacement cost thereof. Such insurance shall be for the sole benefit
of Landlord and under its sole control. Landlord shall not be
obligated to insure any furniture, equipment, machinery, goods or
supplies not covered by this Lease which Tenant may keep or maintain
in the Premises or any leasehold improvements, additions or
alterations which Tenant may make upon the Premises.
B. LIABILITY INSURANCE. Tenant shall purchase at its own expense and keep
in force during this Lease a policy or policies of comprehensive liability
insurance, including personal injury and property damage, in the amount of
not less than Five Hundred Thousand Dollars ($500,000.00) for property
damage and Two Million Dollars ($2,000,000.00) per occurrence for personal
injuries or deaths of persons occurring in or about the Premises and
Project. Said policies shall (1) name Landlord and, if applicable, its
agent, and any party holding an interest to which this Lease may be
subordinated as additional insureds, (2) be issued by an insurance company
acceptable to Landlord and licensed to do business in the State of
California, and (3) provide that said insurance shall not be cancelled
unless thirty (30) days prior written notice shall have been given to
Landlord. Said policy or policies or certificates thereof shall be
delivered to Landlord by Tenant upon commencement of the lease and upon
each renewal of said insurance.
C. INDEMNIFICATION. Landlord shall not be liable to Tenant for any loss or
damage to person or property caused by theft, fire, act of God, acts of a
public enemy, riot, strike, insurrection, war, court order, requisition or
order of governmental body or authority or for any damage or inconvenience
which may arise through repair or alteration of any part of the Building or
Project or failure to make any such repair except as expressly otherwise
provided in Paragraphs 10 and 12. Tenant shall indemnify Landlord and hold
Landlord harmless from any and all loss, cost, damage, injury or expense
arising out of or related to (1) claims of injury to or death of persons or
damage to property occurring or resulting directly or indirectly from the
use or occupancy of the Premises, or from activities of Tenant, its agents,
servants, employees or anyone in or about the Premises or Project, or from
any cause whatsoever, (2) claims for work or labor performed, or for
materials or supplies furnished to or at the request of Tenant or in
connection with performance of any work done for the account of Tenant
within the Premises or Project, and (3) claims arising from any breach or
default on the part of Tenant in the performance of any covenant contained
in this Lease. Such indemnity shall include without limitation the
obligation to provide all costs of defense against any such claims
including any action or proceeding brought against Landlord. The foregoing
indemnity shall not be applicable to claims arising from the active
negligence or willful misconduct of Landlord. The provisions of this
paragraph shall survive the expiration or termination of this Lease with
respect to any claims or liability occurring prior to such expiration or
termination.
WAIVER OF SUBROGATION
9. To the extent permitted by law and without affecting the coverage provided
by insurance required to be maintained hereunder, Landlord and Tenant each
waive any right to recover against the other (a) damages for injury to or
death of persons, (b) damages to property, (c) damages to the premises or
any part thereof, or (d) claims arising by reason of the foregoing. This
provision is intended to waive fully, and for the benefit of each party,
any rights and/or claims which might give rise to a right of subrogation on
any insurance carrier. The coverage obtained by each party pursuant to this
Lease shall include, without limitation, a waiver of subrogation by the
carrier which conforms to the revisions of this paragraph.
LANDLORD'S REPAIRS AND SERVICES
10. Landlord shall at Landlord's expense maintain the structural soundness of
the roof, foundations and exterior walls of the Building in good repair,
reasonable wear and tear excepted. The term walls as used herein shall not
include windows, glass or plate glass, doors, special store fronts or
office entries. The term roof as used herein shall not include skylights,
smoke hatches or roof vents. Landlord shall perform on behalf of Tenant and
other tenants of the Project the maintenance of the public and common areas
of the Project including but not limited to the landscaped areas, parking
areas, driveways, the truck staging areas, rail spur areas, fire sprinkler
systems, sanitary and storm sewer lines, utility services, electric and
telephone equipment servicing the Building(s), exterior lighting, and
anything which affects the operation and exterior appearance of the
Project, which determination shall be at Landlord's sole discretion. Tenant
shall reimburse Landlord for all such costs in accordance with Paragraph 7.
Any damage caused by or repairs necessitated by any act of Tenant may be
repaired by Landlord at Landlord's option and at Tenant's expense. Tenant
shall immediately give Landlord written notice of any defect or need of
repairs after which Landlord shall have reasonable opportunity to repair
same. Landlord's liability with respect to any defects, repairs, or
maintenance for which Landlord is responsible under any of the provisions
of this Lease shall be limited to the cost of such repairs or maintenance.
TENANT'S REPAIRS
11. Tenant shall at Tenant's expense maintain all parts of the Premises in a
good clean and secure condition promptly making all necessary repairs and
replacements including but not limited to all windows, glass, doors and any
special office entries, walls and wall finishes, floor covering, heating,
ventilating and air conditioning systems, truck doors, dock bumpers, dock
plates and levelers, roofing, plumbing work and fixtures, downspouts,
skylights, smoke hatches and roof vents. Tenant shall at Tenant's expense
also perform necessary pest extermination and regular removal of trash and
debris. If required by the railroad company, Tenant agrees to sign a joint
maintenance agreement governing the use of the rail spur, if any. Tenant
shall, at its own expense, enter into a regularly scheduled preventive
maintenance/service contract with a maintenance contractor for servicing
all hot water, heating and air conditioning systems and equipment within or
serving the Premises. The maintenance contractor and the contract must be
approved by Landlord. The service contract must include all services
suggested by the equipment manufacturer within the operation/maintenance
manual and must become effective and a copy thereof delivered to Landlord
within thirty (30) days of the Term Commencement Date. Tenant shall not
damage any demising wall or disturb the integrity and support provided by
any demising wall and shall, at its sole expense, immediately repair any
damage to any demising wall caused by Tenant or its employees, agents or
invitees.
ALTERATIONS
12. Tenant shall not make, or allow to be made, any alterations or physical
additions in, about or to the premises without obtaining the prior written
consent of Landlord which consent shall not be unreasonably withheld with
respect to proposed alterations and additions which (a) comply with all
applicable laws, ordinances, rules and regulations, (b) are in Landlord's
opinion compatible with the Project and its mechanical, plumbing,
electrical, and heating/ventilation/air conditioning systems, and (c) in
Landlord's opinion will not interfere with the use and occupancy of any
other portion of the Building or Project by any other tenant or its
invitees. Specifically, but without limiting the generality of the
foregoing, Landlord shall have the right of consent for all plans and
specifications for the proposed alterations or additions, construction
means and methods, any contractor or subcontractor to be employed on the
work of alteration or additions, and the time for performance of such work.
Tenant shall also supply to Landlord any documents and information
reasonably requested by Landlord in connection with its consideration of a
request for approval hereunder. Tenant must have Landlord's written
approval and all appropriate permits and licenses prior to the commencement
of said alterations and additions. All alterations and additions permitted
hereunder shall be made and performed by Tenant without cost or expense to
Landlord including any costs or expenses which Landlord may incur in
electing to have an outside agency review said plans and specifications.
Landlord shall have the right to require Tenant to remove any or all
alterations, additions, improvements and partitions made by Tenant and
restore the Premises to their original condition by the termination of this
Lease, by lapse of time or otherwise, all at Tenant's expense. All such
removals and restoration shall be accomplished in a good workmanlike manner
so as not to cause any damage to the Premises or Project whatsoever. If
Landlord so elects, such alterations, physical additions or improvements
shall become the property of Landlord and surrendered to Landlord upon the
termination of this Lease by lapse of time or otherwise; provided, however
that this clause shall not apply to trade fixtures or furniture owned by
Tenant. In addition to and wholly apart from its obligation to pay Tenant's
Proportionate Share of Basic Operating Costs, Tenant shall be responsible
for and shall
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pay prior to delinquency any taxes or governmental service fees, possessory
interest taxes, fees or charges in lieu of any such taxes, capital levies,
or other charges imposed upon, levied with respect to or assessed against
its personal property, on the value of its alterations, additions or
improvements and on its interest pursuant to this Lease. To the extent that
any such taxes are not separately assessed or billed to Tenant, Tenant
shall pay the amount thereof as invoiced to Tenant by Landlord.
SIGNS
13. All signs, notices and graphics of every kind or character, visible in or
from public view or corridors, the common areas or the exterior of the
Premises, shall be subject to Landlord's prior written approval, which
Landlord shall have the right to withhold in its absolute and sole
discretion. Tenant shall not place or maintain any banners whatsover or any
window decor in or on any exterior window or window fronting upon any
common areas or service area or upon any truck doors or man doors without
Landlord's prior written approval which Landlord shall have the right to
grant or withhold in its absolute and sole discretion. Any installation of
signs or graphics on or about the Premises and Project shall be subject to
any applicable governmental laws, ordinances, regulations and to any other
requirements imposed by Landlord. Tenant shall remove all such signs and
graphics by the termination of this Lease. Such installations and removals
shall be made in such manner as to avoid injury to or defacement of the
Premises, Building or Project and any other improvements contained therein,
and Tenant shall repair any injury or defacement including without
limitation discoloration caused by such installation or removal.
INSPECTION/POSTING NOTICES
14. After reasonable notice, except in emergencies where no such notice shall
be required, Landlord, its agents and representatives, shall have the right
to enter the Premises to inspect the same, to clean, to perform such work
as may be permitted or required hereunder, to make repairs or alterations
to the Premises or Project or to other tenant spaces therein, to deal with
emergencies, to post such notices as may be permitted or required by law to
prevent the perfection of liens against Landlord's interest in the Project
or to exhibit the Premises to prospective tenants, purchasers, encumbrances
or others, or for any other purpose as Landlord may deem necessary or
desirable; provided, however, that Landlord shall not unreasonably
interfere with Tenant's business operations. Tenant shall not be entitled
to any abatement of Rent by reason of the exercise of any such right of
entry. Six months prior to the end of the lease, Landlord shall have the
right to erect on the Premises and/or Project a suitable sign indicating
that the Premises are available for lease. Tenant shall give written notice
to Landlord at least thirty (30) days prior to vacating the Premises and
shall meet with Landlord for a joint inspection of the Premises at the time
of vacating. In the event of Tenant's failure to give such notice or
participate in such joint inspection, Landlord's inspection at or after
Tenant's vacating the Premises shall conclusively be deemed correct for
purposes of determining Tenants responsibility for repairs and restoration.
UTILITIES
15. Tenant shall pay for all water, gas, heat, air conditioning, light, power,
telephone, sewer, sprinkler charges and other utilities and services used
on or from the Premises, together with any taxes, penalties, surcharges or
the like pertaining thereto, and maintenance charges for utilities and
shall furnish all electric light bulbs ballasts and tubes. If any such
services are not separately metered to Tenant, Tenant shall pay a
reasonable proportion, as determined by Landlord, of all charges jointly
serving other premises. Landlord shall not be liable for any damages
directly or indirectly resulting from nor shall the Rent or any monies owed
Landlord under this Lease herein reserved be abated by reason of (a) the
installation, use or interruption of use of any equipment used in
connection with the furnishing of any of the foregoing utilities and
services, (b) failure to furnish or delay in furnishing any such utilities
or services when such failure or delay is caused by acts of God or the
elements, labor disturbances of any character, any other accidents or other
conditions beyond the reasonable control of Landlord, or (c) the
limitation, curtailment, rationing or restriction on use of water,
electricity, gas or any other form of energy or any other service or
utility whatsoever serving the Premises or Project. Landlord shall be
entitled to cooperate voluntarily and in a reasonable manner with the
efforts of national, state or local governmental agencies or utility
suppliers in reducing energy or other resource consumption. The obligation
to make services available hereunder shall be subject to the limitations of
any such voluntary, reasonable program.
SUBORDINATION
16. Without the necessity of any additional document being executed by Tenant
for the purpose of effecting a subordination, this Lease shall be subject
and subordinate at all times to (a) all ground leases or underlying leases
which may now exist or hereafter be executed affecting the Premises and/or
the land upon which the Premises and Project are situated, or both, and (b)
any mortgage or deed of trust which may now exist or be placed upon said
Project, land, ground leases or underlying leases, or Landlord's interest
or estate in any of said items, which is specified as security.
Notwithstanding the foregoing, Landlord shall have the right to subordinate
or cause to be subordinated any such ground leases or underlying leases or
any such liens to this Lease. In the event that any ground lease or
underlying lease terminates for any reason or any mortgage or deed of trust
is foreclosed or a conveyance in lieu of foreclosure is made for any
reason, Tenant shall, notwithstanding any subordination, attorn to and
become the Tenant of the successor in interest to Landlord at the option of
such successor in interest. Tenant shall execute and deliver, upon demand
by Landlord and in the form requested by Landlord, any additional documents
evidencing the priority of subordination of this Lease with respect to any
such ground leases or underlying leases or any such mortgage or deed of
trust.
FINANCIAL STATEMENTS SEE
ADDENDUM 3
17. At the request of Landlord, Tenant shall provide to Landlord its current
financial statement or other information discussing financial worth which
Landlord shall use solely for purposes of this Lease and in connection with
the ownership, management and disposition of the property subject hereto.
ESTOPPEL
CERTIFICATE
18. Tenant agrees from time to time within ten (10) days after request of
Landlord, to deliver to Landlord, or Landlord's designee, an estoppel
certificate stating that this lease is in full force and effect, the date
to which Rent has been paid, the unexpired portion of this lease and such
other matters pertaining to this Lease as may be reasonably requested by
Landlord. Failure by Tenant to execute and deliver such certificate shall
constitute an acceptance of the Premises and acknowledgement by Tenant that
the statements included are true and correct without exception. Landlord
and Tenant intend that any statement delivered pursuant to this paragraph
may be relied upon by any mortgagee, beneficiary, purchaser or prospective
purchaser of the Project or any interest therein. The parties agree that
Tenant's obligation to furnish such estoppel certificates in a timely
fashion is a material inducement for Landlord's execution of the Lease.
SECURITY DEPOSIT
SEE ADDENDUM 4
19. Tenant agrees to deposit with Landlord upon execution of this Lease, a
Security Deposit as stated in the Basic Lease Information which sum shall
be held by Landlord, without obligation for interest, as security for the
performance of Tenant's covenants and obligations under this Lease, it
being expressly understood and agreed that such deposit is not an advance
rental deposit or a measure of damages incurred by Landlord in case of
Tenant's default. Upon the occurrence of any event of default by Tenant,
Landlord may, from time to time, without prejudice to any other remedy
provided herein or provided by law, use such fund to the extent necessary
to make good any arrears of Rent or other payments due to Landlord
hereunder, and any other damage, injury, expense or liability caused by
such event of default, and Tenant shall pay to Landlord, on demand, the
amount so applied in order to restore the Security Deposit to its original
amount.
TENANT'S REMEDIES
20. Tenant shall look solely to Landlord's interest in the Project for recovery
of any judgement from Landlord. Landlord, or if Landlord is a partnership,
its partners whether general or limited, or if it is a corporation, its
directors, officers or shareholders, shall never be personally liable for
any such judgement. Any lien obtained to enforce any such judgement and any
levy of execution thereon shall be subject and subordinate to any lien,
mortgage or deed of trust on the Project.
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ASSIGNMENT AND SUBLETTING
21. A. Tenant shall not assign or sublet the Premises or any part thereof
without Landlord's prior written approval except as provided herein. If
Tenant desires to assign this Lease or sublet any or all of the Premises,
Tenant shall give Landlord written notice ninety (90) days prior to the
anticipated effective date of the assignment or sublease. Landlord shall
then have a period of thirty (30) days following receipt of such notice to
notify Tenant in writing that Landlord elects either (1) to terminate this
Lease as to the space so affected as of the date so requested by Tenant, or
(2) to permit Tenant to assign this Lease or sublet such space, subject,
however, to Landlord's prior written approval of the proposed assignee or
subtenant and of any related documents or agreements associated with the
assignment or sublease, such consent not to be unreasonably withheld so
long as the use of the Premises by such proposed assignee or subtenant
would be a Permitted Use and would not in Landlord's opinion increase
Occupant Density of the Project, the proposed assignee or subtenant is of
sound financial condition, and the proposed assignment or sublease would
not be likely to result in any decrease in Rent. If Landlord should fail to
notify Tenant in writing of such election within said period, Landlord
shall be deemed to have waived option (1) above, but written approval by
Landlord of the proposed assignee or subtenant shall be required. Failure
by Landlord to approve a proposed assignee or subtenant shall not cause a
termination of this Lease.
B. Any Rent or other consideration realized by Tenant under any such
sublease or assignment in excess of the Rent payable hereunder, after
amortization of (1) the reasonable cost of any improvements which Tenant
has made for the purpose of assigning or subletting all or part of the
Premises and (2) reasonable subletting and assignment costs, shall be
divided and paid, ten percent (10%) to Tenant, ninety percent (90%) to
Landlord.
C. In any subletting or assignment undertaken by Tenant, Tenant shall
diligently seek to obtain the maximum rental amount available in the
marketplace for such subletting or assignment.
D. If Tenant is a corporation, a transfer of corporate shares by sale,
assignment, bequest, inheritance, operation of law or other disposition
(including such a transfer to or by a receiver or trustee in federal or
state bankruptcy, insolvency or other proceedings), so as to result in a
change in the present control of such corporation or any of its parent
corporations by the person or persons owning a majority of said corporate
shares, shall constitute an assignment for purposes of this paragraph.
E. If Tenant is a partnership, joint venture or other unincorporated
business form, a transfer of the interest of persons, firms or entities
responsible for managerial control of Tenant by sale, assignment, bequest,
inheritance, operation of law or other disposition, so as to result in a
change in the present control of said entity and/or a change in the
identity of the persons responsible for the general credit obligations of
said entity shall constitute an assignment for all purposes of this
paragraph.
F. No assignment or subletting by Tenant shall relieve Tenant of any
obligation under this Lease. Any assignment or subletting which conflicts
with the provisions hereof shall be void.
QUIET ENJOYMENT
22. Landlord represents that it has full right and authority to enter into this
Lease and that Tenant, upon paying the Rent and performing its other
covenants and agreements herein set forth, shall peaceably and quietly
have, hold and enjoy the Premises for the Term hereof without hindrance or
molestation from Landlord, subject to the terms and provisions of this
Lease.
CONDEMNATION
23. A. If the whole or any substantial portion of the Project of which the
Premises are a part should be taken or condemned for any public use under
governmental law ordinance or regulation, or by right of eminent domain, or
by private purchase in lieu thereof, and the taking would prevent or
materially interfere with the Permitted Use of the Premises, this lease
shall terminate and the Rent shall be abated during the unexpired portion
of this Lease, effective when the physical taking of said Premises shall
have occured.
B. If a portion of the Project of which the Premises are a part should be
taken or condemned for any public use under any governmental law,
ordinance, or regulation, or by right of eminent domain, or by private
purchase in lieu thereof, and this Lease is not terminated as provided in
the subparagraph 23A above, this Lease shall not terminate, but the Rent
payable hereunder during the unexpired portion of the Lease shall be
reduced to such extent as may be fair and reasonable under all of the
circumstances.
C. Landlord shall be entitled to any and all payment, income, rent, award,
or any interest therein whatsoever which may be paid or made in connection
with such taking or conveyance and Tenant shall have no claim against
Landlord or otherwise for the value of any unexpired portion of this Lease.
Notwithstanding the foregoing paragraph, any compensation specifically
awarded Tenant for loss of business, Tenant's personal property, moving
cost or loss of goodwill, shall be and remain the property of Tenant.
CASUALTY DAMAGE
24. A. If the Premises should be damaged or destroyed by fire, tornado or other
casualty, Tenant shall give immediate written notice thereof to Landlord.
Within thirty (30) days of such notice, Landlord shall notify Tenant
whether in Landlord's opinion such repairs can be made either (1) within
ninety (90) days, (2) in more than ninety (90) days but in less than one
hundred eighty (180) days, or (3) in more than one hundred eighty (180)
days from the date of such notice; Landlord's determination shall be
binding on Tenant.
B. If the Premises should be damaged by fire, tornado or other casualty but
only to such extent that rebuilding or repairs can in Landlord's estimation
be completed within ninety (90) days after the date upon which Landlord is
notified by Tenant of such damage, this Lease shall not terminate, and
Landlord shall at its sole cost and expense thereupon proceed with
reasonable diligence to rebuild and repair the Premises to substantially
the condition in which they existed prior to such damage, except that
Landlord shall not be required to rebuild, repair or replace any part of
the partitions, fixtures, additions and other improvements which may have
been placed in, on or about the Premises by Tenant. If the Premises are
untenantable in whole or in part following such damage, the Rent payable
hereunder during the period in which they are untenantable shall be reduced
to such extent as may be fair and reasonable under all of the
circumstances.
C. If the Premises should be damaged by fire, tornado or other casualty but
only to such extent that rebuilding or repairs can in Landlord's estimation
be completed in more than ninety (90) days but in less than one hundred
eighty (180) days, then Landlord shall have the option of either (1)
terminating the Lease effective upon the date of the occurrence of such
damage, in which event the Rent shall be abated during the unexpired
portion of the Lease, or (2) electing to rebuild or repair the Premises to
substantially the condition in which they existed prior to such damage
except that Landlord shall not be required to rebuild, repair or replace
any part of the partitions, fixtures, additions and other improvements
which may have been placed in, on or about the Premises by Tenant. If the
Premises are untenantable in whole or in part following such damage, the
Rent payable hereunder during the period in which they are untenantable
shall be reduced to such extent as may be fair and reasonable under all of
the circumstances. In the event that Landlord should fall to complete such
repairs and rebuilding within one hundred eighty (180) days after the date
upon which Landlord is notified by Tenant of such damage, such period of
time to be extended for delays caused by the fault or neglect of Tenant or
because of acts of God, acts of public agencies, labor disputes, strikes,
fires, freight embargoes, rainy or stormy weather, inability to obtain
materials, supplies or fuels, or delay of the contractors or subcontractors
due to such causes or other contingencies beyond the reasonable control of
Landlord, Tenant may at its option terminate this Lease by delivering
thirty (30) days prior written notice of termination to Landlord as
Tenant's exclusive remedy, whereupon all rights and obligations hereunder
shall cease and terminate.
D. If the Premises should be so damaged by fire, tornado, or other casualty
that rebuilding or repairs cannot in Landlord's estimation be completed
within one hundred eighty (180) days after the date upon which Landlord is
notified by Tenant of such damage, this Lease shall terminate and the Rent
shall be abated during the unexpired portion of this Lease, effective upon
the date of the occurrence of such damage.
E. Notwithstanding anything herein to the contrary, in the event that
holder of any indebtedness secured by a mortgage or deed of trust covering
the Premises requires that the insurance proceeds be applied to such
indebtedness, then Landlord shall have the right to terminate this Lease by
delivering written notice of termination to Tenant within fifteen (15) days
after such requirement is made by any such holder, whereupon all rights and
obligations hereunder shall cease and terminate.
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<PAGE>
F. The provisions of Section 1942, Subdivision 2, and Section 1933,
Subdivision 4, of the Civil Code of California is superseded by the
foregoing.
HOLDING OVER
25. If Tenant shall retain possession of the Premises or any portion thereof
without Landlord's consent following the expiration of the Lease or sooner
termination for any reason, then Tenant shall pay to Landlord for each day
of such retention triple the amount of the daily rental for the last month
prior to the date of expiration or termination. Tenant shall also indemnify
and hold Landlord harmless from any loss or liability resulting from delay
by Tenant in surrendering the Premises, including, without limitation, any
claims made by any succeeding tenant founded on such delay. Alternatively,
if Landlord gives notice of Landlord's consent to Tenant's holding over,
such holding over shall constitute renewal of the Lease on whatever terms
are specified in such notice. Acceptance of Rent by Landlord following
expiration or termination shall not constitute a renewal of this Lease, and
nothing contained in this paragraph shall waive Landlord's right of reentry
or any other right. Unless Landlord exercises the option hereby given to
it, Tenant shall be only a Tenant at sufferance, whether or not Landlord
accepts any Rent from Tenant while Tenant is holding over without
Landlord's written consent. Additionally, in the event that upon
termination of the Lease, Tenant has not fulfilled its obligation with
respect to repairs and cleanup of the Premises or any other Tenant
obligations as set forth in this Lease, then Landlord shall have the right
to perform any such obligations as it deems necessary at Tenant's sole cost
and expense, and any time required by Landlord to complete such obligations
shall be considered a period of holding over and the terms of this
paragraph shall apply.
DEFAULT
26. A. EVENTS OF DEFAULT: The occurrence of any of the following shall
constitute an event of default on the part of Tenant:
(1) ABANDONMENT. Vacation or abandonment of the Premises for a continuous
period in excess of five (5) days. Tenant waives any right to notice Tenant
may have under Section 1951.3 of the Civil Code of the State of California,
the terms of this subparagraph 26A being deemed such notice to Tenant as
required by said Section 1951.3.
(2) NONPAYMENT OF RENT. Failure to pay any installment of Rent or any other
amount due and payable hereunder upon the date when said payment is due,
such failure continuing without cure by payment of the delinquent Rent and
late charge or other obligations for a period of five (5) days after
written notice and demand; provided, however, that except as expressly
otherwise provided herein, Landlord shall not be required to provide such
notice more than twice during the Term, the third such non-payment
constituting default for all purposes hereof without requirements of
notice.
(3) OTHER OBLIGATIONS. Failure to perform any obligations, agreement or
covenant under this Lease other than those matters specified in
subparagraphs (1) and (2) of this subparagraph 26A, such failure continuing
for fifteen (15) days after written notice of such failure, or such longer
period as Landlord determines to be necessary to remedy such default,
provided that Tenant shall continuously and diligently pursue such remedy
at all times until such default is cured.
(4) GENERAL ASSIGNMENT. A general assignment by Tenant for the Benefit of
creditors.
(5) BANKRUPTCY. The filing of any voluntary petition in bankruptcy by
Tenant, or the filing of an involuntary petition by Tenant's creditors,
which involuntary petition remains undischarged for a period of thirty (30)
days. In the event that under applicable law the trustee in bankruptcy or
Tenant has the right to affirm this Lease and continue to perform the
obligation of Tenant hereunder, such trustee or Tenant shall, in such time
period as may be permitted by the bankruptcy court having jurisdiction,
cure all defaults of Tenant hereunder outstanding as of the date of the
affirmance of this Lease and provide to Landlord such adequate assurances
as may be necessary to ensure Landlord of the continued performance of
Tenant's obligations under this Lease.
(6) RECEIVERSHIP. The employment of a receiver to take possession of
substantially all of Tenant's assets or the premises, if such attachment or
other seizure remains undismissed or undischarged for a period of ten (10)
days after the levy thereof.
(7) ATTACHMENT. The attachment, execution or other judicial seizure of all
or substantially all of Tenant's assets of the Premises, if such attachment
or other seizure remains undismissed or undischarged for a period of ten
(10) days after the levy thereof.
B. REMEDIES UPON DEFAULT.
(1) RENT. All failures to pay any monetary obligation to be paid by Tenant
under this Lease shall be construed as obligations for payment of Rent.
(2) TERMINATION. In the event of the occurrence of any event of default,
Landlord shall have the right, with or without notice or demand, to
immediately terminate this Lease, and at any time thereafter recover
possession of the Premises or any part thereof and expel and remove
therefrom Tenant and any other person occupying the same, by any lawful
means, and again repossess and enjoy the Premises without prejudice to any
of the remedies that Landlord may have under this Lease, or at law or
equity by reason of Tenant's default or of such termination.
(3) CONTINUATION AFTER DEFAULT. Even though Tenant has breached this Lease
and/or abandoned the Premises, this Lease shall continue in effect for so
long as Landlord does not terminate Tenant's right to possession under
paragraph 26B (2) hereof, and Landlord may enforce all its rights and
remedies under this Lease, including but without limitation, the right to
recover Rent as it becomes due, and Landlord, without terminating this
Lease, may exercise all of the rights and remedies of a Landlord under
Section 1951.4 of the Civil Code of the State of California or any
successor code section. Acts of maintenance preservation or efforts to
lease the Premises or the appointment of a receiver upon application of
Landlord to protect Landlord's interest under this Lease shall not
constitute an election to terminate Tenant's right to possession.
C. DAMAGES UPON TERMINATION. Should Landlord terminate this Lease pursuant
to the provisions of paragraph 26B (2) hereof, Landlord shall have all the
rights and remedies of a Landlord provided by Section 1951.2 of the Civil
Code of the State of California, or successor code sections. Upon such
termination, in addition to any other rights and remedies to which Landlord
may be entitled under applicable law, Landlord shall be entitled to recover
from Tenant: (1) the worth at the time of award of the unpaid Rent and
other amounts which had been earned at the time of termination, (2) the
worth at the time of award of the amount by which the unpaid Rent which
would have been earned after termination until the time of award exceeds
the amount of such Rent loss that the Tenant proves could have been
reasonably avoided, (3) the worth at the time of award of the amount by
which the unpaid Rent for the balance of the Term after the time of award
exceeds the amount of such Rent loss that the Tenant proves could be
reasonably avoided, and (4) any other amount necessary to compensate
Landlord for all the detriment proximately caused by Tenant's failure to
perform its obligations under this Lease or which, in the ordinary course
of things, would be likely to result therefrom. The "worth at the time of
award" of the amounts referred to in (1) and (2), above shall be computed
with interest at the maximum rate allowed by law. The "worth at the time of
award" of the amount referred to in (3) above shall be computed by
discounting such amount at the Federal Discount Rate of the Federal Reserve
Bank of San Francisco at the time of the award plus one percent (1%).
D. LATE CHARGE. In addition to its other remedies, Landlord shall have the
right without notice or demand to add to the amount of any payment required
to be made by Tenant hereunder, and which is not paid on or before the date
the same is due, an amount equal to five percent (5%) of the delinquency
for each month or portion thereof that the delinquency remains outstanding
to compensate Landlord for the loss of the use of the amount not paid and
the administrative costs caused by the delinquency, the parties agreeing
that Landlord's damage by virtue of such delinquencies would be difficult
to compute and the amount stated herein represents a reasonable estimate
thereof.
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<PAGE>
E. REMEDIES CUMULATIVE. All rights, privileges and elections or remedies of
the parties are cumulative and not alternative to the extent permitted by
law and except as otherwise provided herein.
LIENS
27. Tenant shall keep the Premises free from liens arising out of or related to
work performed, materials or supplies furnished or obligations incurred by
Tenant or in connection with work made, suffered or done by Tenant in or on
the Premises or Project. In the event that Tenant shall not, within ten
(10) days following the imposition of any such lien, cause the same to be
released of record by payment or posting of a proper bond, Landlord shall
have, in addition to all other remedies provided herein and by law, the
right, but not the obligation, to cause the same to be released by such
means as it shall deem proper, including payment of the claim giving rise
to such lien. All sums paid by Landlord on behalf of Tenant and all
expenses incurred by Landlord in connection therefore shall be payable to
Landlord by Tenant on demand with interest at the maximum rate allowable by
law. Landlord shall have the right at all times to post and keep posted on
the Premises any notices permitted or required by law, or which Landlord
shall deem proper, for the protection of Landlord, the Premises, the
Project and any other party having an interest therein, from mechanics' and
materialmen's liens, and Tenant shall give Landlord not less than ten (10)
business days prior written notice of the commencement of any work in the
Premises or Project which could lawfully give rise to a claim for
mechanics' or materialmen's lien.
SUBSTITUTION
28. At any time after execution of this Lease, Landlord may substitute for the
Premises other premises in the Project (the "New Premises") upon not less
than sixty (60) days prior written notice, in which event the New Premises
shall be deemed to be the Premises for all purposes hereunder, provided
however, that:
(A) The area of the Premises is less than twenty-five (25%) of the area of
the Project;
(B) The New Premises shall be similar in area and in appropriateness for
Tenant's purposes;
(C) Any such substitution is effected for the purpose of accommodating a
Tenant who will occupy all or a substantial portion of the Project area;
and
(D) If Tenant is occupying the Premises at the time of such substitution,
Landlord shall pay the expense of physically moving Tenant, its property
and equipment to the new premises and shall, at its sole cost, improve the
new Premises with improvements substantially similar to those Landlord has
committed to provide or has provided in the Premises.
TRANSFERS BY LANDLORD
29. In the event of a sale or conveyance by Landlord of the Building, the same
shall operate to release Landlord from any future liability upon any of the
covenants or conditions, express or implied, herein contained in favor of
Tenant, and in such event Tenant agrees to look solely to the
responsibility of the successor in interests of Landlord in and to this
Lease. This Lease shall not be affected by any such sale and Tenant agrees
to attorn to the purchaser or assignee.
RIGHT OF LANDLORD TO PERFORM TENANT'S COVENANTS
30. All covenants and agreements to be performed by Tenant under any of the
terms of this Lease shall be performed by Tenant at Tenant's sole cost and
expense and without any abatement of Rent. If Tenant shall fail to pay any
sum of money, other than Rent, required to be paid by it hereunder or shall
fail to perform any other act on its part to be performed hereunder, and
such failure shall continue for five (5) days after notice thereof by
Landlord, Landlord may, but shall not be obligated to do so, and without
waiving or releasing Tenant from any obligations of the Tenant, make any
such payment or perform any such act on the Tenant's part to be made or
performed. All sums so paid by Landlord and all necessary incidental costs
together with interest thereon at the maximum rate permitted by law from
the date of such payment by the Landlord shall be payable to Landlord on
demand, and Tenant covenants to pay such sums, and Landlord shall have, in
addition to any other right or remedy of Landlord, the same right and
remedies in the event of the non-payment thereof by Tenant as in the case
of default by Tenant in the payment of the Rent.
WAIVER
31. If either Landlord or Tenant waives the performance of any term, covenant
or condition contained in this Lease, such waiver shall not be deemed to be
a waiver of any subsequent breach of the same or any other term, covenant
or condition contained herein. The acceptance of Rent by Landlord shall not
constitute a waiver of any preceding breach by Tenant of any term, covenant
or condition of this Lease, regardless of Landlord's knowledge of such
preceding breach at the time Landlord accepted such Rent. Failure by
Landlord to enforce any of the terms, covenants or conditions of this Lease
for any length of time shall not be deemed to waive or to decrease the
right of Landlord to insist thereafter upon strict performance by Tenant.
Waiver by Landlord of any term, covenant or condition contained in this
Lease may only be made by a written document signed by Landlord.
NOTICES
32. Each provision of this Lease or of any applicable governmental laws,
ordinances, regulations and other requirements with reference to the
sending, mailing or delivery of any notice or the making of any payment by
Landlord or Tenant to the other shall be deemed to be complied with when
and if the following steps are taken:
A. All Rent and other payments required to be made by Tenant to Landlord
hereunder shall be payable to Landlord at the address set forth in the
Basic Lease Information, or at such other address as Landlord may specify
from time to time by written notice delivered in accordance herewith.
Tenant's obligation to pay Rent and any other amounts to Landlord under the
terms of this Lease shall not be deemed satisfied until such Rent and other
amounts have been actually received by Landlord.
B. All notices, demands, consents and approvals which may or are required
to be given by either party to the other hereunder shall be in writing and
shall be deemed to have been fully given when deposited in the United
States mail, certified or registered, postage prepaid, and addressed to the
party to be notified at the address for such party specified in the Basic
Lease Information or to such other place as the party to be notified may
from time to time designate by at least fifteen (15) days notice to the
notifying party. Tenant appoints as its agent to receive the service of all
default notices and notice of commencement of unlawful detainer proceedings
the person in charge of or apparently in charge of or occupying the
Premises at the time, and, if there is no such person, then such service
may be made by attaching the same on the main entrance of the Premises.
ATTORNEYS' FEES
33. In the event either party places the enforcement of this Lease, or any part
thereof, or the collection of any Rent due, or to become due hereunder, or
recovery of the possession of the Premises in the hands of an attorney or
files suit upon the same, the prevailing party shall recover its reasonable
attorneys' fees and court costs.
SUCCESSORS AND ASSIGNS
34. This Lease shall be binding upon and inure to the benefit of Landlord, its
successors and assigns, and shall be binding upon and inure to the benefit
of Tenant, its successors, and to the extent assignment may be approved by
Landlord hereunder, Tenant's assigns.
FORCE MAJEURE
35. Whenever a period of time is herein prescribed for action to be taken by
Landlord, Landlord shall not be liable or responsible for, and there shall
be excluded from the computation for any such period of time, any delays
due to strikes, riots, acts of God, shortages of labor or materials, war,
governmental laws, regulations or restrictions or any other causes of any
kind whatsoever which are beyond the control of Landlord.
MISCELLANEOUS
36. A. The term "Tenant" or any pronoun used in place thereof shall indicate
and include the masculine or feminine, the singular or plural number,
individuals, firms or corporations, and their and each of their respective
successors, executors, administrators and permitted assigns, according to
the context hereof.
B. Time is of the essence regarding this Lease and all of its provisions.
-9-
<PAGE>
C. This Lease shall in all respects be governed by the laws of the State of
California.
D. This Lease, together with its exhibits, contains all the agreements of
the parties hereto and supersedes any previous negotiations.
E. There have been no representations made by the Landlord or
understandings made between the parties other than those set forth in this
Lease and its exhibits.
F. This Lease may not be modified except by a written instrument by the
parties hereto.
G. If, for any reason whatsoever, any of the provisions hereof shall be
unenforceable or ineffective, all of the other provisions shall be and
remain in full force and effect.
ADDITIONAL PROVISIONS
37. Additional paragraphs 38, 39, Addenda 1, 2, 3, 4, Exhibits A and B, are
attached hereto and made a part hereof.
38. CONTINGENCY
The Lease shall be contingent upon full execution of a Termination
Agreement with the tenant currently in possession of the Premises, Marubeni
International Electronics Corporation ("Marubeni"), within fifteen (15)
days of Tenant's execution of Lease. Landlord shall promptly upon execution
of the Lease endeavor to terminate its lease of the Premises with Marubeni
in a form and substance acceptable to Landlord and to be effective on or
before June 30, 1997. In the event Landlord and Marubeni do not reach an
agreement acceptable to Landlord, this Lease shall be null and void and
neither party shall have any obligation to the other.
39. SURRENDER
Tenant shall, upon expiration or sooner termination of this Lease,
surrender the Premises to Landlord in the same condition as existed on the
date Tenant originally took possession thereof (reasonable wear and tear
and damage due to causes beyond reasonable control of Tenant excepted) with
all interior walls cleaned, all holes in walls repaired, all carpets
shampooed and cleaned, all HVAC equipment in operating order and in good
repair, and all floors cleaned and waxed, all to the reasonable
satisfaction of Landlord. Tenant shall at such time also surrender to
Landlord such alterations as Landlord does not require Tenant to remove.
Tenant, on or before the expiration of sooner termination of this Lease,
shall remove all of its personal property and trade fixtures from the
Premises, and all property not so removed shall be deemed abandoned by
Tenant. Tenant shall be liable to Landlord for costs of removal of any such
abandoned trade fixtures or equipment of Tenant, or of any alterations
Tenant fails to remove if so required by landlord, together with the cost
of returning the Premises to its condition as of the date Tenant originally
took possession thereof, and the transportation and storage costs of such
items. If the Premises are not so surrendered at the expiration or sooner
termination of this Lease, Tenant shall indemnify Landlord against loss or
liability resulting from delay by Tenant in so surrendering the Premises,
including without limitation, any claims made by any succeeding tenant
founded on such delay, losses to Landlord due to lost opportunities to
lease to succeeding tenants, and attorneys' fees and costs. All keys to the
Premises or any part thereof shall be surrendered to Landlord upon
expiration or sooner termination of the Lease term.
IN WITNESS WHEREOF, the parties hereto have executed this Lease the day and
year first above written.
"LANDLORD"
SPIEKER PROPERTIES, L.P., a California
limited partnership
By: Spieker Properties, Inc., a Maryland
corporation
Its: General Partner
Date: By:
---------------- ---------------------------------------
Joseph D. Russell, Jr.
Its: SENIOR VICE PRESIDENT
--------------------------------------
"TENANT"
WIRELESS, INC., a California corporation
Date: MAY 17, 1997 By:/S/ CHARLES PAI CHARLES PAI
---------------- ---------------------------------------
Its: CFO
--------------------------------------
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<PAGE>
EXHIBIT "A"
SITE PLAN, LEGAL DESCRIPTION
REAL PROPERTY SITUATED IN THE CITY OF SANTA CLARA, COUNTY OF SANTA CLARA, STATE
OF CALIFORNIA, DESCRIBED AS FOLLOWS:
All of Parcel "A", as shown on that certain Map entitled, "Parcel Map of
Crow-Spieker #19, pt'n Sec. 28, T. 6 S., R. 1W., M.D.B. & M. in the City of
Santa Clara, Calif.", which Map was filed for record in the Office of the
Recorder of the County, of Santa Clara, State of California, on April 16, 1975
in Book 354 of Maps at Page 23.
[Site Plan]
<PAGE>
ADDENDA TO LEASE AGREEMENT DATED MAY 12, 1997, BETWEEN SPIEKER PROPERTIES, L.P.,
A CALIFORNIA LIMITED PARTNERSHIP, AS LANDLORD, AND WIRELESS, INC., A CALIFORNIA
CORPORATION, AS TENANT ADDENDUM 1, PARAGRAPH 2, POSSESSION AND LEASE
COMMENCEMENT
The Premises are to be delivered and to be accepted in "as is" condition except
as provided below:
Provided that Tenant has not been in default prior to the thirtieth (30th) month
of the Lease Term, the Landlord shall provide the Tenant with a one-time
reimbursement in an amount up to Sixteen Thousand Dollars ($16,000.00), to cover
the cost of installing new carpet in the Premises. Carpet shall be subject to
Landlord's minimum standards (32 oz. loop minimum). Tenant must request said
reimbursement from Landlord in writing, along with applicable receipts, no
sooner than the thirtieth (30th) month of the Lease and not later than the
thirty-sixth (36th) month of the Lease term.
ADDENDUM 2, PARAGRAPH 6, RENT
Base Rent for the Premises shall be as follows:
PERIOD: BASE RENT:
Months 1- 12: Base Rent shall be $18,560.00 per month. Tenant
shall also pay Tenant's Proportionate Share of
Basic Operating Costs as set forth in Paragraph 7.
Operating expenses for the first year of occupancy
are estimated to be $1,664.00 per month. Basic
Operating Costs are estimated a year in advance and
collected on a monthly basis. Any adjustment
necessary (up or down) will be made at the end of
each operating year.
Months 13 - 24: Base Rent of $18,560.00 shall be adjusted as set
forth in Paragraph 6.A. In addition to Base Rent,
Tenant shall also pay Tenant's Proportionate
Share of Basic Operating Costs as set forth in
Paragraph 7.
Months 25 - 36: Base Rent as calculated for the months 13 - 24
shall be adjusted as set forth in Paragraph 6.A. In
addition to Base Rent, Tenant shall also pay
Tenant's Proportionate Share of Basic Operating
Costs as set forth in Paragraph 7.
Months 37 - 48: Base Rent as calculated for the months 25 - 36
shall be adjusted as set forth in Paragraph 6.A. In
addition to Base Rent, Tenant shall also pay
Tenant's Proportionate Share of Basic Operating
Costs as set forth in Paragraph 7.
Months 49 - 60: Base Rent as calculated for the months 37 - 48
shall be adjusted as set forth in Paragraph 6.A. In
addition to Base Rent, Tenant shall also pay
Tenant's Proportionate Share of Basic Operating
Costs as set forth in Paragraph 7.
6.A. ADJUSTMENT OF BASE RENT
(1) ANNIVERSARY DATE. If the Term Commencement Date is the first day of the
calendar month, then the Anniversary Date shall be that day and month of
the calendar year. If the Term Commencement Date is any day other than the
first day of the calendar month, then the Anniversary Date shall be the
first day of the calendar month next succeeding the Term Commencement Date.
(2) ADJUSTMENT. Commencing with the Anniversary Date of the thirteenth (13th)
month of the Lease Term, and each and every Anniversary Date thereafter,
the Base Rent shall be adjusted by any increase in the Consumer Price Index
(CPI) as determined by the U.S. Bureau of Labor Statistics. All Urban
Consumers, for the Metropolitan Area of San Francisco, Oakland, San Jose,
base reference period: 1982-1984 = 100, over the previous twelve (12)
months. Such adjustment will not represent an increase in Base Rent of less
than four percent (4%) or greater than eight percent (8%) in any twelve
(12) month adjustment period. It is recognized by both parties that the CPI
for any month is not published for approximately two (2) months. Tenant
shall, therefore, continue to pay monthly Base Rent at the same amount as
the previous month until such time as the new adjusted Base Rent is
calculated and, at that time, Tenant shall pay the new Base Rent plus any
arrearages.
<PAGE>
ADDENDA TO LEASE AGREEMENT DATED MAY 12, 1997, BETWEEN SPIEKER PROPERTIES, L.P.,
A CALIFORNIA LIMITED PARTNERSHIP, AS LANDLORD, AND WIRELESS, INC., A CALIFORNIA
CORPORATION, AS TENANT.
ADDENDUM 3, PARAGRAPH 17, FINANCIAL STATEMENTS
Tenant shall provide financial statements on a quarterly basis within thirty
(30) days of the end of each quarter, for Landlord's review.
ADDENDUM 4, PARAGRAPH 19, SECURITY DEPOSIT
19.A. CASH. Upon Tenant's execution of this Lease Agreement, Tenant shall
provide Landlord with a check from a United States bank payable to
Landlord, in an amount equal to Forty Thousand Dollars ($40,000.00).
19.B. LETTER OF CREDIT. Upon Tenant's execution of this Lease Agreement, Tenant
shall provide Landlord with a Letter of Credit from a United States bank
acceptable to Landlord, naming Landlord as beneficiary in an amount equal
to Eighty Thousand Dollars ($80,000.00) and in the form and substance
satisfactory to Landlord. The Letter of Credit shall be payable at sight
when accompanied by Landlord's signed statement that Tenant has failed to
pay any rents or other amount due under the Lease and evidence of notice
from Landlord to Tenant per the terms of this Lease.
19.C. SECURITY DEPOSIT. Although security deposit is the property of Landlord,
provided that Tenant is not then in default under the Lease, Landlord
shall return the Security Deposit to Tenant within sixty (60) days of the
expiration or earlier termination of the Lease.
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Wireless, Inc.:
We consent to the use of the form of independent auditors' report dated
February 23, 2000 except for Note 11 which is as of May , 2000 with respect to
the balance sheets of Wireless, Inc. as of December 31, 1998 and 1999, and the
related statements of operations, stockholders' equity, and cash flows for the
period from May 7, 1997 (inception) to December 31, 1997 and the years ended
December 31, 1998 and 1999, and our report dated February 23, 2000 on the
related financial statement schedule, which reports are included herein. We also
consent to the reference to our firm under the heading "Experts" in the
prospectus.
/s/ KPMG LLP
Mountain View, California
April 19, 2000
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Multipoint Networks, Inc.:
We consent to the inclusion of our report dated February 18, 2000, with
respect to the statement of operations of Multipoint Networks, Inc. and the
related statements of the stockholders' equity and cash flows for the period
from January 1, 1998 to August 25, 1998, which report is included herein.
We also consent to the reference to our firm under the heading "Experts" in the
prospectus.
/s/ KPMG LLP
Mountain View, California
April 19, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> Year
<PERIOD-START> Jan-01-1999
<PERIOD-END> Dec-31-1999
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