<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 4, 2000
REGISTRATION STATEMENT NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
VYYO INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 3670 94-3241270
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
--------------------------
20400 Stevens Creek Boulevard, 8(th) Floor
Cupertino, California 95014
(408) 863-2300
(Address, Including Zip Code, and Telephone Number
Including Area Code, of Registrant's Principal Executive Offices)
------------------------------
Davidi Gilo
Chief Executive Officer
Vyyo Inc.
20400 Stevens Creek Boulevard, 8(th) Floor
Cupertino, California 95014
(408) 863-2300
(Name, Address, Including Zip Code, and Telephone Number
Including Area Code, of Agent for Service)
------------------------------
COPIES TO:
<TABLE>
<S> <C> <C>
Gregory C. Smith, Esq. Donald C. Reinke, Esq. Nora L. Gibson, Esq.
Keith L. Belknap, Jr., Esq. Bruce D. Whitley, Esq. Angela C. Hilt, Esq.
Genae M. Richardson, Esq. Gizelle A. Barany, Esq. Jeanine M. Larrea, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP Bay Venture Counsel, LLP Shelly E. Wharton, Esq.
525 University Avenue, Suite 220 1999 Harrison Street, Suite 1300 Brobeck, Phleger & Harrison, LLP
Palo Alto, California 94301 Oakland, California 94612 One Market, Spear Street Tower,
(650) 470-4500 (510) 273-8750 San Francisco, California 94105
(415) 442-0900
</TABLE>
--------------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 of the Securities Act of
1933, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
<S> <C> <C>
Common stock, par value $0.0001 per share................... $115,000,000 $30,360
</TABLE>
(1) Estimated solely for purposes of calculating 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 WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
The information in this prospectus is not complete and may be changed without
notice. We may not sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This prospectus is not
an offer to sell these securities and we are not soliciting offers to buy these
securities in any state where the offer or sale is not permitted.
<PAGE>
Prospectus (not complete)
Issued February 4, 2000
SHARES
[LOGO]
COMMON STOCK
------------------
Vyyo Inc. is offering shares of its common stock in an initial public
offering. No public market currently exists for our common stock. We anticipate
that the initial public offering price for our common stock will be between $
and $ per share.
------------------------
We have applied to have our common stock approved for quotation on the
Nasdaq National Market under the symbol "VYYO."
------------------------
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 4.
---------------------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Offering Price.................................... $ $
Discounts and Commissions to Underwriters......... $ $
Offering Proceeds to Vyyo Inc..................... $ $
</TABLE>
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Vyyo Inc. has granted the underwriters the right to purchase up to an
additional shares of common stock to cover any over-allotments. The
underwriters can exercise this right at any time within 30 days after the
offering. Banc of America Securities LLC expects to deliver the shares of common
stock to investors on , 2000.
Banc of America Securities LLC
CIBC World Markets
Dain Rauscher Wessels
----------------
The date of this prospectus is , 2000
<PAGE>
[The graphic is a base station connected to an antenna that transmits to a modem
located in residences and businesses.]
- Point-to-multipoint wireless hubs are located in base stations and send
and receive data traffic to and from up to 8,000 wireless subscriber
modems at very high speeds.
- Network management system software manages the traffic transmitted over
our broadband wireless system.
- Wireless modems connected to PCs or LANs are located in residences,
small/home offices and medium-sized businesses and send and receive data
traffic and provide access to the Internet.
- Our wireless hub interfaces with a router located in the base station that
sends data traffic to the Internet and, in the future, voice traffic to
the gateway which connects with the public telephone network.
- System integrators or service providers combine our systems with
additional network equipment, such as an antenna to transmit wireless
radio frequency signals, and complete the network infrastructure.
<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTION WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 4
Cautionary Note on Forward-Looking Statements............... 17
Use of Proceeds............................................. 18
Dividend Policy............................................. 18
Capitalization.............................................. 19
Dilution.................................................... 20
Selected Consolidated Financial Data........................ 21
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 22
Business.................................................... 28
Management.................................................. 40
Certain Relationships and Related Transactions.............. 52
Principal Stockholders...................................... 58
Description of Capital Stock................................ 60
Shares Eligible for Future Sale............................. 62
Underwriting................................................ 64
Legal Matters............................................... 67
Experts..................................................... 67
Available Information....................................... 67
Index to Financial Statements............................... F-1
</TABLE>
------------------------
Our principal executive offices are located at 20400 Stevens Creek
Boulevard, 8(th) Floor, Cupertino, California 95014, and our telephone number is
(408) 863-2300. Our World Wide Web site address is www.vyyo.com. The information
on our Web site does not constitute part of this prospectus.
In this prospectus, the terms "Vyyo Inc.," "Vyyo," "we," "us," and "our"
refer to Vyyo Inc. and its subsidiary, unless the context otherwise requires,
and "common stock" refers to our common stock, $0.0001 par value per share. See
"Description of Capital Stock."
We have applied for federal registration of our trademarks DOCSIS(+) and
LMDS Lite. Other service marks, trademarks and trade names referred to in this
prospectus are the property of their respective owners.
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
THIS SUMMARY IS NOT COMPLETE AND DOES NOT CONTAIN ALL THE INFORMATION YOU SHOULD
CONSIDER BEFORE BUYING SHARES IN THE OFFERING. YOU SHOULD READ THE ENTIRE
PROSPECTUS CAREFULLY, INCLUDING THE RISK FACTORS AND CONSOLIDATED FINANCIAL
STATEMENTS AND RELATED NOTES APPEARING ELSEWHERE IN THIS PROSPECTUS. THIS
PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS, WHICH INVOLVE RISKS AND
UNCERTAINTIES. VYYO'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF THE FACTORS
DESCRIBED UNDER "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS. SEE "CAUTIONARY
NOTE ON FORWARD-LOOKING STATEMENTS."
VYYO
We are a leading global provider of broadband wireless access systems used
by telecommunications service providers to deliver wireless, high-speed data
connections to business and residential subscribers. Our systems have a
point-to-multipoint architecture based on the Internet protocol, or IP, which is
the networking standard used to deliver voice and data over the Internet. Our
system is designed to allow service providers to rapidly and cost-effectively
bridge the segment of the network which connects the service providers' systems
directly to the subscribers, commonly referred to as the last mile. Early
customer acceptance of our systems has resulted in commercial deployment at 21
domestic and international sites.
Internet and data network traffic growth has created demand for
cost-effective, high-speed communications, as subscribers increasingly rely on
content-rich applications and remote access to data networks. In the United
States and abroad, the communications industry is in varying stages of
deregulation, which has created the opportunity for new competitors to offer
multiple communications services directly to subscribers. There are a number of
wire-based technologies that deliver high-speed connections, but performance,
cost, time for deployment or service availability limit the use of these
alternative technologies to satisfy the needs of service providers and
subscribers. High-speed, wireless point-to-multipoint technology provides a
broadband solution to service providers, with numerous advantages over
alternative broadband technologies, including the ability to rapidly and
cost-effectively expand their current market coverage or to enter new markets
while avoiding the limitations of the existing wire-based infrastructure.
Our system is deployed in point-to-multipoint applications, at radio
frequencies commonly referred to as LMDS and MMDS, for two-way broadband
communication. Our system, which is based on the cable industry's DOCSIS
standard, consists of a wireless hub, located at a base station, and a
subscriber wireless modem. Each hub transmits, receives and manages network
traffic to and from our wireless modems, which are installed at multiple
subscriber locations. We sell our systems directly to service providers and
system integrators that deploy our systems as part of their end-to-end network
solutions.
Our objective is to be the leading worldwide supplier to service providers
and system integrators of broadband wireless access systems deployed in
point-to-multipoint applications. As key elements of our strategy, we intend to:
- capitalize on early acceptance of our systems;
- broaden our product offerings;
- improve cost-effectiveness and performance of our systems;
- leverage key strategic relationships; and
- participate in developing industry standards.
We were incorporated in 1996 in Delaware under the name PhaseCom, Inc. In
January 2000, we changed our name to Vyyo Inc. Our principal executive offices
are located at 20400 Stevens Creek Boulevard, 8th Floor, Cupertino, California
95014, and our telephone number is (408) 863-2300.
1
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by Vyyo................. shares
Common stock to be outstanding after this
offering................................... shares
Use of proceeds.............................. We expect to use the net proceeds of this
offering for working capital and other
general corporate purposes. We may use a
portion of the net proceeds to acquire
complementary products, technologies or
businesses.
Proposed Nasdaq National Market symbol....... VYYO
Dividend policy.............................. We intend to retain any future earnings to
fund the development and expansion of our
business. Therefore, we do not anticipate
paying cash dividends on our common stock in
the foreseeable future.
Risk factors................................. This offering involves a high degree of risk.
See "Risk Factors" beginning on page 4 for a
discussion of factors you should consider
before deciding to invest in shares of our
common stock.
</TABLE>
The common stock to be outstanding after this offering is based on shares
outstanding as of December 31, 1999. The common stock outstanding excludes:
- 2,449,425 shares of common stock issuable as of December 31, 1999 upon the
exercise of outstanding stock options issued under our option plans at a
weighted average exercise price of $1.03 per share;
- 3,512,000 shares of common stock initially reserved for issuance under our
stock option plans;
- 500,000 shares of common stock initially reserved for issuance under our
employee stock purchase plan; and
- 125,190 shares of common stock issuable as of December 31, 1999 upon the
exercise of outstanding warrants with a weighted average exercise price of
$1.89 per share.
------------------------
EXCEPT AS OTHERWISE INDICATED, INFORMATION IN THIS PROSPECTUS ASSUMES THE
FOLLOWING:
- THE AMENDMENT AND RESTATEMENT OF OUR CERTIFICATE OF INCORPORATION;
- THE CONVERSION OF ALL OUTSTANDING SHARES OF PREFERRED STOCK INTO 2,629,702
SHARES OF COMMON STOCK;
- THE 1-FOR-5 REVERSE STOCK SPLIT EFFECTED ON JANUARY 3, 2000; AND
- NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION.
2
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues................................................ $ 1,537 $ 2,449 $ 4,230
Cost of revenues............................................ 1,556 2,568 4,316
------- ------- --------
Gross loss.................................................. (19) (119) (86)
Operating expenses:
Research and development.................................. 2,398 3,252 3,678
Sales and marketing....................................... 1,484 2,413 1,972
General and administrative................................ 1,200 1,363 2,148
Amortization of deferred stock compensation............... -- -- 3,600
------- ------- --------
Total operating expenses.................................... 5,082 7,028 11,398
------- ------- --------
Operating loss.............................................. (5,101) (7,147) (11,484)
Interest and other income (expense), net.................. (244) (524) (717)
------- ------- --------
Net loss.................................................... $(5,345) $(7,671) $(12,201)
======= ======= ========
Net loss per share:
Basic and diluted......................................... $ (8.86) $ (8.15) $ (2.27)
======= ======= ========
Pro forma basic and diluted (unaudited)................... $ (1.81)
========
Shares used in per share computations:
Basic and diluted......................................... 603 941 5,385
======= ======= ========
Pro forma basic and diluted (unaudited)................... 6,758
========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------
PRO FORMA
ACTUAL AS ADJUSTED
-------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $5,036
Working capital............................................. 210
Total assets................................................ 8,161
Long-term obligations, net of current portion............... --
Total stockholders' equity.................................. 1,305
</TABLE>
This balance sheet data is presented on a pro forma as adjusted basis to
give effect to:
- the conversion of all outstanding shares of preferred stock into shares of
common stock upon the closing of this offering; and
- the sale of the shares of common stock in this offering at the assumed
initial public offering price of $ per share after deducting the
underwriting discounts and commissions and estimated offering expenses.
3
<PAGE>
RISK FACTORS
ANY INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU
SHOULD CAREFULLY CONSIDER THE FOLLOWING RISKS BEFORE MAKING AN INVESTMENT
DECISION. THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE DUE TO ANY OF
THESE RISKS, AND YOU COULD LOSE ALL OR PART OF YOUR INVESTMENT. YOU ALSO SHOULD
CONSIDER CAREFULLY THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, INCLUDING
OUR CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES BEFORE DECIDING TO
PURCHASE SHARES OF OUR COMMON STOCK.
RISKS RELATED TO OUR BUSINESS
WE HAVE A LIMITED OPERATING HISTORY IN THE BROADBAND POINT-TO-MULTIPOINT
WIRELESS ACCESS MARKET, WHICH MAY LIMIT YOUR ABILITY TO EVALUATE OUR BUSINESS
AND YOUR INVESTMENT.
The broadband wireless access market is only beginning to emerge. We began
commercial shipments of our broadband point-to-multipoint wireless access
systems in the first quarter of 1999. Product revenues recognized in 1999 relate
to sales of both cable and wireless modem products. All of our product revenues
in 1998 and 1997 relate to sales of cable modem products that we are no longer
developing. Therefore, the success of our business will be entirely dependent
upon the success of our wireless products. We have a very limited operating
history in the broadband point-to-multipoint wireless access market upon which
to evaluate our future prospects, and the revenue and income potential of our
business and market are unproven. Our limited operating history in this market
may limit your ability to evaluate our prospects due to:
- our limited historical financial data from our wireless products;
- our unproven potential to generate profits; and
- our limited experience in addressing emerging trends that may affect our
business.
As a young company, we face risks and uncertainties relating to our ability
to implement our business plan successfully. You should consider our prospects
in light of the risks, expenses and difficulties we may encounter.
WE HAVE A HISTORY OF LOSSES, EXPECT FUTURE LOSSES AND MAY NEVER ACHIEVE OR
SUSTAIN PROFITABILITY.
We have incurred significant losses since our inception, and we expect to
continue to incur net losses for the foreseeable future. We incurred net losses
of approximately $12.2 million in 1999. As of December 31, 1999, our accumulated
deficit was approximately $34.8 million. We intend to significantly increase our
operating expenses, especially our marketing and selling expenses, and our
research and development expenses related to the LMDS and MMDS markets. However,
our revenues may not grow or even continue at their current level. If our
revenues do not rapidly increase or if our expenses increase at a greater pace
than our revenues, we will never become profitable.
OUR QUARTERLY OPERATING RESULTS FLUCTUATE, WHICH MAY CAUSE OUR SHARE PRICE TO
DECLINE.
Our quarterly operating results have varied significantly in the past and
are likely to vary significantly in the future. These variations result from a
number of factors, many of which are substantially outside of our control,
including:
- the uncertain timing and level of market acceptance for our systems;
- the effectiveness of our system integrator customers in marketing and
selling their network systems equipment;
- reductions in pricing by us or our competitors;
- the mix of systems sold by us and the mix of sales channels through which
they are sold; and
4
<PAGE>
- changes in the prices of the components we purchase or license.
Our operating results will also fluctuate based upon our ability to obtain
new and retain existing customers that adopt and implement our systems. More
specifically, our results will vary based upon:
- the size, timing and shipment of orders for our systems, especially large
orders from some of our customers;
- our customers' ability to forecast their needs and manage their inventory
positions accurately; and
- delays in delivery by the subcontractors, many of whom are overseas, that
manufacture our system components.
In addition, a delay in the recognition of revenue, even from one customer, may
have a significant negative impact on our results of operations for a given
period. We have experienced such delays in the past, and our results of
operations for those periods were negatively impacted. Also, because only a
small portion of our expenses vary with our revenues, if revenue levels for a
quarter fall below our expectations, we will not be able to timely adjust
expenses accordingly, which would harm our operating results in that period.
Because of the variations which we have experienced in our quarterly
operating results, we do not believe that period-to-period comparisons of our
results of operations are meaningful or should be relied upon as indicators of
future performance. In addition, our operating results may be below the
expectations of securities analysts and investors in future periods. Our failure
to meet these expectations will likely cause our share price to decline.
IF BROADBAND WIRELESS TECHNOLOGY OR OUR IMPLEMENTATION OF THIS TECHNOLOGY IS NOT
BROADLY ACCEPTED, WE WILL NOT BE ABLE TO SUSTAIN OR EXPAND OUR BUSINESS.
Our future success depends on high-speed wireless communications products
gaining market acceptance as a means to provide voice and data communications
services. Because these markets are relatively new, it is difficult to predict
which market segments will develop or expand. We have recently invested and
expect to continue to invest significant time and resources in the development
of new products for this market. In the event that service providers adopt
technologies other than the high-speed access and other wireless technologies
that we offer, we will not be able to sustain or expand our business.
Service providers continually evaluate alternative technologies, including
digital subscriber line, fiber, cable, satellite and point-to-point wireless.
The failure of service providers to accept our products would seriously harm our
business.
WE DEPEND ON ONE SYSTEM INTEGRATOR FOR A SIGNIFICANT PORTION OF OUR REVENUES AND
IF THIS SYSTEM INTEGRATOR DOES NOT PROMOTE OR PURCHASE OUR PRODUCTS, OUR
BUSINESS WILL BE SERIOUSLY HARMED.
We sell a significant portion of our products to ADC Telecommunications. The
loss of ADC Telecommunications as a customer, or the delay of significant orders
from it, even if only temporary, could, among other things:
- reduce or delay our revenues;
- harm our reputation with major service providers, particularly if ADC
Telecommunications were to replace our products with a competitor's
products; or
- reduce our ability to predict our cash flow accurately.
5
<PAGE>
Sales through ADC Telecommunications accounted for approximately 20% of our
net revenues for 1999 and approximately 31% of our net revenues for 1998. There
are a limited number of system integrators that have the financial resources or
technical expertise to sell or integrate our systems globally. If ADC
Telecommunications will not sell, service or integrate our products, and we
cannot secure other system integrators as replacements, we would be limited in
our ability to sell our products. ADC Telecommunications has the right to
distribute our systems exclusively in the United States for use in the MMDS
frequency band. Should ADC Telecommunications cease to emphasize systems that
include our products, choose to emphasize alternative technologies or promote
systems of our competitors, our business would be seriously harmed.
THE LOSS OF ONE OR MORE OF OUR KEY CUSTOMERS WOULD RESULT IN A LOSS OF A
SIGNIFICANT AMOUNT OF OUR REVENUES.
A relatively small number of customers account for a large percentage of our
revenues. In 1999, ADC Telecommunications accounted for approximately 20% of our
revenues, Aster City Cable accounted for approximately 14% of our revenues,
Shanghai Bell accounted for approximately 13% of our revenues and Philips
Semiconductor accounted for approximately 12% of our revenues. Revenues
attributable to Aster City Cable and Shanghai Bell relate to sales of cable
modem products that we are no longer developing. Accordingly, we do not
anticipate recognizing material amounts of revenue from these products in the
future. Revenues attributable to Philips Semiconductor relate to a joint
technology development arrangement that we expect to complete in 2000 and no
similar arrangements are contemplated.
We expect that we will continue to depend on a relatively limited number of
customers for a substantial portion of our revenues in future periods. The loss
of a major customer or the reduction, delay or cancellation of orders from one
or more of our significant customers could seriously harm our ability to sustain
revenue levels, which would seriously harm our operating results.
COMPETITION MAY DECREASE OUR MARKET SHARE, NET REVENUES AND GROSS MARGINS, WHICH
MAY CAUSE OUR STOCK PRICE TO DECLINE.
The market for broadband access systems is intensely competitive, rapidly
evolving and subject to rapid technological change. The principal competitive
factors in this market include:
- product performance and features;
- price of competitive products;
- reliability and stability of operation;
- ability to develop and implement new services and technologies;
- ability to support newly allocated frequencies; and
- sales capability, technical support and service.
Many of our competitors and potential competitors have substantially greater
financial, technical, distribution, marketing and other resources than we have
and, therefore, may be able to respond more quickly to new or changing
opportunities, technologies and other developments. In addition, many of our
competitors have longer operating histories, greater name recognition and
established relationships with system integrators and service providers. These
competitors may also be able to undertake more extensive marketing campaigns,
adopt more aggressive pricing policies and devote substantially more resources
to developing new products. Our primary competitor is Hybrid Networks, Inc. In
addition, well-capitalized companies such as Cisco Systems, Lucent Technologies,
Nortel Networks, Newbridge Networks and other vendors have announced plans to
enter, or are potential entrants into, the broadband wireless market. These
vendors have been attracted by recent investments by MCI
6
<PAGE>
WorldCom, Sprint and other service providers in wireless operations. Most of
these competitors have existing relationships with one or more of our
prospective customers.
We also face competition from technologies such as digital subscriber line,
fiber, cable, satellite and point-to-point wireless. We may not be able to
compete successfully against our current and future competitors and competitive
pressures may seriously harm our business.
IF WE DO NOT DEVELOP NEW SYSTEMS AND SYSTEM FEATURES IN RESPONSE TO CUSTOMER
REQUIREMENTS OR IN A TIMELY WAY, CUSTOMERS MAY NOT BUY OUR PRODUCTS, WHICH WOULD
SERIOUSLY HARM OUR BUSINESS.
The broadband wireless access industry is rapidly evolving and subject to
technological change and innovation. We may experience design or manufacturing
difficulties that could delay or prevent our development, introduction or
marketing of new systems and enhancements, any of which could cause us to incur
unexpected expenses or lose revenues. If we are unable to comply with diverse,
new or varying governmental regulations or industry standards in each of the
many worldwide markets in which we compete, we may not be able to respond to
customers in a timely manner, which would harm our business.
WE DEPEND ON CONTRACT MANUFACTURERS AND THESE MANUFACTURERS MAY BE UNABLE TO
FILL OUR ORDERS ON A TIMELY BASIS.
We currently have relationships with three contract manufacturers for the
manufacturing of our systems, two of which are located in Israel and one of
which is located in Taiwan. These relationships may be terminated by either
party with little or no notice. If our manufacturers are unable or unwilling to
continue manufacturing our systems in required volumes, we would have to
identify qualified alternative manufacturers, which would result in delays that
could cause our results of operations to suffer. Our limited experience with
these manufacturers does not provide us with a reliable basis on which to
project their ability to meet delivery schedules, yield targets or costs. If we
are required to find alternative manufacturing sources, 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
systems to customers, which in turn could seriously harm our business.
WE OBTAIN SOME OF THE COMPONENTS INCLUDED IN OUR SYSTEMS FROM A SINGLE SOURCE OR
A LIMITED GROUP OF SUPPLIERS, AND THE LOSS OF ANY OF THESE SUPPLIERS COULD CAUSE
PRODUCTION DELAYS AND A SUBSTANTIAL LOSS OF REVENUE.
We currently obtain key components from a limited number of suppliers. Some
of these components, such as semiconductor components for our hubs, are obtained
from a single source supplier. We generally do not have long-term supply
contracts with our suppliers. These factors present us with the following risks:
- delays in delivery or shortages in components could interrupt and delay
manufacturing and result in cancellation of orders for our systems;
- suppliers could increase component prices significantly and with immediate
effect;
- we may not be able to develop alternative sources for system components,
if or as required in the future;
- suppliers could discontinue the manufacture or supply of components used
in our systems. In such event, we might need to modify our systems, which
may cause delays in shipments, increased manufacturing costs and increased
systems prices; and
- we may hold more inventory than is immediately required to compensate for
potential component shortages or discontinuation.
7
<PAGE>
The occurrence of any of these or similar events would harm our business.
WE MAY EXPERIENCE DELAYS IN THE DELIVERY OF COMPONENTS FROM OUR SUPPLIERS.
Delays and shortages in the supply of components are typical in our
industry. We have experienced minor delays and shortages on more than one
occasion in the past. In addition, any failure of necessary worldwide
manufacturing capacity to rise along with a rise in demand could result in our
subcontract manufacturers allocating available capacity to larger customers or
to customers that have long-term supply contracts in place. Our inability to
obtain adequate manufacturing capacity at acceptable prices, or any delay or
interruption in supply, could reduce our revenues or increase our cost of
revenue and could seriously harm our business.
COMPETITION MAY RESULT IN LOWER AVERAGE SELLING PRICES AND WE MAY BE UNABLE TO
REDUCE OUR COSTS AT OFFSETTING RATES, WHICH MAY IMPAIR OUR ABILITY TO ACHIEVE OR
MAINTAIN PROFITABILITY.
We expect that price competition among broadband wireless access systems
suppliers will reduce our gross margins in the future. We anticipate that the
average selling prices of broadband wireless access systems will continue to
decline as product technologies mature. Since we do not manufacture our own
systems, we may be unable to reduce our manufacturing costs in response to
declining average per unit selling prices. Our competitors may be able to
achieve greater economies of scale and may be less vulnerable to the effects of
price competition than we are. These declines in average selling prices will
generally lead to declines in gross margins and total profitability for these
systems. If we are unable to reduce our costs to offset declines in average
selling prices, we may not be able to achieve or maintain profitability.
IF WE DO NOT EFFECTIVELY MANAGE OUR EXPANSION, OUR REVENUES MAY NOT INCREASE,
OUR COSTS MAY INCREASE AND OUR BUSINESS COULD BE SERIOUSLY HARMED.
We are continuing to actively expand our operations. This growth has placed,
and will continue to place, a significant strain on our managerial, operational
and financial resources. We also need to implement sophisticated inventory and
control systems.
To manage growth effectively, we must, among other things:
- improve and expand our information and financial systems, and managerial
procedures and controls;
- hire, train, manage and retain qualified employees; and
- effectively manage relationships with our customers, suppliers and other
third parties.
We may not have made adequate allowances for the costs and risks associated
with this expansion, our systems, procedures or controls may not be adequate to
support our operations, and our management may be unable to offer and expand our
product categories successfully. Any delay in implementing, or transitioning to,
new or enhanced systems, procedures or controls may seriously harm our ability
to record and report financial and management information on a timely and
accurate basis or otherwise manage our expanding operations. If we are unable to
do so effectively, our business may be seriously harmed.
BECAUSE WE OPERATE IN INTERNATIONAL MARKETS, WE ARE EXPOSED TO ADDITIONAL RISKS
WHICH COULD CAUSE OUR INTERNATIONAL SALES TO DECLINE AND OUR FOREIGN OPERATIONS
TO SUFFER.
Sales outside of North America accounted for approximately 39% of our
revenues in 1999 and 55% of our revenues in 1998. We expect that international
sales will continue to account for a significant portion of our revenues. In
addition, we maintain research and development facilities in
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Israel. Our reliance on international sales and operations exposes us to foreign
political and economic risks, which may impair our ability to generate revenues.
These risks include:
- economic and political instability;
- changes in regulatory requirements and licensing frequencies to service
providers;
- import or export licensing requirements and tariffs;
- trade restrictions; and
- more limited protection of intellectual property rights.
Any of the foregoing difficulties of conducting business internationally
could seriously harm our business.
BECAUSE WE DO NOT HAVE LONG-TERM CONTRACTS WITH OUR CUSTOMERS, OUR CUSTOMERS CAN
DISCONTINUE PURCHASES OF OUR SYSTEMS AT ANY TIME.
We sell our systems based on individual purchase orders. Our customers are
generally not obligated by long-term contracts to purchase our systems. Our
customers can generally cancel or reschedule orders on short notice and can
discontinue using our systems at any time. Further, having a successful system
trial does not necessarily mean that the customer will order large volumes of
our systems. The inability to retain our customers and increase their orders
would seriously harm our business.
OUR SUCCESS DEPENDS IN PART ON THE ABILITY OF OUR SENIOR MANAGEMENT TEAM TO WORK
TOGETHER EFFECTIVELY.
Several of our existing senior management personnel, including Michael
Corwin, our Chief Operating Officer, Eran Pilovsky, our Chief Financial Officer,
and Arnon Kohavi, our Senior Vice President of Strategic Relations, joined us in
the last six months. As a result, our senior management team has had a limited
time to work together. If they are unable to work together effectively to manage
our organization as a public company, our business may be seriously harmed.
THIRD PARTIES MAY BRING INFRINGEMENT CLAIMS AGAINST US WHICH COULD BE
TIME-CONSUMING AND EXPENSIVE TO DEFEND.
Companies serving the telecommunications market have historically defended
their intellectual property rights vigorously. We expect that as the number of
products and competitors in our industry segment increases, developers of
wireless equipment will be increasingly subject to infringement claims. If we
were determined to be infringing upon the proprietary rights of any third party,
we could be required to pay damages, alter our products or processes, obtain
licenses or cease certain activities. Licenses required under proprietary rights
held by third parties may not be made available on terms acceptable to us, or at
all. To the extent that we are unable to obtain such licenses, we could
encounter delays in product shipment while attempting to design around such
proprietary rights or be foreclosed from the development, manufacture or
commercialization of the product requiring such license, which could seriously
harm our business.
From time to time, third parties, including our competitors, may assert
patent, copyright and other intellectual property rights to technologies that
are important to us. We expect that we will increasingly be subject to license
offers and infringement claims as the number of products and competitors in our
market grows and the functionality of products overlaps. In this regard, in
early 1999, we received a written notice from Hybrid Networks in which Hybrid
claimed to have patent rights in certain technology. Hybrid requested that we
review our products in light of six of Hybrid's issued patents.
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We are investigating Hybrid's claims and we currently believe the patents
are invalid or are not infringed by our products. However, others patents,
including Hybrid's, may be determined to be valid, or some or all of our
products may ultimately be determined to infringe the Hybrid patents or those of
other companies. Hybrid or other companies may pursue litigation with respect to
these or other claims. The results of any litigation are inherently uncertain.
In the event of an adverse result in any litigation with respect to intellectual
property rights relevant to our products that could arise in the future, we
could be required to obtain licenses to the infringing technology, pay
substantial damages under applicable law, to cease the manufacture, use and sale
of infringing products or to expend significant resources to develop
non-infringing technology. Licenses may not be available from third parties,
including Hybrid, either on commercially reasonable terms or at all. In
addition, litigation frequently involves substantial expenditures and can
require significant management attention, even if we ultimately prevail.
Accordingly, any infringement claim or litigation against us could significantly
harm our business, operating results and financial condition.
IF WE FAIL TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY, WE MAY NOT BE ABLE
TO COMPETE.
Our success depends in part on our ability to protect our proprietary
technologies. We rely on a combination of patent, copyright and trademark laws,
trade secrets and confidentiality and other contractual provisions to establish
and protect our proprietary rights. We have 16 patent applications pending in
the United States.
Our pending or future patent applications may not be approved and the claims
covered by such applications may be reduced. If allowed, our patents may not be
of sufficient scope or strength, others may independently develop similar
technologies or products, duplicate any of our products or design around our
patents, and the patents may not provide us competitive advantages. Further,
patents held by third parties may not prevent the commercialization of products
incorporating our technologies or third parties may challenge or seek to narrow,
invalidate or circumvent any of our pending or future patents. We also believe
that foreign patents, if obtained, and the protection afforded by such foreign
patents and foreign intellectual property laws, may be more limited than that
provided under United States patents and intellectual property laws. Litigation,
which could result in substantial costs and diversion of effort by us, may also
be necessary to enforce any patents issued or licensed to us or to determine the
scope and validity of third-party proprietary rights. Any such litigation,
regardless of outcome, could be expensive and time consuming, and adverse
determinations in any such litigation could seriously harm our business.
We also rely on unpatented trade secrets and know-how and proprietary
technological innovation and expertise which are protected in part by
confidentiality and invention assignment agreements with our employees, advisors
and consultants. These agreements may be breached, we may not have adequate
remedies for any breach, or our unpatented proprietary intellectual property may
otherwise become known or independently discovered by competitors.
UNDETECTED HARDWARE DEFECTS OR SOFTWARE ERRORS MAY INCREASE OUR COSTS AND IMPAIR
THE MARKET ACCEPTANCE OF OUR SYSTEMS.
Our systems may contain undetected defects or errors. This may result either
from defects in components supplied by third parties or from errors in our
software that we have failed to detect. These defects or errors are likely to be
found from time to time in new or enhanced products and systems after
commencement of commercial shipments. Our customers integrate our systems into
their networks with components from other vendors. Accordingly, when problems
occur in a network system it may be difficult to identify the component that
caused the problem. Regardless of the source of these defects or errors, we will
need to divert the attention of our engineering personnel from our product
development efforts to address the defect or error. We may incur significant
warranty and repair costs related to defects or errors, and we may also be
subject to liability claims for damages related to these
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defects or errors. The occurrence of defects or errors, whether caused by our
systems or the components of another vendor, may result in significant customer
relations problems and injury to our reputation and may impair the market
acceptance of our systems.
BECAUSE OF OUR LONG PRODUCT DEVELOPMENT PROCESS AND SALES CYCLE, WE MAY INCUR
SUBSTANTIAL EXPENSES WITHOUT ANTICIPATED REVENUES WHICH COULD CAUSE OUR
OPERATING RESULTS TO FLUCTUATE.
A customer's decision to purchase many of our systems typically involves a
significant technical evaluation, formal internal procedures associated with
capital expenditure approvals and testing and acceptance of new systems that
affect key operations. For these and other reasons, the sales cycle associated
with our systems can be lengthy and subject to a number of significant risks
over which we have little or no control. Our next generation systems are
expected to have even longer sales cycles and involve demonstrations, field
trials and other evaluation periods, which will further lengthen the sales
cycle. Because of the growing sales cycle and the possibility that we may rely
on a concentrated number of customers for our revenues, our operating results
could be seriously harmed if such revenues do not materialize when anticipated,
or at all.
OUR SUCCESS DEPENDS UPON OUR ABILITY TO ATTRACT, TRAIN AND RETAIN QUALIFIED
ENGINEERS, MARKETING, SALES AND TECHNICAL SUPPORT PERSONNEL
We will need to hire additional engineers and highly trained technical
support personnel in Israel and in Northern California in order to succeed. We
will need to increase our technical staff to support new customers and the
expanding needs of existing customers, as well as our continued research and
development operations.
Hiring engineers, marketing, sales and technical support personnel is very
competitive in our industry, due to the limited number of people available with
the necessary skills and understanding of our products. This is particularly
true in Israel and Northern California, where competition for such personnel is
intense.
Our systems require a sophisticated marketing and sales effort targeted at
several levels within a prospective customer's organization. We have recently
expanded our sales force and we plan to hire additional sales personnel,
particularly in the United States. Competition for qualified sales personnel is
intense, and we may not be able to hire sufficient sales personnel to support
our marketing efforts. If we are unable to hire and retain necessary personnel
in each of these rapidly expanding areas, our business will not develop, and our
operating results will be harmed.
IF WE CHOOSE TO ACQUIRE NEW AND COMPLEMENTARY BUSINESSES, PRODUCTS OR
TECHNOLOGIES, WE MAY NOT BE ABLE TO SUCCESSFULLY INTEGRATE AN ACQUIRED BUSINESS
IN A COST-EFFECTIVE AND NON-DISRUPTIVE MANNER AND REALIZE ANTICIPATED BENEFITS.
We may make investments in complementary companies, products or
technologies. If we acquire a company, we may have difficulty integrating that
company's personnel, operations, products and technologies. These difficulties
may disrupt our ongoing business, distract our management and employees and
increase our expenses. Moreover, the anticipated benefits of any acquisition may
not be realized. Future acquisitions could result in dilutive issuances of
equity securities, the incurrence of debt, contingent liabilities or
amortization expenses related to goodwill and other intangible assets and the
incurrence of large and immediate write-offs, any of which could seriously harm
our business.
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WE ARE DEPENDENT ON THE RAPIDLY EVOLVING COMMUNICATIONS AND INTERNET INDUSTRIES.
Our future success is dependent upon the continued growth of the
communications industry and, in particular, the Internet. The global
communications and Internet industries are evolving rapidly, and it is difficult
to predict growth rates or future trends in technology development. In addition,
the deregulation, privatization and economic globalization of the worldwide
communications market, that have resulted in increased competition and
escalating demand for new technologies and services, may not continue in a
manner favorable to us or our business strategies. In addition, the growth in
demand for Internet services and the resulting need for high-speed or enhanced
communications products may not continue at its current rate or at all.
WE ARE DEPENDENT ON OUR KEY PERSONNEL, IN PARTICULAR DAVIDI GILO, OUR CHAIRMAN
AND CHIEF EXECUTIVE OFFICER, AND MENASHE SHAHAR, OUR CHIEF TECHNICAL OFFICER,
THE LOSS OF ANY OF WHOM COULD SERIOUSLY HARM OUR BUSINESS.
Our future success depends in large part on the continued services of our
senior management and key personnel. In particular, we are highly dependent on
the service of Davidi Gilo, our Chairman and Chief Executive Officer, and
Menashe Shahar, our Chief Technical Officer. We do not carry key person life
insurance on our senior management or key personnel. Any loss of the services of
Davidi Gilo, Menashe Shahar, other members of senior management or other key
personnel could seriously harm our business.
WE WILL NEED TO RAISE ADDITIONAL CAPITAL IN THE FUTURE, AND IF WE ARE UNABLE TO
SECURE ADEQUATE FUNDS ON TERMS ACCEPTABLE TO US, WE MAY BE UNABLE TO EXECUTE OUR
BUSINESS PLAN.
We expect that the net proceeds from this offering and cash from operations
will be sufficient to meet our working capital and capital expenditure needs for
at least the next 12 months. After that, we will need to raise additional funds
for a number of uses, including:
- expanding research and development programs;
- hiring additional qualified personnel;
- implementing further marketing and sales activities; and
- acquiring complementary technologies or businesses.
We may have to raise funds even sooner in order to fund more rapid
expansion, to respond to competitive pressures or otherwise to respond to
unanticipated requirements. If we raise additional funds through the issuance of
equity or convertible debt securities, the percentage ownership of our existing
stockholders will be reduced. We may not be able to obtain additional funds on
acceptable terms or at all. If we cannot raise needed funds on acceptable terms,
we may not be able to increase our ongoing operations and complete our planned
expansion, take advantage of acquisition opportunities, develop or enhance
systems or respond to competitive pressures. This potential inability to raise
funds on acceptable terms could seriously harm our business.
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GOVERNMENT REGULATION AND INDUSTRY STANDARDS MAY INCREASE OUR COSTS OF DOING
BUSINESS, LIMIT OUR POTENTIAL MARKETS OR REQUIRE CHANGES IN OUR BUSINESS MODEL.
Our business model is premised on the availability of certain radio
frequencies for broadband two-way communications. Radio frequencies are subject
to extensive regulation under the laws of the United States, foreign laws and
international treaties. Each country has different regulations and regulatory
processes for wireless communications equipment and uses of radio frequencies.
The regulatory environment in which we operate is subject to significant change,
the results and timing of which are uncertain. Historically, in many countries
the unavailability of radio frequencies for two-way broadband communications has
inhibited the growth of such networks. The process of establishing new
regulations for broadband wireless frequencies and allocating such frequencies
to operators is complex and lengthy. Our customers and potential customers may
not be able to obtain sufficient frequencies for their planned uses of our
systems. Failure by the regulatory authorities to allocate suitable, sufficient
radio frequencies for such uses in a timely manner could deter potential
customers from ordering our systems and seriously harm our business.
Our systems must conform to a variety of domestic, foreign and international
regulatory requirements established to, among other things, avoid interference
among users of radio frequencies and permit interconnection of equipment.
Regulatory bodies worldwide have adopted and are adopting or revising standards
for wireless communications products. The emergence or evolution of regulations
and industry standards for broadband wireless products, through official
standards committees or widespread use by operators, could require us to modify
our systems, which may be expensive and time-consuming, and incur substantial
compliance costs and seriously harm our business.
We are subject to export control laws and regulations with respect to all of
our products and technology. We are subject to the risk that more stringent
export control requirements could be imposed in the future on product classes
that include products exported by us, which would result in additional
compliance burdens and could impair the enforceability of our contract rights.
Some of our products contain encryption technologies to enable the transfer of
data in a manner that preserves the privacy of the parties communicating such
data. United States law requires that we obtain an export license for our
systems and that we comply with various restrictions on exporting our systems to
certain countries. Our United States license expires October 31, 2000. We expect
that we will be able to renew this license as necessary from time to time, but
we can not be certain that we will be able to do so. In addition, we may be
required to apply for additional licenses to cover modifications and
enhancements to our products. Any revocation or expiration of any requisite
license, the failure to obtain a license for product modifications and
enhancements, or more stringent export control requirements could seriously harm
our business.
IF WE FAIL TO SUCCESSFULLY ESTABLISH OUR NEW VYYO NAME, OUR BUSINESS COULD BE
SERIOUSLY HARMED.
In January 2000, we changed our name from PhaseCom, Inc. to Vyyo Inc. to
better represent the diversity of our broadband wireless systems. Our new Vyyo
name may cause confusion to current and potential customers, which could
seriously harm our business. We may be unable to enforce rights related to the
Vyyo Inc. name, we may not be free to use the name in all jurisdictions, our use
of the name may be challenged and we may be required to expend significant
resources in defending the use of the name.
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RISKS RELATING TO THIS OFFERING
BECAUSE OUR PRINCIPAL STOCKHOLDERS AND MANAGEMENT HAVE THE ABILITY TO CONTROL
STOCKHOLDER VOTES, THE PREMIUM OVER MARKET PRICE THAT AN ACQUIRER MIGHT
OTHERWISE PAY MAY BE REDUCED AND ANY MERGER OR TAKEOVER MAY BE DELAYED.
Upon completion of this offering, our largest stockholders will
beneficially own approximately % of our outstanding common stock. As a result,
these stockholders, acting together, will be able to control the outcome of all
matters submitted for stockholder action, including:
- electing members to our board of directors;
- approving significant change-in-control transactions;
- determining the amount and timing of dividends paid to themselves and to
our public stockholders; and
- controlling our management and operations.
This concentration of ownership may have the effect of impeding a merger,
consolidation, takeover or other business consolidation involving us, or
discouraging a potential acquirer from making a tender offer for our shares.
This concentration of ownership could also negatively affect our stock's market
price or decrease any premium over market price that an acquirer might otherwise
pay.
BECAUSE THE NASDAQ NATIONAL MARKET IS LIKELY TO CONTINUE TO EXPERIENCE EXTREME
PRICE AND VOLUME FLUCTUATIONS, THE PRICE OF OUR STOCK MAY DECLINE.
The market price of our shares is likely to be highly volatile and could be
subject to wide fluctuations in response to numerous factors, including the
following:
- actual or anticipated variations in our quarterly operating results or
those of our competitors;
- announcements by us or our competitors of new products or technological
innovations;
- introduction and adoption of new industry standards;
- changes in financial estimates or recommendations by securities analysts;
- changes in the market valuations of our competitors;
- announcements by us or our competitors of significant acquisitions or
partnerships; and
- sales of our common stock.
Many of these factors are beyond our control and may negatively impact the
market price of our common stock, regardless of our performance. In addition,
the stock market in general, and the market for technology companies in
particular, has been highly volatile. Our common stock may not trade at the same
levels of shares as that of other technology companies and shares of technology
companies, in general, may not sustain their current market prices. In the past,
securities class action litigation has often been brought against a company
following periods of volatility in the market price of its securities. We may be
the target of similar litigation in the future. Securities litigation could
result in substantial costs and divert management's attention and resources,
which could seriously harm our business and operating results.
OUR MANAGEMENT HAS BROAD DISCRETION IN USING THE PROCEEDS FROM THIS OFFERING,
WHICH MIGHT NOT BE USED IN WAYS THAT IMPROVE OUR OPERATING RESULTS OR INCREASE
OUR MARKET VALUE.
Our management will have broad discretion as to how the net proceeds of this
offering will be used, including uses which may not improve our operating
results or increase our market value.
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Investors will be relying on the judgment of management regarding the
application of the proceeds of this offering. The results and the effectiveness
of the application of the proceeds are uncertain and you will not have the
opportunity, as part of your investment decision, to assess whether the proceeds
are being used appropriately.
PROVISIONS OF OUR GOVERNING DOCUMENTS AND DELAWARE LAW COULD DISCOURAGE
ACQUISITION PROPOSALS OR DELAY A CHANGE IN CONTROL.
Upon the closing of this offering, our certificate of incorporation and
bylaws will be amended and restated. Our amended and restated certificate of
incorporation and bylaws will contain anti-takeover provisions that could make
it more difficult for a third party to acquire control of us, even if that
change in control would be beneficial to stockholders. Specifically:
- our board of directors will have the authority to issue common stock and
preferred stock and to determine the price, rights and preferences of any
new series of preferred stock without stockholder approval;
- our board of directors will be divided into three classes, each serving
three-year terms;
- super-majority voting will be required to amend key provisions of our
certificate of incorporation and by-laws;
- there will be limitations on who can call special meetings of
stockholders;
- stockholders will not be able take action by written consent; and
- advance notice will be required for nominations of directors and for
stockholder proposals.
In addition, provisions of Delaware law and our stock option plans may also
discourage, delay or prevent a change of control or unsolicited acquisition
proposals.
FUTURE SALES OF OUR COMMON STOCK COULD DEPRESS OUR STOCK PRICE.
We cannot predict if future sales of our common stock, or the availability
of our common stock for sale, will depress the market price for our common stock
or our ability to raise capital by offering equity securities. Sales of
substantial amounts of common stock, or the perception that these sales could
occur, may depress prevailing market prices for the common stock.
After this offering, approximately shares of common stock will be
outstanding. All of the shares sold in this offering will be freely tradeable
except for any shares purchased by affiliates of Vyyo. The remaining shares of
common stock outstanding after this offering will be restricted as a result of
securities laws or lock-up agreements. These remaining shares will be available
for sale in the public market as follows:
<TABLE>
<CAPTION>
DATE OF AVAILABILITY FOR SALE NUMBER OF SHARES
- ----------------------------- ----------------
<S> <C>
As of the date of this prospectus...........................
, 2000............................................
At various times thereafter upon expiration of applicable
holding periods...........................................
</TABLE>
Banc of America Securities LLC may release all or a portion of the shares
subject to lock-up agreements at any time without notice. See "Underwriting" and
"Shares Eligible for Future Sale."
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RISKS RELATING TO OUR LOCATION IN ISRAEL
CONDITIONS IN ISRAEL AFFECT OUR OPERATIONS AND MAY LIMIT OUR ABILITY TO PRODUCE
AND SELL OUR SYSTEMS.
Our final testing and assembly and research and development facilities are
located in Israel. Political, economic and military conditions in Israel
directly affect our operations. Since the establishment of the State of Israel
in 1948, a number of armed conflicts have taken place between Israel and its
Arab neighbors and a state of hostility, varying in degree and intensity, has
led to security and economic problems for Israel. We could be adversely affected
by any major hostilities involving Israel, the interruption or curtailment of
trade between Israel and its trading partners, a significant increase in
inflation, or a significant downturn in the economic or financial condition of
Israel. Despite the progress towards peace between Israel and its Arab
neighbors, the future of these peace efforts is uncertain. Moreover, several
countries still restrict business with Israel and with Israeli companies. We
could be adversely affected by restrictive laws or policies directed towards
Israel or Israeli businesses.
Some of our directors, officers and employees are currently obligated to
perform annual reserve duty and are subject to being called to active duty at
any time under emergency circumstances. Our business cannot assess the full
impact of these requirements on our workforce or business if conditions should
change and we cannot predict the effect on us of any expansion or reduction of
these obligations.
BECAUSE SUBSTANTIALLY ALL OF OUR REVENUES ARE GENERATED IN U.S. DOLLARS WHILE A
PORTION OF OUR EXPENSES ARE INCURRED IN NEW ISRAELI SHEKELS, OUR RESULTS OF
OPERATIONS MAY BE SERIOUSLY HARMED IF THE RATE OF INFLATION IN ISRAEL EXCEEDS
THE RATE OF DEVALUATION OF THE NEW ISRAELI SHEKEL AGAINST THE U.S. DOLLAR.
We generate substantially all of our revenues in U.S. dollars, but we incur
a substantial portion of our expenses, principally salaries and related
personnel expenses related to research and development, in New Israeli shekels,
or NIS. As a result, we are exposed to the risk that the rate of inflation in
Israel will exceed the rate of devaluation of the NIS in relation to the dollar
or that the timing of this devaluation lags behind inflation in Israel. If the
dollar costs of our operations in Israel increase, our dollar-measured results
of operations will be seriously harmed.
THE GOVERNMENT PROGRAMS AND BENEFITS WE RECEIVE REQUIRE US TO SATISFY PRESCRIBED
CONDITIONS. THESE PROGRAMS AND BENEFITS MAY BE TERMINATED OR REDUCED IN THE
FUTURE, WHICH WOULD INCREASE OUR COSTS AND TAXES AND COULD SERIOUSLY HARM OUR
BUSINESS.
Several of our capital investments have been granted "approved enterprise"
status under Israeli law. The portion of our income derived from our approved
enterprise program will be exempt from tax for a period of four years commencing
in the first year in which we have taxable income, and we will be subject to a
reduced tax rate for the remaining term of the programs. The benefits available
to an approved enterprise are conditioned upon the fulfillment of conditions
stipulated in applicable law and in the specific certificate of approval. If we
fail to comply with these conditions, in whole or in part, we may be required to
pay additional taxes for the period in which we benefitted from the tax
exemption or reduced tax rates and would likely be denied these benefits in the
future. From time to time, the Government of Israel has discussed reducing or
eliminating the benefits available under the approved enterprise program. These
tax benefits may not be continued in the future at their current levels or at
all. This termination or reduction of these benefits would increase our taxes
and could seriously harm our business.
In the past, we received grants from the government of Israel for the
financing of a portion of our research and development expenditures in Israel.
One of the conditions to the receipt of these grants is that we pay royalties to
the government on revenues derived from the sale of products and services
resulting from the research and development funded by these grants. If we fail
to comply with these conditions, we could be required to refund any payments
previously received together with interest and
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penalties. In addition, the regulations under which we received these grants
restrict our ability to manufacture products or transfer technology outside of
Israel for products developed with this technology. If the Chief Scientist
consents to the manufacture of products outside of Israel, we may be required to
pay increased royalties, ranging from 120% to 300% of the amount of the Chief
Scientist grant, depending on the percentage of foreign manufacture. We believe
that our current products are not subject to this restriction. However, some of
our manufacturing activities are performed by subcontractors outside of Israel.
If the government of Israel were to determine that our products must be
manufactured in Israel, our business would be harmed.
IT MAY BE DIFFICULT TO ENFORCE A U.S. JUDGMENT AGAINST US AND OUR NONRESIDENT
OFFICERS, DIRECTORS AND EXPERTS.
Our Chief Technology Officer, one of our directors and some of the experts
named in this prospectus are nonresidents of the United States, and a
substantial portion of our assets and the assets of these persons are located
outside the United States. Therefore, it may be difficult to enforce a judgment
obtained in the United States based upon the civil liabilities provisions of the
United States federal securities laws against us or any of those persons or to
effect service of process upon these persons in the United States.
CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS
Some of the matters discussed under the captions "Prospectus Summary," "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business" and elsewhere in this prospectus include
forward-looking statements. We have based these forward-looking statements on
our current expectations and projections about future events, including, among
other things:
- implementing our business strategy;
- attracting and retaining customers and employees;
- obtaining and expanding market acceptance of the products we offer;
- forecasts of Internet usage and the size and growth of relevant markets;
- rapid technological changes in our industry and relevant markets; and
- competition in our market.
In some cases, you can identify forward-looking statements by terminology
such as "may," "will," "should," "could," "predicts," "potential," "continue,"
"expects," "anticipates," "future," "intends," "plans," "believes," "estimates"
and similar expressions. These statements are based on our current beliefs,
expectations and assumptions and are subject to a number of risks and
uncertainties. Actual results, levels of activity, performance, achievements and
events may vary significantly from those implied by the forward-looking
statements. A description of risks that could cause our results to vary appears
under the caption "Risk Factors" and elsewhere in this prospectus. These
forward-looking statements are made as of the date of this prospectus, and we
assume no obligation to update them or to explain the reasons why actual results
may differ.
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USE OF PROCEEDS
We estimate that we will receive net proceeds from the sale of shares of our
common stock in this offering of approximately $ million, or
$ million if the underwriters exercise their over-allotment option in full,
based upon an assumed offering price of $ per share and after deducting
underwriting discounts and commissions and estimated offering expenses. The
principal purposes of this offering are to obtain additional capital and to
create a public market for our common stock. We expect to use the net proceeds
from this offering for working capital and other general corporate purposes. We
may use a portion of the net proceeds to acquire complementary products,
technologies, or businesses; however, we currently have no commitments or
agreements relating to any such transactions.
We will have significant discretion in the use of the net proceeds of this
offering. Investors will be relying on the judgment of our management regarding
the application of the proceeds of this offering. Pending use of the net
proceeds as discussed above, we intend to invest these funds in short-term,
interest-bearing, investment-grade obligations.
DIVIDEND POLICY
We have never declared or paid any dividends on our capital stock. We intend
to retain any future earnings to fund the development and expansion our
business. Therefore, we do not anticipate paying cash dividends on our common
stock in the foreseeable future. Through our subsidiary, Vyyo Ltd., we
participate in the "alternative benefits program" under the Israeli law for the
Encouragement of Capital Investments, 1959, under which we realize certain tax
exemptions. If Vyyo Ltd. distributes a cash dividend to Vyyo Inc. from income
which is tax exempt, it would have to pay corporate tax at the rate of up to 25%
on an amount equal to the amount distributed and the corporate tax which would
have been due in the absence of the tax exemption.
18
<PAGE>
CAPITALIZATION
The following table sets forth as of December 31, 1999:
- our actual capitalization;
- our pro forma capitalization, assuming the conversion of our preferred
stock; and
- our pro forma as adjusted capitalization after giving effect to the sale
of the shares of common stock in this offering at an assumed initial
public offering price of $ per share after deducting the underwriting
discounts and commissions and estimated offering expenses.
This information should be read in conjunction with our consolidated
financial statements and the related notes and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" appearing elsewhere
in this prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Bank line of credit......................................... $ 2,280 $ 2,280 $ 2,280
======== ======== ========
Stockholders' equity:
Convertible preferred stock, $0.001 par value at amounts
paid in; 100,000,000 shares authorized, 11,564,269
shares issued and outstanding, actual; no shares issued
and outstanding pro forma; 5,000,000 shares authorized,
no shares issued and outstanding pro forma as
adjusted................................................ $ 15,369 $ -- $ --
Common stock, $0.0001 par value at amounts paid in;
200,000,000 shares authorized, 15,335,155 shares issued
and outstanding, actual; 17,964,857 shares issued and
outstanding pro forma; shares issued and
outstanding, pro forma as adjusted...................... 27,612 42,981
Note receivable from stockholder.......................... (920) (920) (920)
Deferred compensation..................................... (6,000) (6,000) (6,000)
Accumulated deficit....................................... (34,756) (34,756) (34,756)
-------- -------- --------
Total stockholders' equity.................................. 1,305 1,305
-------- -------- --------
Total capitalization........................................ $ 1,305 $ 1,305 $
======== ======== ========
</TABLE>
The shares of common stock outstanding in the actual, pro forma and pro
forma as adjusted columns exclude:
- 2,449,425 shares of common stock issuable as of December 31, 1999 upon the
exercise of outstanding stock options issued under our option plans at a
weighted average exercise price of $1.03 per share;
- 3,512,000 shares of common stock initially reserved for issuance under our
stock option plans;
- 500,000 shares of common stock initially reserved for issuance under our
employee stock purchase plan; and
- 125,190 shares of common stock issuable as of December 31, 1999 upon the
exercise of outstanding warrants with a weighted average exercise price of
$1.89 per share.
19
<PAGE>
DILUTION
Our pro forma net tangible book value as of December 31, 1999 was
approximately $1.3 million, or $0.07 per share of common stock. Pro forma net
tangible book value per share represents the amount of total tangible assets
less total liabilities, divided by 17,964,857, the number of shares of common
stock treated as outstanding on a pro forma basis after giving effect to the
conversion of the preferred stock. After giving effect to the sale of the shares
of common stock offered in this offering at the assumed public offering price,
our pro forma net tangible book value at December 31, 1999 would have been
$ , or $ per share. This represents an immediate increase in net
pro forma tangible book value to existing stockholders of $ per share and
an immediate dilution of $ per share to new investors. The following table
illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share:............ $
------
Pro forma net tangible book value per share before this
offering as of December 31, 1999........................ $0.07
-----
Increase per share attributable to new investors..........
-----
Pro forma net tangible book value per share after this
offering..................................................
------
Dilution per share to new investors $
======
</TABLE>
The following table summarizes on a pro forma basis, after giving effect to
the conversion of the preferred stock, the total number of shares of common
stock purchased from us, the total consideration paid to us and the average
price per share paid by existing stockholders and by new investors, in each case
based upon the number of shares of common stock outstanding as of December 31,
1999.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- -------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders...................... 17,964,857 % $33,381,000 % $1.86
New investors..............................
---------- ----- ----------- -----
Total.................................... 100.0% $ 100.0%
========== ===== =========== =====
</TABLE>
If the underwriters' over-allotment is exercised in full, the number of
shares of common stock held by existing stockholders will be reduced to ,
or % of the total number of shares of common stock to be outstanding after
this offering and the number of shares of common stock held by new investors
will increase to , or % of the total number of shares of common
stock to be outstanding immediately after this offering.
The foregoing discussions and tables assume no exercise of any stock options
or warrants outstanding. As of December 31, 1999, there were options outstanding
to purchase 2,449,425 shares of common stock at a weighted average exercise
price of $1.03 per share and warrants outstanding to purchase 125,190 shares of
common stock at a weighted average exercise price of $1.89 per share. To the
extent that any of these options or warrants are exercised, there will be
further dilution to the new investors.
20
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The statements of operations data for each of the years in the three-year
period ended December 31, 1999 and the balance sheet data at December 31, 1998
and 1999 are derived from our audited financial statements included elsewhere in
this prospectus. The statements of operations data for the year ended
December 31, 1996 and the balance sheet data at December 31, 1996 and 1997, are
derived from our audited financial statements that are not included in this
prospectus. The statements of operations data for the year ended December 31,
1995 and the balance sheet data at December 31, 1995 are derived from our
unaudited financial statements that are not included in this prospectus. The
following selected consolidated financial data should be read in conjunction
with our consolidated financial statements and related notes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues................................... $ 759 $ 478 $ 1,537 $ 2,449 $ 4,230
Cost of revenues............................... 658 896 1,556 2,568 4,316
------- ------- ------- ------- --------
Gross profit (loss)............................ 101 (418) (19) (119) (86)
Operating expenses:
Research and development..................... 649 1,444 2,398 3,252 3,678
Sales and marketing.......................... 527 929 1,484 2,413 1,972
General and administrative................... 854 1,180 1,200 1,363 2,148
Amortization of deferred compensation........ -- -- -- -- 3,600
------- ------- ------- ------- --------
Total operating expenses....................... 2,030 3,553 5,082 7,028 11,398
------- ------- ------- ------- --------
Operating loss................................. (1,929) (3,971) (5,101) (7,147) (11,484)
Interest and other income (expense), net..... (750) (131) (244) (524) (717)
------- ------- ------- ------- --------
Net loss....................................... $(2,679) $(4,102) $(5,345) $(7,671) $(12,201)
======= ======= ======= ======= ========
Net loss per share:
Basic and diluted............................ $ (8.86) $ (8.15) $ (2.27)
======= ======= ========
Pro forma basic and diluted (unaudited)...... $ (1.81)
========
Shares used in per share computations:
Basic and diluted............................ 603 941 5,385
======= ======= ========
Pro forma basic and diluted (unaudited)...... 6,758
========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.......................... $ 695 $1,459 $ 510 $ 131 $5,036
Working capital (deficiency)....................... (658) 785 (4,497) (10,581) 210
Total assets....................................... 2,309 3,074 2,976 3,139 8,161
Long-term obligations, net of current portion...... 71 2,328 394 -- --
Total shareholders' equity (net capital
deficiency)...................................... (470) (560) (3,811) (9,571) 1,305
</TABLE>
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS AND THE RELATED NOTES THAT APPEAR ELSEWHERE IN THIS
PROSPECTUS. THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT
REFLECT OUR PLANS, ESTIMATES AND BELIEFS. OUR ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT
COULD CAUSE OR CONTRIBUTE TO THESE DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO,
THOSE DISCUSSED BELOW AND ELSEWHERE IN THIS PROSPECTUS, PARTICULARLY IN "RISK
FACTORS."
OVERVIEW
We are a leading global provider of broadband wireless access systems used
by telecommunications service providers to deliver wireless, high-speed data
connections to business and residential subscribers. We sell our systems
directly to service providers, as well as to system integrators that deploy our
systems as part of their end-to-end network solutions for service providers. We
have incurred significant losses since our inception, and we expect to continue
to incur net losses for the foreseeable future. We incurred net losses of
approximately $12.2 million for the year ended December 31, 1999. As of
December 31, 1999, our accumulated deficit was approximately $34.8 million.
We were incorporated in 1996 in Delaware and succeeded to the business of
PhaseCom Ltd., an Israeli company, under a reorganization. As a result,
PhaseCom Ltd. became our wholly-owned subsidiary. Prior to our introduction of
broadband wireless access systems, we developed and marketed cable broadband
communication systems. Our first generation broadband wireless system was
commercially deployed during the first quarter of 1999 for the LMDS and MMDS
frequency bands. Our second generation broadband wireless access system was
commercially deployed during the first quarter of 2000 for the LMDS and MMDS
frequency bands. Our systems have been commercially deployed at 21 domestic and
international sites.
RESULTS OF OPERATIONS
NET REVENUES. Net revenues include product revenues and, in 1999,
technology development revenues. Product revenues are derived primarily from
sales of hubs and modems to telecommunications service providers and to system
integrators. Product revenues are generally recorded when products are shipped,
provided there are no customer acceptance requirements and we have no additional
performance obligations. We accrue for estimated sales returns or exchanges and
product warranty and liability costs upon recognition of product revenues.
Technology development revenues consist of license fees paid by Philips
Semiconductor under a license and development agreement, and are recognized when
the applicable customer milestones are met, including deliverables, but not in
excess of the estimated amount that would be recognized using the
percentage-of-completion method. We expect to complete this arrangement in 2000
and no other similar arrangements are contemplated. Deferred revenues represent
the gross profit on product revenues subject to return or exchange and total
payments on technology development not yet recognized.
In 1999, approximately 61% of our revenues were derived from customers in
North America, 22% from customers in Europe, 13% from customers in Asia and 4%
from other regions.
Our revenue is concentrated among relatively few customers. In 1999, four
customers collectively accounted for approximately 59% of our net revenues. In
1999, revenues from each of four customers represented approximately 20%, 14%,
13% and 12% of net revenues. In 1998, revenues from each of three customers
represented approximately 31%, 23% and 15% of net revenues. In 1997, revenue
from each of three customers represented approximately 27%, 12% and 11% of total
revenues. Though our
22
<PAGE>
principal revenue-generating customers are likely to vary on a quarterly basis,
we anticipate that our revenues will remain concentrated among a few customers
for the foreseeable future. In August 1999, ADC Telecommunications, Inc., one of
our major customers made an approximately 10% equity investment in Vyyo.
Net revenues increased 59% from $1.5 million in 1997 to $2.4 million in 1998
and 73% to $4.2 million in 1999. This increase primarily reflects the increase
in unit sales of our systems in 1998 and 1999 and the technology development
activities in 1999. Product revenues recognized in 1999 relate to sales of cable
and wireless modem products. All of the product revenues in 1998 and 1997 relate
to sales of cable modem products that we are no longer developing. Accordingly,
the success of our business will be entirely dependent upon the success of our
wireless products. We do not anticipate recognizing material amounts of revenue
from cable modem products in subsequent periods. Technology development revenues
were $480,000 in 1999.
COST OF REVENUES. Cost of revenues consist of costs of product revenues and
for 1999, also $313,000 of costs of technology development revenues. Cost of
technology development revenues consists of component and material costs, direct
labor costs, warranty costs, royalties in connection with Israeli government
incentive programs, and overhead related to manufacturing our products. Cost of
technology development consists of direct labor costs and materials for the
engineering efforts related to the technology development arrangement.
Cost of revenues increased from $1.6 million in 1997 to $2.6 million in 1998
and to $4.3 million in 1999. These increases were attributable primarily to
increased shipments of our products in each of the three years and in 1999, also
to the technology development activities. Gross margins were negative in each
year. Gross margins in 1997 and 1998 were negatively affected by the high
initial fixed costs and low volumes associated with our proprietary cable modem
products. In addition, gross margins in 1999 were negatively affected by the
high fixed costs associated with the first generation wireless modem products
and inventory write-offs associated with the discontinuation of in-house cable
modem assembly, as well as the replacement of a modem system for a key customer
with next-generation technology. We expect that our gross margins will continue
to fluctuate.
Prior to 1997, we participated in several Israeli government research and
development incentive programs, under which we received research and development
participation of approximately $3.7 million. We are obligated to pay royalties
at rates that generally range from 2.5% to 3% of revenues resulting from the
funded projects up to maximum amounts of 100% or 150% of the funded amount. As
of December 31, 1999, we had repaid or provided for the repayment of grants
amounting to $651,000. As we currently do not intend to proceed with the
manufacture and sale of products developed within all of the projects funded by
the Chief Scientist or by the BIRD Foundation, we believe that the remaining
contingent royalty liability is approximately $800,000.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
consist primarily of personnel, facilities, equipment and supplies for our
research and development activities. Substantially all of our research and
development activities are carried out in our facility in Israel. These expenses
are charged to operations as incurred. Our research and development expenses
increased from $2.4 million in 1997 to $3.3 million in 1998 and to $3.7 million
in 1999. These increases were due to increased levels of activities and related
costs of personnel and facilities. We believe significant investment in research
and development is essential to our future success and plan on increasing our
research and development activities, including recruiting and hiring additional
personnel and expanding our research and development facility to accommodate the
additional personnel, which will result in increased expenses in absolute
dollars. Accordingly, we expect that research and development expenses will
continue to increase in future periods.
23
<PAGE>
SALES AND MARKETING EXPENSES. Sales and marketing expenses consist of
salaries and related costs of sales and marketing employees, consulting fees and
expenses for travel, trade shows and promotional activities. Selling and
marketing expenses increased from $1.5 million in 1997 to $2.4 million in 1998
and decreased to $2.0 million in 1999. The fluctuation in sales and marketing
expenses in each of the years was primarily due to changes in the number of
sales and marketing personnel. We plan on increasing our sales and marketing
activities, including recruiting and hiring additional senior personnel, which
will result in increased expenses in absolute dollars. Accordingly, we expect
that sales and marketing expenses will increase in future periods.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
consist primarily of personnel and related costs for general corporate
functions, including finance, accounting, strategic and business development,
human resources and legal. General and administrative expenses increased from
$1.2 million in 1997 to $1.4 million in 1998 to $2.1 million in 1999. We
recently hired additional senior management personnel and are planning to expand
operational and corporate activities, including support of our operations as a
public company. We expect that general and administrative expenses will increase
in future periods.
AMORTIZATION OF DEFERRED STOCK COMPENSATION. Deferred stock compensation
represents the aggregate differences between the respective exercise price of
stock options or purchase price of stock at their dates of grant or sale and the
deemed fair market value of our common stock for accounting purposes. Deferred
stock compensation is presented as a reduction of stockholders' equity and is
amortized over the vesting period of the underlying options. Amortization
expense was $3.6 million in 1999. We currently expect to record amortization of
deferred stock compensation of approximately $3.5 million in 2000, $1.5 million
in 2001 and $1.0 million thereafter.
INTEREST INCOME (EXPENSE), NET. Interest income (expense) consists of
interest earned on cash and cash equivalents offset by interest expense related
to bank loans and convertible notes. Net interest expense increased from
($244,000) in 1997 to ($524,000) in 1998 to ($717,000) in 1999 due to increased
borrowings.
INCOME TAXES. As of December 31, 1999, we had approximately $19 million of
Israeli net operating loss carryforwards and $6 million of United States federal
and state net operating loss carryforwards. The Israeli net operating loss
carryforwards have no expiration date. The United States net operating loss
carryforwards expire in various amounts between the years 2004 and 2019. We have
provided a full valuation allowance against our net deferred tax assets as the
future realization of the tax benefit is not sufficiently assured.
QUARTERLY RESULTS OF OPERATIONS
The table below sets forth statement of operations data for each of the four
consecutive quarters for the year ended December 31, 1999. This information has
been derived from our unaudited consolidated financial statements. The unaudited
consolidated financial statements have been prepared on the same basis as our
audited consolidated financial statements contained elsewhere in this prospectus
and include all adjustments, consisting only of normal recurring adjustments,
that we consider necessary for a fair presentation of such information. The
information should be read in conjunction with our consolidated financial
statements and notes thereto appearing elsewhere in this prospectus. Our limited
operating history makes the prediction of future operating results difficult or
24
<PAGE>
impossible. We believe that period-to-period comparisons of our financial
results are not necessarily meaningful and should not be relied upon as an
indication of future performance.
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1999 1999 1999 1999
---------- --------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net revenues...................................... 942 1,024 1,110 1,154
Cost of revenues.................................. (864) (1,147) (1,111) (1,194)
------ ------ ------ ------
Gross profit (loss)............................... 78 (123) (1) (40)
Operating expenses:
Research and development........................ 785 868 842 1,183
Sales and marketing............................. 378 376 574 644
General and administrative...................... 429 415 597 707
Amortization of deferred compensation........... -- 300 200 3,100
------ ------ ------ ------
Total operating expenses.......................... 1,592 1,959 2,213 5,634
------ ------ ------ ------
Operating loss.................................... (1,514) (2,082) (2,214) (5,674)
Interest and other income (expense), net........ (198) (195) (163) (161)
------ ------ ------ ------
Net loss.......................................... (1,712) (2,277) (2,377) (5,835)
====== ====== ====== ======
</TABLE>
Cost of revenues in the second quarter of 1999 reflects inventory
write-downs associated with discontinuation of in-house cable modem production.
Operating expenses in the third and fourth quarters of 1999 reflect higher sales
and marketing and general and administrative expenses due primarily to the
general increase in personnel and the increase in sales and marketing and
corporate activities. Our quarterly operating results have varied significantly
in the past and are likely to vary significantly in the future. These variations
result from a number of factors, many of which are beyond our control. In
addition, our operating results may be below the expectations of securities
analysts and investors in future periods. Our failure to meet these expectations
will likely cause our share price to decline.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have funded operations primarily through the private
placement of our equity securities and borrowings from stockholders and banks.
We raised approximately $4.1 million in 1997, $6.7 million in 1998 and
$11.7 million in 1999 in convertible debt and equity. As of December 31, 1999,
we had cash and cash equivalents of approximately $5.0 million.
Cash used by operations include expenditures associated with development
activities and marketing efforts related to commercialization of our products.
In 1999, cash used in operations was $6.2 million comprised of our net loss of
$12.2 million, increase in accounts receivable of $336,000, partially offset by
a decrease in inventories of $512,000 and increase in accounts payable and
accrued liabilities of $1.5 million. In 1998, cash used in operations was
$6.7 million comprised of our net loss of $7.7 million increase in inventory of
$638,000 partially offset by a $1.1 million increase in accounts payable and
accrued liabilities. In 1997, cash used in operations was $4.7 million comprised
of our net loss of $5.3 million, increase in inventory of $639,000 partially
offset by a $1.1 million increase in accounts payable and accrued liabilities.
We have made investments in property and equipment of approximately
$1.3 million in 1997 through 1999.
25
<PAGE>
We have a line of credit arrangement with a bank for an aggregate amount of
$2,500,000. The loans under this line of credit bear interest at a rate of LIBOR
plus 1.5%. At December 31, 1999, the applicable rate was 7.25% per annum.
Borrowings and bank guarantees under the line of credit were $2,280,000 and
$220,000 at December 31, 1999. As of December 31, 1999, all assets of our
Israeli subsidiary, amounting to approximately $3.0 million, are subject to
fixed and floating liens pursuant to certain loan agreements.
Our capital requirements depend on numerous factors, including market
acceptance of our products, the resources we devote to developing, marketing,
selling and supporting our products, the timing and extent of establishing
additional international operations and other factors. We expect to devote
substantial capital resources to hire and expand our research and development,
and our sales and marketing organizations, to expand marketing programs and for
other general corporate activities. We expect that the net proceeds from this
offering and cash from operations will be sufficient to meet our working capital
and capital expenditure needs for at least the next 12 months. After that, we
will need to raise additional funds for a number of uses. We may not be able to
obtain additional funds on acceptable terms or at all.
EFFECTIVE CORPORATE TAX RATES
Our tax rate will reflect a mix of the United States federal and state tax
on our United States income and Israeli tax on non-exempt income. The majority
of our Israeli subsidiary's income is derived from our company's capital
investment program with "Approved Enterprise" status under the Law for the
Encouragement of Capital Investments, and is eligible therefore for tax
benefits. Pursuant to these benefits, we will enjoy a tax exemption on income
derived during the first four years in which this investment program produces
taxable income, provided that we do not distribute such income as a dividend,
and a reduced tax rate of 10 to 15% for up to six subsequent years. All of these
tax benefits are subject to various conditions and restrictions. There can be no
assurance that we will obtain approval for additional Approved Enterprises
Programs or that the provisions of the law will not change. Since we have
incurred tax losses through December 31, 1999, we have not yet used the tax
benefits for which we are eligible.
YEAR 2000 ISSUES
We currently are not aware of any Year 2000 problem in any of our critical
systems and products. However, the success to date of our Year 2000 efforts
cannot guarantee that a Year 2000 problem affecting third parties upon which we
rely will not become apparent in the future that could harm our business.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, Accounting for Derivative Instruments and Hedging Activities, or SFAS
No. 133, which establishes accounting and reporting standards for derivative
instruments and hedging activities. The statement requires recognition of all
derivatives at fair value in the financial statements. FASB Statement No. 137,
Accounting for Derivative Instruments and Hedging Activities Deferral of the
Effective Date of FASB Statement No. 133, an amendment of FASB Statement
No. 133, defers implementation of SFAS No. 133 until fiscal years beginning
after June 15, 2000. We believe that upon implementation the standard will not
have a significant effect on our financial statements.
26
<PAGE>
DISCLOSURES ABOUT MARKET RISK
We are exposed to financial market risks including changes in interest rates
and foreign currency exchange rates. As of December 31, 1999, we had cash and
cash equivalents of $5.0 million. Substantially all of these amounts consisted
of checking account cash balances and are therefore not subject to interest rate
risk. Substantially all of our revenue and capital spending is transacted in
U.S. dollars, although a substantial portion of the cost of our operations,
relating mainly to our personnel and facilities in Israel, is incurred in New
Israeli shekels, or NIS. We have not engaged in hedging transactions to reduce
our exposure to fluctuations that may arise from changes in foreign exchange
rates. In the event of an increase in inflation rates in Israel, or if
appreciation of the NIS occurs without a corresponding adjustment in our
dollar-denominated revenues, our results of operation and business could be
materially harmed.
27
<PAGE>
BUSINESS
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED
IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF THE FACTORS DESCRIBED UNDER
"RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS. SEE "CAUTIONARY NOTE ON
FORWARD-LOOKING STATEMENTS."
OVERVIEW
We are a leading global provider of broadband wireless access systems used
by telecommunications service providers to deliver wireless, high-speed data
connections to business and residential subscribers. Our systems are deployed in
point-to-multipoint applications at the radio frequencies licensed for two-way
broadband communication. Point-to-multipoint technology refers to the ability of
a central, wireless hub to transmit and receive network traffic to and from
multiple subscriber modems. Our point-to-multipoint architecture is based on the
Internet protocol, or IP, which is the networking standard used to deliver voice
and data over the Internet. Our system is designed to allow service providers to
support rapid and cost-effective broadband service roll-outs directly to
business and residential subscribers. Service providers use our system to bridge
the segment of the network which connects the service providers' systems
directly to the subscribers, commonly referred to as the last mile.
In recent years, the volume of high-speed data traffic across worldwide
communications networks has grown dramatically as the public Internet and
private corporate intranets have been broadly adopted for communications and
e-commerce. This traffic growth has created demand for cost-effective,
high-speed communications, as subscribers increasingly rely on numerous
applications and data-intensive content, such as full-streaming video, voice
over IP and remote access to corporate networks. In the United States and
abroad, the communications industry is in varying stages of deregulation.
Deregulation has created the opportunity for new competitors to offer multiple
communications services directly to subscribers. There are a number of
wire-based technologies that deliver high-speed connections, but performance,
cost, time for deployment or service availability limit the use of these
alternative technologies to satisfy the needs of service providers and
subscribers. High-speed, wireless point-to-multipoint technology, however,
offers service providers numerous advantages over wire-based solutions,
including the ability to rapidly and cost-effectively expand their subscriber
base or to enter new markets while avoiding the limitations of the existing
wire-based infrastructure.
Our system consists of a wireless hub, located at a base station, and a
wireless subscriber modem, which enables service providers to rapidly deploy
cost-effective, high-speed data connections directly to business and residential
subscribers. Each hub transmits and receives network traffic to and from our
wireless modems which are installed at multiple subscriber locations. Our
integrated network management system optimizes the utilization of system
resources by efficiently allocating bandwidth, which allows service providers to
maximize the number of simultaneous subscribers on a given frequency band. Using
our point-to-multipoint system, service providers can roll out network service
quickly and with a minimal initial investment and can then expand their networks
by adding wireless hub components and subscriber wireless modems as the number
of subscribers grows.
We sell our systems directly to service providers and system integrators
that deploy our systems as part of their end-to-end network solutions for
service providers. We also provide system integration services to some of our
service provider customers to more effectively implement our systems. As of
January 31, 2000, our systems had been commercially deployed at 21 domestic and
international sites.
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INDUSTRY BACKGROUND
Use of the Internet and private communications networks has expanded and
continues to expand rapidly. International Data Corporation estimates that there
were 142 million Internet subscribers at the end of 1998, and projects that this
number will grow to over 500 million subscribers by 2003. Businesses, ranging
from large and small corporate enterprises to home offices, increasingly depend
upon data networks, not only for communication within the office, but also to
exchange information among corporate sites, remote locations, telecommuting
employees, business partners, suppliers and customers. Consumers are also
accessing the Internet to communicate, collect and publish information and
conduct retail purchases. For example, the Chairman of the Federal
Communications Commission, or FCC, recently stated that Internet traffic is
doubling every 100 days and 40% of American households have Internet access.
The growth in data traffic is resulting in an increase in the demand for
high-speed access. In light of this demand, the FCC has taken steps to increase
the availability of frequencies and bandwidth that may be used by wireless
carriers in the United States for such data transmission. The FCC has increased
the availability of various frequencies within the bands of 24 to 40 Gigahertz,
or GHz, frequencies often referred to as LMDS. In addition, an FCC ruling in
September 1998 allowed license holders of MMDS, or various frequencies within
the band of 2.15 to 2.68 GHz, to offer two-way broadband wireless data services.
Previously, these frequencies had been restricted to one-way video
transmissions. The FCC has also adopted orders to allocate additional spectrum
through auctions during 2000 which can be used by high-speed data transmission
service providers. Opportunities in broadband wireless access are increasing
globally as Europe, Latin America, Asia Pacific and Canada join the United
States in promoting competition in the local communications services market by
allocating frequencies and bandwidth and issuing transmission licenses. In this
regard, at least 26 countries have allocated broadband wireless frequency bands
for use or trials in the last mile, according to Global Telephony.
Deregulation has been a significant catalyst for increased competition in
the long-haul segment of the market and massive spending on network
infrastructure, as incumbent and emerging carriers have sought to address the
growing demand for bandwidth. In the local access segment of the market,
deregulation has also been a significant catalyst for the growing interest in
providing broadband access directly to subscribers. Data services that
historically were offered only by a single provider for a region now may be
offered by a number of competing service providers. This increased competition
has given local service providers compelling incentives to improve data
transmission rates in order to offer additional value-added services to
subscribers. However, bandwidth limitations of the existing last mile
infrastructure have constrained service providers from exploiting these
opportunities. Last mile links to subscribers typically consist of copper wires
that operate at substantially lower transmission speeds than those offered in
the long-haul segment of a network, or by some available broadband alternatives.
These copper wires were originally intended to carry only analog
circuit-switched, voice signals. As a result, the last mile has become a
bottleneck that limits high-speed data transmission.
Alternative technologies for broadband access include:
DIGITAL SUBSCRIBER LINE. Digital subscriber line, or DSL, technology
improves the data transmission rates of a telephone company's existing copper
wire network. DSL transmission rates are limited, however, by the length and
quality of the available copper wires. This limitation requires customers to be
located within a limited distance from the central office. The implementation of
most digital subscriber line solutions requires the installation of additional
DSL equipment in existing networks. These installation requirements can slow
down service deployment.
CABLE MODEMS. Cable modems are designed to provide broadband Internet
access and are targeted primarily at the residential market. Cable lines pass by
100 million homes in North America, but only a portion of those homes currently
have access to two-way cable modem service. In order to
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fully implement two-way communications, many cable operators must first upgrade
their older networks. Cable modem performance deteriorates as the number of
subscribers simultaneously using the system in a particular coverage area
increases.
FIBER-BASED SOLUTIONS. Fiber-based solutions and high-capacity leased lines
offer the highest data transmission rate of any of the alternative technologies
for broadband access. However, these solutions may be costly to deploy for small
business and residential subscribers.
SATELLITE SYSTEMS. Satellite systems have been deployed to meet consumers'
communications needs, such as paging and in-home entertainment, and are also
used for high-speed data transmission. However, due to cost and reliability
limitations, as well as the inability of many satellite systems to provide
two-way communications, satellite systems have not been broadly accepted in the
broadband wireless data market.
POINT-TO-POINT WIRELESS TECHNOLOGY. Point-to-point wireless technology
enables data transmission using a dedicated radio link between two locations.
Since equipment is required at each end of the link for every subscriber,
point-to-point wireless technology may not be a cost-effective broadband
wireless solution for deployment to a large number of subscribers.
BROADBAND POINT-TO-MULTIPOINT WIRELESS TECHNOLOGY. Broadband
point-to-multipoint wireless networks consist of a central, wireless hub that
communicates over radio frequencies to transmit and receive network traffic to
and from wireless modems installed at multiple subscriber locations. Relative to
wire-based, fiber, satellite and point-to-point wireless technologies, broadband
point-to-multipoint wireless technology offers the following advantages:
- RAPID DEPLOYMENT. Service providers can initiate service quickly because
they are not required to dig up streets or obtain rights-of-way to install
copper wire, cable or fiber. Deployment does not depend on locating
equipment at the facilities of a local telephone company.
- LOW COST. Service providers can initiate service economically with a
network as small as a single hub and a small number of subscriber modems.
- ECONOMIES OF SCALE. Service providers can add subscribers rapidly and
cost-effectively, since each installed hub can support many subscribers.
- FLEXIBILITY. Radio frequency technology is flexible, allowing any
combination of channels to have constant or variable data rates and
channels with equal or different upstream and downstream data rates.
Networks can be reconfigured as the market changes, reducing or
eliminating under-utilized equipment.
Broadband wireless technology is being utilized by both incumbent and
emerging service providers. The established carriers are expected to use
broadband wireless technology to reach new customers to whom they previously
could not provide access, fill coverage gaps in their existing networks and
deploy value-added services in a cost-effective manner. For example,
International Data Corporation reports that in 1999, Sprint and MCI WorldCom
spent over $1.5 billion to purchase MMDS licenses. Emerging carriers may use
this technology to bypass existing wire-based infrastructure and to compete with
incumbent carriers. In addition, this technology may be used to deploy broadband
services in regions where there is no wire-based communications infrastructure.
International Data Corporation estimates that revenue generated by basic
services delivered via fixed wireless technologies will grow from $767 million
last year to $7.4 billion in 2003.
THE VYYO SOLUTION
We provide broadband wireless access systems directly to service providers,
as well as to system integrators who deploy our systems as part of their
end-to-end network solutions for service providers.
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Our systems consist of a wireless hub, located at a base station, and a
subscriber wireless modem, which enables service providers to rapidly deploy
cost-effective, high-speed data connections directly to business and residential
subscribers. Our systems are designed to provide the following benefits:
COST-EFFECTIVENESS. Service providers worldwide are beginning to deploy
wireless access technologies as a cost-effective alternative to wire-based
communications. Our wireless system avoids many of the costs associated with
wire-based solutions, such as costs of installing copper wire, cable or fiber
and obtaining access rights-of-way and digging up streets to lay wire. We
believe that our systems are more cost-effective than other wireless access
systems because our IP-based systems reduce equipment costs and allow for ease
of operation as the broadband wireless market increasingly adopts IP as an
industry standard. Our systems use our enhanced version of the cable industry's
DOCSIS standard, which also contributes to the cost-effectiveness of our
systems.
DOCSIS-BASED SYSTEMS. We have adapted the DOCSIS standard for use in the
wireless environment. Because different manufacturers may use different
protocols and interfaces for their products, these products are often unable to
communicate with one another. By designing DOCSIS-based systems that can be
easily adapted to new standards and protocols, our systems limit
interoperability obstacles. Widely-available key components make our
DOCSIS-based systems less expensive to deploy than most other currently
available systems.
COMMERCIAL DEPLOYMENTS. Our product is one of the first commercially
available wireless hub and modem systems for the MMDS and LMDS frequency bands.
Our systems have been commercially deployed at 21 domestic and international
sites.
FLEXIBLE PLATFORM. Our systems are highly scalable, allowing our customers
to establish a wireless broadband access network with a relatively low initial
investment and later expand coverage and increase capacity of the network as
subscriber demand increases. Our integrated network management system is
designed to allow upgrades to system functionality without costly replacements
of existing hardware. Service providers also use the integrated network
management system to dynamically optimize system resources by efficiently
allocating bandwidth, which enables them to maximize the number of simultaneous
end-users served by a hub while preserving the speed and quality of data
transmission.
STRATEGY
Our objective is to be the leading worldwide supplier to service providers
and system integrators of broadband wireless access systems deployed in
point-to-multipoint applications. Our strategy to accomplish this objective is
to:
- CAPITALIZE ON EARLY ACCEPTANCE OF OUR SYSTEMS. We intend to use the early
acceptance of our systems to demonstrate our capabilities to potential
customers as we seek to expand our customer base.
- BROADEN OUR PRODUCT OFFERINGS. We intend to develop enhanced products and
new systems to address additional frequency bands worldwide as they become
available. We expect to utilize our flexible system architecture to
operate in additional frequency bands with relatively minor modifications
in transmission components and without having to redesign our entire
system architecture.
- IMPROVE COST-EFFECTIVENESS AND PERFORMANCE. We intend to continue
improving the performance and quality of our systems, while reducing costs
by integrating advanced components. We are developing additional
algorithms to enhance system functionality and allocate frequencies more
efficiently.
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- LEVERAGE KEY STRATEGIC RELATIONSHIPS.We have established strategic
relationships with several service providers and system integrators. We
expect to strengthen our existing relationships and establish new
relationships with other system integrators and service providers, to
increase product distribution and expand into additional geographic
markets.
- PARTICIPATE IN DEVELOPING INDUSTRY STANDARDS. We expect that our
technological expertise will allow us to play an integral role in the
development of the wireless DOCSIS standard. In this regard, we are
participating in the Institute of Electrical and Electronic Engineers, or
IEEE, subcommittee to develop wireless industry standards.
PRODUCTS
Our systems are deployed in point-to-multipoint applications at the
frequencies licensed for these applications. Our system is comprised of wireless
hubs and wireless subscriber modems.
The following diagram depicts our broadband wireless access system:
[GRAPHIC]
- Point-to-multipoint wireless hubs are located in base stations and send
and receive data traffic to and from up to 8,000 wireless subscriber
modems at very high speeds. Our network management system manages and
controls the traffic transmitted over our broadband wireless system.
- Our wireless modems connected to PCs or LANs are located in residences,
small/home offices, and medium-sized businesses. These modems send and
receive data traffic and provide access to the Internet.
- Our wireless hub interfaces with a router located in the base station that
sends data traffic to the Internet and, in the future, voice traffic to
the gateway that connects with the public telephone network.
- System integrators or service providers add additional network equipment,
such as antennae to transmit wireless radio frequency signals, and
complete the network infrastructure.
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WIRELESS HUB. Our wireless hub manages data communications between wireless
modems located at subscribers' locations and network devices such as routers
located at a central office or base station. The primary role of the wireless
hub is to manage the upstream traffic from the subscriber toward the public
telephone and data networks, and the downstream traffic from the networks toward
the subscriber. Our wireless hub can support up to 8,000 wireless modems.
Our wireless hub employs a unique open physical layer architecture that is
designed to support future upgrades when more advanced physical layer devices
become commercially available. Our wireless hub is designed to support a variety
of channel capacities by utilizing any combination of six upstream system
modules and four downstream system modules. For example, our system can provide,
among other combinations, 60 upstream channels and 8 downstream channels or 48
upstream channels and 16 downstream channels. A channel is a subdivision of a
frequency band used for the transmission of radio frequency signals. This
flexibility allows the system engineer to configure a system for each specific
situation. Several frequency bands may be used within the same wireless hub.
Our wireless hub is a carrier-class system that may be accessed for
modification or system module replacement by the operator while maintaining
continuous operation. Most of the modules are identical, which is intended to
reduce maintenance and inventory requirements. When used in combination with our
wireless modems, our wireless hub enables radio frequency performance in any of
the currently licensed point-to-multipoint frequency bands. This is
accomplished, in part, by permitting the system operator to establish upstream
sub-channels and downstream channels with various signal modulation techniques.
Multiple wireless hubs may be controlled through the same network management
system operator interface, either locally or from a remote location.
Our integrated network management system is a Windows NT-based software
package that manages overall system performance. The system features graphical
views of all network elements, subscribers, modems and traffic patterns. The
network management system allows network operators to configure, maintain and
troubleshoot hubs and modems from a central workstation. Our network management
system also enables the network operator to work at a location remote from the
public telephone network or the data network, thereby increasing the system's
operational flexibility. In addition, our systems can adjust real-time system
parameters to more optimally utilize bandwidth resources. This utilization
translates into increased potential revenue per channel for service providers as
compared to other currently available wireless products.
WIRELESS MODEM. Our wireless modem is suitable for residential, home office
or small office deployment. It supports up to 16 individual users simultaneously
through a separate Ethernet hub or switch. Radio frequency performance is
enhanced through a combination of flexible modulation and data rates.
We introduced our first generation broadband wireless access system during
the third quarter of 1998, for the LMDS frequency band, and during the first
quarter of 1999, for the MMDS frequency band. We introduced our second
generation broadband wireless access system during the fourth quarter of 1999,
for the MMDS and LMDS frequency bands. Our systems have been commercially
deployed at 21 domestic and international sites.
Our first generation and second generation systems utilize an IP-based
point-to-multipoint architecture and incorporate time division multiplexing, or
TDM, in the downstream channel and time division multiple access, or TDMA, in
the upstream channel. Our second generation systems use an enhanced version of
DOCSIS, the cable industry standard for IP-based point-to-multipoint
communication systems. Because DOCSIS was designed for cable systems, it is
inadequate to address some unique characteristics of the wireless environment.
We have adapted the DOCSIS standard to suit the wireless environment. Our
wireless enhancements to DOCSIS, which we refer to as DOCSIS(+), allow operation
over a wide range of frequencies. Currently, the primary frequency bands for
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broadband data services in the United States or other countries are various
frequencies within these bands:
- WCS--Wireless Communications Service--2.305 to 2.320 GHz and 2.345 to
2.360 GHz;
- MMDS--Multipoint Multichannel Distribution Service--2.150 to 2.680 GHz;
and
- LMDS--Local Multipoint Distribution Service--24 to 40 GHz.
Product revenues recognized in 1999 relate to sales of cable and wireless
modem products. All of our product revenues in 1998 and 1997 relate to sales of
cable modem products that we are no longer developing. We do not anticipate
recognizing material amounts of revenue from cable modem products in subsequent
periods. Accordingly, the success of our business will be entirely dependent
upon the success of our wireless products described above.
TECHNOLOGY
Our experience in designing shared bandwidth communications systems using
TDMA technology is the foundation of our expertise in the point-to-multipoint
broadband wireless access market. We believe that we have extensive expertise in
system-level design, as well as modem and broadband radio frequency technology.
We have developed media access controller, or MAC, layer algorithms that
maximize channel utilization to allow multiple subscribers to share a single
upstream channel.
INTERNET PROTOCOL EXPERTISE. Our system architecture is IP-based to support
IP communications traffic, and our primary systems component, the MAC, is
optimized for IP communications traffic. We have designed our systems to best
support variable-length IP packets, including the most common packet size of 64
bytes. In addition, we are proficient in IP networking technology, including
network interfaces.
DOCSIS(+) STANDARD. Our current generation systems are based on the cable
industry's DOCSIS standard that we have adapted and enhanced for use in the
wireless environment. This DOCSIS(+) standard provides for comprehensive support
of all IP-based services, including encryption, bandwidth allocation and
management and multicast. We believe that we are the first company to modify the
DOCSIS standard to suit the wireless environment. We have developed MAC layer
algorithms based on DOCSIS(+) for our wireless hubs and modems and have made
additional enhancements to facilitate reliable communication over the MMDS and
LMDS frequency bands.
ENHANCED MAC LAYER ALGORITHMS. Our enhanced MAC layer algorithms, combined
with select physical layer algorithms, provide robust performance under adverse
conditions and effectively utilize the limited frequency and bandwidth
allocations of the MMDS band.
SIGNAL PROCESSING TECHNOLOGY. We develop, deploy and support the networking
architecture for the multiple modules required in our systems. Specifically, we
have developed forward error correction and encryption that optimally integrate
into our systems. We believe that our ability to rapidly develop and integrate
such modules provides us with a competitive advantage.
SCHEDULING ALGORITHMS. We develop scheduling algorithms for TDMA-based
point-to-multipoint systems. Our network management system is designed to
predict user behavior and more efficiently utilize scarce bandwidth resources.
The ability to control and modify the characteristics of the network management
system allows us to further optimize them for changing environments and future
services.
CUSTOMERS
We sell our systems directly to service providers and system integrators
that deploy our systems as part of their end-to-end network solutions for
service providers. We also provide system integration services to some of our
service provider customers to more effectively implement our systems. We sell
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our systems based on individual purchase orders. Our customers are not obligated
by long-term contracts to purchase our systems. Our customers can generally
cancel or reschedule orders upon short notice and can discontinue using our
systems at any time.
A relatively small number of customers account for a large percentage of our
revenues. In 1999, ADC Telecommunications accounted for approximately 20% of our
revenues, Aster City Cable accounted for approximately 14% of our revenues,
Shanghai Bell accounted for approximately 13% of our revenues and Philips
Semiconductor accounted for approximately 12% of our revenues.
COLLABORATION AGREEMENT. In August 1999, we entered into a collaboration
agreement with ADC Telecommunications, under which we agreed to sell our hubs
and modems to ADC for resale and distribution to ADC's customers at a market
price to be established by good faith negotiation between ADC and us. Under this
agreement, ADC has the exclusive right to market, sell and distribute our
products to MCI Worldcom, Sprint, BellSouth, Wireless One and Irish Multi
Channel. We also agreed to grant to ADC a non-exclusive license to use specified
software embedded in or provided with our products.
In connection with the collaboration agreement, ADC made an approximately
10% equity investment in Vyyo. Additional information regarding ADC's investment
is contained in this prospectus under the heading "Certain Relationships and
Related Transactions."
LICENSE AND DEVELOPMENT AGREEMENT. In December 1999, we entered into a
license and development agreement with Philips Semiconductor, relating to cable
modem systems. Under this contract, we agreed to license two versions of our
DOCSIS MAC system to Philips. We have given Philips a non-exclusive,
royalty-free right to use our DOCSIS 1.0 MAC in exchange for a one-time license
fee. In addition, we have given Philips a non-exclusive, royalty-bearing right
to use our DOCSIS 1.1 MAC in exchange for a license fee, a percentage of which
is paid upon the achievement of specified milestones related to the development
of the DOCSIS 1.1 MAC.
SALES AND MARKETING
The global telecommunications industry is dominated by a limited number of
network system integrators. We focus our marketing efforts on network system
integrators that have the means to provide vendor financing in situations where
our equipment is purchased as part of the total network. For some service
providers, this financing is a necessary part of the total network solution. We
support our system integrator customers with site demonstrations for their
service provider customers. The objective of a site demonstration is to promote
the adoption of our systems for deployment within the service provider's
network.
We also sell our systems directly to service providers. In determining which
accounts to service directly, we focus on those service providers that prefer to
work with a vendor directly and serve as their own system integrator. In some
instances, we may serve as a system integrator and provide, through third
parties, the other components of the network system.
Our direct sales force maintains contact with the service provider and the
system integrator account team, regardless of the actual distribution channel.
This contact keeps us informed of the evolving needs of the service providers
and helps strengthen our relationship with each customer. In some markets, we
have established distribution relationships with local resellers that also
provide support and maintenance to their service provider customers.
Our marketing group provides marketing support services for our executive
staff, direct sales force, system integrators and resellers. Through our
marketing activities, we provide technical and strategic sales support to our
direct sales personnel and system integrators or resellers, including in-depth
product presentations, technical manuals, sales tools, pricing, marketing
communications, marketing research, trademark administration and other support
functions.
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Our marketing group is also responsible for product management activities
throughout each product's lifecycle. These activities include the definition of
product features, approval of product releases, specification of enhancements to
our product and service offerings, and determination of future product
platforms.
MANUFACTURING
We outsource manufacturing to contract manufacturers that have the expertise
and ability to reduce costs associated with volume manufacturing and to respond
quickly to customer orders while maintaining high quality standards. We
outsource printed circuit board assembly and manufacturing of our wireless hubs
to contract manufacturers located in Israel. We outsource manufacturing of our
wireless modems to a contract manufacturer located in Taiwan. Any inability of
these manufacturers to provide the necessary capacity or output could result in
significant production delays which could harm our business. Our wireless hubs
and modems are currently purchased on a purchase order basis. We have no
guaranteed supply or long-term contractual agreements with any of our suppliers.
In addition, some of the components included in our systems are obtained from a
single source or limited group of suppliers. The partial or complete loss of
such suppliers could increase our costs, delay shipments or require redesigns of
our products.
We assemble our wireless hubs and perform final tests on our systems at our
facility located in Jerusalem, Israel. Our facility is ISO 9002-certified. ISO
9002 is a set of international quality assurance standards for companies
involved in the design, development, manufacturing, installation and servicing
of products or services. These standards are set by the International
Organization for Standardization, or ISO, an international federation of
national standards bodies. To be recommended for ISO 9002 certification, a
company must be audited by an ISO-accredited auditing company and must meet or
surpass ISO standards.
RESEARCH AND DEVELOPMENT
The goal of our research and development activities is to continue the
development and introduction of next-generation products for our customers. Our
efforts are also focused on reducing the cost and increasing the functionality
of our systems, while adapting them to the frequency and interface
specifications required for new markets. Our ongoing new product development
program assesses service providers' needs and technological changes in the
communications market. We are pursuing new generations of many of our products,
including our second generation system for MMDS frequencies, our second
generation system for LMDS frequencies and high-capacity, third generation
wireless hubs for LMDS frequencies.
We believe that our extensive experience designing and implementing high
quality network and radio components and system software allows us to develop
high-value integrated systems solutions. As a result of these development
efforts, we believe that we have created an industry-leading platform for
cost-effective broadband wireless voice and data delivery with dynamic bandwidth
allocation.
Our future success depends on our continued investment in research and
development in radio, networking and software technologies, and we expect to
continue to invest a significant portion of revenues in this area. Our research
and development expenditures were $2.4 million for 1997, $3.3 million for 1998
and $3.7 million for 1999. We are currently investing significant resources to
enhance our network management system software, integrate base station
components and extend the capabilities, frequencies and transmission capacity of
our systems.
As of December 31, 1999, our research and development staff consisted of 53
employees, all of whom are located in Israel.
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COMPETITION
The market for broadband access systems is intensely competitive, rapidly
evolving and subject to rapid technological change. The principal competitive
factors in this market include:
- product performance and features;
- price of competitive products;
- reliability and stability of operation;
- ability to develop and implement new services and technologies;
- ability to support newly allocated frequencies; and
- sales capability, technical support and service.
Many of our competitors and potential competitors have substantially greater
financial, technical, distribution, marketing and other resources than we have
and, therefore, may be able to respond more quickly to new or changing
opportunities, technologies and other developments. In addition, many of our
competitors have longer operating histories, greater name recognition and
established relationships with system integrators and service providers. These
competitors may also be able to undertake more extensive marketing campaigns,
adopt more aggressive pricing policies and decote substantially more resources
to developing new products. Our primary competitor is Hybrid Networks, Inc. In
addition, well-capitalized companies such as Cisco Systems, Lucent Technologies,
Nortel Networks, Newbridge Networks and other vendors have announced plans to
enter, or are potential entrants into, the broadband wireless market. These
vendors have been attracted byrecent investments by MCI WorldCom, Sprint and
other service providers in wireless operations. Most of these competitors have
existing relationships with one or more of our prospective customers.
We also face competition from technologies such as digital subscriber line,
fiber, cable, satellite and point-to-point wireless. We may not be able to
compete successfully against our current and future competitors and competitive
pressures may seriously harm our business.
GOVERNMENT REGULATION
Our business is premised on the availability of certain radio frequencies
for broadband two-way communications. Radio frequencies are subject to extensive
regulation under the laws of the United States, foreign laws and international
treaties. Each country has different regulation and regulatory processes for
wireless communications equipment and uses of radio frequencies. The regulatory
environment in which we operate is subject to significant change, the results
and timing of which are uncertain. Historically, in many countries the
unavailability of radio frequencies for two-way broadband communications has
inhibited the growth of such networks. The process of establishing new
regulations for broadband wireless frequencies and allocating such frequencies
to operators is complex and lengthy. Our customers and potential customers may
not be able to obtain sufficient frequencies for their planned uses of our
systems. Failure by the regulatory authorities to allocate suitable, sufficient
radio frequencies for such uses in a timely manner could deter potential
customers from ordering our systems and seriously harm our business.
Our systems must conform to a variety of domestic, foreign and international
regulatory requirements established to, among other things, avoid interference
among users of radio frequencies and permit interconnection of equipment.
Regulatory bodies worldwide have adopted and are adopting or revising standards
for wireless communications products. The emergence or evolution of regulations
and industry standards for broadband wireless products, through official
standards committees or widespread use by operators, could require us to modify
our systems, which may be expensive and time-consuming, and incur substantial
compliance costs and seriously harm our business.
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We are subject to export control laws and regulations with respect to all or
our products and technology. We are subject to the risk that more stringent
export control requirements could be imposed in the future on product classes
that include products exported by us, which would result in additional
compliance burdens and could impair the enforceability of our contract rights.
Some of our products contain encryption technologies to enable the transfer of
data in a manner that preserves the privacy of the parties communicating such
data. United States law requires that we obtain an export license for our
systems and that we comply with various restrictions on exporting our systems to
certain countries. Our United Stated license expires October 31, 2000. We expect
that we will be able to do so. In addition, we may be required to apply for
additional licenses to cover modifications and enhancements to our products. Any
revocation or expiration of any requisite license, the failure to obtain a
license for product modifications, or more stringent export control requirements
could seriously harm our business.
INTELLECTUAL PROPERTY
We have 16 patent applications pending in the United States. We rely on a
combination of patent, copyright and trademark laws, trade secrets and
confidentiality and other contractual provisions to establish and protect our
proprietary rights, each of which are important to our business.
Our success depends in part on our ability to protect our proprietary
technologies. Our pending or future patent applications may not be approved and
the claims covered by such applications may be reduced. If allowed, our patents
may not be of sufficient scope or strength, others may independently develop
similar technologies or products, duplicate any of our products or design around
our patents, and the patents may not provide us competitive advantages. Further,
patents held by third parties may not prevent the commercialization of products
incorporating our technologies or third parties may challenge or seek to narrow,
invalidate or circumvent any of our pending or future patents. We also believe
that foreign patents, if obtained, and the protection afforded by such foreign
patents and foreign intellectual property laws, may be more limited than that
provided under United States patents and intellectual property laws. Litigation,
which could result in substantial costs and diversion of effort by us, may also
be necessary to enforce any patents issued or licensed to us or to determine the
scope and validity of third-party proprietary rights. Any such litigation,
regardless of outcome, could be expensive and time-consuming, and adverse
determinations in any such litigation could seriously harm our business.
We also rely on unpatented trade secrets and know-how and proprietary
technological innovation and expertise which are protected in part by
confidentiality and invention assignment agreements with our employees, advisors
and consultants [and non-disclosure agreements with certain of our suppliers and
distributors.] These agreements may be breached, we may not have adequate
remedies for any breach or our unpatented proprietary intellectual property may
otherwise become known or independently discovered by competitors. Further, the
laws of certain foreign countries may not protect our products or intellectual
property rights to the same extent as do the laws of the United States.
From time to time, third parties, including our competitors, may assert
patent, copyright and other intellectual property rights to technologies that
are important to us. We expect that we will increasingly be subject to license
offers and infringement claims as the number of products and competitors in our
market grows and the functionality of products overlaps. In this regard, in
early 1999, we received a written notice from Hybrid Networks in which Hybrid
claimed to have patent rights in certain technology. Hybrid requested that we
review our products in light of six of Hybrid's issued patents.
We are investigating Hybrid's claims and we currently believe the patents
are invalid or are not infringed by our products. However, others patents,
including Hybrid's, may be determined to be valid, or some or all of our
products may ultimately be determined to infringe the Hybrid patents or those of
other companies. Hybrid or other companies may pursue litigation with respect to
these or other
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claims. The results of any litigation are inherently uncertain. In the event of
an adverse result in any litigation with respect to intellectual property rights
relevant to our products that could arise in the future, we could be required to
obtain licenses to the infringing technology, pay substantial damages under
applicable law, to cease the manufacture, use and sale of infringing products or
to expend significant resources to develop non-infringing technology. Licenses
may not be available from third parties, including Hybrid, either on
commercially reasonable terms or at all. In addition, litigation frequently
involves substantial expenditures and can require significant management
attention, even if we ultimately prevail. Accordingly, any infringement claim or
litigation against us could significantly harm our business, operating results
and financial condition.
EMPLOYEES
As of December 31, 1999, we had 98 full-time employees, of whom 15 were
employed in the United States and 83 were employed in Israel. Of these full-time
employees, 53 were principally dedicated to research and development, 11 were
dedicated to sales, marketing and customer support and 24 were involved in
manufacturing and operations. None of our U.S. employees is represented by a
union.
Our Israeli subsidiary is subject to Israeli labor laws and regulations with
respect to our Israeli employees. These laws principally concern matters such as
paid annual vacation, paid sick days length of work day and work week, minimum
wages, pay for overtime, insurance for work related accidents, severance pay and
other conditions of employment.
Our Israeli subsidiary and our Israeli employees are subject to provisions
of the collective bargaining agreements between the Histadrut, the General
Federation of Labor in Israel, and the Coordination Bureau of Economic
Organizations, including the Industrialists Associations, by order of the
Israeli Ministry of Labor and Welfare. These provisions principally concern cost
of living expenses, recreation pay and other conditions of employment. Our
Israeli subsidiary provides our Israeli employees with benefits and working
conditions above the required minimums. Our employees are not represented by a
labor union. We have not experienced any work stoppages.
FACILITIES
We are headquartered in Cupertino, California, where we lease approximately
9,000 square feet of commercial space under a month-to-month sublease. These
facilities are used for executive office space, including sales and marketing
and finance and administration. We also lease approximately 27,000 square feet
of commercial space in Jerusalem, Israel under a term lease that expires on
December 31, 2003, subject to one five-year extension at our option. These
facilities are used for research and development activities and for product
assembly and testing.
LEGAL PROCEEDINGS
We may from time to time become a party to various legal proceedings arising
in the ordinary course of our business. However, we are not currently a party to
any material legal proceedings.
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<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information regarding the executive officers
and directors of Vyyo as of December 31, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ -------- ------------------------------------------
<S> <C> <C>
Davidi Gilo............................... 43 Chairman of the Board and Chief Executive
Officer
Michael Corwin............................ 43 Chief Operating Officer
Eran Pilovsky............................. 38 Vice President, Finance and Chief
Financial Officer
Arnon Kohavi.............................. 35 Senior Vice President, Strategic Relations
Menashe Shahar............................ 49 Vice President, Engineering and Chief
Technical Officer
Stephen P. Pezzola........................ 43 General Counsel and Secretary
Lewis S. Broad............................ 42 Director
Neill H. Brownstein....................... 55 Director
Avraham Fischer........................... 43 Director
John P. Griffin........................... 49 Director
Samuel L. Kaplan.......................... 63 Director
Alan L. Zimmerman......................... 57 Director
</TABLE>
DAVIDI GILO has served as Vyyo's Chairman of the Board of Directors since
its inception in 1996. Mr. Gilo was appointed as Chief Executive Officer of Vyyo
in April 1999. From October 1998 until November 1999, Mr. Gilo also served as
Chairman of the Board of DSP Communications, Inc., a developer of chip sets for
wireless personal communications applications, and from June 1999 until
November 1999, he served as DSP Communications' Chief Executive Officer.
Mr. Gilo also served as the Chairman of the Board of DSP Communications from its
founding in 1987 through November 1997. Since 1996, Mr. Gilo has also been the
manager of the Gilo Group, LLC, an investment company he founded in 1996.
Between 1987 and 1993 he was the President and Chief Executive Officer of
DSP Group, Inc., a developer of telephony and speech compression components, and
he served as Chairman of the Board of DSP Group from 1987 until April 1995.
MICHAEL CORWIN was appointed as Chief Operating Officer of Vyyo in
August 1999. From August 1995 until August 1999, Mr. Corwin served as Vice
President, Operations of Harmony Management, Inc., a private investment company.
From June 1994 until August 1995, he served as Vice President of Operations of
Nogatech, Inc., a consumer electronics company, and from 1986 until 1994, he was
Vice President of Purchasing and Production of DSP Group.
ERAN PILOVSKY joined Vyyo as Vice President, Finance and Chief Financial
Officer in January 2000. Prior to joining Vyyo, Mr. Pilovsky spent over
14 years in various positions with Ernst & Young LLP's advisory and assurance
business service group, and became a partner at Ernst & Young in October 1997.
Mr. Pilovsky is a certified public accountant in California.
ARNON KOHAVI joined Vyyo in November 1999 as Senior Vice President,
Strategic Relations. From July 1994 until October 1995, he served as Director of
Strategic Planning of DSP Communications, and from October 1995 until
January 1999, he was Vice President of Business Development of
DSP Communications. From January 1999 until November 1999 he served as Senior
Vice President, Strategic Relations of DSP Communications. From May 1994 until
July 1994, Mr. Kohavi was Manager of Business Development of DSP Group, Inc.
40
<PAGE>
MENASHE SHAHAR has served as Vyyo's Vice President, Engineering since
July 1994 and as Chief Technical Officer since May 1999. Prior to joining Vyyo,
Mr. Shahar served for three years as Chief Engineer for the Data Communications
Department of the Tadiran Network Division of Tadiran Telecommunications Group.
The Tadiran Data Communication Department was a supplier and integrator of
packet switched, frame relay and data multiplexer equipment and systems. Tadiran
was a distributor of Sprint International and Newbridge Networks equipment in
Israel.
STEPHEN P. PEZZOLA joined Vyyo in September 1996 as General Counsel and
Secretary. From September 1996 until November 1999, Mr. Pezzola also served as
General Counsel and Corporate Secretary of DSP Communications. Since
September 1996, Mr. Pezzola has also been a member of Gilo Group. Since
September 1996, he has also served as General Counsel and Secretary of Zen
Research, N.V., until January 2000, when he became Chairman of the Board. From
May 1986 until September 1996, Mr. Pezzola was a founding shareholder and
president of the law firm of Pezzola & Reinke, APC, of Oakland, California.
LEWIS S. BROAD has been a member of the board of directors since
November 1999. Mr. Broad is a private investor. He is also a member of the board
of directors of Carrier Services, Inc., a company specializing in payment
processing and fraud prevention for telephone and Internet transactions. From
November 1994 until November 1999, Mr. Broad also served as a director of DSP
Communications.
NEILL H. BROWNSTEIN was appointed as a member of the board of directors in
January 2000. Mr. Brownstein is President of Neill H. Brownstein Corporation, a
strategic investment management consulting firm which he founded in 1976. From
June 1970 to January 1995, Mr. Brownstein was associated with Bessemer
Securities Corporation and Bessemer Venture Partners, and during that period he
served as a founding general partner of three affiliated venture capital funds.
Mr. Brownstein also serves on the board of directors of Giga Information Group.
From November 1994 until November 1999, Mr. Brownstein also served as a director
of DSP Communications.
AVRAHAM FISCHER, has been a member of the board of directors since April
1996. Mr. Fischer is a managing partner in the law firm of Fischer, Behar & Co.,
of Tel Aviv, Israel, where he has served since 1982. Since January 1998, Mr.
Fischer has served as co-chairman of the Board of Isra-air Aviation and Tourism,
and, since January 1997, he has been co-chairman of the board of Ganden
Investment Ltd., an Israeli tourism company. From 1996 until November 1999,
Mr. Fischer also served as a director of DSP Communications.
JOHN P. GRIFFIN has been a member of the board of directors since
November 1999. From September 1996 through April 1998, Mr. Griffin served as
Vice President of Marketing for the Network Services Division of ADC
Telecommunications. In April 1998, Mr. Griffin was appointed as General Manager
of the Loop Transport Division of ADC Telecommunications. In May 1999, he was
appointed President of the Broadband Wireless Group of ADC Telecommunications.
From March 1995 through September 1996, Mr. Griffin served as Vice President of
Marketing of RSI Systems, a manufacturer of desktop video conferencing
equipment. Prior to that, he served for 9 years with ADC Telecommunications, the
first year as Manager of Technical Support and the remaining 8 years in various
marketing positions.
SAMUEL L. KAPLAN has been a member of the board of directors since July
1999. Mr. Kaplan has been a partner in the law firm of Kaplan, Strangis and
Kaplan, P.A. of Minneapolis, Minnesota, since October 1978. Mr. Kaplan also
serves as a director of USP Real Estate Investment Trust, a real estate
investment trust. From 1991 until June 1999, Mr. Kaplan also served as a
director of DSP Group.
ALAN L. ZIMMERMAN has been a member of the board of directors since July
1999. Since November 1994, Mr. Zimmerman has served as President of Law Finance
Group, Inc., a provider of financing in connection with anticipated awards in
legal proceedings. From 1992 through
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<PAGE>
December 1999, he was Vice President of Inheritance Funding Company, LLC, a
provider of financing to heirs in connection with anticipated inheritance
payments.
BOARD OF DIRECTORS
Upon completion of this offering, our certificate of incorporation will
provide for a classified board of directors consisting of three classes of
directors, each serving staggered three-year terms. As a result, a portion of
our board of directors will be elected each year. Class I directors' terms will
expire at the annual meeting of stockholders to be held in 2001, Class II
directors' terms will expire at the annual meeting of stockholders to be held in
2002 and Class III directors' terms will expire at the annual meeting of
stockholders to be held in 2003. Messrs. Fischer, Gilo and Griffin have been
designated Class I directors, Messrs. Broad and Brownstein have been designated
Class II directors, and Messrs. Kaplan and Zimmerman have been designated
Class III directors. There are no family relationships among any of our
directors, officers or key employees.
BOARD COMMITTEES
We have established an audit committee and a compensation committee. The
audit committee reviews our internal accounting procedures and considers and
reports to the board of directors with respect to other auditing and accounting
matters, including the selection of our independent auditors, the scope of
annual audits, fees to be paid to our independent auditors and the performance
of our independent auditors. The audit committee currently consists of
Messrs. Broad, Brownstein and Kaplan. The compensation committee reviews and
recommends to the board of directors the salaries, benefits and stock option
grants for all employees, consultants, directors and other individuals
compensated by us. The compensation committee also administers our stock option
and other employee benefit plans. The compensation committee currently consists
of Messrs. Broad and Zimmerman.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to establishing the compensation committee, the board of directors as
a whole performed the functions delegated to the compensation committee. No
member of the board of directors or the compensation committee serves as a
member of the board of directors or compensation committee of any entity that
has one or more executive officers serving as a member of our board of directors
or compensation committee.
DIRECTOR COMPENSATION
Directors serving on the board of directors do not currently receive any
compensation for serving on the board. Directors are reimbursed for their
out-of-pocket expenses incurred in attending board and committee meetings. In
addition, all directors are eligible to participate in our 2000 Employee and
Consultant Equity Incentive Plan.
In December 1999, the board of directors granted options to purchase 10,000
shares of our common stock to each of Messrs. Broad and Brownstein and an option
to purchase 50,000 shares of our common stock to Mr. Fischer, in each case at an
exercise price of $1.25 per share.
In June 1999, the board of directors granted an option to purchase 50,000
shares of our common stock to Mr. Zimmerman and an option to purchase 44,000
shares of our common stock to Mr. Fischer, in each case at an exercise price of
$0.75 per share. In February 2000, the board of directors granted an option to
purchase 15,000 shares of our common stock to each of Messrs. Broad, Brownstein,
Fischer, Griffin, Kaplan and Zimmerman at an exercise price of $6.20 per share.
42
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation earned, awarded or paid for
services rendered to us in all capacities for the fiscal year ended
December 31, 1999, by our Chief Executive Officer, our former Chief Executive
Officer and our two next most highly compensated executive officers who earned
more than $100,000 in salary and bonus during the fiscal year ended
December 31, 1999. These executives are referred to collectively as the named
executive officers elsewhere in this prospectus.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
----------------------------------------- ------------------------------
ALL OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY ($) BONUS ($) COMPENSATION ($) OPTIONS (#) COMPENSATION ($)
- -------------------------------- ---------- --------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Davidi Gilo..................... $175,000(1) -- -- 650,000 --
Chairman of the Board and
Chief Executive Officer
Stephen P. Pezzola.............. 140,000(2) -- -- 129,000 --
General Counsel
Menashe Shahar.................. 122,370 $20,420 $17,739(3) 170,000 $28,043(4)
Vice President, Engineering
and Chief Technical Officer
Shaul Berger(5)................. 96,200 -- -- -- --
Former Chief Executive Officer
</TABLE>
- ------------------------
(1) Mr. Gilo's salary for services performed in 1999 has been accrued, and is
expected to be paid to Mr. Gilo in 2000.
(2) $52,500 of this amount was paid to Mr. Pezzola in 1999, and $87,500 has been
accrued by Vyyo and is expected to be paid to Mr. Pezzola in 2000.
(3) Includes (i) $4,761 reimbursed to Mr. Shahar for taxes on a company
automobile, (ii) $9,978 paid to Mr. Shahar for accrued but unused vacation
time and (iii) $3,000 paid to Mr. Shahar for travel expenses incurred by
Mr. Shahar's wife.
(4) Includes a total of $28,043 paid on behalf of Mr. Shahar to a severance
fund, a pension fund and a risk/disability fund. The amounts held in such
funds on Mr. Shahar's behalf are, generally, payable to him upon the
termination of his employment with Vyyo.
(5) Mr. Berger resigned as Chief Executive Officer in April 1999.
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<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information concerning grants of options to
purchase our common stock made during the fiscal year ended December 31, 1999 to
the named executive officers.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
NUMBER OF PERCENT OF AT ASSUMED ANNUAL RATES
SECURITIES TOTAL OPTIONS OF STOCK APPRECIATION FOR
UNDERLYING GRANTED DURING OPTION TERM(3)
OPTIONS FISCAL EXERCISE EXPIRATION ---------------------------
NAME GRANTED(1) 1999(2) PRICE DATE 5% 10%
- ---- ---------- -------------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Davidi Gilo................ 390,000 12.38% $0.75 06/01/04 $80,812 $178,574
260,000 8.25 1.25 11/24/04 89,791 198,415
Stephen P. Pezzola......... 129,000 4.10 0.75 06/01/04 26,730 59,067
Menashe Shahar............. 170,000 5.40 0.75 06/01/04 35,226 77,840
Shaul Berger............... -- -- -- -- -- --
</TABLE>
- ------------------------
(1) All options were granted pursuant to the 1999 Employee and Consultant Equity
Incentive Plan or the 2000 Employee and Consultant Equity Incentive Plan.
(2) Based on an aggregate of 3,150,700 options granted to employees, officers,
directors and consultants in fiscal 1999.
(3) Based upon the exercise price, which was equal to or greater than the fair
market value on the date of grant, and annual appreciation at the rate
stated on such price through the expiration date of the options. Amounts
represent hypothetical gains that could be achieved for the options if
exercised at the end of the term. The assumed 5% and 10% rates of stock
price appreciation are provided in accordance with the rules of the
Securities and Exchange Commission and do not represent our estimate or
projection of the future stock price. Actual gains, if any, are contingent
upon the continued employment of the named executive officer through the
expiration date, as well as being dependent upon the general performance of
the common stock. The potential realizable values have not taken into
account amounts required to be paid for federal income taxes.
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<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
The following table describes for the named executive officers the number
and amount of stock options exercised during fiscal 1999 and securities
underlying unexercised options held at December 31, 1999.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 1999 DECEMBER 31, 1999
ACQUIRED ON VALUE ----------------------------------- -----------------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE (#) UNEXERCISABLE (#) EXERCISABLE ($) UNEXERCISABLE ($)
- ---- ------------ ------------ --------------- ----------------- --------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Davidi Gilo.......... 390,000 195,000 -- -- -- --
260,000 --
Stephen P. Pezzola... 80,000 40,000 49,000 -- 24,500 --
31,000 23,250
Menashe Shahar....... -- -- 20,375 179,625 15,281 92,219
Shaul Berger......... 82,599 61,949 -- -- -- --
</TABLE>
The value realized on exercised options and the value of unexercised
in-the-money options at December 31, 1999 is based on a value of $1.25 per
share, the fair market value of our common stock at December 31, 1999, as
determined by our board of directors, minus the per share exercise price,
multiplied by the number of shares underlying the options.
STOCK OPTION PLANS
AMENDED AND RESTATED 2000 EMPLOYEE AND CONSULTANT EQUITY INCENTIVE
PLAN. The 2000 Employee and Consultant Equity Incentive Plan, or 2000 Plan, was
adopted by our board of directors and approved by our stockholders on
November 22, 1999 for the benefit of our officers, directors, employees,
advisors and consultants and provides for the issuance of stock-based incentive
awards, including stock options, stock appreciation rights, limited stock
appreciation rights, restricted stock, deferred stock, and performance shares.
An award may consist of one arrangement or benefit or two or more of them in
tandem or in the alternative. Under the 2000 Plan, awards covering no more than
80% of the shares reserved for issuance under the plan may be granted to any
participant in any one year. An aggregate of 2,700,000 shares of common stock
was initially reserved for issuance under the 2000 Plan. On February 2, 2000 our
board of directors approved an amendment to the 2000 Plan to increase the total
number of shares reserved for issuance under the plan from 2,700,000 shares to
5,000,000 shares, plus an annual increase to be added automatically on the first
day of each fiscal year, commencing in 2001, equal to the lesser of
(1) 900,000 shares or (2) 5% of the number of outstanding shares on the last day
of the immediately preceding fiscal year. This amendment was approved by our
stockholders on February 2, 2000.
Each of our non-employee directors elected to the board of directors for the
first time after February 2, 2000 will receive, upon such election, an initial
grant of options to purchase 50,000 shares of common stock at fair market value
on the date of grant. These options will have a 10-year term and will vest over
a four-year period. In addition, each of our non-employee directors will receive
an annual grant of options to purchase 15,000 shares for each year during such
director's term. These options will have a 10-year term and will vest
immediately upon the date of grant. The foregoing award of options will be
granted automatically under the 2000 Plan.
The 2000 Plan will initially be administered by our board of directors,
although it may be administered by either our board of directors or any
committee of our board of directors, the board or committee is sometimes
referred to in this prospectus as the plan administrator. The plan administrator
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<PAGE>
may interpret the 2000 Plan and may prescribe, amend and rescind rules and make
all other determinations necessary or desirable for the administration of the
2000 Plan. The 2000 Plan permits the plan administrator to select the officers,
directors, employees, advisors and consultants, including directors who are also
employees, who will receive awards and generally to determine the terms and
conditions of those awards.
We may issue two types of stock options under the 2000 Plan: incentive stock
options which are intended to qualify under the Code, and non-qualified stock
options. The option price of each incentive stock option granted under the 2000
Plan must be at least equal to the fair market value of a share of common stock
on the date the incentive stock option is granted.
Stock appreciation rights and limited stock appreciation rights may be
granted under the 2000 Plan either alone or in conjunction with all or part of
any stock option granted under the 2000 Plan. A stock appreciation right granted
under the 2000 Plan entitles its holder to receive, at the time of exercise, an
amount per share equal to the excess of the fair market value at the date of
exercise of a share of common stock over a specified price fixed by the plan
administrator. A limited stock appreciation right granted under the 2000 Plan
entitles its holder to receive, at the time of exercise, an amount per share
equal to the excess of the change in control price of a share of common stock
over a specified price fixed by the plan administrator. A limited stock
appreciation right may only be exercised within the 30-day period following a
change in control.
Restricted stock, deferred stock and performance shares may be granted under
the 2000 Plan. The plan administrator will determine the purchase price,
performance period and performance goals, if any, with respect to the grant of
restricted stock, deferred stock and performance shares. Participants with
restricted stock and preferred shares generally have all of the rights of a
stockholder. With respect to deferred stock, during the deferral period, subject
to the terms and conditions imposed by the plan administrator, the deferred
stock units may be credited with dividend equivalent rights. If the performance
goals and other restrictions are not attained, the participant will forfeit his
or her shares of restricted stock, deferred stock and/or performance shares.
In the event we merge or consolidate with another entity in which we are not
the surviving corporation, dissolve or liquidate or sell substantially all of
our assets, outstanding awards under the 2000 Plan may be assumed or replaced by
the successor corporation, if any, or its parent. If the successor corporation
or its parent does not assume outstanding awards or substitute equivalent
awards, such awards will automatically become fully vested and exercisable and
be released from any restrictions on transfer and repurchase or forfeiture
right.
The terms of the 2000 Plan provide that the plan administrator may amend,
suspend or terminate the 2000 Plan at any time, provided, however, that some
amendments require approval of our stockholders. Further, no action may be taken
which adversely affects any rights under outstanding awards without the holder's
consent. The 2000 Plan will terminate in 2010.
1999 EMPLOYEE AND CONSULTANT EQUITY INCENTIVE PLAN. The 1999 Employee and
Consultant Equity Incentive Plan, or 1999 Plan, was adopted by our board of
directors on June 4, 1999 and approved by our stockholders on July 15, 1999 for
the benefit of our officers, directors, employees, advisors and consultants and
provides for the issuance of stock-based incentive awards, including stock
options, restricted stock and stock bonuses. An aggregate of 1,600,000 shares of
common stock has been reserved for issuance under the 1999 Plan. As of
December 31, 1999, options to purchase an aggregate of 854,000 shares of common
stock were outstanding under the 1999 Plan with a weighted-average exercise
price of $0.75. We will not be granting options pursuant to the 1999 Plan
following the offering. The 1999 Plan will automatically terminate in 2009.
The 1999 Plan may be administered by our board of directors or committee of
the board. The board of directors or committee of the board may interpret the
1999 Plan and may prescribe, amend
46
<PAGE>
and rescind rules and make all other determinations necessary or desirable for
the administration of the 1999 Plan, except that some amendments require
stockholder approval. In addition, the board of directors or committee of the
board may not take any action which would harm the rights previously granted
under the 1999 Plan without the holders' consent.
If we merge or consolidate with another entity or if we dissolve, liquidate
or sell substantially all of our assets, outstanding awards under the 1999 Plan
may be assumed or replaced by the successor corporation or its parent. If the
successor corporation or its parent does not assume outstanding awards or
substitute equivalent awards, the awards will terminate.
1996 EQUITY INCENTIVE PLAN. The 1996 Equity Incentive Plan, or 1996 Plan,
was adopted by our board of directors on March 25, 1996 and approved by our
stockholders on April 5, 1996 for the benefit of our officers, directors,
employees, advisors and consultants and provides for the issuance of stock-based
incentive awards, including stock options, restricted stock and stock bonuses.
An aggregate of 220,000 shares of common stock was initially reserved for
issuance under the 1996 Plan. On May 13, 1998, our board of directors adopted,
and on June 23, 1998 our stockholders approved, an amendment to the 1996 Plan to
increase the total number of shares reserved for issuance under the plan from
220,000 to 320,000 shares. As of December 31, 1999, options to purchase an
aggregate of 152,767 shares of common stock with a weighted-average exercise
price of $0.50 were outstanding under the 1996 Plan. We will not be granting
options pursuant to the 1996 Plan following the offering. The 1996 Plan will
automatically terminate in 2006.
The 1996 Plan may be administered by our board of directors or a committee
of the board. The board of directors or committee of the board may interpret the
1996 Plan and may prescribe, amend and rescind rules and make all other
determinations necessary or desirable for the administration of the 1996 Plan,
except that some amendments require stockholder approval. In addition, the board
of directors or committee of the board may not take any action which would harm
the rights previously granted under the 1996 Plan without the holders' consent.
If we merge or consolidate with another entity or if we dissolve, liquidate
or sell substantially all of our assets, outstanding awards under the 1996 Plan
may be assumed or replaced by the successor corporation or its parent. If the
successor corporation or its parent does not assume outstanding awards or
substitute equivalent awards, the awards will terminate.
2000 EMPLOYEE STOCK PURCHASE PLAN
On February 2, 2000, the board of directors adopted and our stockholders
approved our 2000 Employee Stock Purchase Plan, or Purchase Plan, which allows
eligible employees to purchase our common stock at a discount from fair market
value. A total of 500,000 shares of our common stock, plus an annual increase to
be added automatically on the first day of our fiscal year, commencing in 2001,
equal to the lesser of (a) 200,000 shares or (b) 1% of the number of outstanding
shares on the last trading day of the immediately preceding fiscal year has been
reserved for issuance under the Purchase Plan.
The Purchase Plan will be administered by our board of directors, or a
specifically designated committee of the board of directors, this board or
committee is sometimes referred to in this prospectus as the plan administrator.
The plan administrator may interpret the Purchase Plan and, subject to its
provisions, may prescribe, amend and rescind rules and make all other
determinations necessary or desirable for the administration of the Purchase
Plan.
The Purchase Plan contains consecutive, overlapping 24-month offering
periods. Each offering period includes four purchase periods. The offering
periods generally commence on the first trading day on or after May 15 and
November 15 of each year and end on the last trading day on the date
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<PAGE>
twenty-four months later; provided, however, that the first offering period
under the Purchase Plan will commence upon the completion of the offering and
end on the trading on or before May 14, 2002.
Employees are eligible to participate if they are employed by us or any
participating subsidiary for at least 20 hours per week and more than five
months in any calendar year. However, an employee may not be granted the right
to purchase stock under the Purchase Plan if the employee (a) immediately after
the grant would own stock possessing 5% or more of the total combined voting
power or value of all classes of our capital stock, or (b) holds rights to
purchase stock under any of our employee stock purchase plans that together
accrue at a rate which exceeds $25,000 worth of stock for each calendar year.
The Purchase Plan permits each employee to purchase common stock through payroll
deductions of up to 15% of the employee's compensation. The maximum number of
shares an employee may purchase during a single offering period is 10,000
shares.
Amounts deducted and accumulated by the employee are used to purchase shares
of common stock at the end of each purchase period. The price of the common
stock offered under the Purchase Plan is an amount equal to 85% of the lower of
the fair market value of the common stock at the beginning of each offering
period or at the end of each purchase period. In the event the fair market value
at the end of a purchase period is less than the fair market value at the
beginning of the corresponding offering period, the participants of the affected
offering period will be withdrawn from such offering period following exercise
of their options and automatically re-enrolled in a new offering period.
Employees may end their participation in the Purchase Plan at any time during an
offering period, in which event, any amounts withheld through payroll deductions
and not otherwise used to purchase shares will be returned to them.
Participation ends automatically upon termination of employment with us.
Rights granted under the Purchase Plan are not transferable by an employee
other than by will or the laws of descent and distribution. The Purchase Plan
provides that, in the event of a merger, consolidation, reorganization,
recapitalization, stock dividend or other change in corporate structure
affecting the number of issued shares of our common stock, the plan
administrator will conclusively determine the appropriate equitable adjustments.
The Purchase Plan will terminate in 2010. Our board of directors has the
authority to amend or terminate the Purchase Plan, except that no amendment or
termination may adversely affect any outstanding rights under the Purchase Plan.
EMPLOYMENT AGREEMENTS
We have entered into employment agreements with each of Messrs. Gilo,
Corwin, Pezzola and Pilovsky. Each of the agreements with Messrs. Gilo, Corwin
and Pezzola became effective on January 1, 2000, and provide for three-year
terms that will automatically renew for consecutive one-year extensions, unless
terminated by either party upon written notice. Mr. Pilovsky's agreement became
effective on January 16, 2000 and provides for a three-year term that will
automatically renew for consecutive one-year extensions, unless terminated by
either party upon written notice.
Under Mr. Gilo's agreement, he is entitled to receive an annual base salary
equal to $350,000 and an annual bonus, payable according to the following
schedule: if we meet 80% of our annual business plan, Mr. Gilo's bonus payment
will be equal to 15% of his annual base salary; if we meet 100% of our annual
business plan, Mr. Gilo's bonus payment will be equal to 50% of his annual base
salary; and if we meet 120% of our plan, Mr. Gilo's bonus payment will be equal
to 90% of his annual base salary. In addition, Mr. Gilo will also be entitled to
a discretionary bonus, as determined by our board of directors or the
compensation committee. Mr Gilo is required to devote at least 30 hours per week
to the business of Vyyo under his employment agreement.
If Mr. Gilo's employment is terminated by us without cause or, if after the
initial three year term, Mr. Gilo's employment is not renewed, he will be
entitled to a severance payment equal to the greater of (a) the full amount of
the compensation that he would have been paid under his employment
48
<PAGE>
agreement or (b) 18 months of his then-current base salary. If Mr. Gilo's
employment is terminated by us with cause, in exchange for a release of any
claims Mr. Gilo may have against us, he will be entitled to a severance payment
equal to three months of his then-current base salary. If Mr. Gilo terminates
his employment with us, he will be entitled to a severance payment equal to nine
months of his then-current base salary. Mr. Gilo will remain as a full-time
employee during any period he is receiving severance pay and his options will
continue to vest during that period.
Under Mr. Corwin's agreement, he is entitled to receive an annual base
salary equal to $225,000 and an annual bonus, payable according to the following
schedule: if we meet 80% of our annual business plan, Mr. Corwin's bonus payment
will be equal to 15% of his annual base salary; if we meet 100% of our annual
business plan, Mr. Corwin's bonus payment will be equal to 50% of his annual
base salary, with the bonus pro rated if the plan is met between 80% and 100% or
between 100% and 120%; and if we meet 120% of our plan, Mr. Corwin's bonus
payment will be equal to 90% of his annual base salary. In addition, Mr. Corwin
will also be entitled to a discretionary bonus, as determined by our board of
directors or the compensation committee.
If Mr. Corwin's employment is terminated by us without cause, he will be
entitled to a severance payment equal to the greater of (a) the full amount of
the compensation that he would have been paid under his employment agreement or
(b) six months of his then-current base salary. If Mr. Corwin's employment is
terminated by us with cause, in exchange for a release as to any and all claims
Mr. Corwin may have against us, he will be entitled to a severance payment equal
to three months of his then-current base salary. If Mr. Corwin terminates his
employment with us, he will be entitled to a severance payment equal to three
months of his then-current base salary. If after the initial three-year term,
Mr. Corwin's employment is not renewed, he will be entitled to a severance
payment equal to 18 months of his then current base salary in exchange for a
release of any claims he may have against us. Mr. Corwin will remain as a
full-time employee during any period he is receiving severance pay and his
options will continue to vest during that period.
Under Mr. Pezzola's agreement, he is entitled to receive an annual base
salary equal to $202,500, a bonus in the amount of $25,000 upon the successful
completion of this offering and an annual bonus, payable according to the
following schedule: if we meet 80% of our annual business plan, Mr. Pezzola's
bonus payment will be equal to 15% of his annual base salary; if we meet 100% of
our annual business plan, Mr. Pezzola's bonus payment will be equal to 50% of
his annual base salary; and if we meet 120% of our plan, Mr. Pezzola's bonus
payment will be equal to 90% of his annual base salary, with the bonus pro rated
if the plan is met between 80% and 100% or between 100% and 120%. In addition,
Mr. Pezzola will also be entitled to a discretionary bonus, as determined by our
board of directors or the compensation committee. Mr. Pezzola is required to
devote at least 30 hours per week to the business of Vyyo under his employment
agreement.
If Mr. Pezzola's employment is terminated by us without cause, he will be
entitled to a severance payment equal to the greater of (a) the full amount of
the compensation that he would have been paid under his employment agreement or
(b) nine months of his then-current base salary. If Mr. Pezzola's employment is
terminated by us with cause, in exchange for a release as to any and all claims
Mr. Pezzola may have against us, he will be entitled to a severance payment
equal to three months of his then-current base salary. If Mr. Pezzola terminates
his employment with us, he will be entitled to a severance payment equal to
three months of his then-current base salary. If after the initial three-year
term, Mr. Pezzola's employment is not renewed, he will be entitled to a
severance payment equal to nine months of his then current base salary in
exchange for a release of any claims he may have against us. Mr. Pezzola will
remain as a full-time employee during any period he is receiving severance pay
and his options will continue to vest during that period.
Under Mr. Pilovsky's agreement, he is entitled to receive an annual base
salary equal to $250,000, and an annual bonus, payable according to the
following schedule: if we meet 80% of our annual
49
<PAGE>
business plan, Mr. Pilovsky's bonus payment will be equal to 15% of his annual
base salary; if we meet 100% of our annual business plan, Mr. Pilovsky's bonus
payment will be equal to 50% of his annual base salary; and if we meet 120% of
our plan, Mr. Pilovsky's bonus payment will be equal to 90% of his annual base
salary. In addition, Mr. Pilovsky will also be entitled to a discretionary
bonus, as determined by our board of directors or the compensation committee.
If Mr. Pilovsky's employment is terminated by us without cause, he will be
entitled to a severance payment equal to the greater of (a) the full amount of
the compensation that he would have been paid under his employment agreement or
(b) six months of his then-current base salary. If Mr. Pilovsky's employment is
terminated by us with cause, in exchange for a release as to any and all claims
Mr. Pilovsky may have against us, he will be entitled to a severance payment
equal to three months of his then-current base salary, with the bonus prorated
if the plan is met between 80% and 100% or between 100% and 120%. If
Mr. Pilovsky terminates his employment with us, he will not be entitled to a
severance payment. If after the initial three-year term, Mr. Pilovsky's
employment is not renewed, he will be entitled to a severance payment equal to
six months of his then current base salary in exchange for a release of any
claims he may have against us. Mr. Pilovsky will remain as a full-time employee
during any period he is receiving severance pay and his options will continue to
vest during that period.
We have also entered into an employment agreement with Mr. Kohavi. His
agreement became effective on November 22, 1999, and provides for an 18 month
term that will automatically renew for consecutive six-month extensions, unless
terminated by either party by written notice. Under Mr. Kohavi's agreement, he
is entitled to receive an annual base salary equal to $155,000 and an annual
bonus, payable according to the following schedule: if we meet 80% of our annual
business plan, Mr. Kohavi's bonus payment will be equal to 25% of his annual
base salary; if we meet 100% of our annual business plan, Mr. Kohavi's bonus
payment will be equal to 75% of his annual base salary; and if we meet 120% of
our plan, Mr. Kohavi's bonus payment will be equal to 125% of his annual base
salary, with the bonus prorated if the plan is met between 80% and 100% or
between 100% and 120%. In addition, Mr. Kohavi will also be entitled to
participate in each bonus plan adopted by our board of directors.
If Mr. Kohavi's employment is terminated by us without cause, he will be
entitled to a severance payment equal to the lesser of (a) the full amount of
the compensation that he would have been paid under his employment agreement or
(b) six months of his then-current base salary. If after the initial 18-month
term, Mr. Kohavi's employment is not renewed, he will be entitled to a severance
payment equal to six months of his then current base salary in exchange for a
release of any claims he may have against us.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Upon completion of this offering, our certificate of incorporation will
limit the liability of our directors to the maximum extent permitted by Delaware
law. Delaware law provides that directors will not be personally liable for
monetary damages for breach of their fiduciary duties as directors, except
liability for:
- any breach of their duty of loyalty to the corporation or its
stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
- any transaction from which the director derived an improper personal
benefit.
50
<PAGE>
This provision will have no effect on any non-monetary remedies that may be
available to us or our stockholders, nor will it relieve us or other officers or
directors from compliance with federal or state securities laws.
Upon completion of this offering, our certificate of incorporation and
bylaws will also generally provide that we will indemnify, to the fullest extent
permitted by Section 145 of the Delaware General Corporation Law, any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit, investigation, administrative hearing or any other
proceeding by reason of the fact that he or she is or was a director or officer
of ours, or is or was serving at our request as a director, officer, employee or
agent of another entity, against expenses incurred by him or her in connection
with that proceeding. An officer or director will not be entitled to
indemnification by us if:
- the officer or director did not act in good faith and in a manner
reasonably believed to be in, or not opposed to, our best interests; or
- with respect to any criminal action or proceeding, the officer or director
had reasonable cause to believe his or her conduct was unlawful.
In addition, we plan to enter into indemnification agreements with our
directors containing provisions which may require us, among other things, to
indemnify our directors against various liabilities that may arise by virtue of
their status or service as directors and to advance their expenses incurred as a
result of any proceeding against them as to which they could be indemnified.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers or persons controlling Vyyo pursuant to the
foregoing provisions or otherwise, Vyyo has been informed that in the opinion of
the Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
At the present time, there is no pending ligation or proceeding involving
any director, officer, employee or agent of Vyyo which indemnification will be
required or permitted. We are not aware of any threatened litigation or
proceeding which may result in a claim for such indemnification.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since February 1, 1997, there has not been, nor is there currently proposed,
any transaction or series of similar transactions to which we were or are to be
a party in which the amount involved exceeds $60,000 and in which any director,
executive officer or holder of more than 5% of our common stock, or an immediate
family member of any of the foregoing, had or will have a direct or indirect
interest other than:
- compensation arrangements, which are described where required under
"Management," and
- the transactions described below. All references to shares of common stock
reflect our 1-for-5 reverse stock split effected on January 3, 2000.
SALES OF STOCK
On December 28, 1999, we sold 40,000 shares of common stock at a purchase
price of $1.25 per share in cash, to each of our directors, Lewis Broad, Neill
Brownstein, Avraham Fischer, Davidi Gilo, John Griffin, Samuel Kaplan and Alan
Zimmerman.
On December 28, 1999, we sold 178,571 shares of Series C convertible
preferred stock, at a purchase price of $0.56 per share in cash, to Arnon
Kohavi, our Senior Vice President, Strategic Relations.
On December 28, 1999, we sold 20,000 shares of common stock at $0.75 per
share to Avraham Fischer upon exercise of a warrant.
On August 31, 1999, we sold 9,172,010 shares of Series C convertible
preferred stock at a purchase price of $0.54 per share in cash, to ADC
Telecommunications, Inc., a principal stockholder of Vyyo.
On May 31, 1999, we sold 5,953,104 shares of common stock, at a purchase
price of $0.75 per share, to the Gilo Family Partnership, of which 1,953,104
shares were purchased in exchange for the cancellation of promissory notes
issued by us to the partnership, in the aggregate principal amount of $1,435,000
plus accrued interest, and 4,000,000 shares were purchased in exchange for the
issuance by the partnership of a promissory note in the principal amount of
$3,000,000. The note was due on the earlier of demand or April 22, 2000, and
bore interest at a rate of 9% per annum. The note was secured by the purchased
shares. The note was repaid in full and cancelled in February 2000.
On May 31, 1999, we sold 33,334 shares of common stock, at a purchase price
of $0.75 per share in cash, to the Samuel Kaplan/Ralph Strangis Investment
Partnership, an affiliate of Samuel L. Kaplan.
On December 1, 1998, we sold shares of Series B preferred stock, at a
purchase price of $1.00 per share in cash, to the following investors, among
others:
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
- ---- ----------------
<S> <C>
Gilo Family Partnership..................................... 50,000
Kaplan/ Strangis Investment Partnership..................... 7,632
Michael Corwin.............................................. 8,104
Pezzola-Foster Trust........................................ 4,000
Alan Zimmerman.............................................. 12,000
</TABLE>
In connection with this offering, we issued warrants to purchase up to the
number of shares of common stock equal to the sum of the number of shares of
Series B preferred stock each of these investors purchased multiplied by 0.6.
These warrants have terminated in accordance with their terms.
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<PAGE>
In March and April 1997, we sold shares of common stock at a price of $2.45
per share in cash, and Series A preferred stock at a price of $8.77 in cash, to
the following persons.
<TABLE>
<CAPTION>
NAME NUMBER OF COMMON SHARES NUMBER OF PREFERRED SHARES
- ---- ----------------------- --------------------------
<S> <C> <C>
The Davidi and Shamaya Gilo
Trust........................ 1,037 2,593
Pezzola-Foster Trust........... 1,000 2,500
PhaseCom Investor Group Limited
Partnership No. 2............ 53,166 132,913
Avraham Fischer................ 1,500 3,750
</TABLE>
CONVERTIBLE NOTE AND WARRANT FINANCINGS
On June 30, 1998, we issued unsecured promissory notes, which were
convertible into shares of common stock, and warrants to purchase common stock,
to the following investors, among others. The notes were due on June 30, 1999
and bore interest at a rate of 8% per annum. The notes were convertible into
shares of common stock at a conversion price equal to $7.50 if the note
converted before September 15, 1998, or if converted after September 15, 1998,
the greater of $7.50 or one third of the per share price of our common stock
resulting from either an initial public offering of our common stock or a merger
with another entity. In July 1999, we amended these notes so that they became
convertible into common stock at $1.25 per share. The warrants were originally
convertible into the number of shares of common stock equal to the sum of the
principal amount of the noteholder's note that we issued to it on June 30, 1998
multiplied by .35 divided by the conversion price of the note. In
November 1999, the warrants were amended to fix the exercise price at $7.50 per
share and to fix the number of shares for which the warrants were exercisable
into the number of shares set forth below. In December 1999, the warrants were
amended to reduce the exercise price to $2.80 per share.
In consideration for the note issued to the Gilo Family Partnership, the
Partnership paid us $500,000 in cash, and we canceled the promissory notes dated
September 30, 1997, April 3, 1998 and May 8, 1998 in the aggregate principal
amount of $1,799,117, previously issued by us to the Partnership.
<TABLE>
<CAPTION>
NAME PRINCIPAL AMOUNT OF NOTE WARRANT SHARES
- ---- ------------------------ --------------
<S> <C> <C>
Gilo Family Partnership................................... $2,875,556 134,193
Samuel Kaplan/Ralph Strangis Investment Partnership....... $ 34,201 1,596
Alan Zimmerman............................................ $ 26,052 1,216
Michael Corwin............................................ $ 36,772 1,716
Pezzola-Foster Trust...................................... $ 15,000 700
Avraham Fischer........................................... $ 21,723 1,014
</TABLE>
In November 1999, all of these notes were converted into an aggregate of
2,407,441 shares of common stock at a conversion rate of $1.25 per share. In
December 1999, all of these warrants were exercised for a total of 140,434
shares of common stock at an exercise price of $2.80 per share.
On February 26, 1998, we issued unsecured promissory notes, which were
convertible into shares of Series A preferred stock at $15.00 per share, and
warrants to purchase common stock at an exercise price of $14.25 per share, to
the following investors, among others. The notes were due on February 26, 1999
and bore interest at a rate of 8% per annum. In November 1999, these notes were
amended such
53
<PAGE>
that they were convertible into shares of common stock at a conversion rate of
$1.25 per share. In December 1999, these warrants were amended to have an
exercise price of $2.80 per share.
<TABLE>
<CAPTION>
NAME PRINCIPAL AMOUNT OF NOTE WARRANT SHARES
- ---- ------------------------ --------------
<S> <C> <C>
Gilo Family Partnership................................... $417,600 43,200
Adi, Elad and Yael Gilo DSP Tel Trusts.................... $ 83,520 8,640
Samuel Kaplan/Ralph Strangis Investment Partnership....... $ 27,840 2,880
Alan Zimmerman............................................ $ 27,840 2,880
Michael Corwin............................................ $ 27,840 2,880
Neill Brownstein.......................................... $ 55,680 5,760
Pezzola-Foster Trust...................................... $ 9,280 960
</TABLE>
In November 1999, all of these notes were converted into an aggregate of
519,680 shares of common stock at a conversion rate of $1.25 per share. In
December 1999, all of these warrants were exercised for a total of 67,200 shares
of common stock at an exercise price of $2.80 per share.
On February 3, 1998, we issued promissory notes, which were convertible into
shares of Series A preferred stock at $15.00 per share, and warrants to purchase
common stock at an exercise price of $14.25 per share, to the following
investors, among others. The notes bore interest at a rate of 8% per annum and
were due on January 31, 1999. In November 1999, these notes were amended such
that they were convertible into shares of common stock at a conversion rate of
$1.25 per share. In December 1999, these warrants were amended to have an
exercise price of $2.80 per share.
<TABLE>
<CAPTION>
NAME PRINCIPAL AMOUNT OF NOTE WARRANT SHARES
- ---- ------------------------ --------------
<S> <C> <C>
Gilo Family Partnership................................... $129,920 13,440
Adi, Elad and Yael Gilo DSP Tel Trusts.................... $ 27,840 2,880
Samuel Kaplan/Ralph Strangis Investment Partnership....... $ 9,280 960
Alan Zimmerman............................................ $ 9,280 960
Michael Corwin............................................ $ 9,280 960
Neill Brownstein.......................................... $ 37,120 3,840
Reshifa Management Holdings Ltd........................... $ 9,280 960
</TABLE>
In November 1999, all of these notes were converted into an aggregate of
185,600 shares of common stock at a conversion rate of $1.25 per share. In
December 1999, all of these warrants were exercised for a total of 24,000 shares
of common stock at an exercise price of $2.80 per share.
On December 29, 1997, we issued promissory notes, which were convertible
into shares of Series A preferred stock at $15.00 per share, and warrants to
purchase common stock at an exercise price of $14.25 per share, to the following
investors, among others. The notes bore interest at a rate of 8% per annum and
were due on December 31, 1998. In November 1999, these notes were amended such
that they were convertible into shares of common stock at a conversion rate of
$1.25 per share. In December 1999, these warrants were amended to have an
exercise price of $2.80 per share.
<TABLE>
<CAPTION>
NAME PRINCIPAL AMOUNT OF NOTE WARRANT SHARES
- ---- ------------------------ --------------
<S> <C> <C>
Gilo Family Partnership................................... $148,480 15,360
Adi, Elad and Yael Gilo DSP Tel Trusts.................... $ 27,840 2,880
Samuel Kaplan/Ralph Strangis Investment Partnership....... $ 9,280 960
Alan Zimmerman............................................ $ 9,280 960
Michael Corwin............................................ $ 9,280 960
Reshifa Management Holdings Ltd........................... $ 9,280 960
</TABLE>
54
<PAGE>
In November 1999, all of these notes were converted into an aggregate of
170,752 shares of common stock at a conversion rate of $1.25 per share. In
December 1999, all of these warrants were exercised for a total of 22,080 shares
of common stock at an exercise price of $2.80 per share.
GRANTS OF OPTIONS
We have granted the following options to our officers and directors:
<TABLE>
<CAPTION>
NAME NUMBER OF OPTIONS EXERCISE PRICE DATE OF GRANT
- ---- ----------------- -------------- -------------
<S> <C> <C> <C>
Michael Corwin..................................... 160,000 $0.75 06/99
80,000 $1.25 11/99
Menashe Shahar..................................... 8,000 $3.13* 11/97
20,000 $0.50 12/99
2,000 $2.45* 07/97
Eran Pilovsky...................................... 200,000 $1.25 01/00
Arnon Kohavi....................................... 160,000 $1.25 11/99
Stephen Pezzola.................................... 15,000 $0.50 10/98
16,000 $1.50* 02/97
Avraham Fischer.................................... 16,000 $1.50* 02/97
</TABLE>
- ------------------------
* In October 1998, these options were repriced to have an exercise price of
$0.50 per share.
GILO-RELATED TRANSACTIONS
In March 1997, the Gilo Family Partnership loaned $250,000 to us. The loan
was evidenced by an unsecured demand promissory note bearing interest at a rate
of 9% per annum. This note was paid in full on April 15, 1997.
On June 25, 1997, the Gilo Family Partnership loaned $200,000 to us. The
loan was evidenced by an unsecured demand promissory note bearing interest at
rate of 8.5% per annum.
On July 9, 1997, the Gilo Family Partnership loaned $200,000 to us. The loan
was evidenced by an unsecured demand promissory note bearing interest at rate of
9% per annum.
On July 28, 1997, the Gilo Family Partnership loaned $200,000 to us. The
loan was evidenced by an unsecured demand promissory note bearing interest at
rate of 9% per annum
On August 14, 1997, the Gilo Family Partnership loaned $200,000 to us. The
loan was evidenced by an unsecured demand promissory note bearing interest at
rate of 9% per annum.
On September 30, 1997, the demand promissory notes dated June 25, 1997,
July 9, 1997, July 28, 1997 and August 14, 1997, were canceled in exchange for
(i) an unsecured promissory note in the principal amount of $799,117, bearing
interest at a rate of 9% per annum and due on March 31, 1998, and (ii) a warrant
to purchase 105,600 shares of our Common Stock at an exercise price of $11.88
per share. On June 30, 1998, the September 30, 1997 promissory note was canceled
as partial payment for issuance of an unsecured promissory note in the principal
amount of $2,875,555.50, as described above in this prospectus. In
December 1999, this warrant was amended to have an exercise price of $2.80 per
share. This warrant was exercised in December 1999.
On April 3, 1998, the Gilo Family Partnership loaned $500,000 to us. The
loan was evidenced by an unsecured demand promissory note bearing interest at a
rate of 8% per annum. On June 30, 1998, this promissory note was canceled as
partial payment for issuance of the $2,875,555.50 note.
55
<PAGE>
On May 8, 1998, the Gilo Family Partnership loaned $500,000 to us. The loan
was evidenced by an unsecured demand promissory note bearing interest at a rate
of 8% per annum. On June 30, 1998, this note was canceled as partial payment for
issuance of the $2,875,555.50 note.
On August 4, 1998, the Gilo Family Partnership loaned $500,000 to us. The
loan was evidenced by an unsecured demand promissory note bearing interest at a
rate of 8% per annum. On September 28, 1998, this note was canceled in exchange
for 505,913.5 shares of our common stock at a price of $1.00 per share.
On August 28, 1998, the Gilo Family Partnership loaned $500,000 to us. The
loan was evidenced by an unsecured demand promissory note bearing interest at a
rate of 8% per annum. On September 28, 1998, this note was canceled in exchange
for 505,913.5 shares of our common stock at a price of $1.00 per share.
On November 12, 1998, the Gilo Family Partnership loaned $100,000 to us. The
loan was evidenced by an unsecured demand promissory note bearing interest at a
rate of 8.5% per annum.
On November 24, 1998, the Gilo Family Partnership loaned $50,000 to us. The
loan was evidenced by an unsecured demand promissory note bearing interest at a
rate of 8.5% per annum.
On December 1, 1998, the promissory notes dated November 12, 1998 and
November 24, 1998, in the aggregate principal amount of $150,000, plus accrued
interest, were canceled in exchange for the issuance of 150,404 shares of our
Series B preferred stock at a price of $1.00 per share.
On December 4, 1998, the Gilo Family Partnership loaned $50,000 to us. The
loan was evidenced by an unsecured demand promissory note bearing interest at a
rate of 8.5% per annum.
On January 5, 1998, the Gilo Family Partnership loaned $250,000 to us. The
loan was evidenced by an unsecured demand promissory note bearing interest at a
rate of 8.5% per annum.
On January 25, 1999, the Gilo Family Partnership loaned $50,000 to us. The
loan was evidenced by an unsecured demand promissory note bearing interest at a
rate of 8.5% per annum.
On February 12, 1999, the Gilo Family Partnership loaned $100,000 to us. The
loan was evidenced by an unsecured demand promissory note bearing interest at a
rate of 8.5% per annum.
On February 28, 1999, the Gilo Family Partnership loaned $60,000 to us. The
loan was evidenced by an unsecured demand promissory note bearing interest at a
rate of 8.5% per annum.
On March 1, 1999, the Gilo Family Partnership loaned $225,000 to us. The
loan was evidenced by an unsecured demand promissory note bearing interest at a
rate of 8.5% per annum.
On March 11, 1999, the Gilo Family Partnership loaned $150,000 to us. The
loan was evidenced by an unsecured demand promissory note bearing interest at a
rate of 8.5% per annum.
On March 31, 1999, the Gilo Family Partnership loaned $300,000 to us. The
loan was evidenced by an unsecured demand promissory note bearing interest at a
rate of 8.5% per annum.
On April 8, 1999, the Gilo Family Partnership loaned $50,000 to us. The loan
was evidenced by an unsecured demand promissory note bearing interest at a rate
of 8.5% per annum.
On April 15, 1999, the Gilo Family Partnership loaned $200,000 to us. The
loan was evidenced by an unsecured demand promissory note bearing interest at a
rate of 8.5% per annum.
On May 31, 1999, the promissory notes dated December 4, 1998, January 5,
1999, January 25, 1999, February 12, 1999, February 28, 1999, March 1, 1999,
March 11, 1999, March 31, 1999, April 8, 1999 and April 15, 1999, in the
aggregate principal amount of $1,435,000, plus accrued interest, were canceled
in exchange for 1,953,104 shares of our common stock at a price of $0.75 per
share.
56
<PAGE>
OTHER
Avraham Fischer is a senior partner of the law firm of Fischer, Behar,
Chen & Co., which represents us on matters relating to Israeli law. We paid
approximately $109,500 in legal fees to this firm in 1999.
In January 2000, in connection with an exercise of options to purchase
common stock, we loaned $249,980 to Eran Pilovsky. Mr. Pilovsky issued a
full-recourse promissory note to us. This note is due on the earlier of
January 16, 2003 or the time at which Mr. Pilovsky sells the shares or leaves
Vyyo and bears interest at rate of 6% per annum. The note is secured by the
purchased shares.
We sublease our headquarters in Cupertino, California from Zen
Research, Inc. on a month-to-month basis. Zen Research is a wholly owned
subsidiary of a corporation of which Mr. Gilo is a controlling shareholder and a
director. In addition, Mr. Pezzola is the Chairman of the Board of Zen
Research's parent corporation. The monthly rent under our sublease is $12,000.
57
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table indicates information as of December 31, 1999 regarding
the beneficial ownership of our common stock by:
- each person known to the board of directors to own beneficially 5% or more
of our common stock;
- each of our directors;
- the named executive officers; and
- all of our directors and executive officers as a group.
Information with respect to beneficial ownership has been furnished by each
director, officer or 5% or more stockholder, as the case may be. Except as
otherwise noted below, the address for each person listed on the table is c/o
Vyyo Inc., 20400 Stevens Creek Boulevard, 8(th) Floor, Cupertino, California
95014.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission which generally attribute beneficial
ownership of securities to persons who possess sole or shared voting power or
investment power with respect to those securities and includes shares of common
stock issuable pursuant to the exercise of stock options or warrants that are
immediately exercisable or exercisable within 60 days. Unless otherwise
indicated, the persons or entities identified in this table have sole voting and
investment power with respect to all shares shown as beneficially owned by them,
subject to applicable community property laws.
Percentage ownership calculations are based on 17,964,857 shares of common
stock outstanding as of December 31, 1999, which number includes shares of
common stock that will be outstanding upon the conversion of outstanding shares
of preferred stock upon the closing of this offering. To the extent that any
shares are issued upon exercise of options, warrants or other rights to acquire
our capital stock that are presently outstanding or granted in the future or
reserved for future issuance under our stock plans, there will be further
dilution to new public investors.
<TABLE>
<CAPTION>
PERCENT OF SHARES
OUTSTANDING
NUMBER OF ---------------------------
SHARES BENEFICIALLY BEFORE AFTER
NAME OWNED THE OFFERING THE OFFERING
- ---- ------------------- ------------ ------------
<S> <C> <C> <C>
Davidi Gilo(1)........................................ 11,016,898
ADC Telecommunications, Inc........................... 1,834,402
P. O. Box 1101
Minneapolis, MN 55440
Stephen P. Pezzola(2)................................. 163,470
Lewis S. Broad(3)..................................... 50,694
Neill H. Brownstein(4)................................ 133,840
Avraham Fischer(5).................................... 231,392
John Griffin(6)....................................... 1,874,402
Samuel Kaplan(7)...................................... 145,997
Alan Zimmerman(8)..................................... 176,724
Shaul Berger(9)....................................... 91,015
Menashe Shahar(10).................................... 23,324
All directors and executive officers
As a group (12 persons)(11)......................... 14,158,838
</TABLE>
- ------------------------
* Less than 1% of the outstanding shares of common stock.
58
<PAGE>
(1) Includes (a) 9,660,784 shares held by The Gilo Family Trust, of which Davidi
Gilo is a trustee, (b) 552,832 shares held by the PhaseCom Investor Group
Limited Partnership, of which Harmony Management, Inc. is the general
partner, (c) 4,876 shares of common stock issuable pursuant to warrants held
by the PhaseCom Investor Group Limited Partnership, (d) 106,331 shares held
by the PhaseCom Investor Group Limited Partnership No. 2, of which the
general partner is Gilo Group, LLC, a limited liability company of which
Mr. Gilo is a principal owner, and (e) 2,075 shares held in the Davidi and
Shamaya Gilo Trust, of which Davidi and Shanaya Gilo are the trustees.
Excludes 158,665 shares held in three trusts for the benefit of Mr. Gilo's
children, Adi, Elad and Yael Gilo, as to which Mr. Gilo has no voting or
investment power. Mr. Gilo disclaims beneficial ownership of such shares.
(2) Includes 31,471 shares held in the Pezzola-Foster Trust, of which Stephen
Pezzola and Twila Foster are the trustees. Also includes 49,000 shares of
common stock issuable pursuant to stock options exercisable within 60 days
of March 1, 2000. Excludes 28,000 shares held in two trusts for the benefit
of Mr. Pezzola's children, Genevieve and David Pezzola, as to which
Mr. Pezzola has no voting or investment power. Mr. Pezzola disclaims
beneficial ownership of such shares. Also excludes 2,085 shares held by the
PhaseCom Investor Group Limited Partnership, of which the Pezzola-Foster
Trust is a limited partner and as to which Mr. Pezzola has no voting or
investment power.
(3) Includes 10,000 shares of common stock issuable pursuant to stock options
exercisable within 60 days of March 1, 2000. Excludes 16,672 shares held by
the PhaseCom Investor Group Limited Partnership and 3,438 shares held by the
PhaseCom Investor Group Limited Partnership No. 2, of which Mr. Broad is a
limited partner and as to which Mr. Broad has no voting or investment power.
(4) Includes 10,000 shares of common stock issuable pursuant to stock options
exercisable within 60 days of March 1, 2000. Excludes 2,257 shares held by
the PhaseCom Investor Group Limited Partnership No. 2, of which
Mr. Brownstein is a limited partner and as to which Mr. Brownstein has no
voting or investment power.
(5) Includes 150,000 shares of common stock issuable pursuant to stock options
exercisable within 60 days of March 1, 2000. Excludes shares held by I.
Fischer & Co. as trustee, or Fischer, Behar & Co., as trustee, on behalf of
stockholders of Vyyo that are residents of Israel.
(6) Includes 1,834,402 shares held by ADC Telecommunications. Mr. Griffin is an
officer of ADC Telecommunications and may be deemed to share voting and
investment power will respect to the shares held by ADC Communications.
Mr. Griffin disclaims beneficial ownership of these shares.
(7) Includes 105,737 shares held by the Samuel Kaplan/Ralph Strangis Investment
Partnership, of which Samuel Kaplan is a general partner. Mr. Kaplan
disclaims beneficial ownership of these shares, except to the extent of his
pecuniary interest arising from his interest in this entity. Excludes
6,252 shares held by the PhaseCom Investor Group Limited Partnership and
2,581 shares held by the PhaseCom Investor Group Limited Partnership No. 2,
of which Mr. Kaplan is a limited partner and as to which Mr. Kaplan has no
voting or investment power.
(8) Includes 50,000 shares of common stock issuable pursuant to stock options
exercisable within 60 days of March 1, 2000. Exclude 8,336 shares held by
the PhaseCom Investor Group Limited Partnership and 1,716 shares held by the
PhaseCom Investor Group Limited Partnership No. 2, of which Mr. Zimmerman is
a limited partner and as to which Mr. Zimmerman has no voting or investment
power.
(9) Includes 261 shares of common stock issuable pursuant to warrants.
(10) Includes 22,791 shares of common stock issuable pursuant to stock options
exercisable within 60 days of March 1, 2000.
(11) Includes 331,791 shares of common stock issuable pursuant to stock options
exercisable within 60 days of March 1, 2000.
59
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description summarizes information regarding our capital
stock. This information is subject in all respects to the applicable provisions
of the Delaware General Corporation Law, our amended and restated certificate of
incorporation and bylaws.
Immediately following the closing of this offering, the authorized capital
stock of Vyyo will consist of 200,000,000 shares of common stock, $0.0001 par
value per share, and 5,000,000 shares of preferred stock, $0.001 par value per
share. Immediately following the closing of this offering, shares of
common stock will be issued and outstanding and no shares of preferred stock
will be issued and outstanding.
COMMON STOCK
VOTING RIGHTS. Each outstanding share of common stock is entitled to one
vote on all matters submitted to a vote of Vyyo's stockholders, including the
election of directors. There are no cumulative voting rights, and therefore the
holders of a plurality of the shares of common stock voting for the election of
directors may elect all of Vyyo's directors standing for election.
DIVIDENDS. Holders of common stock are entitled to receive dividends at the
same rate if and when dividends are declared by our board of directors out of
assets legally available for the payment of dividends, subject to preferential
rights or any outstanding share of preferred stock. Through our subsidiary, Vyyo
Ltd., we participate in the "alternative benefits program" under the Israeli law
for the Encouragement of Capital Investments, 1959, under which we realize
certain tax exemptions. If Vyyo Ltd. distributes a cash dividend to Vyyo Inc.
from income which is tax exempt, it would have to pay corporate tax at the rate
of up to 25% on an amount equal to the amount distributed and the corporate tax
which would have been due in the absence of the tax exemption.
LIQUIDATION. In the event of a liquidation, dissolution or winding up of
the affairs of Vyyo, whether voluntary or involuntary, after payment of the
debts and other liabilities of Vyyo and making provisions for the holders of any
outstanding shares of preferred stock, the remaining assets of Vyyo will be
distributed ratably among the holders of shares of common stock.
RIGHTS AND PREFERENCES. The common stock has no preemptive, redemption,
conversion or subscription rights. The rights, powers, references and privileges
of holders of common stock and subject to, and may be adversely affected by, the
rights of the holders of shares of any series of preferred took that we any
designate and issue in the future.
FULLY PAID AND NON-ASSESSABLE. All outstanding shares of common stock are,
and the shares of common stock be issued pursuant to this offering will be,
fully paid and non-assessable.
PREFERRED STOCK
The board of directors has the authority, without action by the
stockholders, to provide for the issuance of preferred stock in one or more
classes or series and to designate the rights, preferences and privileges of
each such class or series, which may be greater than the rights of the common
stock. We cannot predict the effect of the issuance of any shares of preferred
stock upon the rights of holders of the common stock until the board of
directors determines the specific rights of the holders of the preferred stock.
However, the effects could include one or more of the following:
- restricting dividends on the common stock;
- diluting the voting power of the common stock;
- impairing the liquidation rights of the common stock; or
60
<PAGE>
- delaying or preventing a change in control of us without further action by
the stockholders.
Upon the consummation of this offering, no shares of preferred stock will be
outstanding, and we have no present plans to issue any shares of preferred
stock.
REGISTRATION RIGHTS
Upon completion of the offering, the holders of an aggregate of
approximately shares of common stock will be entitled to rights with
respect to the registration of these shares under the Securities Act of 1933, as
amended, or the Securities Act. Under the terms of the registration rights
agreements, if Vyyo proposes to register any of its securities under the
Securities Act, either for its own account or for the account of other security
holders exercising registration rights, these holders are entitled to notice of
this registration and are entitled to include shares of common stock in the
registration. The rights are subject to conditions and limitations, among them
the right of the underwriters of an offering subject to the registration to
limit the number of shares included in the registration. These registration
rights have been waived with respect to this offering. Holders of these rights
may also require Vyyo to file a registration statement under the Securities Act
at its expense with respect to their shares of common stock, and Vyyo is
required to use its best efforts to effect this registration, subject to
conditions and limitations. Furthermore, stockholders with registration rights
may require Vyyo to file additional registration statements on Form S-3, subject
to conditions and limitations.
DELAWARE ANTI-TAKEOVER LAW
We are subject to Section 203 of the Delaware General Corporation Law, an
anti-takeover law. Generally, Section 203 of the Delaware General Corporation
Law prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless (i) prior to the date of the business combination, the
transaction is approved by the board of directors of the corporation, (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owns at least 85% of the
outstanding voting stock of the corporation, or (iii) on or after the date of
the business combination, such business combination is approved by the board of
directors of the corporation and by the affirmative vote of at least 66 2/3% of
the outstanding voting stock which is not owned by the interested stockholder. A
"business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the stockholder. An "interested stockholder"
is a person who, together with affiliates and associates, owns (or within the
three-year period immediately prior to the relevant date, did own) 15% or more
of the corporation's outstanding voting stock. The existence of this provision
would be expected to have an anti-takeover effect with respect to transactions
not approved in advance by our board of directors, including discouraging
attempts that might result in a premium over the market price for the shares of
common stock held by stockholders.
TRANSFER AGENT AND REGISTRAR
EquiServe Trust Company will serve as Transfer Agent and Registrar for our
common stock. Its telephone number is (781) 575-2000.
LISTING
We have applied to have our common stock approved for quotation on the
Nasdaq National Market under the trading symbol "VYYO."
61
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
We cannot predict if future sales of our common stock, or the availability
of our common stock for sale, will depress the market price for our common stock
or our ability to raise capital by offering equity securities. Sales of
substantial amounts of common stock, or the perception that these sales could
occur, may depress prevailing market prices for the common stock.
After this offering, approximately shares of common stock will be
outstanding. All of the shares sold in this offering will be freely tradeable
except for any shares purchased by and other affiliates of Vyyo. The
remaining shares of common stock outstanding after this offering will be
restricted as a result of securities laws or lock-up agreements. These remaining
shares will be available for sale in the public market as follows:
<TABLE>
<CAPTION>
NUMBER OF
DATE OF AVAILABILITY FOR SALE SHARES
- ----------------------------- -------------
<S> <C>
As of the date of the prospectus............................
, 2000.................................................
At various times afterwards upon expiration of applicable
holding periods...........................................
</TABLE>
Banc of America Securities LLC may release all or a portion of the shares
subject to this lockup agreement at any time without notice. See "Underwriting."
In general, under Rule 144, as currently in effect, a person who has
beneficially owned shares of our common stock for at least one year would be
entitled to sell within any three-month period a number of shares that does not
exceed the greater of:
- 1% of the number of shares of common stock then outstanding, which will
equal approximately shares immediately after this offering; or
- the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to the sale.
Sales under Rule 144 are also subject to manner of sales provisions and
notice requirements and to the availability of current public information about
us.
Under Rule 144(k), a person who is not deemed to have been one of our
affiliates at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner other than an affiliate, is
entitled to sell the shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
Rule 701, as currently in effect, permits resales of shares in reliance upon
Rule 144 but without compliance with certain restrictions, including the holding
period requirement, of Rule 144. Any of our employees, officers, directors or
consultants who purchased shares under a written compensatory plan or contract
may be entitled to rely on the resale provisions of Rule 701. Rule 701 permits
affiliates to sell their Rule 701 shares under Rule 144 without complying with
the holding period requirements of Rule 144. Rule 701 further provides that
non-affiliates may sell their shares in reliance on Rule 144 without having to
comply with the holding period, public information, volume limitation or notice
provisions of Rule 144. All holders of Rule 701 shares are required to wait
until 90 days after the date of this prospectus before selling their shares.
However, substantially all Rule 701 shares are subject to lock-up agreements and
will only become eligible for sale at the earlier of the expiration of the
180-day lock-up agreements or no sooner than 90 days after the offering upon
obtaining the prior written consent of Banc of America Securities LLC.
62
<PAGE>
We intend to file a registration statement registering shares of common
stock subject to outstanding options or reserved for future issuance under our
stock plans. As of , options to purchase a total of shares
were outstanding under our stock option plans. Common stock issued upon exercise
of outstanding vested options, other than common stock issued to our affiliates,
is available for immediate resale in the open market.
63
<PAGE>
UNDERWRITING
We are offering the shares of common stock described in this prospectus
through a number of underwriters. Banc of America Securities LLC, CIBC World
Markets Corp. and Dain Rauscher Incorporated are the representatives of the
underwriters. We have entered into an underwriting agreement with the
representatives. According to the terms and conditions of the underwriting
agreement, we have agreed to sell to the underwriters, and each of the
underwriters has agreed to purchase, the number of shares of common stock listed
net to its name in the following table:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ----------- ---------
<S> <C>
Banc of America Securities LLC..............................
CIBC World Markets Corp.....................................
Dain Rauscher Incorporated..................................
-------
Total...................................................
=======
</TABLE>
The underwriters initially will offer shares to the public at the price
specified on the cover page of this prospectus. The underwriters may allow to
some dealers a concession of not more than $ per share. The underwriters
also may allow, and any other dealers may reallow, a concession of not more than
$ per share to some other dealers. If all the shares are not sold at the
initial public offering price, the underwriters may change the offering price
and the other selling terms. The common stock is offered under a number of
conditions, including:
- receipt and acceptance of our common stock by the underwriters, and
- the right to reject orders in whole or in part.
We have granted an option to the underwriters to buy up to additional
shares of common stock. These additional shares would cover sales of shares by
the underwriters which exceed the number of shares specified in the table above.
The underwriters have 30 days to exercise this option. If the underwriters
exercise this option, they will each purchase additional shares approximately in
proportion to the amounts specified in the table above.
We, all our stockholders and all of our officers and directors have entered
into lock-up agreements with the underwriters. Under those agreements, we and
those holders of stock and options may not dispose of or hedge any common stock
or securities convertible into or exchangeable for shares of common stock. These
restrictions will be in effect for a period of 180 days after the date of this
prospectus. At any time and without notice, Banc of America Securities LLC may,
in its sole discretion, release all or some of the securities from these lock-up
agreements.
We will indemnify the underwriters against some liabilities, including some
liabilities under the Securities Act. If we are unable to provide this
indemnification, we will contribute to payments the underwriters may be required
to make in respect of those liabilities.
We have applied to have the shares of common stock approved for listing on
the Nasdaq National Market under the symbol "VYYO."
64
<PAGE>
In connection with this offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include:
- short sales,
- stabilizing transactions, and
- purchase to cover positions created by short sales.
Short sales involve the sale by the underwriters of a greater number of
shares than they are required to purchase in this offering. Stabilizing
transactions consist of bids or purchases made for the purpose of preventing or
retarding a decline in the market price of the common stock while this offering
is in progress.
The underwriters also may impose a penalty bid. This means that if the
representatives purchase shares in the open market in stabilizing transactions
or to cover short sales, the representatives can require the underwriters that
sold those shares as part of this offering to repay the underwriting discount
received by them.
The underwriters may engage in activities that stabilize, maintain or
otherwise affect the price of the common stock, including:
- over-allotment,
- stabilization,
- syndicate covering transactions, and
- imposition of penalty bids.
As a result of these activities, the price of the common stock may be higher
than the price that otherwise might exist in the open market. If the
underwriters commence these activities, they may discontinue them at any time.
The underwriters may carry out these transactions on the Nasdaq National Market,
in the over-the-counter market or otherwise.
The underwriters do not expect sales to discretionary accounts to exceed 5%
of the total number of shares of common stock offered by this prospectus.
Prior to this offering, there has been no public market for our common
stock. The initial public offering price was negotiated between us and the
underwriters. Among the factors that will be considered in the negotiations are:
- our history and prospects, and the history and prospects of the industry
in which we compete,
- our past and present financial performance,
- an assessment of our management,
- the present state of our development,
- our prospects for future earnings,
- the prevailing market conditions of the applicable U.S. securities market
at the time of this offer,
- market valuations of publicly traded companies that we and the
underwriters believe to be comparable to US.
The underwriters have reserved up to shares of the common stock to be
sold in this offering for sale to some of our employees, directors and their
associates, and to other individuals or companies who have commercial
arrangements or personal relationships with us. Through this directed
65
<PAGE>
share program, we intend to ensure that those individuals and companies that
have supported us, or who are in a position to support us in the future, have
the opportunity to purchase our common stock at the same price that we are
offering our shares to the general public. We do not currently expect that more
than approximately individuals (including our employees, directors and
their associates) and companies will participate in the directed share program.
Prospective participants will not receive any investment materials other than a
copy of this prospectus, and will be permitted to participate in this offering
at the initial public offering price presented on the cover page of this
prospectus. No commitment to purchase shares by any participant in the directed
share program will be accepted until after the registration statement of which
this prospectus is a part is effective and an initial public offering price has
been established. The number of shares available for sale to the general public
will be reduced by the number of shares sold through the directed share program.
From time to time, Banc of America Securities LLC has provided financial
advisory services to Vyyo and may continue to do so in the future.
66
<PAGE>
LEGAL MATTERS
The validity of the shares of common stock being offered will be passed upon
for us by Skadden, Arps, Slate, Meagher & Flom LLP, Palo Alto, California.
Certain other legal matters in connection with this offering will be passed upon
for us by Bay Venture Counsel, LLP. Certain matters of Israeli law will be
passed upon for us by Fischer, Behar, Chen & Co., Tel Aviv, Israel. Certain
legal matters in connection with this offering will be passed upon for the
underwriters by Brobeck, Phleger & Harrison LLP, San Francisco, California.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements at December 31, 1998 and 1999, and for the three years in
the period ended December 31, 1999, as set forth in their report. We have
included our financial statements in the prospectus and elsewhere in the
registration statement in reliance on Ernst & Young LLP's report, given upon the
authority of such firm as experts in accounting and auditing.
AVAILABLE INFORMATION
We filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the shares of
common stock being offered. This prospectus does not contain all of the
information described in the registration statement and the related exhibits and
schedules. For further information with respect to Vyyo and the common stock
being offered, reference is made to the registration statement and the related
exhibits and schedule. Statements contained in this prospectus regarding the
contents of any contract or any other document to which reference is made are
not necessarily complete, and, in each instance, reference is made to the copy
of the contract or other document filed as an exhibit to the registration
statement, each statement being qualified in all respects by the reference. A
copy of the registration statement and the related exhibits and schedule may be
inspected without charge at the public reference facilities maintained by the
Commission in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's regional offices located at the Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade
Center, 13th Floor, New York, New York 10048, and copies of all or any part of
the registration statement may be obtained from these offices upon the payment
of the fees prescribed by the Commission. Information on the operation of the
Public Reference Room may be obtained by calling the Commission at
1-800-SEC-0330. The Commission maintains a World Wide Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of the
site is http://www.sec.gov.
Vyyo intends to provide its stockholders with annual reports containing
combined financial statements audited by an independent accounting firm and
quarterly reports containing unaudited combined financial data for the first
three quarters of each year.
67
<PAGE>
VYYO INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Consolidated Balance Sheets as of December 31, 1998 and
1999...................................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1997, 1998 and 1999.......................... F-4
Consolidated Statements of Stockholders' Equity (Net Capital
Deficiency) for the years ended December 31, 1997, 1998
and 1999.................................................. F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1998 and 1999.......................... F-6
Notes to Consolidated Financial Statments................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Vyyo, Inc.
We have audited the accompanying consolidated balance sheets of Vyyo Inc. as
of December 31, 1998 and 1999, and the related consolidated statements of
operations, stockholders' equity (net capital deficiency) and cash flows for
each of the three years in the period ended December 31, 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 in the United States. 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 consolidated financial position of Vyyo Inc. at
December 31, 1998 and 1999, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
1999, in conformity with generally accepted accounting principles in the United
States.
Ernst & Young LLP
San Jose, California
January 28, 2000
F-2
<PAGE>
VYYO INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, STOCKHOLDERS'
------------------- EQUITY AT
1998 1999 DECEMBER 31, 1999
-------- -------- -----------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 131 $ 5,036
Accounts receivable, net of allowance for doubtful
accounts of $187 and $176 in 1998 and 1999,
respectively........................................... 247 583
Inventory................................................ 1,644 1,132
Other.................................................... 107 315
-------- --------
Total current assets..................................... 2,129 7,066
Property and equipment, net.............................. 1,010 1,095
-------- --------
$ 3,139 $ 8,161
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
Current liabilities:
Bank line of credit...................................... $ 1,970 $ 2,280
Accounts payable......................................... 1,219 895
Accrued liabilities...................................... 2,072 2,951
Notes payable to stockholders............................ 6,882 --
Deferred income.......................................... 140 639
Equipment financing obligations.......................... 427 91
-------- --------
Total current liabilities................................ 12,710 6,856
Commitments and contingencies
Stockholders' equity (net capital deficiency):
Convertible preferred stock, $0.001 par value at amounts
paid in; 100,000,000 shares authorized at December 31,
1999; 2,213,688 and 11,564,269 shares issued and
outstanding at December 31, 1998 and 1999 convertible
into 2,629,702 shares of common stock at December 31,
1999; aggregate liquidation preference of $14,243 at
December 31, 1999...................................... 10,335 15,369 $ --
Common stock, $0.0001 par value at amounts paid in;
200,000,000 shares authorized at December 31, 1998 and
1999; 1,812,602 and 15,335,155 shares issued and
outstanding at December 31, 1998 and 1999,
respectively; 17,964,857 shares issued and outstanding
pro forma.............................................. 2,649 27,612 42,981
Note receivable from stockholder......................... -- (920) (920)
Deferred stock compensation.............................. -- (6,000) (6,000)
Accumulated deficit...................................... (22,555) (34,756) (34,756)
-------- -------- --------
Total stockholders' equity (net capital deficiency)...... (9,571) 1,305 $ 1,305
-------- -------- ========
$ 3,139 $ 8,161
======== ========
</TABLE>
See accompanying notes
F-3
<PAGE>
VYYO INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Net revenues................................................ $ 1,537 $ 2,449 $ 4,230
Cost of revenues............................................ 1,556 2,568 4,316
-------- -------- --------
Gross loss................................................ (19) (119) (86)
Operating expenses:
Research and development.................................. 2,398 3,252 3,678
Sales and marketing....................................... 1,484 2,413 1,972
General and administrative................................ 1,200 1,363 2,148
Amortization of deferred stock compensation............... -- -- 3,600
-------- -------- --------
Total operating expenses.................................... 5,082 7,028 11,398
-------- -------- --------
Operating loss.............................................. (5,101) (7,147) (11,484)
Interest income............................................. 41 10 36
Interest expense and other.................................. (285) (534) (753)
-------- -------- --------
Net loss.................................................... $ (5,345) $ (7,671) $(12,201)
======== ======== ========
Net loss per share:
Basic and diluted $ (8.86) $ (8.15) $ (2.27)
======== ======== ========
Pro forma basic and diluted (unaudited) $ (1.81)
========
Number of shares used in per share computation:
Basic and diluted 603 941 5,385
======== ======== ========
Pro forma basic and diluted (unaudited) 6,758
========
</TABLE>
See accompanying notes.
F-4
<PAGE>
VYYO INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
CONVERTIBLE NOTE
PREFERRED STOCK COMMON STOCK RECEIVABLE DEFERRED
--------------------- --------------------- FROM STOCK ACCUMULATED
SHARES AMOUNT SHARES AMOUNT STOCKHOLDER COMPENSATION DEFICIT
---------- -------- ---------- -------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996..................... 1,380,851 $ 7,996 552,340 $ 983 -- -- $ (9,539)
Exchange of stock for
subsidiary............... 1,092 -- 437 -- -- -- --
Issuance of preferred and
common shares for cash,
net of issuance costs.... 202,167 1,736 80,867 193 -- -- --
Issuance of warrants to
purchase common stock.... -- -- -- 165 -- -- --
Net loss................... -- -- -- -- -- -- (5,345)
---------- ------- ---------- ------- -------- -------- ----------
Balance at December 31,
1997..................... 1,584,110 9,732 633,644 1,341 -- -- (14,884)
Issuance of common stock
net of issuance costs.... -- -- 175,528 171 -- -- --
Issuance of Series A
preferred stock net of
issuance costs........... 21,123 15 -- -- -- -- --
Issuance of Series B
preferred stock net of
issuance costs........... 629,447 603 -- -- -- -- --
Conversion of notes payable
to stockholders into
common stock............. -- -- 1,011,827 1,012 -- -- --
Repurchase of preferred
stock and common stock... (20,992) (15) (8,397) (5) -- -- --
Issuance of warrants to
purchase common stock.... -- -- -- 130 -- -- --
Net loss................... -- -- -- -- -- -- (7,671)
---------- ------- ---------- ------- -------- -------- ----------
Balance at December 31,
1998..................... 2,213,688 10,335 1,812,602 2,649 -- -- (22,555)
Issuance of common stock,
net of issuance costs.... -- -- 4,417,333 3,481 $ (920) -- --
Issuance of Series C
preferred stock, net of
issuance costs........... 9,350,581 5,034 -- -- -- -- --
Issuance of common stock
upon exercise of
warrants, net of issuance
costs.................... -- -- 727,947 1,947 -- -- --
Conversion of notes payable
to shareholders into
common stock............. -- -- 7,418,836 9,090 -- -- --
Issuance of common stock
upon exercise of
options.................. -- -- 958,437 845 -- -- --
Deferred stock
compensation............. -- -- -- 9,600 -- (9,600) --
Amortization of deferred
stock compensation....... -- -- -- -- -- 3,600 --
Net loss................... -- -- -- -- -- -- (12,201)
---------- ------- ---------- ------- -------- -------- ----------
Balance at December 31,
1999..................... 11,564,269 $15,369 15,335,155 $27,612 $ (920) $ (6,000) $ (34,756)
========== ======= ========== ======= ======== ======== ==========
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
(NET CAPITAL
DEFICIENCY)
-------------
<S> <C>
Balance at December 31,
1996..................... $ (560)
Exchange of stock for
subsidiary............... --
Issuance of preferred and
common shares for cash,
net of issuance costs.... 1,929
Issuance of warrants to
purchase common stock.... 165
Net loss................... (5,345)
----------
Balance at December 31,
1997..................... (3,811)
Issuance of common stock
net of issuance costs.... 171
Issuance of Series A
preferred stock net of
issuance costs........... 15
Issuance of Series B
preferred stock net of
issuance costs........... 603
Conversion of notes payable
to stockholders into
common stock............. 1,012
Repurchase of preferred
stock and common stock... (20)
Issuance of warrants to
purchase common stock.... 130
Net loss................... (7,671)
----------
Balance at December 31,
1998..................... (9,571)
Issuance of common stock,
net of issuance costs.... 2,561
Issuance of Series C
preferred stock, net of
issuance costs........... 5,034
Issuance of common stock
upon exercise of
warrants, net of issuance
costs.................... 1,947
Conversion of notes payable
to shareholders into
common stock............. 9,090
Issuance of common stock
upon exercise of
options.................. 845
Deferred stock
compensation............. --
Amortization of deferred
stock compensation....... 3,600
Net loss................... (12,201)
----------
Balance at December 31,
1999..................... $ 1,305
==========
</TABLE>
See accompanying notes.
F-5
<PAGE>
VYYO INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $(5,345) $(7,671) $(12,201)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and other.................................... 343 368 454
Amortization of deferred stock compensation............... -- -- 3,600
Changes in assets and liabilities:
Accounts receivable..................................... (132) (8) (336)
Prepaid expenses and other current assets............... 17 34 (208)
Inventory............................................... (639) (638) 512
Other assets............................................ 4 7 --
Accounts payable........................................ 287 636 (246)
Accrued liabilities..................................... 813 455 1,702
Deferred income......................................... -- 140 499
------- ------- --------
Net cash used in operating activities....................... (4,652) (6,677) (6,224)
------- ------- --------
INVESTING ACTIVITIES
Purchases of property and equipment......................... (430) (305) (581)
Proceeds from sales of property and equipment............... -- -- 42
------- ------- --------
Net cash used in investing activities....................... (430) (305) (539)
------- ------- --------
FINANCING ACTIVITIES
Proceeds from notes payable to stockholders................. 2,126 5,834 1,385
Proceeds from note receivable from stockholders............. -- -- 2,080
Proceeds from debt.......................................... 300 1,970 310
Repayments of capital lease obligations..................... -- -- (336)
Repayments of debt and capital lease obligations............ (321) (2,100) --
Repurchase of preferred stock and common stock.............. -- (20) --
Issuance of preferred stock and common stock................ 1,929 789 8,229
Issuance of warrants to purchase common stock............... 99 130 --
------- ------- --------
Net cash provided by financing activities................... 4,133 6,603 11,668
------- ------- --------
Increase (decrease) in cash and cash equivalents............ (949) (379) 4,905
Cash and cash equivalents at beginning of period.......... 1,459 510 131
------- ------- --------
Cash and cash equivalents at end of period.................. $ 510 $ 131 $ 5,036
======= ======= ========
NONCASH FINANCING ACTIVITIES
Conversion of loan from stockholder into warrant to purchase
common stock.............................................. $ 66 $ -- --
======= ======= ========
Conversion of stockholders' notes into common stock......... $ -- $ 1,012 $ 9,090
======= ======= ========
Issuance of common stock for note receivable................ $ 3,000
======= ======= ========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid............................................... $ 158 $ 143 $ 141
======= ======= ========
</TABLE>
See accompanying notes.
F-6
<PAGE>
VYYO INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
Vyyo Inc. was incorporated as a Delaware corporation in 1996. In
January 2000, the Company changed its name from PhaseCom, Inc. to Vyyo Inc. and
its subsidiary (collectively, "Vyyo" or the "Company") is a global provider of
broadband wireless access systems used by telecommunications service providers
to deliver wireless high-speed data connections to businesses and residential
subscribers. The Company sells its products directly to service providers and to
system integrators. The majority of the Company's revenues are generated from
sales to customers in North America.
The Company's consolidated financial statements reflect the operations of
Vyyo Inc. and its wholly owned Israeli subsidiary, Vyyo Ltd. All significant
intercompany transactions and balances have been eliminated in consolidation.
REVENUE RECOGNITION
Net revenues include product revenues and in 1999 also include $480,000 of
technology development revenues. Product revenues are derived primarily from
sales of hubs and modems to telecommunications service providers and to system
integrators. Product revenues are generally recorded when products are shipped,
provided there are no customer acceptance requirements and the Company has no
additional performance obligations. The Company accrues for estimated sales
returns and exchanges and product warranty and liability costs upon recognition
of product revenues.
Technology development revenues are related to a best efforts arrangement
with a customer. Due to technology risk factors, the costs of the technology
development efforts are expensed when incurred and the revenues are recognized
when the applicable customer milestones are met, including deliverables, but not
in excess of the estimated amount that would be recognized using the
percentage-of completion method. We expect to complete this arrangement in
fiscal year 2000.
Deferred revenues represent amounts received from customers for products
subject to return or exchange and payments on technology development contracts
not yet recognized as revenue.
RISK FACTORS AND CONCENTRATIONS
The Company is subject to various risks similar to other companies in a
comparable stage of growth, including dependence on key individuals, competition
from substitute products and larger companies, the need to obtain additional
financing, and the continued successful development and marketing of its
products. The Company used over $17 million in operating activities in 1997,
1998 and 1999. The Company will require additional financing to continue its
operations and execute its business plan. The Company believes adequate
additional debt or equity financing is available to fund planned operations
through fiscal 2000.
Financial instruments that subject the Company to credit risk consist
primarily of uninsured cash and cash equivalents, most of which is held at
high-quality financial institutions in the United States and trade receivables.
The Company performs ongoing credit evaluations of its customers and generally
does not require collateral. The Company provides reserves for estimated credit
losses. Provisions for bad debts in 1997, 1998 and 1999 were $0, $11,000 and
$198,000, respectively. Write-offs of uncollectible accounts in 1999 was
$209,000 and none in 1997 and 1998.
F-7
<PAGE>
VYYO INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
Sales to one customer represented 12%, 31% and 20% of total revenues for the
years ended December 31, 1997, 1998 and 1999. Sales to two other customers
represented 11% and 27% of total revenues for the year ended December 31, 1997.
Sales to another customer represented 15% and 13% of total revenues for the
years ended 1998 and 1999. Sales to two other customers represented 14% and 12%,
respectively, of total revenues for the year ended December 31, 1999. Sales to
one other customer represented 23% of revenues for the year ended December 31,
1998.
In August 1999, ADC Telecommunications, Inc. ("ADC"), one of the Company's
major customers made an approximately 10% equity investment in the Company.
Revenues from ADC for the period from August 1999 through fiscal year end 1999
amounted to $654,000.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred and consist
primarily of personnel, facilities, equipment and supplies for our research and
development activities.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation and amortization
are provided using the straight-line method over the estimated useful lives of
the assets (generally from three to five years), or the life of the lease,
whichever is shorter.
FOREIGN CURRENCY TRANSACTIONS
The U.S. dollar is the functional currency for the Company's foreign
subsidiary operations. Substantially all of the Company's foreign subsidiary's
sales are made in U.S. dollars. In addition, a substantial portion of the
foreign subsidiary's costs are incurred in U.S. dollars. Since the U.S. dollar
is the primary currency in the economic environment in which the foreign
subsidiary operates, and, accordingly, monetary accounts maintained in
currencies other than the U.S. dollar (principally cash and liabilities) are
remeasured using the foreign exchange rate at the balance sheet date.
Operational accounts and nonmonetary balance sheet accounts are measured and
recorded at the rate in effect at the date of the transaction. The effects of
foreign currency remeasurement are reported in current operations and have not
been material to date.
CASH EQUIVALENTS
The Company considers all highly liquid investments with maturity of three
months or less, at the date of purchase, to be cash equivalents.
NET LOSS PER SHARE
Basic and diluted net loss per share are presented in accordance with SFAS
No. 128, "Earnings per Share" ("SFAS 128"), for all periods presented. Pursuant
to the Securities and Exchange Commission Staff Accounting Bulletin No. 98,
common shares and convertible preferred shares issued or granted
F-8
<PAGE>
VYYO INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
for nominal consideration prior to the anticipated effective date of the
Company's initial public offering (the "Offering", see Note ) must be included
in the calculation of basic and diluted net loss per share as if they had been
outstanding for all periods presented. To date, the Company has not had any
issuances or grants for nominal consideration.
Pro forma basic and diluted net loss per share have been computed using the
weighted-average number of common shares outstanding during the period. Pro
forma basic and diluted pro forma net loss per share, as presented in the
statements of operations, have been computed as described above and also give
effect to the conversion of all preferred shares that will convert automatically
upon completion of the Offering (using the as-if converted method) from original
date of issuance.
SHARE AND PER SHARE DATA
On January 3, 2000, the Company effected a 5-for-1 reverse stock split of
its common stock. Common share, per common share data, and the preferred stock
conversion rates retroactively reflect the reverse stock splits. As a result of
the stock split, the preferred stock is convertible to common stock at the
following rations: Series A at 5 for 2, Series B at 5 for 1, and Series C at 5
for 1.
UNAUDITED PRO FORMA STOCKHOLDERS' EQUITY
All of the preferred shares will automatically be converted into common
shares upon completion of the Offering (see Note 8). The preferred stock is
convertible to common stock at the following split-adjusted ratios: Series A at
5 for 2, Series B at 5 for 1, and Series C at 5 for 1. Unaudited pro forma
stockholders' equity at December 31, 1999, as adjusted for the assumed
conversion of such shares, is disclosed on the balance sheet.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its employee stock options because the
alternative fair value accounting provided for under the Financial Accounting
Standards Board ("FASB") Statement No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123") requires use of option valuation models that were not
developed for use in valuing employee stock options. Under APB 25, when the
exercise price of the Company's employee stock or options equals the market
price of the underlying stock on the date of the grant, no compensation expense
is recognized.
During 1999, in connection with the grant of certain stock options and the
issuance of certain shares, the Company recorded deferred compensation expense
representing the difference between the option exercise price or the share
purchase price and the deemed fair value of the Company's common stock on the
date of grant. The deferred compensation costs are being amortized based on the
accelerated method over the vesting period of the options.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standard Board (FASB) issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS No. 133) which establishes accounting and reporting standard
for derivatives instruments and hedging activities. The statement requires
recognition of all derivatives at fair value in the financial statements. FASB
Statement No. 137
F-9
<PAGE>
VYYO INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
"Accounting for Derivative Instruments and Hedging Activities Deferral of the
Effective Date of FASB Statement No. 133" an amendment of FASB Statement
No. 133, defers implementation of SFAS No. 133 until fiscal years begging after
June 15, 2000. The Company believes that, upon implementation, the standard will
not have a significant effect on its financial condition or results of
operations.
2. INVENTORY
Inventory includes the cost of materials as well as applied labor and
overhead and is stated at the lower of cost (first-in, first-out) or market.
Cost is determined on a standard basis, which approximates costs on a
moving-average basis; market is based upon estimated realizable value. Inventory
is comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Raw materials............................................... $ 516 $ 631
Work in process............................................. 774 351
Finished goods.............................................. 354 150
------ ------
$1,644 $1,132
====== ======
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Machinery and equipment.................................... $ 939 $1,101
Computers.................................................. 729 1,084
Furniture and fixtures..................................... 240 259
Vehicles and other......................................... 156 91
------- ------
2,064 2,535
Accumulated depreciation and amortization.................. (1,054) (1,440)
------- ------
Property and equipment, net................................ $ 1,010 $1,095
======= ======
Property and equipment under lease:
Cost..................................................... $ 524 502
Accumulated depreciation and amortization................ (370) (418)
------- ------
Property and equipment under lease (net):.................. $ 154 $ 84
======= ======
</TABLE>
F-10
<PAGE>
VYYO INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
4. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Compensation and benefits................................... $ 508 $ 990
Warranty.................................................... 250 475
Other....................................................... 1,314 1,486
------ ------
$2,072 $2,951
====== ======
</TABLE>
ACCRUED SEVERANCE LIABILITIES
The Company's liability for severance pay pursuant to Israeli law is covered
by deposits with financial institutions and by accrual. The net accrued
severance pay liability included in accrued compensation and benefits reflects
the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Accrued severance pay....................................... $ 330 $ 348
Less amount funded.......................................... (241) (202)
----- -----
Unfunded portion, net accrued severance pay................. $ 89 $ 146
===== =====
</TABLE>
5. BANK LINE OF CREDIT
The Company has a line of credit arrangement with a bank for an aggregate
amount of $2,500,000. The loans under the line of credit bear interest at a rate
of LIBOR plus 1.5% (7.25% at December 31, 1999). Borrowings and bank guarantees
under the line of credit amounted to $2,280,000 and $220,000, respectively, at
December 31, 1999.
As of December 31, 1999, all assets of the Company's Israeli subsidiary are
subject to fixed and floating liens pursuant to certain loan agreements. Also,
the Company's property and equipment are subject to floating liens in connection
with investment grants received from the Israeli government and the borrowings
under the line of credit.
6. NOTES PAYABLE TO STOCKHOLDERS
Notes payable to stockholders were issued in 1997 through 1999. The notes
bore interest at rates varying from 8% to 9% and, in accordance with their
amended terms were due in various dates through 1999. The Convertible Notes
Payable and related accrued interest in the aggregate amount of $10.1 million
were converted in accordance with their amended terms into 1,011,827 and
7,418,836 shares of the Company's common stock in 1998 and 1999, respectively.
F-11
<PAGE>
VYYO INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
7. COMMITMENTS AND CONTINGENCIES
PURCHASE COMMITMENTS
From time to time, the Company enters into short term supply agreements with
its vendors. Pursuant to these agreements, the Company may be subject to
penalties and charges for quantities not purchased by agreed-upon dates.
OPERATING LEASES
The Company leases its operating facility in Israel under a noncancelable
operating lease that expire in 2003. As of December 31, 1999, future minimum
lease payments under these operating leases were $422,000, $392,000, $370,000
and $370,000 for 2000, 2001, 2002 and 2003 respectively. The Company's
headquarters facility in California is leased month-to-month from a company
under common control of a major stockholder. Rent and related payments to this
company amounted to $44,000 and $343,000 in 1998 and 1999, respectively.
The gross rental payments under all operating leases were $251,000, $381,000
and $494,000 for the years ended December 31, 1997, 1998 and 1999, respectively.
Rental expense, net of reimbursements from subleases, was $33,000, $127,000 and
$434,000 for the years ended December 31, 1997, 1998 and 1999, respectively.
Aggregate future minimum rentals to be received under noncancelable subleases
are $86,000 as of December 31, 1999.
CUSTOMER CLAIM
In 1997, a customer filed a claim against the Company in the amount of
approximately $300,000 alleging damages resulting from certain products being
delivered which did not meet product specifications. The Company no longer sells
or supports these products. The Company believes it has meritorious defenses
against these allegations and it plans to vigorously defend against them.
PATENT MATTER
In early 1999, the Company received a written notice from Hybrid Networks,
Inc. ("Hybrid"), a competitor, in which Hybrid claimed to have patent rights in
certain technology and requested that the Company review its products in light
of six of Hybrid's issued patents. The Company is investigating the Hybrid
claims and currently believes the patents are invalid or are not infringed by
the Company's products. However, Hybrid may pursue litigation with respect to
these or other claims. The results of any litigation are inherently uncertain.
Any successful infringement claim or litigation against the Company could have a
significant adverse impact on operating results and financial condition.
RESEARCH GRANTS
Prior to 1997, the Company participated in the following research and
development incentive programs:
a. The Office of the Chief Scientist in the Israeli Ministry of Industry and
Trade (the "Chief Scientist)
The Company has obtained grants from the Chief Scientist totaling
approximately $2 million. These grants were received through 1996. The
terms of the grants from the Chief Scientist prohibit the transfer of
technology developed pursuant to the terms of these grants to any
F-12
<PAGE>
VYYO INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
person, without prior written consent of the Chief Scientist. These grants
are repayable to the Chief Scientist generally at the rate of 3% of the
sales of the products developed out of the projects funded, up to an
amount equal to 100% of the grant received.
b. Binational Industrial Research and Development Foundation (the "BIRD
Foundation")
The Company has participated in programs sponsored by the BIRD Foundation,
which funds joint US-Israeli teams in the development of technological
products. The Company received grants totaling approximately $1.7 million
from the BIRD Foundation for various projects. Grants received from the BIRD
Foundation are paid back at the rate of 2.5% to 5% of revenues shown from
the projects funded, up to a maximum amount equal to 150% of the grants
received.
As of December 31, 1999, the Company has repaid or provided for the
repayment of grants amounting to $651,000. As the Company currently does not
intend to proceed with the manufacture and sale of products developed within all
of the projects funded by the Chief Scientist or by the BIRD Foundation, it
believes that the remaining contingent royalty liability is approximately
$800,000.
8. STOCKHOLDERS' EQUITY
PREFERRED STOCK
As of December 31, 1999, the board of directors had the authority, without
any further vote or action by the stockholders, to provide for the issuance of
up to 100,000,000 shares of preferred stock from time to time in one or more
series with such designations, rights, preferences, and limitations as the board
of directors may determine, including the consideration received therefore, the
number of shares comprising such series, dividend rights, redemption provisions,
liquidation preferences, redemption fund provisions, conversion rights, and
voting rights.
<TABLE>
<CAPTION>
SHARES ISSUED COMMON SHARES
SHARES AUTHORIZED AND OUTSTANDING DESIGNATED FOR CONVERSION
------------------------ ---------------------- -------------------------
1998 1999 1998 1999 1998 1999
---------- ----------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Series A............... 6,000,000 6,000,000 1,584,241 1,584,241 633,696 633,696
Series B............... 15,000,000 40,000,000 629,447 629,447 125,889 125,889
Series C............... -- 40,000,000 -- 9,350,581 -- 1,870,116
Undesignated........... 14,000,000 14,000,000 -- -- -- --
---------- ----------- --------- ---------- ------- ---------
35,000,000 100,000,000 2,213,688 11,564,269 759,585 2,629,702
========== =========== ========= ========== ======= =========
</TABLE>
The holders of Series A, B, and C preferred stock are entitled to receive,
when and if declared by the board of directors, noncumulative dividends at the
annual rate of $0.0432, $0.08 and $0.0216 per share, respectively, and in that
order of preference, in preference to payment of dividends on common stock. No
dividends have been declared to date.
Shares of Series A, B, and C preferred stock are convertible, at the
holders' option, into two shares, one share and one share, respectively, of
common stock (as adjusted from time to time for stock splits, stock dividends,
and like events). Each share of Series A, B and C preferred stock will
automatically be converted into shares of common stock upon the closing of an
underwritten public offering of the Company's common stock resulting in
aggregate gross proceeds in excess of $12,500,000 or in a business combination
in which the common stock equivalent value of the Company's stock as a
F-13
<PAGE>
VYYO INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
result of such event and determined as if all the Series A, B and Series C
preferred stock have converted into common stock is $1.00 per share (as adjusted
from time to time for stock splits, stock dividends, and like events). The
holders of preferred stock are entitled to one vote for each share of common
stock into which such preferred shares can be converted.
In the event of any liquidation, dissolution, or winding up of the Company
("Liquidation Event"), the holders of Series B preferred stock are entitled to
receive, in preference to holders of Series A preferred stock and common stock,
the amount of $1.50 per share plus any declared but unpaid dividends. Before the
payment of any portion of the Series A Liquidation Price ("Series A Liquidation
Price"), the holders of Series C preferred stock, are entitled to receive the
greater of (i) $0.541 per share plus cumulative dividends of four percent per
year in excess of dividends actually paid or (ii) declared and unpaid dividends.
Before payment of any portion of the Series A liquidation preference price and
after payment of the Series B liquidation price, in the event of a Liquidation
Event, the holders of Series A and Series B preferred stock and common stock are
entitled to receive an amount of $0.40 per share ("Series B to Common Stock
Liquidation Price"). After payment of the Series B to Common Stock Liquidation
Price, the holders of Series A preferred stock are entitled to receive, in
preference to holders of common stock, the amount of $4.60 per share plus any
declared but unpaid dividends.
WARRANTS
From 1997 through 1998, the Company issued warrants to purchase an aggregate
of 1,164,298 shares of common stock to investors in connection with equity and
convertible note financing transactions. As of December 31, 1999, 125,190
warrants remained outstanding with an average exercise price of $1.89 per share.
These warrants are exercisable through March 2002.
COMMON STOCK
As of December 31, 1999, the Company has reserved approximately 2,755,000
shares of common stock for issuance on the conversion of the Series A, B and C
convertible preferred stock and the warrants and 3,661,000 shares of common
stock for issuance of options granted under the stock-based compensation plan.
STOCK OPTION PLANS
The Company has the following stock option plans: (i) 1996 Equity Incentive
Plan, (ii) 1999 Employee and Consultant Equity Incentive Plan and (iii) 2000
Employee and Consultant Equity Incentive ("the Plans"). The plans as amended
provide for the grant to employees of incentive stock options ("ISOs"), the
grant to employees, directors, and consultants of nonstatutory stock options,
and the grant of stock options which comply with the applicable requirements of
Israeli law to the extent granted to persons who may be subject to income tax in
Israel. The Plans also provide for the awards of restricted stock and stock
bonuses.
ISOs granted under the Plans have an exercise price equal to the fair value
as determined by the board of directors of the common stock on the date of
grant. Nonstatutory stock options may not be granted with an exercise price less
than 85% of the fair value as determined by the board of directors of the common
stock on the date of grant. The period within which the option may be exercised
is determined at the time of grant, provided that no term is longer than ten
years. Options generally vest over a four-year period.
F-14
<PAGE>
VYYO INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
In October 1998, the Company adopted an option exchange program to allow
employees to exchange their options for new options with an exercise price of
$0.5. The program resulted in a total of approximately 197,200 options with
exercise price ranging from $1.50 to $3.15 being exchanged for the new options.
The terms of the repriced options remain the same.
A summary of stock option activity, and related information, under the Plans
for the years ended December 31, 1997, 1998 and 1999 is as follows (in
thousands, except per share data):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------- -------------------------------
WEIGHTED WEIGHTED WEIGHTED
SHARES AVERAGE AVERAGE AVERAGE
AVAILABLE NUMBER EXERCISE FAIR NUMBER EXERCISE
FOR GRANT OF SHARES PRICE VALUE OF SHARES PRICE
--------- --------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996.......... 190 29 $1.50
Granted............................. (187) 187 $2.45
------ ----- -----
Balance at December 31, 1997.......... 3 216 $2.35 0.53
------ ----- -----
Authorized.......................... 100 -- --
Granted............................. (341) 341 $0.50
Canceled............................ 199 (199) $2.15
------ ----- -----
Balance at December 31, 1998.......... (39) 358 $0.80 0.08
Authorized.......................... 4,300 -- --
Granted............................. (3,151) 3,151 $1.05
Exercised........................... -- (958) $0.90
Canceled............................ 102 (102) $1.55
------ ----- -----
Balance at December 31, 1999 1,212 2,449 $1.03 0.14 494 $0.85
====== ===== ===== ===== ===== =====
</TABLE>
The average exercise prices for options outstanding as of December 31, 1999
was $0.85. The weighted-average remaining contractual life of those options is
5.21 years.
Pro forma information regarding net loss is required by SFAS 123 and has
been determined as if the Company had accounted for its stock options under the
fair value method of SFAS 123. The fair value for the stock options was
estimated at the date of grant using a minimum value pricing model and a graded
vesting approach with the following weighted-average assumptions for 1997, 1998
and 1999: risk-free interest rate of 6.5%, 6.5% and 6.0%; dividend yields of
zero; and a weighted-average expected life of the option of approximately 3.6,
2.29 and 2.46 years.
Option valuation models require the input of highly subjective assumptions.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma SFAS 123 disclosures, the estimated fair value of
the options is amortized to expense over the option vesting periods.
F-15
<PAGE>
VYYO INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
The Company pro forma information follows:
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Net loss
As reported............................................... $ (5,345) $ (7,671) $(12,201)
Pro forma................................................. $ (5,369) $ (7,731) $(12,295)
Basic and diluted loss per share
As reported............................................... $ (8.86) $ (8.15) $ (2.27)
Pro forma................................................. $ (8.90) $ (8.22) $ (2.28)
</TABLE>
9. NET LOSS PER SHARE
The following table presents the calculation of basic and diluted and pro
forma basic and diluted net loss per share (in thousands, except per share
data):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1999
------------
<S> <C>
Net loss.................................................... $ (12,201)
==========
Shares used in computing basic and diluted net loss per
share..................................................... 5,385
==========
Basic and diluted net loss per share........................ $ (2.27)
==========
Pro forma
Shares used above......................................... 5,385
Pro forma adjustment to reflect weighted effect of assumed
conversion of convertible preferred stock (unaudited)... 1,373
----------
Shares used in computing pro forma basic and diluted net
loss per share (unaudited).............................. 6,758
----------
Pro forma basic and diluted net loss per share
(unaudited)............................................. $ (1.81)
==========
</TABLE>
All preferred stock, outstanding stock options, and warrants have been
excluded from the calculation of the diluted loss per common share because all
such securities are antidilutive for all periods presented. The total number of
common shares related to preferred stock, outstanding options and warrants
excluded from the calculations of diluted net loss per share were 1,587,644,
1,850,927, and 5,204,258 for the years ended December 31, 1997, 1998 and 1999.
10. INCOME TAXES
U.S. INCOME TAXES
As of December 31, 1999, the Company has U.S. federal and state net
operating loss carryforwards of approximately $6 million. The net operating loss
carryforwards will expire beginning in 2004 through 2019, if not utilized. The
utilization of net operating loss carryforwards may be subject to substantial
annual limitations if there has been a significant "change in ownership." Such a
"change in ownership," as described in Section 382 of the Internal Revenue Code,
may substantially limit the Company's utilization of the net operating loss
carryforwards.
F-16
<PAGE>
VYYO INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
ISRAELI INCOME TAXES
The Company has been awarded "Approved Enterprise" status by the Israeli
Government under the Law for the Encouragement of Capital Investments, 1959 (the
"Investment Law"). Benefits pursuant to such investment plans include, among
others, grants on a portion of the costs of fixed assets or reduced tax rates,
and in certain cases a full tax exemption for certain periods. The entitlement
to these benefits is conditional upon the Company's fulfilling the conditions
stipulated by the Investment Law, regulations published thereunder, and the
instruments of approval for the specific investments in Approved Enterprises. In
the event of a failure to comply with these conditions, the benefits may be
canceled and the Company may be required to refund the amount of the benefits,
in whole or in part, with the addition of inflation-adjustment differences and
interest. The Israeli subsidiary is currently entitled to a tax holiday on
undistributed earnings for four years and then a reduced tax rate for the
remaining term of the program on the plan's proportionate share of income.
Israeli taxable income not eligible for "Approved Enterprise" benefits
mentioned above is taxed at the regular corporate tax rate of 36%.
As of December 31, 1999, the Company has Israeli net operating loss
carryforwards of approximately $19 million. The Israeli loss carryforwards have
no expiration date. The Company expects that during the period these tax losses
are utilized, most of its income would be tax exempt, and therefore, the
utilization of the net operating losses will generate no tax benefit.
Accordingly, deferred tax assets from such losses have not been included in the
financial statements.
Pretax losses from foreign (Israeli) operations was approximately
$5 million and $6 million for the years ended December 31, 1998 and 1999,
respectively.
DEFERRED INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $2,000 $2,600
Valuation allowance......................................... (2,000) (2,600)
------ ------
Net deferred tax assets..................................... $ -- $ --
====== ======
</TABLE>
The valuation allowance increased by $1.5 million and $600,000 for the years
ended December 31, 1998 and 1999, respectively.
FASB Statement No. 109 provides for the recognition of deferred tax assets
if realization of such assets is more likely than not. Based upon the weight of
available evidence, which includes our historical operating performance and the
reported cumulative net losses in all prior years, we have provided a full
valuation allowance against our net deferred tax assets as the future
realization of the tax benefit is not sufficiently assured.
F-17
<PAGE>
VYYO INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
11. SEGMENTS AND GEOGRAPHIC INFORMATION
Vyyo operates in one industry segment, the design and marketing of broadband
wireless access systems. The following is a summary of operations within
geographic areas based on the location of the entity purchasing the products:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Revenues from sales to unaffiliated customers:
North America............................................. $ 295 $1,102 $2,587
Europe.................................................... 560 533 919
Asia...................................................... 613 731 552
Rest of the world......................................... 69 83 172
------ ------ ------
$1,537 $2,449 $4,230
====== ====== ======
Property and Equipment, Net
Israel.................................................... $ 914 $ 992
United States............................................. 96 103
------ ------
$1,010 $1,095
====== ======
</TABLE>
12. SUBSEQUENT EVENTS (UNAUDITED)
On February 2, 2000, the board of directors authorized the Company to
file a registration statement with the U.S. Securities and Exchange Commission
for an initial public offering of its common shares. Also on February 2, 2000,
the board of directors approved the following: (1) an amendment to the 2000
option plan to increase the number of shares reserved for issuance under the
plan by 2,300,000 shares; (2) an automatic annual increase to the shares
reserved under the plan equal to the lesser of 900,000 shares or 5% of the
outstanding shares; (3) the adoption of the 2000 Employee Stock Purchase Plan,
under which 500,000 shares have been reserved.
On February 2, 2000, the note from shareholders in the amount of $920,000
has been repaid.
F-18
<PAGE>
- ------------------------------------------------------------
- ------------------------------------------------------------
SHARES
[LOGO]
------------------------
Prospectus
, 2000
------------------------
Banc of America Securities LLC
CIBC World Markets
Dain Rauscher Wessels
Until , 2000 (25 days after the date of this offering), all
dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This is
in addition to a dealer's obligation to deliver a prospectus when acting as an
underwriter and with respect to unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
[INFORMATION NOT REQUIRED IN PROSPECTUS]
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table indicates the expenses to be incurred in connection with
the offering described in this Registration Statement, all of which will be paid
by Vyyo. All amounts are estimates, other than the registration fee, the NASD
filing fee, and the Nasdaq National Market listing fee.
<TABLE>
<S> <C>
SEC Registration fee........................................ $30,360
NASD Filing fee............................................. 12,000
Nasdaq National Market listing fee.......................... *
Accounting fees and expenses................................ *
Legal fees and expenses..................................... *
Director and officer insurance expenses..................... *
Printing and engraving expenses............................. *
Transfer agent fees and expenses............................ *
Blue sky fees and expenses.................................. *
Miscellaneous fees and expenses............................. *
-------
Total..................................................... $
=======
</TABLE>
- ------------------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 102 of the Delaware General Corporation Law, or the DGCL, as
amended, allows a corporation to eliminate the personal liability of directors
of a corporation to the corporation or its stockholders for monetary damages for
a breach of fiduciary duty as a director, except where the director breached his
duty of loyalty, failed to act in good faith, engaged in intentional misconduct
or knowingly violated a law, authorized the payment of a dividend or approved a
stock repurchase in violation of Delaware corporate law or obtained an improper
personal benefit.
Section 145 of the DGCL provides, among other things, that we may indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding (other than an
action by or in the right of Vyyo) by reason of the fact that the person is or
was a director, officer, agent or employee of Vyyo or is or was serving at our
request as a director, officer, agent, or employee of another corporation,
partnership, joint venture, trust or other enterprise, against expenses,
including attorneys' ties, judgment, fines and amounts paid in settlement
actually and reasonably incurred by the person in connection with the action,
suit or proceeding. The power to indemnify applies (a) if the person is
successful on the merits or otherwise in defense of any action, suit or
proceeding, or (b) if the person acted in good faith and in a manner he
reasonably believed to be in the best interest, or not opposed to the best
interest, of Vyyo, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The power to indemnify
applies to actions brought by or in the right of Vyyo as well, but only to the
extent of defense expenses (including attorneys' fees but excluding amounts paid
in settlement) actually and reasonably incurred and not to any satisfaction of
judgment or settlement of the claim itself, and with the further limitation that
in these actions no indemnification shall be made in the event of any
adjudication of negligence or misconduct in the performance of his duties to
Vyyo, unless the court believes that in light of all the circumstances
indemnification should apply.
II-1
<PAGE>
Section 174 of the DGCL provides, among other things, that a director, who
willfully or negligently approves of an unlawful payment of dividends or an
unlawful stock purchase or redemption, may be held liable for these actions. A
director who was either absent when the unlawful actions were approved or
dissented at the time, may avoid liability by causing his or her dissent to
these actions to be entered in the books containing the minutes of the meetings
of the board of directors at the time the action occurred or immediately after
the absent director receives notice of the unlawful acts.
Our certificate of incorporation includes a provision that eliminates the
personal liability of its directors for monetary damages for breach of fiduciary
duty as a director, except for liability:
- for any breach of the director's duty of loyalty to Vyyo or its
stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- under the section 174 of the DGCL regarding unlawful dividends and stock
purchases; or
- for any transaction from which the director derived an improper personal
benefit.
These provisions are permitted under Delaware law.
Our bylaws provide that:
- we must indemnify our directors and officers to the fullest extent
permitted by Delaware law;
- we may indemnify our other employees and agents to the same extent that we
indemnified our officers and directors, unless otherwise determined by our
board of directors; and
- we must advance expenses, as incurred, to our directors and executive
officers in connection with a legal proceeding to the fullest extent
permitted by Delaware Law.
The indemnification provisions contained in our certificate of incorporation
and bylaws are not exclusive of any other rights to which a person may be
entitled by law, agreement, vote of stockholders or disinterested directors or
otherwise. In addition, we maintain insurance on behalf of our directors and
executive officers insuring them against any liability asserted against them in
their capacities as directors or officers or arising out of this status.
We intend to enter into agreements to indemnify our directors and executive
officers, in addition to indemnification provided for in our bylaws. These
agreements, among other things, will provide for indemnification of our
directors and executive officers for expenses, judgments, fines and settlement
amounts incurred by any such person in any action or proceeding arising out of
the person's services as a director or executive officer or at our request. We
believe that these provisions and agreements are necessary to attract and retain
qualified persons as directors and executive officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since February 1, 1997, the Registrant has sold and issued the following
unregistered securities. The share numbers and per share prices below reflect
(1) the two-for-one stock split of the outstanding common stock effected on
February 13, 1998, and (2) the one-for-five reverse stock split of the
outstanding common stock effected on January 3, 2000 and the conversion of all
outstanding shares of preferred stock into shares of common stock that will
occur automatically upon the closing of this offering:
(1) Between February 1, 1997 and October 26, 1998, the Registrant granted stock
options under the Registrant's 1996 Equity Incentive Plan to a total of 76
officers, employees, directors and consultants of the Registrant, to
purchase an aggregate of 188,144 shares of common stock, at a weighted
average exercise price of $2.46 per share. On October 27, 1998, the
Registrant amended these options to have an exercise price of $0.50 per
share. Since October 27, 1998, the Registrant
II-2
<PAGE>
granted stock options under the Registrant's 1996 Equity Incentive Plan to
a total of 38 officers, employees, directors and consultants of the
Registrant, to purchase an aggregate of 145,497 shares of common stock, at
a weighted average exercise price of $0.50 per share.
(2) Since February 1, 1997, the Registrant has granted stock options under the
Registrant's 1999 Employee and Consultant Equity Incentive Plan to a total
of 27 officers, employees, directors and consultants of the Registrant, to
purchase an aggregate of 1,386,000 shares of common stock, at a weighted
average exercise price of $0.75 per share.
(3) Since February 1, 1997, the Registrant has granted stock options under the
Registrant's 2000 Employee and Consultant Equity Incentive Plan to a total
of ____________ officers, employees, directors and consultants of the
Registrant, to purchase an aggregate of ____________ shares of common
stock, at a weighted average exercise price of $____________ per share.
(4) At various times from March 31, 1997 through July 17, 1997, the Registrant
sold and issued 56,930 shares of common stock at $2.45 per share to 5
investors for an aggregate cash consideration of $139,478.50.
(5) At various times from March 31, 1997 through July 17, 1997, the Registrant
sold and issued 142,325 shares of Series A Convertible Preferred Stock at
$8.79 per share to 5 investors for an aggregate cash consideration of
$1,251,036.75.
(6) At various times from April 1, 1997 through August 28, 1997, the Registrant
sold and issued 23,936 shares of common stock at $2.45 per share to 13
investors who were not U.S. Persons for an aggregate cash consideration of
$58,645.16.
(7) At various times from April 1, 1997 through August 28, 1997, the Registrant
sold and issued 59,842 shares of Series A Convertible Preferred Stock at
$8.79 per share to 13 investors who were not U.S. Persons for an aggregate
cash consideration of $526,011.18.
(8) From April 9, 1997 through April 16, 1997, the Registrant sold and issued
warrants to purchase an aggregate of 41,000 shares of common stock (the
"1997 Warrants") to 2 investors at an exercise price of $2.45 with an
aggregate exercise price of $100,450.
(9) On June 17, 1997, the Registrant sold and issued 340 shares of common stock
and 850 shares of Series A Convertible Preferred Stock to Joseph Gorodnick
in exchange for all of his ordinary shares in Vyyo Ltd.
(10) From September 30, 1997 through November 10, 1997, the Registrant sold and
issued warrants to purchase an aggregate of 244,897 shares of common stock
(the "1997 Warrants") to 6 investors at an exercise price of $11.88 with an
aggregate exercise price of $2,908,154.25
(11) On November 18, 1997, the Registrant sold and issued an aggregate of 97
shares of common stock and 242 shares of Series A Convertible Preferred
Stock to 4 investors in exchange for all of their ordinary shares in
Vyyo Ltd.
(12) On December 29, 1997, the Registrant sold and issued 1997 Series A-2
Promissory Notes (the "Registrant 1997 Series A-2 Notes") to 14 investors
in the aggregate principal amount of $278,400, which were convertible into
18,560 shares of Series A Convertible Preferred Stock at a conversion price
of $15.00 per share.
(13) On December 29, 1997, Vyyo Ltd sold and issued 1997 Series A-2 Promissory
Notes (the "Ltd 1997 Series A-2 Notes" to 6 investors in the aggregate
principal amount of $176,320, which were convertible into 11,754 shares of
Registrant's Series A Convertible Preferred Stock at a conversion price of
$15.00 per share.
II-3
<PAGE>
(14) On December 22, 1997, the Registrant sold and issued 1997 Series A-2
Warrants (the "1997 Series A-2 Warrants") to purchase an aggregate of
48,000 shares of Common stock to 20 investors at an exercise price of
$14.25 with an aggregate exercise price of $684,000.
(15) On February 3, 1998, the Registrant sold and issued 1998 Series A-1
Promissory Notes (the "Registrant 1998 Series A-1 Notes") to 13 investors
in the aggregate principal amount of $259,840, which were convertible into
17,322 shares of Series A Convertible Preferred Stock at a conversion price
of $15.00 per share.
(16) On February 3, 1998, Vyyo Ltd sold and issued 1998 Series A-1 Promissory
Notes (the "Ltd 1998 Series A-1 Notes") to 6 investors in the aggregate
principal amount of $157,760, which were convertible into 10,517 shares of
Registrant's Series A Convertible Preferred Stock at a conversion price of
$15.00 per share.
(17) On February 3, 1998, the Registrant sold and issued 1998 Series A-1
Warrants (the "1998 Series A-1 Warrants") to purchase an aggregate of
43,200shares of Common stock to 19 investors at an exercise price of $14.25
with an aggregate exercise price of $615,600.
(18) On February 6, 1998, pursuant to a settlement agreement, the Registrant
sold and issued 8,298 shares of common stock and 20,744 of Series A
Convertible Preferred Stock to Yotam Financing Technological Ventures Ltd.
for an aggregate cash consideration of $20,744.
(19) On February 26, 1998, the Registrant sold and issued 1998 Series A-2
Promissory Notes (the "Registrant 1998 Series A-2 Notes") to 15 investors
in the aggregate principal amount of $765,600, which were convertible into
51,040 shares of Series A Convertible Preferred Stock at a conversion price
of $15.00 per share.
(20) On February 26, 1998, Vyyo Ltd sold and issued 1998 Series A-2 Promissory
Notes (the "Ltd 1998 Series A-2 Notes") to 5 investors in the aggregate
principal amount of $473,280, which were convertible into 31,552 shares of
Registrant's Series A Convertible Preferred Stock at a conversion price of
$15.00 per share.
(21) On February 26, 1998, the Registrant sold and issued 1998 Series A-2
Warrants (the "1998 Series A-2 Warrants") to purchase an aggregate of
128,160 shares of Common stock to 20 investors at an exercise price of
$14.25 with an aggregate exercise price of $1,826,280.
(22) On June 30, 1998, the Registrant sold and issued 1998 Series B-1 Promissory
Notes (the "Registrant 1998 Series B-1 Notes") to 27 investors in the
aggregate principal amount of $3,679,329.09. These notes were convertible
into shares of Common stock at a conversion price equal to $7.50 if the
notes convert before September 15, 1998, or after September 15, 1998 the
greater of $7.50 or one third of the per share price of Registrant's Common
stock resulting from either an initial public offering of its common stock
or a merger of Registrant with another.
(23) On June 30, 1998, the Vyyo Ltd. sold and issued 1998 Series B-1 Promissory
Notes (the "Ltd 1998 Series B-1 Notes") to 7 investors in the aggregate
principal amount of $1,032,355.20. These notes were convertible into shares
of Registrant's common stock at a conversion price equal to $7.50 if the
notes convert before September 15, 1998, or after September 15, 1998 the
greater of $7.50 or one third of the per share price of Registrant's common
stock resulting from either an initial public offering of Registrant's
common stock or a merger of Registrant with another entity.
(24) On June 30, 1998, the Registrant sold and issued 1998 Series B-1 Warrants
(the "1998 Series B-1 Warrants") to 34 investors to purchase the number of
shares of common stock equal to the sum of the principal amount of each
investor's Registrant 1998 Series B-1 Note or Ltd 1998 Series B-1 Note
multiplied by .35 divided by the conversion price of each investors
applicable 1998 Series B-1 Note.
II-4
<PAGE>
(25) On September 28, 1998, the Registrant sold and issued 1,198,906 shares of
common stock at $1.00 per share to 9 investors for an aggregate cash
consideration of $1,198,906.
(26) On November 11, 1998, the Registrant sold and issued 152 shares of common
stock and 379 shares of Series A Convertible Preferred Stock to Shlomo
Rachiv in exchange for all of his ordinary shares in Vyyo Ltd.
(27) On December 1, 1998, the Registrant sold and issued 629,447 shares of
Series B Convertible Preferred Stock at $1.00 per share to 25 investors for
an aggregate cash consideration of $629,447.
(28) On December 1, 1998, the Registrant sold and issued 1998 Series B-3
Warrants (the "1998 Series B-3 Warrants") to 25 investors to purchase up to
the number of shares of common stock equal to the sum of the number of
shares of Series B Convertible Preferred Stock each investor purchased
multiplied by 0.6. The 1998 Series B-3 Warrants would not be exercisable
for any shares if the Registrant obtained financing in the amount of
$2,000,000 on or before June 30, 1999.
(29) On December 1, 1998, Registrant amended the 1997 Series A-2 Notes, 1998
Series A-1 Notes, 1998 Series A-2 Notes and 1998 Series B-1 Notes in the
aggregate principal amount of $4,464,779.83 held by 20 purchasers of
Series B Convertible Preferred Stock such that these notes became
convertible into an aggregate of 4,464,779 shares of Series B Convertible
Preferred Stock at a conversion price of $1.00 per share at the election of
the purchasers (the "1998 Amended Notes").
(30) On May 31, 1999, the Registrant sold and issued 5,986,437 shares of common
stock at $0.75 per share to two investors for an aggregate cash
consideration of $4,489,828.05.
(31) On June 2, 1999, the Registrant sold and issued a warrant to purchase an
aggregate of 89,286 shares of common stock to Yehuda Atai at an exercise
price of $0.75per share with an aggregate exercise price of $63,750.
(32) On June 25, 1999, the Registrant sold and issued 64,000 shares of common
stock at $1.25 per share to Pezzola & Reinke, APC for the cancellation of
debt in the aggregate amount of $80,000.
(33) On August 31, 1999, the Registrant sold and issued 9,172,010 shares of
Series C Convertible Preferred Stock at $0.54 per share to ADC
Telecommunications, Inc. for an aggregate cash consideration of $4,950,000.
(34) On November 19, 1999, the Registrant amended the 1998 Amended Notes such
that they became convertible into an aggregate of 1,770,291 shares of
common stock at a conversion price of $1.25 per share at the election of
the holders of the notes.
(35) On December 6, 1999 we amended the exercise price on the 1997 Warrants,
1997 Series A-2 Warrants, 1998 Series A-1 Warrants, 1998 Series A-2
Warrants and 1998 Series B-1 Warrants to $0.56 per share.
(36) At various times from December 28, 1999 through January 31, 2000, the
Registrant sold and issued 733,366 shares of common stock to 58 investors
upon exercise of warrants at a weighted average exercise price of $2.69 per
share.
(37) On December 28, 1999, the Registrant sold and issued 5,458,307 shares of
common stock to 42 investors upon conversion of an aggregate principal
amount of $6,822,884.29 promissory notes at a conversion price of $1.25 per
share.
(38) On December 28, 1999, the Registrant sold and issued 178,571 shares of
Series C Convertible Preferred Stock at $0.56 per share to Arnon Kohavi for
an aggregate cash consideration of $100,000.
II-5
<PAGE>
(39) On December 28, 1999, the Registrant sold and issued 360,000 shares of
common stock at $1.25 per share to 8 investors for an aggregate cash
consideration of $450,000.
The sales of the above securities were deemed to be exempt from registration
under the Securities Act of 1933, as amended (the "Act") in reliance on
Section 4(2) of the Act, Regulation D promulgated under the Act, Regulation S
promulgated under the Act, or Rule 701 promulgated under Section 3(b) of the
Act. In each such transaction, the recipients of securities represented their
intentions 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 securities issued in such transactions.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
A. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- ------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement
3.1 Third Amended and Restated Certificate of Incorporation of
the Registrant
3.2 Amended and Restated Bylaws of the Regstrant
4.1* Specimen common stock certificate
5.1* Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
10.1 Form of Indemnification Agreement
10.2 1996 Equity Incentive Plan
10.3 1999 Employee and Consultant Equity Incentive Plan
10.4 Amended and Restated 2000 Employee and Consultant Equity
Incentive Plan
10.5 2000 Employee Stock Purchase Plan
10.6 Form of Stock Purchase Agreement, dated as of December 28,
1999, by and between the Registrant and each of Lewis Broad,
Neill Brownstein, Avraham Fischer, Davidi Gilo, John
Griffin, Samuel Kaplan, Alan Zimmerman
10.7 Form of D97 Series A Preferred Stock Purchase Agreement by
and between the Registrant and each of the purchasers of the
Series A Preferred Stock.
10.8 Form of D98 Series B Preferred Stock Purchase Agreement by
and between the Registrant and each of the purchasers of the
Series B Preferred Stock
10.9* Series C Preferred Stock Purchase Agreement, dated as of
August 13, 1999, by and between the Registrant and ADC
Telecommunications, Inc.
10.10* Series C Preferred Stock Purchase Agreement, dated as of
December 28, 1999, by and between the Registrant and Arnon
Kohavi
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- ------------------------------------------------------------
<C> <S>
10.11* Registration Rights and Lock-Up Agreement dated as of
April 21, 1996, by and among the Registrant and certain
holders of the Series A Preferred Stock and Series C
Preferred Stock
10.12* Amendment to Registration Rights and Lock-Up Agreement,
dated as of August 6, 1999, by and among the Registrant and
certain holders of the Series A Preferred Stock and
Series C Preferred Stock
10.13 Employment Agreement with Davidi Gilo
10.14 Employment Agreement with Eran Pilovsky
10.15 Employment Agreement with Stephen P. Pezzola
10.16 Employment Agreement with Michael Corwin
10.17 Employment Agreement with Arnon Kohavi
10.18* Unprotected Lease Agreement, dated as of March 7, 1999
between Vyyo Ltd. and Ayalot Investments in Properties (Har
Hotzvim) 1994 Ltd.
10.19+ Collaboration Agreement, dated August 6, 1999, between Vyyo
Ltd. and ADC Telecommunications, Inc.
10.20+ License and Development Agreement, dated as of December
1999, by and between Philips Semiconductor, Inc., Vyyo Ltd.,
and the Registrant
21.1 Subsidiaries of the Registrant
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2* Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included in Exhibit 5.1)
24.1 Power of Attorney (See page II-9)
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* Documents to be filed by amendment.
+ We have sought confidential treatment from the Commission for selected
portions of this exhibit. The omitted portions will be separately filed with
the Commission.
B. FINANCIAL STATEMENT SCHEDULES
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of the
registrant pursuant to the provisions described in Item 14, or otherwise, the
registrant has been informed that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer, or controlling
person of the registrant in the successful defense of any action, suit, or
proceeding) is
II-7
<PAGE>
asserted by such director, officer, or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
THE UNDERSIGNED REGISTRANT HEREBY UNDERTAKES THAT:
(1) For purposes of determining any liability under the Securities Act of 1933,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant under Rule 424(b) (1) or (4) or 497
(h) under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bonafide offering thereof.
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Cupertino, State of
California, on February 3, 2000.
<TABLE>
<S> <C> <C>
VYYO INC.
BY: /S/ DAVIDI GILO
-----------------------------------------
Davidi Gilo
Chief Executive Officer
and Chairman of the Board
</TABLE>
Each person whose signature appears below hereby constitutes and appoints
Davidi Gilo, Lewis S. Broad and Neill H. Brownstein, and each of them, his true
and lawful attorneys-in-fact and agents with full power of substitution and
resubstitution, for him and in his name, place, and stead, in any and all
capacities, to sign any and all (i) amendments (including post-effective
amendments) and additions to this Registration Statement and (ii) Registration
Statements, and any and all amendments thereto (including post-effective
amendments), relating to the offering contemplated pursuant to Rule 462(b) under
the Securities Act of 1933, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, and hereby grants to such attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to all intents and purposes as he or she might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or his substitute or substitutes may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ DAVIDI GILO Chief Executive Officer and Chairman
------------------------------------ of the Board February 3, 2000
Davidi Gilo (Principal Executive Officer)
Vice President, Finance and
/s/ ERAN PILOVSKY Chief Financial Officer
------------------------------------ (Principal Financial and February 3, 2000
Eran Pilovsky Accounting Officer)
/s/ LEWIS S. BROAD Director
------------------------------------ February 3, 2000
Lewis S. Broad
/s/ NEILL H. BROWNSTEIN Director
------------------------------------ February 3, 2000
Neill H. Brownstein
/s/ JOHN P. GRIFFIN Director
------------------------------------ February 3, 2000
John P. Griffin
</TABLE>
II-9
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ AVRAHAM FISCHER Director
------------------------------------ February 3, 2000
Avraham Fischer
/s/ SAMUEL L. KAPLAN Director
------------------------------------ February 3, 2000
Samuel L. Kaplan
/s/ ALAN L. ZIMMERMAN Director
------------------------------------ February 3, 2000
Alan L. Zimmerman
</TABLE>
II-10
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- ------------------------------------------------------------
<C> <S>
3.1 Third Amended and Restated Certificate of Incorporation of
the Registrant
3.2 Amended and Restated Bylaws of the Registrant
10.1 Form of Indemnification Agreement
10.2 1996 Equity Incentive Plan
10.3 1999 Employee and Consultant Equity Incentive Plan
10.4 Amended and Restated 2000 Employee and Consultant Equity
Incentive Plan
10.5 2000 Employee Stock Purchase Plan
10.6 Form of Stock Purchase Agreement, dated as of December 28,
1999, by and between the Registrant and each of Lewis Broad,
Neill Brownstein, Avraham Fischer, Davidi Gilo, John
Griffin, Samuel Kaplan, Alan Zimmerman
10.7 Form of D97 Series A Preferred Stock Purchase Agreement by
and between the Registrant and each of the purchasers of the
Series A Preferred Stock.
10.8 Form of D98 Series B Preferred Stock Purchase Agreement, by
and between the Registrant and each of the purchasers of the
Series B Preferred Stock
10.13 Employment Agreement with Davidi Gilo
10.14 Employment Agreement with Eran Pilovsky
10.15 Employment Agreement with Stephen P. Pezzola
10.16 Employment Agreement with Michael Corwin
10.17 Employment Agreement with Arnon Kohavi
10.19+ Collaboration Agreement, dated August 6, 1999, between Vyyo
Ltd. and ADC Telecommunications, Inc.
10.20+ License and Development Agreement, dated as of December ,
1999, by and between Philips Semiconductors Inc., Vyyo Ltd.,
and the Registrant
21.1 Subsidiaries of the Registrant
23.1 Consent of Ernst & Young LLP, Independent Auditors
24.1 Power of Attorney (See page II-9)
27.1 Financial Data Schedule
</TABLE>
- ------------------------
+ We have sought confidential treatment from the Commission for selected
portions of this exhibit. The omitted portions will be separately filed with
the Commission.
<PAGE>
Exhibit 3.1
THIRD AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
VYYO INC.
Vyyo Inc. (the "Corporation"), a corporation organized and existing
under the General Corporation Law of the State of Delaware, does hereby
certify as follows:
(a) The name of the Corporation is Vyyo Inc. The original
Certificate of Incorporation of the Corporation was filed with the office of
the Secretary of State of the State of Delaware on March 21, 1996 under the
name PhaseCom, Inc. (the "Original Certificate of Incorporation").
(b) This Third Amended and Restated Certificate of
Incorporation (this "Amended and Restated Certificate of Incorporation") was
duly adopted by the Board of Directors of the Corporation (the "Board of
Directors") and by the stockholders of the Corporation in accordance with
Sections 228, 242 and 245 of the General Corporation Law of the State of
Delaware.
(c) This Amended and Restated Certificate of Incorporation
restates and amends the Original Certificate of Incorporation of the
Corporation.
(d) This Amended and Restated Certificate shall become
effective as of the ______ day of __________, 2000.
(e) The text of the Original Certificate of Incorporation
of the Corporation is amended and restated in its entirety as follows:
FIRST: The name of the Corporation is Vyyo Inc. (hereinafter the
"Corporation").
SECOND: The address of the registered office of the Corporation in
the State of Delaware and County of New Castle is 1201 Market Street, Suite
1600, Wilmington, Delaware 19801. The name of its registered agent at that
address is PHS Corporate Services, Inc.
<PAGE>
THIRD: The purpose of the Corporation is to engage in any lawful act
or activity for which a corporation may be organized under the General
Corporation Law of the State of Delaware as set forth in Title 8 of the
Delaware Code (the "DGCL").
FOURTH: The total number of shares of stock which the Corporation
shall have authority to issue is 200,000,000 shares of common stock, each
having a par value of $0.0001, and 5,000,000 shares of preferred stock, each
having a par value of $0.001.
The Board of Directors is expressly authorized to provide for the
issuance of all or any shares of the preferred stock in one or more classes
or series, and to fix for each such class or series such voting powers, full
or limited, or no voting powers, and such distinctive designations,
preferences and relative, participating, optional or other special rights and
such qualifications, limitations or restrictions thereof, as shall be stated
and expressed in the resolution or resolutions adopted by the Board of
Directors providing for the issuance of such class or series and as may be
permitted by the DGCL, including, without limitation, the authority to
provide that any such class or series may be (i) subject to redemption at
such time or times and at such price or prices; (ii) entitled to receive
dividends (which may be cumulative or non-cumulative) at such rates, on such
conditions, and at such times, and payable in preference to, or in such
relation to, the dividends payable on any other class or classes or any other
series; (iii) entitled to such rights upon the dissolution of, or upon any
distribution of the assets of, the Corporation; or (iv) convertible into, or
exchangeable for, shares of any other class or classes of stock, or of any
other series of the same or any other class or classes of stock, of the
Corporation at such price or prices or at such rates of exchange and with
such adjustments; all as may be stated in such resolution or resolutions.
FIFTH: The following provisions are inserted for the management of
the business and the conduct of the affairs of the Corporation, and for
further definition, limitation and regulation of the powers of the
Corporation and of its directors and stockholders:
(a) The business and affairs of the Corporation shall be
managed by or under the direction of the Board of Directors.
(b) The Board of Directors shall consist of not less than one
nor more than ten members, the exact number of which shall be fixed by the Board
of
2
<PAGE>
Directors. Election of directors need not be by written ballot unless the
Bylaws so provide.
(c) The directors shall be divided into three classes,
designated Class I, Class II and Class III. Each class shall consist, as
nearly as may be possible, of one-third of the total number of directors
constituting the entire Board of Directors. The initial division of the Board
of Directors into classes shall be made by the decision of the affirmative
vote of a majority of the entire Board of Directors. The term of the initial
Class I directors shall terminate on the date of the 2001 annual meeting; the
term of the initial Class II directors shall terminate on the date of the
2002 annual meeting; and the term of the initial Class III directors shall
terminate on the date of the 2003 annual meeting. At each succeeding annual
meeting of stockholders beginning in 2001, successors to the class of
directors whose term expires at that annual meeting shall be elected for a
three-year term. If the number of directors is changed, any increase or
decrease shall be apportioned among the classes so as to maintain the number
of directors in each class as nearly equal as possible, and any additional
director of any class elected to fill a vacancy resulting from an increase in
such class shall hold office for a term that shall coincide with the
remaining term of that class, but in no case will a decrease in the number of
directors shorten the term of any incumbent director.
(d) A director shall hold office until the annual meeting
for the year in which his or her term expires and until his or her successor
shall be elected and shall qualify, subject, however, to prior death,
resignation, retirement, disqualification or removal from office.
(e) Subject to the terms of any one or more classes or
series of preferred stock, any vacancy on the Board of Directors that results
from an increase in the number of directors may be filled by a majority of
the Board of Directors then in office, provided that a quorum is present, and
any other vacancy occurring on the Board of Directors may be filled by a
majority of the Board of Directors then in office, even if less than a
quorum, or by a sole remaining director. Any director of any class elected to
fill a vacancy resulting from an increase in the number of directors of such
class shall hold office for a term that shall coincide with the remaining
term of that class. Any director elected to fill a vacancy not resulting from
an increase in the number of directors shall have the same remaining term as
that of his predecessor. Subject to the rights, if any, of the holders of
shares of preferred stock then outstanding, any or all of the directors of
the Corporation may be removed from office at any time, but only for cause
and only by the affirmative vote of the holders
3
<PAGE>
of at least sixty-six and two-thirds percent (66 2/3%) of the voting power of
the Corporation's then outstanding capital stock entitled to vote generally
in the election of directors. Notwithstanding the foregoing, whenever the
holders of any one or more classes or series of Preferred Stock issued by the
Corporation shall have the right, voting separately by class or series, to
elect directors at an annual or special meeting of stockholders, the
election, term of office, filling of vacancies and other features of such
directorships shall be governed by the terms of this Amended and Restated
Certificate of Incorporation applicable thereto, and such directors so
elected shall not be divided into classes pursuant to this Article FIFTH
unless expressly provided by such terms.
(f) In addition to the powers and authority hereinbefore or
by statute expressly conferred upon them, the directors are hereby empowered
to exercise all such powers and do all such acts and things as may be
exercised or done by the Corporation, subject, nevertheless, to the
provisions of the DGCL, this Amended and Restated Certificate of
Incorporation, and any Bylaws adopted by the stockholders; PROVIDED, HOWEVER,
that no Bylaws hereafter adopted by the stockholders shall invalidate any
prior act of the directors which would have been valid if such Bylaws had not
been adopted.
(g) No director shall be personally liable to the
Corporation or any of its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) pursuant to Section 174 of the DGCL or
(iv) for any transaction from which the director derived an improper personal
benefit. No director shall be personally liable to the Corporation or any of
its stockholders for monetary damages for breach of fiduciary duty as a
director. Any repeal or modification of this Article FIFTH, Section (g) by
the stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such
repeal or modification with respect to acts or omissions occurring prior to
such repeal or modification.
SIXTH: The Corporation shall indemnify its directors and officers to
the fullest extent authorized or permitted by law, as now or hereafter in
effect, and such right to indemnification shall continue as to a person who
has ceased to be a director or officer of the Corporation and shall inure to
the benefit of his or her heirs, executors and personal and legal
representatives; PROVIDED, HOWEVER, that, except for proceedings to enforce
rights to indemnification, the Corporation shall not be
4
<PAGE>
obligated to indemnify any director or officer (or his or her heirs,
executors or personal or legal representatives) in connection with a
proceeding (or part thereof) initiated by such person unless such proceeding
(or part thereof) was authorized or consented to by the Board of Directors.
The right to indemnification conferred by this Article SIXTH shall include
the right to be paid by the Corporation the expenses incurred in defending or
otherwise participating in any proceeding in advance of its final disposition.
The Corporation may, to the extent authorized from time to time by
the Board of Directors, provide rights to indemnification and to the
advancement of expenses to employees and agents of the Corporation similar to
those conferred in this Article SIXTH to directors and officers of the
Corporation.
The rights to indemnification and to the advancement of expenses
conferred in this Article SIXTH shall not be exclusive of any other right
which any person may have or hereafter acquire under this Certificate of
Incorporation, the Bylaws of the Corporation, any statute, agreement, vote of
stockholders or disinterested directors or otherwise.
Any repeal or modification of this Article SIXTH by the stockholders
of the Corporation shall not adversely affect any rights to indemnification
and to the advancement of expenses of a director or officer of the
Corporation existing at the time of such repeal or modification with respect
to any acts or omissions occurring prior to such repeal or modification.
SEVENTH: Meetings of stockholders may be held within or without the
State of Delaware, as the Bylaws may provide. The books of the Corporation
may be kept (subject to any provision contained in the DGCL) 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.
EIGHTH: In furtherance and not in limitation of the powers conferred
upon it by the laws of the State of Delaware, the Board of Directors shall
have the power to make, alter, amend, change, add to or repeal the
Corporation's Bylaws. The affirmative vote of at least a majority of the
entire Board of Directors shall be required to adopt, amend, alter or repeal
the Corporation's Bylaws. The Corporation's Bylaws also may be altered,
amended, changed, added to or repealed by the affirmative vote of the holders
of at least sixty-six and two-thirds percent (66 2/3%) of the voting power of
the shares entitled to vote at an election of directors.
5
<PAGE>
NINTH: Any action required or permitted to be taken by the
stockholders of the Corporation must be effected at a duly called annual or
special meeting of stockholders of the Corporation, and the ability of the
stockholders to consent in writing to the taking of any action is hereby
specifically denied.
TENTH: Unless otherwise required by law, special meetings of
stockholders, for any purpose or purposes, may be called by either (i) the
Chairman, if there be one, (ii) the Board of Directors or (iii) a committee
of the Board of Directors that has been duly designated by the Board of
Directors and whose powers and authority include the power to call such
meetings. The ability of the stockholders to call a special meeting of
stockholders is hereby specifically denied.
ELEVENTH: The Corporation reserves the right to amend, alter, change
or repeal any provision contained in this Certificate of Incorporation, in
the manner now or hereafter prescribed by statute, and all rights conferred
upon stockholders herein are granted subject to this reservation.
IN WITNESS WHEREOF, the Corporation has caused this Amended
and Restated Certificate of Incorporation to be executed on its behalf this
_____ day of ______________, 2000.
VYYO INC.
By: /s/ Davidi Gilo
------------------------------------------
Name: Davidi Gilo
Title: Chairman and Chief Executive Officer
6
<PAGE>
Exhibit 3.2
AMENDED AND RESTATED
BYLAWS
OF
VYYO INC.
(hereinafter called the "Corporation")
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the
Corporation shall be in the City of Wilmington, County of New Castle, State of
Delaware.
SECTION 2. OTHER OFFICES. 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.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. PLACE OF MEETINGS. Meetings of the stockholders for
the election of directors or for any other purpose shall be held at such time
and place, either within or without the State of Delaware as shall be designated
from time to time by the Board of Directors.
SECTION 2. ANNUAL MEETINGS. The Annual Meetings of
Stockholders for the election of directors shall be held on such date and at
such time as shall be designated from time to time by the Board of Directors.
Any other proper business may be transacted at the Annual Meeting of
Stockholders.
<PAGE>
SECTION 3. NATURE OF BUSINESS AT MEETINGS OF STOCKHOLDERS. No
business may be transacted at an annual meeting of stockholders, other than
business that is either (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors (or
any duly authorized committee thereof), (b) otherwise properly brought before
the annual meeting by or at the direction of the Board of Directors (or any duly
authorized committee thereof) or (c) otherwise properly brought before the
annual meeting by any stockholder of the Company (i) who is a stockholder of
record on the date of the giving of the notice provided for in this Section 3
and on the record date for the determination of stockholders entitled to vote at
such annual meeting (ii) who complies with the notice procedures set forth in
this Section 3 and (iii) who otherwise meets the applicable requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and the rules
and regulations promulgated thereunder.
In addition to any other applicable requirements, for business
to be properly brought before an annual meeting by a stockholder, such
stockholder must have given timely notice thereof in proper written form to the
Secretary or Assistant Secretary of the Company.
To be timely, a stockholder's notice to the Secretary or
Assistant Secretary must be delivered to or mailed and received at the principal
executive offices of the Company not less than sixty (60) days nor more than
ninety (90) days prior to the anniversary date of the immediately preceding
annual meeting of stockholders; PROVIDED, HOWEVER, that in the event that the
annual meeting is called for a date that is not within thirty (30) days before
or after such anniversary date, notice by the stockholder in order to be timely
must be so received not later than the close of business on the tenth (10th) day
following the day on which such notice of the
2
<PAGE>
date of the annual meeting was mailed or such public disclosure of the date
of the annual meeting was made, whichever first occurs.
To be in proper written form, a stockholder's notice to the
Secretary or Assistant Secretary must set forth as to each matter such
stockholder proposes to bring before the annual meeting (i) a brief description
of the business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting, (ii) the name and record
address of such stockholder, (iii) the class or series and number of shares of
capital stock of the Company which are owned beneficially or of record by such
stockholder, (iv) a description of all arrangements or understandings between
such stockholder and any other person or persons (including their names) in
connection with the proposal of such business by such stockholder and any
material interest of such stockholder in such business and (v) a representation
that such stockholder intends to appear in person or by proxy at the annual
meeting to bring such business before the meeting.
No business shall be conducted at the annual meeting of
stockholders except business brought before the annual meeting in accordance
with the procedures set forth in this Section 3; PROVIDED, HOWEVER, that, once
business has been properly brought before the annual meeting in accordance with
such procedures, nothing in this Section 3 shall be deemed to preclude
discussion by any stockholder of any such business. If the chairman of an annual
meeting determines that business was not properly brought before the annual
meeting in accordance with the foregoing procedures, the chairman shall declare
to the meeting that the business was not properly brought before the meeting and
such business shall not be transacted.
3
<PAGE>
SECTION 4. NOMINATION OF DIRECTORS. Only persons who are
nominated in accordance with the following procedures shall be eligible for
election as directors of the Company, except as may be otherwise provided in the
Third Amended and Restated Certificate of Incorporation of the Corporation, as
amended or restated from time to time (the "Certificate of Incorporation") with
respect to the right of holders of preferred stock of the Corporation to
nominate and elect a specified number of directors in certain circumstances.
Nominations of persons for election to the Board of Directors may be made at any
annual meeting of stockholders, or at any special meeting of stockholders called
for the purpose of electing directors, (a) by or at the direction of the Board
of Directors (or any duly authorized committee thereof) or (b) by any
stockholder of the Company (i) who is a stockholder of record on the date of the
giving of the notice provided for in this Section 4 and on the record date for
the determination of stockholders entitled to vote at such meeting, (ii) who
complies with the notice procedures set forth in this Section 4 and (iii) who
otherwise meets the applicable requirements of the Exchange Act and the rules
and regulations promulgated thereunder.
In addition to any other applicable requirements, for a
nomination to be made by a stockholder, such stockholder must have given timely
notice thereof in proper written form to the Secretary or Assistant Secretary of
the Company.
To be timely, a stockholder's notice to the Secretary or
Assistant Secretary must be delivered to or mailed and received at the principal
executive offices of the Company (a) in the case of an annual meeting, not less
than sixty (60) days nor more than ninety (90) days prior to the anniversary
date of the immediately preceding annual meeting of stockholders; PROVIDED,
HOWEVER, that in the event that the annual meeting is called for a date that is
not within thirty (30)
4
<PAGE>
days before or after such anniversary date, notice by the stockholder in
order to be timely must be so received not later than the close of business
on the tenth (10th) day following the day on which such notice of the date of
the annual meeting was mailed or such public disclosure of the date of the
annual meeting was made, whichever first occurs; and (b) in the case of a
special meeting of stockholders called for the purpose of electing directors,
not later than the close of business on the tenth (10th) day following the
day on which notice of the date of the special meeting was mailed or public
disclosure of the date of the special meeting was made, whichever first
occurs.
To be in proper written form, a stockholder's notice to the
Secretary or Assistant Secretary must set forth (a) as to each person whom the
stockholder proposes to nominate for election as a director (i) the name, age,
business address and residence address of the person, (ii) the principal
occupation or employment of the person, (iii) the class or series and number of
shares of capital stock of the Company which are owned beneficially or of record
by the person and (iv) any other information relating to the person that would
be required to be disclosed in a proxy statement or other filings required to be
made in connection with solicitations of proxies for election of directors
pursuant to Section 14 of the Exchange Act, and the rules and regulations
promulgated thereunder; and (b) as to the stockholder giving the notice (i) the
name and record address of such stockholder, (ii) the class or series and number
of shares of capital stock of the Company which are owned beneficially or of
record by such stockholder, (iii) a description of all arrangements or
understandings between such stockholder and each proposed nominee and any other
person or persons (including their names) pursuant to which the nomination(s)
are to be made by such stockholder, (iv) a representation that such stockholder
intends to appear in
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person or by proxy at the meeting to nominate the persons named in its notice
and (v) any other information relating to such stockholder that would be
required to be disclosed in a proxy statement or other filings required to be
made in connection with solicitations of proxies for election of directors
pursuant to Section 14 of the Exchange Act and the rules and regulations
promulgated thereunder. Such notice must be accompanied by a written consent
of each proposed nominee to being named as a nominee and to serve as a
director if elected.
No person shall be eligible for election as a director of the
Company unless nominated in accordance with the procedures set forth in this
Section 4. If the Chairman of the meeting determines that a nomination was not
made in accordance with the foregoing procedures, the Chairman shall declare to
the meeting that the nomination was defective and such defective nomination
shall be disregarded.
SECTION 5. SPECIAL MEETINGS. Unless otherwise required by law
or by the Certificate of Incorporation of the Corporation, Special Meetings of
Stockholders, for any purpose or purposes, may be called by either (i) the
Chairman of the Board of Directors, (ii) the Board of Directors or (iii) a
committee of the Board of Directors that has been duly designated by the Board
of Directors and whose powers and authority include the power to call such
meetings. Any request for a Special Meeting of Stockholders by any of the
foregoing shall be directed in writing to the (i) the Chairman, if there be one,
(ii) the President or (iii) the Secretary and shall state the purpose or
purposes of the proposed meeting. At a Special Meeting of Stockholders, only
such business shall be conducted as shall be specified in the notice of meeting
(or any supplement thereto). The ability of the stockholders to call a special
meeting of stockholders is hereby specifically denied.
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SECTION 6. NOTICE. Whenever stockholders are required or
permitted to take any action at a meeting, a written notice of the meeting shall
be given which shall state the place, date and hour of the meeting, and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called. Unless otherwise required by law, the written notice of any meeting
shall be given not less than ten nor more than sixty days before the date of the
meeting to each stockholder entitled to vote at such meeting.
SECTION 7. ADJOURNMENTS. Any meeting of the stockholders may
be adjourned from time to time to reconvene at the same or some other place, and
notice need not be given of any such adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken. At the
adjourned meeting, the Corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than
thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
SECTION 8. QUORUM. Unless otherwise required by law or the
Certificate of Incorporation, the holders of a majority of the capital 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. A quorum, once established, shall
not be broken by the withdrawal of enough votes to leave less than a quorum. If,
however, such quorum shall not be present or represented at any meeting of the
stockholders, the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have power to adjourn
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the meeting from time to time, in the manner provided in Section 7, until a
quorum shall be present or represented.
SECTION 9. VOTING. Unless otherwise required by law, the
Certificate of Incorporation or these Bylaws, any question brought before any
meeting of stockholders, other than the election of directors, shall be decided
by the vote of the holders of a majority of the total number of votes of the
capital stock represented and entitled to vote thereat, voting as a single
class. Unless otherwise provided in the Certificate of Incorporation, and
subject to Section 1(b) of Article III and Section 5 of Article V hereof, each
stockholder represented at a meeting of stockholders shall be entitled to cast
one vote for each share of the capital stock entitled to vote thereat held by
such stockholder. Such votes may be cast in person or by proxy but no proxy
shall be voted on or after three years from its date, unless such proxy provides
for a longer period. The Board of Directors, in its discretion, or the officer
of the Corporation presiding at a meeting of stockholders, in such officer's
discretion, may require that any votes cast at such meeting shall be cast by
written ballot.
SECTION 10. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Any
action required or permitted to be taken by the stockholders of the Corporation
must be effected at a duly called annual or special meeting of stockholders of
the Corporation, and the ability of the stockholders to consent in writing to
the taking of any action is hereby specifically denied.
SECTION 11. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The officer
of the Corporation who has charge of the stock ledger of the Corporation shall
prepare and make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the
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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 of the
Corporation who is present.
SECTION 12. STOCK LEDGER. The stock ledger of the Corporation
shall be the only evidence as to who are the stockholders entitled to examine
the stock ledger, the list required by Section 11 of this Article II or the
books of the Corporation, or to vote in person or by proxy at any meeting of
stockholders.
SECTION 13. CONDUCT OF MEETINGS. The Board of Directors of the
Corporation may adopt by resolution such rules and regulations for the conduct
of the meeting of the stockholders as it shall deem appropriate. Except to the
extent inconsistent with such rules and regulations as adopted by the Board of
Directors, the chairman of any meeting of the stockholders shall have the right
and authority to prescribe such rules, regulations and procedures and to do all
such acts as, in the judgment of such chairman, are appropriate for the proper
conduct of the meeting. Such rules, regulations or procedures, whether adopted
by the Board of Directors or prescribed by the chairman of the meeting, may
include, without limitation, the following: (i) the establishment of an agenda
or order of business for the meeting; (ii) the determination of when the polls
shall open and close for any given matter to be voted on at the meeting; (iii)
rules and procedures for maintaining order at the meeting and the safety of
those present; (iv)
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limitations on attendance at or participation in the meeting to stockholders
of record of the Corporation, their duly authorized and constituted proxies
or such other persons as the chairman of the meeting shall determine; (v)
restrictions on entry to the meeting after the time fixed for the
commencement thereof; and (vi) limitations on the time allotted to questions
or comments by participants.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER AND ELECTION OF DIRECTORS.
(a) The Board of Directors shall consist of not less than one
nor more than ten members, the exact number of which shall be fixed from time to
time by the Board of Directors. Except as provided in Section 2 of this Article
III, directors shall be elected by a plurality of the votes cast at the Annual
Meeting of Stockholders and each director so elected shall hold office until the
next Annual Meeting of Stockholders and until such director's successor is duly
elected and qualified, or until such director's earlier death, resignation or
removal. Any director may resign at any time upon written notice to the
Corporation. Directors need not be stockholders.
(b) No person entitled to vote at an election for directors
may cumulate votes to which such person is entitled
SECTION 2. VACANCIES. Unless otherwise required by law or the
Certificate of Incorporation, vacancies resulting from death, resignation,
disqualification, removal, or other causes shall be filled by either (i) the
affirmative vote of the holders of a majority of the voting power of the
then-outstanding shares of voting stock of this Corporation entitled to vote
generally in the election of directors, voting together as a single class; or
(ii) by the affirmative
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vote of a majority of the remaining directors then in office, even though
less than a quorum. Newly created directorships resulting from any increase
in the number of directors shall, unless the Board of Directors determines by
resolution that any such newly-created directorship shall be filled by the
stockholders, be filled only by the affirmative vote of the directors then in
office, even though less than a quorum of the Board of Directors. Any
director elected in accordance with the preceding sentence shall hold office
for the remainder of the full term of the class of directors in which the new
directorship was created or the vacancy occurred and until such director's
successor shall have been elected and qualified.
SECTION 3. DUTIES AND POWERS. The business and affairs of the
Corporation shall be managed by or under the direction of the 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 required to be exercised or done by the stockholders.
SECTION 4. MEETINGS. The Board of Directors may hold meetings,
both regular and special, either within or without the State of Delaware.
Regular meetings of the Board of Directors may be held without notice at such
time and at such place as may from time to time be determined by the Board of
Directors. Special meetings of the Board of Directors may be called by the
Chairman, if there be one, or the President. Notice thereof stating the place,
date and hour of the meeting shall be given to each director either by mail not
less than forty-eight (48) hours before the date of the meeting, by telephone or
telegram on twenty-four (24) hours' notice, or on such shorter notice as the
person or persons calling such meeting may deem necessary or appropriate in the
circumstances.
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SECTION 5. QUORUM. Except as otherwise required by law or the
Certificate of Incorporation, at all meetings of the Board of Directors, a
majority of the entire Board of Directors shall constitute a quorum for the
transaction of business and the act of a majority of the directors present at
any meeting at which there is a quorum shall be the act of the Board of
Directors. 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 of the time and
place of the adjourned meeting, until a quorum shall be present.
SECTION 6. ACTIONS BY WRITTEN CONSENT. Unless otherwise
provided in 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 the members of the
Board of Directors 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 of Directors or committee.
SECTION 7. MEETINGS BY MEANS OF CONFERENCE TELEPHONE. Unless
otherwise provided in the Certificate of Incorporation, members of the Board of
Directors of the Corporation, or any committee thereof, may participate in a
meeting of the Board of Directors or such committee by means of a conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
pursuant to this Section 7 shall constitute presence in person at such meeting.
SECTION 8. COMMITTEES. The Board of Directors may designate
one or more committees, each committee to consist of one or more of the
directors of the Corporation. The
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Board of Directors may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of any such committee. In the absence or disqualification of a member
of a committee, and in the absence of a designation by the Board of Directors
of an alternate member to replace the absent or disqualified member, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not such member or members constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any absent or disqualified member. Any committee, to
the extent permitted by law and provided in the resolution establishing such
committee, shall have and may exercise all the powers and authority of the
Board of Directors in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to
all papers which may require it. Each committee shall keep regular minutes
and report to the Board of Directors when required.
SECTION 9. COMPENSATION. 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, payable in cash or securities. 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.
SECTION 10. INTERESTED DIRECTORS. No contract or transaction
between the Corporation and one or more of its directors or officers, or between
the Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers or have a financial interest, shall be void or voidable
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solely for this reason, or solely because the director or officer is present
at or participates in the meeting of the Board of Directors or committee
thereof which authorizes the contract or transaction, or solely because the
director or officer's vote is counted for such purpose if (i) the material
facts as to the director or officer's relationship or interest and as to the
contract or transaction are disclosed or are known to the Board of Directors
or the committee, and the Board of Directors or committee in good faith
authorizes the contract or transaction by the affirmative votes of a majority
of the disinterested directors, even though the disinterested directors be
less than a quorum; or (ii) the material facts as to the director or
officer's relationship or interest and as to the contract or transaction are
disclosed or are known to the stockholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
stockholders; or (iii) the contract or transaction is fair as to the
Corporation as of the time it is authorized, approved or ratified by the
Board of Directors, a committee thereof or the stockholders. Common or
interested directors may be counted in determining the presence of a quorum
at a meeting of the Board of Directors or of a committee which authorizes the
contract or transaction.
ARTICLE IV
OFFICERS
SECTION 1. GENERAL. The officers of the Corporation shall be
chosen by the Board of Directors and shall be a President, a Secretary or
Assistant Secretary and a Treasurer. The Board of Directors, in its discretion,
also may choose a Chairman of the Board of Directors (who must be a director)
and one or more Vice Presidents, Assistant Secretaries, Assistant Treasurers and
other officers. Any number of offices may be held by the same person, unless
otherwise
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prohibited by law or the Certificate of Incorporation. The officers of the
Corporation need not be stockholders of the Corporation nor, except in the
case of the Chairman of the Board of Directors, need such officers be
directors of the Corporation.
SECTION 2. ELECTION. The Board of Directors, at its first
meeting held after each Annual Meeting of Stockholders, shall elect the officers
of the Corporation 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 of Directors; and all officers of the Corporation shall hold
office until their successors are chosen and qualified, or until their earlier
death, resignation or removal. Any officer elected by the Board of Directors may
be removed at any time by the affirmative vote of the Board of Directors. Any
vacancy occurring in any office of the Corporation shall be filled by the Board
of Directors. The salaries of all officers of the Corporation shall be fixed by
the Board of Directors.
SECTION 3. VOTING SECURITIES OWNED BY THE CORPORATION. Powers
of attorney, proxies, waivers of notice of meeting, consents and other
instruments relating to securities owned by the Corporation may be executed in
the name of and on behalf of the Corporation by the President or any Vice
President or any other officer authorized to do so by the Board of Directors and
any such officer may, in the name of and on behalf of the Corporation, take all
such action as any such officer may deem advisable to vote in person or by proxy
at any meeting of security holders of any corporation in which the Corporation
may own securities and at any such meeting shall possess and may exercise any
and all rights and power incident to the ownership of such securities and which,
as the owner thereof, the Corporation might have exercised and possessed
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if present. The Board of Directors may, by resolution, from time to time
confer like powers upon any other person or persons.
SECTION 4. CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of
the Board of Directors, if there be one, shall preside at all meetings of the
stockholders and of the Board of Directors. The Chairman of the Board of
Directors shall be the Chief Executive Officer of the Corporation, unless the
Board of Directors designates the President as the Chief Executive Officer, and,
except where by law the signature of the President is required, the Chairman of
the Board of Directors shall possess the same power as the President to sign all
contracts, certificates and other instruments of the Corporation which may be
authorized by the Board of Directors. During the absence or disability of the
President, the Chairman of the Board of Directors shall exercise all the powers
and discharge all the duties of the President. The Chairman of the Board of
Directors shall also perform such other duties and may exercise such other
powers as may from time to time be assigned by these Bylaws or by the Board of
Directors.
SECTION 5. PRESIDENT. The President shall, subject to the
control of the Board of Directors and, if there be one, the Chairman of the
Board of Directors, have general supervision of the business of the Corporation
and shall see that all orders and resolutions of the Board of Directors are
carried into effect. The President shall execute all bonds, mortgages, contracts
and other instruments of the Corporation requiring a seal, under the seal of the
Corporation, except where required or permitted by law to be otherwise signed
and executed and except that the other officers of the Corporation may sign and
execute documents when so authorized by these Bylaws, the Board of Directors or
the President. In the absence or disability of the Chairman of the Board of
Directors, or if there be none, the President shall preside at all meetings of
the
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stockholders and the Board of Directors. If there be no Chairman of the Board
of Directors, or if the Board of Directors shall otherwise designate, the
President shall be the Chief Executive Officer of the Corporation. The
President shall also perform such other duties and may exercise such other
powers as may from time to time be assigned to such officer by these Bylaws
or by the Board of Directors.
SECTION 6. VICE PRESIDENTS. At the request of the President or
in the President's absence or in the event of the President's inability or
refusal to act (and if there be no Chairman of the Board of Directors), the Vice
President, or the Vice Presidents if there is more than one (in the order
designated by the Board of Directors), 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. Each Vice President shall perform such
other duties and have such other powers as the Board of Directors from time to
time may prescribe. If there be no Chairman of the Board of Directors and no
Vice President, the Board of Directors shall designate the officer of the
Corporation who, in the absence of the President or in the event of the
inability or refusal of the President to act, 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.
SECTION 7. SECRETARY. The Secretary shall attend all meetings
of the Board of Directors and all meetings of stockholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties for committees of the Board of
Directors when required. The Secretary shall give, or cause to be given, notice
of all 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, the Chairman of the
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Board of Directors or the President, under whose supervision the Secretary
shall be. If the Secretary shall be unable or shall refuse to cause to be
given notice of all meetings of the stockholders and special meetings of the
Board of Directors, and if there be no Assistant Secretary, then either the
Board of Directors or the President may choose another officer to cause such
notice to be given. The Secretary shall have custody of the seal of the
Corporation and the Secretary or any Assistant Secretary, if there be one,
shall have authority to affix the same to any instrument requiring it and
when so affixed, it may be attested by the signature of the Secretary or by
the signature of any 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 to the affixing by such officer's signature. The
Secretary shall see that all books, reports, statements, certificates and
other documents and records required by law to be kept or filed are properly
kept or filed, as the case may be.
SECTION 8. TREASURER. The Treasurer 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. The Treasurer 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 requires, an account of
all transactions as Treasurer and of the financial condition of the Corporation.
If required by the Board of Directors, the Treasurer shall give the Corporation
a bond in such sum and with such surety or sureties as shall be satisfactory to
the Board of
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Directors for the faithful performance of the duties of the office of the
Treasurer and for the restoration to the Corporation, in case of the
Treasurer's death, resignation, retirement or removal from office, of all
books, papers, vouchers, money and other property of whatever kind in the
Treasurer's possession or under the Treasurer's control belonging to the
Corporation.
SECTION 9. ASSISTANT SECRETARIES. Assistant Secretaries, if
there be any, shall perform such duties and have such powers as from time to
time may be assigned to them by the Board of Directors, the President, any Vice
President, if there be one, or the Secretary, and in the absence of the
Secretary or in the event of the Secretary's disability or refusal to act, shall
perform the duties of the Secretary, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the Secretary.
SECTION 10. ASSISTANT TREASURERS. Assistant Treasurers, if
there be any, shall perform such duties and have such powers as from time to
time may be assigned to them by the Board of Directors, the President, any Vice
President, if there be one, or the Treasurer, and in the absence of the
Treasurer or in the event of the Treasurer's disability or refusal to act, shall
perform the duties of the Treasurer, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the Treasurer. If required
by the Board of Directors, an Assistant Treasurer shall give the Corporation a
bond 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 the office
of Assistant Treasurer and for the restoration to the Corporation, in case of
the Assistant Treasurer's death, resignation, retirement or removal from office,
of all books, papers, vouchers, money and other property of whatever kind in the
Assistant Treasurer's possession or under the Assistant Treasurer's control
belonging to the Corporation.
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SECTION 11. OTHER OFFICERS. Such other officers as the Board
of Directors may choose shall perform such duties and have such powers as from
time to time may be assigned to them by the Board of Directors. The Board of
Directors may delegate to any officer of the Corporation the power to choose
such other officers and to prescribe their respective duties and powers.
ARTICLE V
STOCK
SECTION 1. FORM OF CERTIFICATES. Every holder of stock in the
Corporation shall be entitled to have a certificate signed, in the name of the
Corporation (i) by the Chairman of the Board of Directors, the President or a
Vice President and (ii) by the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary of the Corporation, certifying the number of
shares owned by such stockholder in the Corporation.
SECTION 2. SIGNATURES. Any or all of the signatures on a
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
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 such person were such officer, transfer agent or registrar at the date of
issue.
SECTION 3. LOST CERTIFICATES. The Board of Directors may
direct a new certificate to be issued in place of any certificate theretofore
issued by the Corporation alleged to 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, the Board of Directors may, in its discretion and as a condition
precedent to the
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issuance thereof, require the owner of such lost, stolen or destroyed
certificate, or the owner's legal representative, to advertise the same in
such manner as the Board of Directors 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 or the issuance of
such new certificate.
SECTION 4. TRANSFERS. Stock of the Corporation shall be
transferable in the manner prescribed by law and in these Bylaws. Transfers of
stock shall be made on the books of the Corporation only by the person named in
the certificate or by such person's attorney lawfully constituted in writing and
upon the surrender of the certificate therefor, which shall be cancelled before
a new certificate shall be issued. No transfer of stock shall be valid as
against the Corporation for any purpose until it shall have been entered in the
stock records of the Corporation by an entry showing from and to whom
transferred.
SECTION 5. RECORD DATE.
(a) 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, the board of directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted by the Board of Directors, and which record date shall
not be more than sixty nor less than ten days before the date of such meeting.
If no record date is fixed by the Board of Directors, the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held. A determination of
stockholders of
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record entitled to notice of or to vote at a meeting of stockholders shall
apply to any adjournment of the meeting; providing, however, that the Board
of Directors may fix a new record date for the adjourned meeting.
(b) In order that the Corporation may determine the
stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights or the stockholders entitled to exercise any rights
in respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, the Board of Directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall be not more than sixty days
prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto.
SECTION 6. RECORD OWNERS. 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 required by
law.
ARTICLE VI
NOTICES
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SECTION 1. NOTICES. Whenever written notice is required by
law, the Certificate of Incorporation or these Bylaws, to be given to any
director, member of a committee or stockholder, such notice may be given by
mail, addressed to such director, member of a committee or stockholder, at such
person's 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. Written notice may also
be given by facsimile, telex, telegram to the extent permitted by law.
SECTION 2. WAIVERS OF NOTICE. Whenever any notice is required
by law, the Certificate of Incorporation or these Bylaws, to be given to any
director, member of a committee or stockholder, 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. Attendance of
a person at a meeting, present in person or represented by proxy, shall
constitute a waiver of notice of such meeting, except where the person attends
the meeting for the express purpose of objecting at the beginning of the meeting
to the transaction of any business because the meeting is not lawfully called or
convened.
ARTICLE VII
GENERAL PROVISIONS
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SECTION 1. DIVIDENDS. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, the requirements of the General Corporation Law of the State of Delaware
(the "DGCL"), may be declared by the Board of Directors at any regular or
special meeting of the Board of Directors (or any action by written consent in
lieu thereof in accordance with Section 6 of Article III hereof), and may be
paid in cash, in property, or in shares of the Corporation's capital stock.
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 Board of Directors
from time to time, in its absolute discretion, deems 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 any proper purpose, and the
Board of Directors may modify or abolish any such reserve.
SECTION 2. DISBURSEMENTS. 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.
SECTION 3. FISCAL YEAR. The fiscal year of the Corporation
shall be fixed by resolution of the Board of Directors.
SECTION 4. CORPORATE SEAL. The corporate seal shall have
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.
SECTION 5. ANNUAL REPORT. The Board of Directors shall cause
an annual report to be sent to each stockholder of the Corporation not later
than one hundred twenty (120) days after
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the close of the Corporation's fiscal year. Such report shall include a
balance sheet as of the end of such fiscal year and an income statement and
statement of changes in financial position for such fiscal year, accompanied
by any report thereon of independent accounts or, if there is no such report,
the certificate of an authorized officer of the Corporation that such
statements were prepared without audit from the books and records of the
Corporation.
ARTICLE VIII
INDEMNIFICATION
SECTION 1. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS
OTHER THAN THOSE BY OR IN THE RIGHT OF THE CORPORATION. Subject to Section 3 of
this Article VIII, the Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that such person is or was a director or officer of the
Corporation, or is or was a director or officer of the Corporation serving at
the request of the Corporation as a director or officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with such action, suit or proceeding if such person acted in good
faith and in a manner such person reasonably believed to be in the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe such person's conduct was
unlawful. The termination of any action, suit or proceeding by judgment, order,
settlement,
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conviction, or upon a plea of nolo contendere or its equivalent, shall not,
of itself, create a presumption that the person did not act in good faith and
in a manner which such person reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal
action or proceeding, had reasonable cause to believe that such person's
conduct was unlawful.
SECTION 2. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS
BY OR IN THE RIGHT OF THE CORPORATION. Subject to Section 3 of this Article
VIII, the Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that such person is or was a director or officer of the
Corporation, or is or was a director or officer of the Corporation serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit if such person acted in good faith and in a manner such
person reasonably believed to be in the best interests of the Corporation;
PROVIDED, that no indemnification shall be made in respect of any claim, issue
or matter as to which such person shall have been adjudged to be liable to the
Corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
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SECTION 3. AUTHORIZATION OF INDEMNIFICATION. Any
indemnification under this Article VIII (unless ordered by a court) shall be
made by the Corporation only as authorized in the specific case upon a
determination that indemnification of the director or officer is proper in the
circumstances because such person has met the applicable standard of conduct set
forth in Section 1 or Section 2 of this Article VIII, as the case may be. Such
determination shall be made, with respect to a person who is a director or
officer at the time of such determination, (i) by a majority vote of the
directors who are not parties to such action, suit or proceeding, even though
less than a quorum, or (ii) by a committee of such directors designated by a
majority vote of such directors, even though less than a quorum, or (iii) if
there are no such directors, or if such directors so direct, by independent
legal counsel in a written opinion or (iv) by the stockholders. Such
determination shall be made, with respect to former directors and officers, by
any person or persons having the authority to act on the matter on behalf of the
Corporation. To the extent, however, that a present or former director or
officer of the Corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding described above, or in defense of any
claim, issue or matter therein, such person shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection therewith, without the necessity of authorization in the
specific case.
SECTION 4. GOOD FAITH DEFINED. For purposes of any
determination under Section 3 of this Article VIII, a person shall be deemed to
have acted in good faith and in a manner such person reasonably believed to be
in or not opposed to the best interests of the Corporation, or, with respect to
any criminal action or proceeding, to have had no reasonable cause to believe
such person's conduct was unlawful, if such person's action is based on the
records or books of
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account of the Corporation or another enterprise, or on information supplied
to such person by the officers of the Corporation or another enterprise in
the course of their duties, or on the advice of legal counsel for the
Corporation or another enterprise or on information or records given or
reports made to the Corporation or another enterprise by an independent
certified public accountant or by an appraiser or other expert selected with
reasonable care by the Corporation or another enterprise. The provisions of
this Section 4 shall not be deemed to be exclusive or to limit in any way the
circumstances in which a person may be deemed to have met the applicable
standard of conduct set forth in Section 1 or 2 of this Article VIII, as the
case may be.
SECTION 5. INDEMNIFICATION BY A COURT. Notwithstanding any
contrary determination in the specific case under Section 3 of this Article
VIII, and notwithstanding the absence of any determination thereunder, any
director or officer may apply to the Court of Chancery in the State of Delaware
for indemnification to the extent otherwise permissible under Sections 1 and 2
of this Article VIII. The basis of such indemnification by a court shall be a
determination by such court that indemnification of the director or officer is
proper in the circumstances because such person has met the applicable standards
of conduct set forth in Section 1 or 2 of this Article VIII, as the case may be.
Neither a contrary determination in the specific case under Section 3 of this
Article VIII nor the absence of any determination thereunder shall be a defense
to such application or create a presumption that the director or officer seeking
indemnification has not met any applicable standard of conduct. Notice of any
application for indemnification pursuant to this Section 5 shall be given to the
Corporation promptly upon the filing of such application. If successful, in
whole or in part, the director or officer seeking indemnification shall also be
entitled to be paid the expense of prosecuting such application.
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SECTION 6. EXPENSES PAYABLE IN ADVANCE. Expenses incurred by a
director or officer in defending any civil, criminal, administrative or
investigative action, suit or proceeding shall be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such director or officer to repay such
amount if it shall ultimately be determined that such person is not entitled to
be indemnified by the Corporation as authorized in this Article VIII.
SECTION 7. NONEXCLUSIVITY OF INDEMNIFICATION AND ADVANCEMENT
OF EXPENSES. The indemnification and advancement of expenses provided by or
granted pursuant to this Article VIII shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may be
entitled under the Certificate of Incorporation, any Bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in such
person's official capacity and as to action in another capacity while holding
such office, it being the policy of the Corporation that indemnification of the
persons specified in Sections 1 and 2 of this Article VIII shall be made to the
fullest extent permitted by law. The provisions of this Article VIII shall not
be deemed to preclude the indemnification of any person who is not specified in
Section 1 or 2 of this Article VIII but whom the Corporation has the power or
obligation to indemnify under the provisions of the DGCL.
SECTION 8. INSURANCE. The Corporation may purchase and
maintain insurance on behalf of any person who is or was a director or officer
of the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise against any liability
asserted against such person and incurred by such person in any such capacity,
or arising out of
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such person's status as such, whether or not the Corporation would have the
power or the obligation to indemnify such person against such liability under
the provisions of this Article VIII.
SECTION 9. CERTAIN DEFINITIONS. For purposes of this Article
VIII, references to "the Corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any constituent of
a constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors or officers, so that any person who is or was a director or officer of
such constituent corporation, or is or was a director or officer of such
constituent corporation serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, shall stand in
the same position under the provisions of this Article VIII with respect to the
resulting or surviving corporation as such person would have with respect to
such constituent corporation if its separate existence had continued. For
purposes of this Article VIII, references to "fines" shall include any excise
taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation which
imposes duties on, or involves services by, such director or officer with
respect to an employee benefit plan, its participants or beneficiaries; and a
person who acted in good faith and in a manner such person reasonably believed
to be in the interest of the participants and beneficiaries of an employee
benefit plan shall be deemed to have acted in a manner "not opposed to the best
interests of the Corporation" as referred to in this Article VIII.
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SECTION 10. SURVIVAL OF INDEMNIFICATION AND ADVANCEMENT OF
EXPENSES. The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article VIII shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director
or officer and shall inure to the benefit of the heirs, executors and
administrators of such a person.
SECTION 11. LIMITATION ON INDEMNIFICATION. Notwithstanding
anything contained in this Article VIII to the contrary, except for proceedings
to enforce rights to indemnification (which shall be governed by Section 5
hereof), the Corporation shall not be obligated to indemnify any director or
officer in connection with a proceeding (or part thereof) initiated by such
person unless such proceeding (or part thereof) was authorized or consented to
by the Board of Directors of the Corporation.
SECTION 12. INDEMNIFICATION OF EMPLOYEES AND AGENTS. The
Corporation may, to the extent authorized from time to time by the Board of
Directors, provide rights to indemnification and to the advancement of expenses
to employees and agents of the Corporation similar to those conferred in this
Article VIII to directors and officers of the Corporation.
ARTICLE IX
AMENDMENTS
SECTION 1. AMENDMENTS. These Bylaws may be altered, amended or
repealed, in whole or in part, or new Bylaws may be adopted by the stockholders
or by the Board of Directors, provided, however, that notice of such alteration,
amendment, repeal or adoption of new Bylaws be contained in the notice of the
meeting of stockholders or Board of Directors, as the case may be. All
amendments must be approved by either sixty-six and two-thirds percent
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(66 2/3%) of the outstanding capital stock entitled to vote thereon or by a
majority of the entire Board of Directors then in office.
SECTION 2. ENTIRE BOARD OF DIRECTORS. As used in this Article
IX and in these Bylaws generally, the term "entire Board of Directors" means the
total number of directors which the Corporation would have if there were no
vacancies.
* * *
Adopted as of:
------------------------
Last Amended as of:
--------------------
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Exhibit 10.1
FORM OF INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (this "Agreement") is made and
entered into this _____ day of ____________, 2000 by and between Vyyo Inc., a
Delaware corporation (the "Company"), and _______________ ("Indemnitee"). This
Agreement supersedes any and all indemnification agreement(s) previously entered
into between the Company and Indemnitee.
WHEREAS, it is essential to the Company to retain and attract
as directors and officers the most capable persons available;
WHEREAS, Indemnitee is a director or officer of the Company;
WHEREAS, both the Company and Indemnitee recognize the
increased risk of litigation and other claims being asserted against directors
and officers of public companies in today's environment;
WHEREAS, the current Bylaws and Second Amended and Restated
Certificate of Incorporation of the Company, and the Amended and Restated Bylaws
and Third Amended and Restated Certificate of Incorporation to be adopted upon
the consummation of the Company's currently contemplated initial public offering
(collectively, the "Charter Documents") require the Company to indemnify and
advance expenses to its directors and officers to the full extent permitted by
the Delaware General Company Law, as amended (the "DGCL"), and Indemnitee
intends to continue serving as a director or officer of the Company in part in
reliance on such Charter Documents and the DGCL;
WHEREAS, in recognition of Indemnitee's need for substantial
protection against personal liability in order to enhance Indemnitee's continued
service to the Company in an effective manner, the Company wishes to provide in
this Agreement for the indemnification of and the advancing of expenses to
Indemnitee to the fullest extent (whether partial or complete) permitted by law
and as set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and of
Indemnitee continuing to serve the Company directly or, at its request, another
enterprise, and intending to be legally bound hereby, the parties hereto agree
as follows:
1. CERTAIN DEFINITIONS:
<PAGE>
(a) CHANGE IN CONTROL: shall be deemed to have occurred if (i) any
"person" (as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended), other than a
trustee or other fiduciary holding securities under an
employee benefit plan of the Company or a corporation owned
directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of stock
of the Company, is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under said Act), directly or indirectly,
of securities of the Company representing 20% or more of the
total voting power represented by the Company's then
outstanding Voting Securities, or (ii) during any period of
two consecutive years, individuals who at the beginning of
such period constitute the Board of Directors of the Company
and any new director whose election by the Board of Directors
or nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors at
the beginning of the period or whose election or nomination
for election was previously so approved, cease for any reason
to constitute a majority thereof, or (iii) the stockholders of
the Company approve a merger or consolidation of the Company
with any other corporation, other than a merger or
consolidation which would result in the Voting Securities of
the Company outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or by being
converted into Voting Securities of the surviving entity) at
least 80% of the total voting power represented by the Voting
Securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or the
stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or
disposition by the Company of (in one transaction or a series
of transactions) all or substantially all the Company's
assets.
(b) CLAIM: any threatened, pending or completed action, suit or
proceeding, or any inquiry or investigation, whether
instituted by the Company or any other party, that Indemnitee
in good faith believes might lead to the institution of any
such action, suit or proceeding, whether civil, criminal,
administrative, investigative or other.
(c) EXPENSES: include attorneys' fees and all other costs,
expenses and obligations paid or incurred in connection with
investigating, defending, being a witness in or participating
in (including on appeal), or preparing to defend, be a witness
in or participate in, any Claim relating to any Indemnifiable
Event.
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(d) INDEMNIFIABLE EVENT: any event or occurrence related to the
fact that Indemnitee is or was a director, officer, employee,
agent or fiduciary of the Company, or is or was serving at the
request of the Company as a director, officer, employee,
trustee, agent or fiduciary of another corporation,
partnership, joint venture, employee benefit plan, trust or
other enterprise, or by reason of anything done or not done by
Indemnitee in any such capacity.
(e) INDEPENDENT LEGAL COUNSEL: an attorney or firm of attorneys,
selected in accordance with the provisions of Section 3, who
shall not have otherwise performed services for the Company or
Indemnitee within the last five years (other than with respect
to matters concerning the rights of Indemnitee under this
Agreement, or of other indemnitees under similar indemnity
agreements).
(f) REVIEWING PARTY: any appropriate person or body consisting of
a member or members of the Company's Board of Directors or any
other person or body appointed by the Board who is not a party
to the particular Claim for which Indemnitee is seeking
indemnification, or Independent Legal Counsel.
(g) VOTING SECURITIES: any securities of the Company which vote
generally in the election of directors.
2. BASIC INDEMNIFICATION ARRANGEMENT. (a) In the event Indemnitee was,
is or becomes a party to or witness or other participant in, or is threatened to
be made a party to or witness or other participant in, a Claim by reason of (or
arising in part out of) an Indemnifiable Event, the Company shall indemnify
Indemnitee to the fullest extent permitted by law as soon as practicable but in
any event no later than thirty days after written demand is presented to the
Company, against any and all Expenses, judgments, fines, penalties and amounts
paid in settlement (including all interest, assessments and other charges paid
or payable in connection with or in respect of such Expenses, judgments, fines,
penalties or amounts paid in settlement) of such Claim. If so requested by
Indemnitee, the Company shall advance (within two business days of such request)
any and all Expenses to Indemnitee (an "Expense Advance").
(b) Notwithstanding the foregoing, (i) the obligations of the
Company under Section 2(a) shall be subject to the condition that the Reviewing
Party shall not have determined (in a written opinion, in any case in which the
Independent Legal Counsel referred to in Section 3 hereof is involved) that
Indemnitee would not be permitted to be indemnified under applicable law, and
(ii) the obligation of the Company to make an Expense Advance pursuant to
Section 2(a)
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<PAGE>
shall be subject to the condition that, if, when and to the extent that the
Reviewing Party determines that Indemnitee would not be permitted to be so
indemnified under applicable law, the Company shall be entitled to be
reimbursed by Indemnitee (who hereby agrees to reimburse the Company) for all
such amounts theretofore paid; provided, however, that if Indemnitee has
commenced or thereafter commences legal proceedings in a court of competent
jurisdiction to secure a determination that Indemnitee should be indemnified
under applicable law, any determination made by the Reviewing Party that
Indemnitee would not be permitted to be indemnified under applicable law
shall not be binding and Indemnitee shall not be required to reimburse the
Company for any Expense Advance until a final judicial determination is made
with respect thereto (as to which all rights of appeal therefrom have been
exhausted or lapsed). If there has not been a Change in Control, the
Reviewing Party shall be selected by the Board of Directors, and if there has
been such a Change in Control (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control), the Reviewing Party shall be
the Independent Legal Counsel referred to in Section 3 hereof. If there has
been no determination by the Reviewing Party or if the Reviewing Party
determines that Indemnitee substantively would not be permitted to be
indemnified in whole or in part under applicable law, Indemnitee shall have
the right to commence litigation in any court in the States of California or
Delaware having subject matter jurisdiction thereof and in which venue is
proper seeking an initial determination by the court or challenging any such
determination by the Reviewing Party or any aspect thereof, including the
legal or factual bases therefor, and the Company hereby consents to service
of process and to appear in any such proceeding. Any determination by the
Reviewing Party otherwise shall be conclusive and binding on the Company and
Indemnitee.
3. CHANGE IN CONTROL. The Company agrees that if there is a Change in
Control of the Company (other than a Change in Control which has been approved
by a majority of the Company's Board of Directors who were directors immediately
prior to such Change in Control) then with respect to all matters thereafter
arising concerning the rights of Indemnitee to indemnity payments and Expense
Advances under this Agreement or any other agreement or Charter Document now or
hereafter in effect relating to Claims for Indemnifiable Events, the Company
shall seek legal advice only from Independent Legal Counsel selected by
Indemnitee and approved by the Company (which approval shall not be unreasonably
withheld). Such counsel, among other things, shall render its written opinion to
the Company and Indemnitee as to whether and to what extent the Indemnitee would
be permitted to be indemnified under applicable law. The Company agrees to pay
the reasonable fees of the Independent Legal Counsel referred to above and to
indemnify fully such counsel against any and all expenses (including attorneys'
fees), claims, liabilities and damages arising out of or relating to this
Agreement or its engagement pursuant hereto.
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<PAGE>
4. INDEMNIFICATION FOR ADDITIONAL EXPENSES. The Company shall indemnify
Indemnitee against any and all expenses (including attorneys' fees) and, if
requested by Indemnitee, shall (within two business days of such request)
advance such expenses to Indemnitee, which are incurred by Indemnitee in
connection with any action brought by Indemnitee for (i) indemnification or
advance payment of Expenses by the Company under this Agreement or any other
agreement or Charter Document now or hereafter in effect relating to Claims for
Indemnifiable Events and/or (ii) recovery under any directors' and officers'
liability insurance policies maintained by the Company, regardless of whether
Indemnitee ultimately is determined to be entitled to such indemnification,
advance expense payment or insurance recovery, as the case may be.
5. PARTIAL INDEMNITY, ETC. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of the Expenses, judgments, fines, penalties and amounts paid in
settlement of a Claim but not, however, for all of the total amount thereof, the
Company shall nevertheless indemnify Indemnitee for the portion thereof to which
Indemnitee is entitled. Moreover, notwithstanding any other provision of this
Agreement, to the extent that Indemnitee has been successful on the merits or
otherwise in defense of any or all Claims relating in whole or in part to an
Indemnifiable Event or in defense of any issue or matter therein, including
dismissal without prejudice, Indemnitee shall be indemnified against all
Expenses incurred in connection therewith.
6. BURDEN OF PROOF. In connection with any determination by the
Reviewing Party or otherwise as to whether Indemnitee is entitled to be
indemnified hereunder the burden of proof shall be on the Company to establish
that Indemnitee is not so entitled.
7. NO PRESUMPTIONS. For purposes of this Agreement, the termination of
any claim, action, suit or proceeding, by judgment, order, settlement (whether
with or without court approval) or conviction, or upon a plea of nolo
contendere, or its equivalent, shall not create a presumption that Indemnitee
did not meet any particular standard of conduct or have any particular belief or
that a court has determined that indemnification is not permitted by applicable
law. In addition, neither the failure of the Reviewing Party to have made a
determination as to whether Indemnitee has met any particular standard of
conduct or had any particular belief, nor an actual determination by the
Reviewing Party that Indemnitee has not met such standard of conduct or did not
have such belief, prior to the commencement of legal proceedings by Indemnitee
to secure a judicial determination that Indemnitee should be indemnified under
applicable law shall be a defense to Indemnitee's claim or create a presumption
that Indemnitee has not met any particular standard of conduct or did not have
any particular belief.
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<PAGE>
8. NONEXCLUSIVITY, ETC. The rights of the Indemnitee hereunder shall be
in addition to any other rights Indemnitee may have under [the Company's By-laws
or] the Delaware General Corporation Law or otherwise. To the extent that a
change in the Delaware General Corporation Law (whether by statute or judicial
decision) permits greater indemnification by agreement than would be afforded
currently under [the Company's By-laws and] this Agreement, it is the intent of
the parties hereto that Indemnitee shall enjoy by this Agreement the greater
benefits so afforded by such change.
9. LIABILITY INSURANCE. To the extent the Company maintains an
insurance policy or policies providing directors' and officers' liability
insurance, Indemnitee shall be covered by such policy or policies, in accordance
with its or their terms, to the maximum extent of the coverage available for any
Company director or officer.
10. PERIOD OF LIMITATIONS. No legal action shall be brought and no
cause of action shall be asserted by or in the right of the Company against
Indemnitee, Indemnitee's spouse, heirs, executors or personal or legal
representatives after the expiration of two years from the date of accrual of
such cause of action, and any claim or cause of action of the Company shall be
extinguished and deemed released unless asserted by the timely filing of a legal
action within such two-year period; provided, however, that if any shorter
period of limitations is otherwise applicable to any such cause of action such
shorter period shall govern.
11. AMENDMENTS, ETC. No supplement, modification or amendment of this
Agreement shall be binding unless executed in writing by both of the parties
hereto. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provisions hereof (whether or not
similar) nor shall such waiver constitute a continuing waiver.
12. 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 papers required and shall do
everything that may be necessary to secure such rights, including the execution
of such documents necessary to enable the Company effectively to bring suit to
enforce such rights.
13. NO DUPLICATION OF PAYMENTS. The Company shall not be liable under
this Agreement to make any payment in connection with any Claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, Charter Document or otherwise) of the amounts
otherwise indemnifiable hereunder.
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14. BINDING EFFECT, ETC. This Agreement shall be binding upon and inure
to the benefit of and be enforceable by the parties hereto and their respective
successors, assigns, including any direct or indirect successor by purchase,
merger, consolidation or otherwise to all or substantially all of the business
and/or assets of the Company, spouses, heirs, executors and personal and legal
representatives. This Agreement shall continue in effect regardless of whether
Indemnitee continues to serve as an officer or director of the Company or of any
other enterprise at the Company's request.
15. SEVERABILITY. The provisions of this Agreement shall be severable
in the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable in any respect, and
the validity and enforceability of any such provision in every other respect and
of the remaining provisions hereof shall not be in any way impaired and shall
remain enforceable to the fullest extent permitted by law.
16. GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in such state without giving effect to the
principles of conflicts of laws.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
VYYO INC.
By: ____________________________
Name: __________________________
Title: _________________________
AGENT
By: ____________________________
Print Name: ____________________
Address:_______________________
_______________________
_______________________
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Exhibit 10.2
PHASECOM, INC.
1996 EQUITY INCENTIVE PLAN
AS ADOPTED ON MARCH 22, 1996
1. PURPOSE. The purpose of the 1996 Equity Incentive Plan (the
"Plan") of PhaseCom, Inc., a Delaware corporation (the "Company"), is to
provide incentives to attract, retain and motivate eligible persons whose
present and potential contributions are important to the success of the
Company, its Parent, Subsidiaries and Affiliates, by offering them an
opportunity to participate in the Company's future performance through awards
of Options, Restricted Stock and Stock Bonuses. Capitalized terms not defined
in the text are defined in Section 23.
2. SHARES SUBJECT TO THE PLAN.
2.1 NUMBER OF SHARES AVAILABLE. Subject to Sections 2.2 and
18, the total number of Shares reserved and available for grant and issuance
pursuant to the Plan shall be three hundred twenty thousand (320,000) Shares.
Subject to Sections 2.2 and 18, Shares shall again be available for grant and
issuance in connection with future Awards under the Plan that: (a) are
subject to issuance upon exercise of an Option but cease to be subject to
such Option for any reason other than exercise of such Option; (b) are
subject to an Award granted hereunder but are forfeited; or (c) are subject
to an Award that otherwise terminates without Shares being issued.
2.2 ADJUSTMENT OF SHARES. In the event that the number of
outstanding Shares is changed by a stock dividend, recapitalization, stock
split, reverse stock split, subdivision, combination, reclassification or
similar change in the capital structure of the Company without consideration,
then (a) the number of Shares reserved for issuance under the Plan; (b) the
Exercise Prices of and number of Shares subject to outstanding Options; and
(c) the number of Shares subject to other outstanding Awards shall be
proportionately adjusted, subject to any required action by the Board or the
shareholders of the Company and compliance with applicable securities laws;
PROVIDED, HOWEVER, that fractions of a Share shall not be issued but shall
either be paid in cash at Fair Market Value or shall be rounded up to the
nearest Share, as determined by the Committee.
3. ELIGIBILITY. ISOs (as defined in Section 5 below) may be
granted only to employees (including officers and directors who are also
employees) of the Company, or of a Parent or Subsidiary of the Company. All
other Awards may be granted to employees, officers, directors, consultants
and advisors of the Company or any Parent, Subsidiary or Affiliate of the
Company; PROVIDED, HOWEVER, such consultants and advisors render bona fide
services not in connection with the offer and sale of securities in a
capital-raising transaction. A person may be granted more than one Award
under the Plan.
4. ADMINISTRATION.
4.1 COMMITTEE AUTHORITY. The Plan shall be administered by
the Committee or the Board acting as the Committee. Subject to the general
purposes, terms and conditions of the Plan, and to the direction of the
Board, the Committee shall have full power to implement and carry out the
Plan. The Committee shall have the authority to:
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(a) construe and interpret the Plan, any Award
Agreement and any other agreement or document
executed pursuant to the Plan;
(b) prescribe, amend and rescind rules and
regulations relating to the Plan;
(c) select persons to receive Awards;
(d) determine the form and terms of Awards;
(e) determine the number of Shares or other
consideration subject to Awards;
(f) determine whether Awards will be granted
singly, in combination, in tandem with, in
replacement of, or as alternatives to, other
Awards under the Plan or any other incentive
or compensation plan of the Company or any
Parent, Subsidiary or Affiliate of the Company;
(g) grant waivers of Plan or Award conditions;
(h) determine the vesting, exercisability and
payment of Awards;
(i) correct any defect, supply any omission, or
reconcile any inconsistency in the Plan, any
Award or any Award Agreement;
(j) determine whether an Award has been earned; and
(k) make all other determinations necessary or
advisable for the administration of the Plan.
4.2 COMMITTEE DISCRETION. Any determination made by the
Committee with respect to any Award shall be made in its sole discretion at
the time of grant of the Award or, unless in contravention of any express
term of the Plan or Award, at any later time, and such determination shall be
final and binding on the company and all persons having an interest in any
Award under the Plan. The Committee may delegate to one or more officers of
the Company the authority to grant an Award under the Plan to Participants
who are not Insiders of the Company.
4.3 EXCHANGE ACT REQUIREMENTS. If the Company is subject to
the Exchange Act, the Company will take appropriate steps to comply with the
disinterested director requirements of Section 16(b) of the Exchange Act,
including but not limited to, the appointment by the Board of a Committee
consisting of not less than two (2) persons (who are members of the Board),
each of whom is a Disinterested Person.
5. OPTIONS. The Committee may grant Options to eligible
persons and shall determine whether such Options shall be Incentive Stock
Options within the meaning of the Code ("ISOs") or Nonqualified Stock Options
("NQSOs"), the number of Shares subject to the
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Option, the Exercise Price of the Option, the period during which the Option
may be exercised, and all other terms and conditions of the Option, subject
to the following:
5.1 FORM OF OPTION GRANT. Each Option granted under the
Plan shall be evidenced by an Award Agreement which shall expressly identify
the Option as an ISO or NQSO ("STOCK OPTION AGREEMENT"), and be in such form
and contain such provisions (which need not be the same for each Participant)
as the Committee shall from time to time approve, and which shall comply with
and be subject to the terms and conditions of the Plan.
5.2 DATE OF GRANT. The date of grant of an Option shall be
the date on which the Committee makes the determination to grant such Option,
unless otherwise specified by the Committee. The Stock Option Agreement and a
copy of the Plan will be delivered to the Participant within a reasonable
time after the granting of the Option.
5.3 EXERCISE PERIOD. Options shall be exercisable within
the times or upon the events determined by the Committee as set forth in the
Stock Option Agreement; PROVIDED, HOWEVER, that no Option shall be
exercisable after the expiration of ten (10) years from the date the Option
is granted, and provided further that no Option granted to a person who
directly or by attribution owns more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or any Parent or
Subsidiary of the Company ("TEN PERCENT SHAREHOLDER") shall be exercisable
after the expiration of five (5) years from the date the Option is granted.
The Committee also may provide for the exercise of Options to become
exercisable at one time or from time to time, periodically or otherwise, in
such number or percentage as the Committee determines.
5.4 EXERCISE PRICE. The Exercise Price shall be determined
by the Committee when the Option is granted and may be not less than
eighty-five percent (85%) of the Fair Market Value of the Shares on the date
of grant; provided that (i) the Exercise Price of an ISO shall be not less
than one hundred percent (100%) of the Fair Market Value of the Shares on the
date of grant; and (ii) the Exercise Price of any Option granted to a Ten
Percent Shareholder shall not be less than one hundred ten percent (110%) of
the Fair Market Value of the Shares on the date of grant. Payment for the
Shares purchased may be made in accordance with Section 8 of the Plan.
5.5 METHOD OF EXERCISE. Options may be exercised only by
delivery to the Company of a written stock option exercise agreement (the
"EXERCISE AGREEMENT") in a form approved by the Committee (which need not be
the same for each Participant), stating the number of Shares being purchased,
the restrictions imposed on the Shares, if any, and such representations and
agreements regarding Participant's investment intent and access to
information and other matters, if any, as may be required or desirable by the
Company to comply with applicable securities laws, together with payment in
full of the Exercise Price for the number of Shares being purchased.
5.6 TERMINATION. Notwithstanding the exercise periods set
forth in the Stock Option Agreement, exercise of an Option shall always be
subject to the following:
(a) If the Participant is Terminated for any
reason except death or Disability, then
Participant may exercise such Participant's
Options only to the extent that such Options
would have been exercisable upon the
Termination Date no later than three (3)
months after the Termination Date (or such
shorter time period as
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may be specified in the Stock Option
Agreement), but in any event, no later than
the expiration date of the Options.
(b) If the Participant is terminated because of
death or Disability (or the Participant dies
within three (3) months of such termination),
then Participant's Options may be exercised
only to the extent that such Options would
have been exercisable by Participant on the
Termination Date and must be exercised by
Participant (or Participant's legal
representative or authorized assignee) no
later than twelve (12) months after the
Termination Date (or such shorter time period
as may be specified in the Stock Option
Agreement), but in any event no later than the
expiration date of the Options; PROVIDED,
HOWEVER, that in the event of termination due
to Disability other than as defined in Section
22(e)(3) of the Code, any ISO that remains
exercisable after ninety (90) days after the
date of termination shall be deemed a NQSO.
5.7 LIMITATIONS ON EXERCISE. The Committee may specify a
reasonable minimum number of Shares that may be purchased on any exercise of
an Option; PROVIDED, HOWEVER, that such minimum number will not prevent
Participant from exercising the Option for the full number of Shares for
which it is then exercisable.
5.8 LIMITATIONS ON ISOS. The aggregate Fair Market Value
(determined as of the date of grant) of Shares with respect to which ISOs are
exercisable for the first time by a Participant during any calendar year
(under the Plan or under any other incentive stock option plan of the Company
or any Affiliate, Parent or Subsidiary of the Company) shall not exceed One
Hundred Thousand Dollars ($100,000). If the Fair Market Value of Shares on
the date of grant with respect to which ISOs are exercisable for the first
time by a Participant during any calendar year exceeds One Hundred Thousand
Dollars ($100,000), the Options for the first One Hundred Thousand Dollars
($100,000) worth of Shares to become exercisable in such calendar year shall
be ISOs and the Options for the amount in excess of One Hundred Thousand
Dollars ($100,000) that become exercisable in that calendar year shall be
NQSOs. In the event that the Code or the regulations promulgated thereunder
are amended after the Effective Date of the Plan to provide for a different
limit on the Fair Market Value of Shares permitted to be subject to ISOs,
such different limit shall be automatically incorporated herein and shall
apply to any Options granted after the effective date of such amendment.
5.9 MODIFICATION, EXTENSION OR RENEWAL. The Committee may
modify, extend or renew outstanding Options and authorize the grant of new
Options in substitution therefor; PROVIDED, HOWEVER, that any such action may
not without the written consent of Participant, impair any of Participant's
rights under any Option previously granted. Any outstanding ISO that is
modified, extended, renewed or otherwise altered shall be treated in
accordance with Section 424(h) of the Code. The Committee may reduce the
Exercise Price of outstanding Options without the consent of Participants
affected by a written notice to them; PROVIDED, HOWEVER, that the Exercise
Price may not be reduced below the minimum Exercise price that would be
permitted under Section 5.4 of the Plan for Options granted on the date the
action is taken to reduce the Exercise Price.
5.10 NO DISQUALIFICATION. Notwithstanding any other
provision in the Plan, no term of the Plan relating to ISOs shall be
interpreted, amended or altered, nor shall
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any discretion or authority granted under the Plan be exercised, so as to
disqualify the Plan under Section 422 of the Code or, without the consent of
the Participant affected, to disqualify any ISO under Section 422 of the Code.
6. RESTRICTED STOCK. A Restricted Stock Award is an offer by
the Company to sell to an eligible person Shares that are subject to
restrictions. The Committee shall determine to whom an offer will be made,
the number of Shares the person may purchase, the price to be paid (the
"Purchase Price"), the restrictions to which the Shares shall be subject, and
all other terms and conditions of the Restricted Stock Award, subject to the
following:
6.1 FORM OF RESTRICTED STOCK AWARD. All purchases under a
Restricted Stock Award made pursuant to the Plan shall be evidenced by an
Award Agreement ("Restricted Stock Purchase Agreement") that shall be in such
form (which need not be the same for each Participant) as the Committee shall
from time to time approve, and shall comply with and be subject to the terms
and conditions of the Plan. The offer of Restricted Stock shall be accepted
by the Participant's execution and delivery of the Restricted Stock Purchase
Agreement and full payment for the shares to the Company within thirty (30)
days from the date the Restricted Stock Purchase Agreement is delivered to
the person. If such person does not execute and deliver the Restricted Stock
Purchase Agreement along with full payment for the Shares to the Company
within thirty (30) days, then the offer shall terminate, unless otherwise
determined by the Committee.
6.2 PURCHASE PRICE. The Purchase Price of Shares sold
pursuant to a Restricted Stock Award shall be determined by the Committee and
shall be at least eighty-five percent (85%) of the Fair Market Value of the
Shares on the date the Restricted Stock Award is granted, except in the case
of a sale to a Ten Percent Shareholder, in which case the Purchase Price
shall be one hundred percent (100%) of the Fair Market Value. Payment of the
Purchase Price may be made in accordance with Section 8 of the Plan.
6.3 RESTRICTIONS. Restricted Stock Awards shall be subject
to such restrictions as the Committee may impose. The Committee may provide
for the lapse of such restrictions in installments and may accelerate or
waive such restrictions, in whole or in part, based on length of service,
performance or such other factors or criteria as the Committee may determine.
Restricted Stock Awards which the Committee intends to qualify under Code
section 162(m) shall be subject to a performance-based goal. Restrictions on
such stock shall lapse based on one or more of the following performance
goals: stock price, market share, sales increases, earning per share, return
on equity, cost reductions, or any other similar performance measure
established by the Committee. Such performance measures shall be established
by the Committee, in writing, no later than the earlier of (a) ninety (90)
days after the commencement of the performance period with respect to which
the Restricted Stock award is made and (b) the date as of which twenty-five
percent (25%) of such performance period has elapsed.
7. STOCK BONUSES.
7.1 AWARDS OF STOCK BONUSES. A Stock Bonus is an award of
Shares (which may consist of Restricted Stock) for services rendered to the
Company or any Parent, Subsidiary or Affiliate of the Company. A Stock Bonus
may be awarded for past services already rendered to the Company, or any
Parent, Subsidiary or Affiliate of the Company pursuant to an Award Agreement
(the "Stock Bonus Agreement") that shall be in such form (which need
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not be the same for each Participant) as the Committee shall from time to
time approve, and shall comply with and be subject to the terms and
conditions of the Plan subject to Section 7.2 herein, a Stock Bonus may be
awarded upon satisfaction of such performance goals as are set out in advance
in Participant's individual Award Agreement (the "Performance Stock Bonus
Agreement") that shall be in such form (which need not be the same for each
Participant) as the Committee shall from time to time approve, and shall
comply with and be subject to the terms and conditions of the Plan. Stock
Bonuses may vary from Participant to Participant and between groups of
Participants, and may be based upon such other criteria as the Committee may
determine; PROVIDED, HOWEVER, that performance-based bonuses shall be
restricted to individuals earning at least Sixty Thousand Dollars ($60,000)
per year and of adequate sophistication and sufficiently empowered to achieve
the performance goals.
7.2 CODE SECTION 162(m). A Stock Bonus that the Committee
intends to qualify for the performance-based exception under Code section
162(m) shall only be awarded based upon the attainment of one or more of the
following performance goals: stock price, market share, sales increases,
earning per share, return on equity, cost reductions, or any other similar
performance measure established by the Committee. Such performance measures
shall be established by the Committee, in writing, no later than the earlier
of: (a) ninety (90) days after the commencement of the performance period
with respect to which the Stock Bonus award is made; and (b) the date as of
which twenty-five percent (25%) of such performance period has elapsed.
7.3 TERMS OF STOCK BONUSES. The Committee shall determine
the number of Shares to be awarded to the Participant and whether such Shares
shall be Restricted Stock. If the Stock Bonus is being earned upon the
satisfaction of performance goals pursuant to a Performance Stock Bonus
Agreement, then the Committee shall determine: (a) the nature, length and
starting date of any period during which performance is to be measured (the
"Performance Period") for each Stock Bonus; (b) the performance goals and
criteria to be used to measure the performance, if any; (c) the number of
Shares that may be awarded to the Participant; and (d) the extent to which
such Stock Bonuses have been earned. Performance Periods may overlap and
Participants may participate simultaneously with respect to Stock Bonuses
that are subject to different Performance Periods and different performance
goals and other criteria. The number of Shares may be fixed or may vary in
accordance with such performance goals and criteria as may be determined by
the Committee. The Committee may adjust the performance goals applicable to
the Stock Bonuses to take into account changes in law and accounting or tax
rules and to make such adjustments as the Committee deems necessary or
appropriate to reflect the impact of extraordinary or unusual items, events
or circumstances to avoid windfalls or hardships.
7.4 FORM OF PAYMENT. The earned portion of a Stock Bonus
may be paid currently or on a deferred basis with such interest or dividend
equivalent, if any, as the Committee may determine. Payment may be made in
the form of cash, whole Shares, including Restricted Stock, or a combination
thereof, either in a lump sum payment or in installments, all as the
Committee shall determine.
7.5 TERMINATION DURING PERFORMANCE PERIOD. If a Participant
is Terminated during a Performance Period for any reason, then such
Participant shall be entitled to payment (whether in Shares, cash or
otherwise) with respect to the Stock Bonus only to the extent earned as of
the date of Termination in accordance with the Performance Stock Bonus
Agreement, unless the Committee shall determine otherwise.
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8. PAYMENT FOR SHARE PURCHASES.
8.1 PAYMENT. Payment for Shares purchased pursuant to the
Plan may be made in cash (by check) or, where expressly approved for the
Participant by the Committee and where permitted by law:
(a) by cancellation of indebtedness of the Company
to the Participant;
(b) by surrender of Shares that either (1) have
been owned by Participant for more than six
(6) months and have been paid for within the
meaning of SEC Rule 144 (and, if such shares
were purchased from the Company by use of a
promissory note, such note has been fully paid
with respect to such Shares); or (2) were
obtained by Participant in the public market;
(c) by tender of a full recourse promissory note
having such terms as may be approved by the
Committee and bearing interest at a rate
sufficient to avoid imputation of income under
Sections 483 and 1274 of the Code; PROVIDED,
HOWEVER, that Participants who are not
employees of the Company shall not be entitled
to purchase Shares with a promissory note
unless the note is adequately secured by
collateral other than the Shares.
(d) by waiver of compensation due or accrued to
Participant for services rendered;
(e) by tender of property;
(f) with respect only to purchases upon exercise
of an Option, and provided that a public
market for the Company's stock exists:
(1) through a "same day sale" commitment
from Participant and a broker-dealer
that is a member of the National
Association of Securities Dealers (an
"NASD Dealer") whereby the Participant
irrevocably elects to exercise the
Option and to sell a portion of the
Shares so purchased to pay for the
Exercise Price, and whereby the NASD
Dealer irrevocably commits upon
receipt of such Shares to forward the
Exercise Price directly to the
Company; or
(2) through a "margin" commitment from
Participant and an NASD Dealer whereby
Participant irrevocably elects to
exercise the Option and to pledge the
Shares so purchased to the NASD Dealer
in a margin account as security for a
loan from the NASD Dealer in the
amount of the Exercise Price, and
whereby the NASD Dealer irrevocably
commits upon receipt of such Shares to
forward the exercise price directly to
the Company; or
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(g) by any combination of the foregoing.
8.2 LOAN GUARANTIES. The Committee may help the Participant
pay for Shares purchased under the Plan by authorizing a guaranty by the
Company of a third-party loan to the Participant.
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9. WITHHOLDING TAXES.
9.1 WITHHOLDING GENERALLY. Whenever Shares are to be issued
in satisfaction of Awards granted under the Plan, the Company may require the
Participant to remit to the Company an amount sufficient to satisfy federal,
state and local withholding tax requirements prior to the delivery of any
certificate or certificates for such Shares. Whenever, under the Plan,
payments in satisfaction of Awards are to be made in cash, such payment shall
be net of an amount sufficient to satisfy federal, state, and local
withholding tax requirements.
9.2 STOCK WITHHOLDING. When, under applicable tax laws, a
Participant incurs tax liability in connection with the exercise or vesting
of any Award that is subject to tax withholding and the Participant is
obligated to pay the Company the amount required to be withheld, the
Committee may allow the Participant to satisfy the minimum withholding tax
obligation by electing to have the Company withhold from the Shares to be
issued that number of Shares having a Fair Market Value equal to the minimum
amount required to be withheld, determined on the date that the amount of tax
to be withheld is to be determined (the "Tax Date"). All elections by a
Participant to have Shares withheld for this purpose shall be made in writing
in a form acceptable to the Committee and shall be subject to the following
restrictions:
(a) the election must be made on or prior to the
applicable Tax Date;
(b) once made, then except as provided below, the
election shall be irrevocable as to the
particular Shares as to which the election is
made;
(c) all elections shall be subject to the consent
or disapproval of the Committee;
(d) if the Participant is an Insider and if the
Company is subject to Section 16(b) of the
Exchange Act: (1) the election may not be made
within six (6) months of the date of grant of
the Award, except as otherwise permitted by
SEC Rule 16b-3(e) under the Exchange Act, and
(2) either (A) the election to use stock
withholding must be irrevocably made at least
six (6) months prior to the Tax Date (although
such election may be revoked at any time at
least six (6) months prior to the Tax Date),
or (B) the exercise of the Option or election
to use stock withholding must be made in the
ten (10) day period beginning on the third day
following the release of the Company's
quarterly or annual summary statement of sales
or earnings; and
(e) in the event that the Tax Date is deferred
until six (6) months after the delivery of
Shares under Section 83(b) of the Code, the
Participant shall receive the full number of
Shares with respect to which the exercise
occurs, but such Participant shall be
unconditionally obligated to tender back to
the Company the proper number of Shares on the
Tax Date.
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10. PRIVILEGES OF STOCK OWNERSHIP.
10.1 VOTING AND DIVIDENDS. No Participant shall have any of
the rights of a shareholder with respect to any Shares until the Shares are
issued to the Participant. After Shares are issued to the Participant, the
Participant shall be a shareholder and have all the rights of a shareholder
with respect to such Shares, including the right to vote and receive all
dividends or other distributions made or paid with respect to such Shares;
PROVIDED, HOWEVER, that if such Shares are Restricted Stock, then any new,
additional or different securities the Participant may become entitled to
receive with respect to such Shares by virtue of a stock dividend, stock
split or any other change in the corporate or capital structure of the
Company shall be subject to the same restrictions as the Restricted Stock.
10.2 FINANCIAL STATEMENTS. The Company shall provide
financial statements to each Participant prior to such Participant's purchase
of Shares under the Plan, and to each Participant annually during the period
such Participant has Awards outstanding; PROVIDED, HOWEVER, the Company shall
not be required to provide such financial statements to Participants whose
services in connection with the Company assure them access to equivalent
information.
11. TRANSFERABILITY. Awards granted under the Plan, and any interest
therein, shall not be transferable or assignable by Participant, and may not
be made subject to execution, attachment or similar process, otherwise than
by will or by the laws of descent and distribution or as consistent with the
specific Plan and Award Agreement provisions relating thereto. During the
lifetime of the Participant an Award shall be exercisable only by the
Participant, and any elections with respect to an Award, may be made only by
the Participant.
12. RESTRICTIONS ON SHARES. At the discretion of the Committee, the
Company may reserve to itself and/or its assignee(s) in the Award Agreement a
right of first refusal to purchase all Shares that a Participant (or a
subsequent transferee) may propose to transfer to a third party.
13. CERTIFICATES. All certificates for Shares or other securities
delivered under the Plan shall be subject to such stock transfer orders,
legends and other restrictions as the Committee may deem necessary or
advisable, including restrictions under any applicable federal, state or
foreign securities law, or any rules, regulations and other requirements of
the SEC or any stock exchange or automated quotation system upon which the
Shares may be listed.
14. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a
Participant's Shares, the Committee may require the Participant to deposit
all certificates representing Shares, together with stock powers or other
instruments of transfer approved by the Committee, appropriately endorsed in
blank, with the Company or an agent designated by the Company to hold in
escrow until such restrictions have lapsed or terminated, and the Committee
may cause a legend or legends referencing such restrictions to be placed on
the certificates. Any Participant who is permitted to execute a promissory
note as partial or full consideration for the purchase of Shares under the
Plan shall be required to place and deposit with the Company all or part of
the Shares so purchased as collateral to secure the payment of Participant's
obligation to the Company under the promissory note; PROVIDED, HOWEVER, that
the Committee may require or accept other or additional forms of collateral
to secure the payment of such obligation and, in any event, the Company shall
have full recourse against the Participant under
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the promissory note notwithstanding any pledge of the Participant's Shares or
other collateral. In connection with any pledge of the Shares, Participant
shall be required to execute and deliver a written pledge agreement in such
form as the Committee shall from time to time approve. The Shares purchased
with the promissory note may be released from the pledge on a pro rata basis
as the promissory note is paid.
15. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time or
from time to time, authorize the Company, with the consent of the respective
Participants, to issue new Awards in exchange for the surrender and
cancellation of any or all outstanding Awards. The Committee may at any time
buy from a Participant an Award previously granted with payment in cash,
Shares (including Restricted Stock) or other consideration, based on such
terms and conditions as the Committee and the Participant shall agree.
16. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award shall
not be effective unless such Award is in compliance with all applicable
federal and state securities laws, rules and regulations of any governmental
body, and the requirements of any stock exchange or automated quotation
system upon which the Shares may then be listed, as they are in effect on the
date of grant of the Award and also on the date of exercise or other
issuance. Notwithstanding any other provision in the Plan, the Company shall
have no obligation to issue or deliver certificates for Shares under the Plan
prior to (a) obtaining any approvals from governmental agencies that the
Company determines are necessary or advisable, and/or (b) completion of any
registration or other qualification of such shares under any state or federal
law or ruling of any governmental body that the Company determines to be
necessary or advisable. The Company shall be under no obligation to register
the Shares with the SEC or to effect compliance with the registration,
qualification or listing requirements of any state securities laws, stock
exchange or automated quotation system, and the Company shall have no
liability for any inability or failure to do so.
17. NO OBLIGATION TO EMPLOY. Nothing in the Plan or any Award
granted under the Plan shall confer or be deemed to confer on any Participant
any right to continue in the employ of, or to continue any other relationship
with, the Company or any Parent, Subsidiary or Affiliate of the Company or
limit in any way the right of the Company or any Parent, Subsidiary or
Affiliate of the Company to terminate Participant's employment or other
relationship at any time, with or without cause.
18. CORPORATE TRANSACTIONS.
18.1 ASSUMPTION OR REPLACEMENT OF AWARDS BY SUCCESSOR. In
the event of (a) a merger or consolidation in which the Company is not the
surviving corporation (other than a merger or consolidation with a
wholly-owned subsidiary, a reincorporation of the Company in a different
jurisdiction, or other transaction in which there is no substantial change in
the shareholders of the company and the Awards granted under the Plan are
assumed or replaced by the successor corporation, which assumption shall be
binding on all Participants); (b) a dissolution or liquidation of the
Company; (c) the sale of substantially all of the assets of the Company;, or
(d) any other transaction which qualifies as a "corporate transaction" under
Section 424(a) of the Code wherein the shareholders of the Company give up
all of their equity interest in the Company (EXCEPT for the acquisition, sale
or transfer of all or substantially all of the outstanding shares of the
Company), any or all outstanding Awards may be assumed or replaced by the
successor corporation (if any), which assumption or replacement shall be
binding on all Participants. In the alternative, the successor corporation
may substitute
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equivalent Awards or provide substantially similar consideration to
Participants as was provided to shareholders (after taking into account the
existing provisions of the Awards). The successor corporation may also issue,
in place of outstanding Shares of the Company held by the Participant,
substantially similar shares or other property subject to repurchase
restrictions no less favorable to the Participant.
In the event such successor corporation (if any) refuses to
assume or substitute Options, as provided above, pursuant to a transaction
described in this Subsection 18.1, such Options shall expire on such
transaction at such time and on such conditions as the Board shall determine.
18.2 OTHER TREATMENT OF AWARDS. Subject to any greater
rights granted to Participants under the foregoing provisions of this Section
18, in the event of the occurrence of any transaction described in Section
18.1, any outstanding Awards shall be treated as provided in the applicable
agreement or plan of merger, consolidation, dissolution, liquidation, sale of
assets or other "corporate transaction."
18.3 ASSUMPTION OF AWARDS BY THE COMPANY. The Company, from
time to time, also may substitute or assume outstanding awards granted by
another company, whether in connection with an acquisition of such other
company or otherwise, by either (a) granting an Award under the Plan in
substitution of such other company's award; or (b) assuming such award as if
it had been granted under the Plan if the terms of such assumed award could
be applied to an Award granted under the Plan. Such substitution or
assumption shall be permissible if the holder of the substituted or assumed
award would have been eligible to be granted an Award under the Plan if the
other company had applied the rules of the Plan to such grant. In the event
the Company assumes an award granted by another company, the terms and
conditions of such award shall remain unchanged (EXCEPT that the exercise
price and the number and nature of Shares issuable upon exercise of any such
option will be adjusted approximately pursuant to Section 424(a) of the
Code). In the event the Company elects to grant a new Option rather than
assuming an existing option, such new Option may be granted with a similarly
adjusted Exercise Price.
19. ADOPTION AND SHAREHOLDER APPROVAL. The Plan shall become
effective on the date that it is adopted by the Board (the "Effective Date").
The Plan shall be approved by the shareholders of the Company (excluding
Shares issued pursuant to this Plan), consistent with applicable laws, within
twelve months before or after the Effective Date. Upon the Effective Date,
the Board may grant Awards pursuant to the Plan; PROVIDED, HOWEVER, that: (a)
no Option may be exercised prior to initial shareholder approval of the Plan;
(b) no Option granted pursuant to an increase in the number of Shares
approved by the Board shall be exercised prior to the time such increase has
been approved by the shareholders of the Company; and (c) in the event that
shareholder approval is not obtained within the time period provided herein,
all Awards granted hereunder shall be cancelled, any Shares issued pursuant
to any Award shall be cancelled and any purchase of Shares hereunder shall be
rescinded. After the Company becomes subject to Section 16(b) of the Exchange
Act, the Company will comply with the requirements of Rule 16b-3 (or its
successor), as amended, with respect to shareholder approval.
20. TERM OF PLAN. The Plan will terminate ten (10) years from
the Effective Date or, if earlier, the date of shareholder approval of the
Plan.
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21. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time
terminate or amend the Plan in any respect, including without limitation
amendment of any form of Award Agreement or instrument to be executed
pursuant to the Plan; PROVIDED, HOWEVER, that the Board shall not, without
the approval of the shareholders of the Company, amend the Plan in any manner
that requires such shareholder approval pursuant to the Code or the
regulations promulgated thereunder as such provisions apply to ISO plans or
pursuant to the Exchange Act or Rule 16b-3 (or its successor), as amended,
thereunder.
22. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of the
Plan by the Board, the submission of the Plan to the shareholders of the
Company for approval, nor any provision of the Plan shall be construed as
creating any limitations on the power of the Board to adopt such additional
compensation arrangements as it may deem desirable, including, without
limitation, the granting of stock options and bonuses otherwise than under
the Plan, and such arrangements may be either generally applicable or
applicable only in specific cases.
23. DEFINITIONS. As used in the Plan, the following terms shall
have the following meanings:
"AFFILIATE" means any corporation that directly, or
indirectly through one or more intermediaries, controls or is controlled by,
or is under common control with, another corporation, where "control"
(including the terms "controlled by" and "under common control with") means
the possession, direct or indirect, of the power to cause the direction of
the management and policies of the corporation, whether through the ownership
of voting securities, by contract or otherwise.
"AWARD" means any award under the Plan, including any
Option, Restricted Stock or Stock Bonus.
"AWARD AGREEMENT" means, with respect to each Award, the
signed written agreement between the Company and the Participant setting
forth the terms and conditions of the Award.
"BOARD" means the Board of Directors of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the committee appointed by the Board to
administer the Plan, or if no committee is appointed, the Board.
"COMPANY" means PhaseCom, Inc., a corporation organized
under the laws of the State of Delaware, or any successor corporation.
"DISABILITY" means a disability, whether temporary or
permanent, partial or total, as determined by the Committee.
"DISINTERESTED PERSON" means a director who has not, during
the period that person is a member of the Committee and for one (1) year
prior to service as a member of the Committee, been granted or awarded equity
securities pursuant to the Plan or any other plan of the Company or any
Parent, Subsidiary or Affiliate of the Company, except in accordance with the
requirements set forth in Rule 16b-3(c)(2)(i) (and any successor regulation
thereto)
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as promulgated by the SEC under Section 16(b) of the Exchange Act, as such
rule is amended from time to time and as interpreted by the SEC.
"EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
"EXERCISE PRICE" means the price at which a holder of an
Option may purchase the Shares issuable upon exercise of the Option.
"FAIR MARKET VALUE" means, as of any date, the value of a
share of the Company's Common Stock determined as follows:
(a) if such Common Stock is then quoted on the
Nasdaq National Market, its last reported
sale price on the Nasdaq National Market or,
if no such reported sale takes place on such
date, the average of the closing bid and
asked prices;
(b) if such Common Stock is publicly traded and
is then listed on a national securities
exchange, the last reported sale price or,
if no such reported sale takes place on such
date, the average of the closing bid and
asked prices on the principal national
securities exchange on which the Common
Stock is listed or admitted to trading;
(c) if such Common Stock is publicly traded but
is not quoted on the Nasdaq National Market
nor listed or admitted to trading on a
national securities exchange, the average of
the closing bid and asked prices on such
date, as reported by The Wall Street
Journal, for the over-the-counter market; or
(d) if none of the foregoing is applicable, by
the Board of Directors of the Company in
good faith.
"INSIDER" means an officer or director of the Company or
any other person whose transactions in the Company's Common Stock are subject
to Section 16 of the Exchange Act.
"OPTION" means an award of an option to purchase Shares
pursuant to Section 5.
"PARENT" means any corporation (other than the Company) in
an unbroken chain of corporations ending with the Company, if at the time of
the granting of an Award under the Plan, each of such corporations other than
the Company owns 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.
"PARTICIPANT" means a person who receives an Award under
the Plan.
"PLAN" means this PhaseCom, Inc. 1996 Equity Incentive
Plan, as amended from time to time.
"RESTRICTED STOCK AWARD" means an award of Shares pursuant
to Section 6.
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"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as
amended.
"SHARES" means shares of the Company's Common Stock
reserved for issuance under the Plan, as adjusted pursuant to Sections 2 and
15, and any successor security.
"STOCK BONUS" means an award of Shares, or cash in lieu of
Shares, pursuant to Section 7.
"SUBSIDIARY" means any corporation (other than the Company)
in an unbroken chain of corporations beginning with the Company if, at the
time of granting of the Award, each of the corporations other than the last
corporation in the unbroken chain owns 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 claim.
"TERMINATION" or "TERMINATED" means, for purposes of the
Plan with respect to a Participant, that the Participant has ceased to
provide services as an employee, director, consultant or adviser, to the
Company or a Parent, Subsidiary or Affiliate of the Company, except in the
case of sick leave, military leave, or any other leave of absence approved by
the Committee; PROVIDED, HOWEVER, that such leave is for a period of not more
than ninety (90) days, or reinstatement upon the expiration of such leave is
guaranteed by contract or statute. The Committee shall have sole discretion
to determine whether a Participant has ceased to provide services and the
effective date on which the Participant ceased to provide services (the
"Termination Date").
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EXHIBIT 10.3
PHASECOM, INC.
1999 EMPLOYEE AND CONSULTANT EQUITY INCENTIVE PLAN
1. PURPOSE. The purpose of the 1999 Employee and Consultant Equity
Incentive Plan (the "Plan") of PHASECOM, Inc., a Delaware corporation (the
"Company"), is to provide incentives to attract, retain and motivate eligible
persons whose present and potential contributions are important to the
success of the Company, its Parent, Subsidiaries and Affiliates, by offering
them an opportunity to participate in the Company's future performance
through awards of Options, Restricted Stock and Stock Bonuses. The company
wishes the issuance of options to its employees in Israel to conform with the
requirements of Section 3(9) of the Israeli Income Tax Ordinance, and for
this purpose the appended document Annex A amends this plan to so conform.
Capitalized terms not defined in the text are defined in Section 23.
2. SHARES SUBJECT TO THE PLAN.
2.1 NUMBER OF SHARES AVAILABLE. Subject to Sections 2.2 and
18, the total number of Shares reserved and available for grant and issuance
pursuant to the Plan shall be one million six hundred thousand (1,600,000)
Shares. Subject to Sections 2.2 and 18, Shares shall again be available for
grant and issuance in connection with future Awards under the Plan that: (a)
are subject to issuance upon exercise of an Option but cease to be subject to
such Option for any reason other than exercise of such Option; (b) are
subject to an Award granted hereunder but are forfeited; or (c) are subject
to an Award that otherwise terminates without Shares being issued.
2.2 ADJUSTMENT OF SHARES. In the event that the number of
outstanding Shares is changed by a stock dividend, recapitalization, stock
split, reverse stock split, subdivision, combination, reclassification or
similar change in the capital structure of the Company without consideration,
then (a) the number of Shares reserved for issuance under the Plan; (b) the
Exercise Prices of and number of Shares subject to outstanding Options; and
(c) the number of Shares subject to other outstanding Awards shall be
proportionately adjusted, subject to any required action by the Board or the
shareholders of the Company and compliance with applicable securities laws;
PROVIDED, HOWEVER, that fractions of a Share shall not be issued but shall
either be paid in cash at Fair Market Value or shall be rounded up to the
nearest Share, as determined by the Committee.
3. ELIGIBILITY. ISOs (as defined in Section 5 below) may be granted
only to employees (including officers and directors who are also employees)
of the Company, or of a Parent or Subsidiary of the Company. All other Awards
may be granted to employees, officers, directors, consultants and advisors of
the Company or any Parent, Subsidiary or Affiliate of the Company; PROVIDED,
HOWEVER, such consultants and advisors render bona fide services not in
connection with the offer and sale of securities in a capital-raising
transaction. A person may be granted more than one Award under the Plan.
4. ADMINISTRATION.
4.1 COMMITTEE AUTHORITY. The Plan shall be administered by
the Committee or the Board acting as the Committee. Subject to the general
purposes, terms and conditions of the Plan, and to the direction of the
Board, the Committee shall have full power to implement and carry out the
Plan. The Committee shall have the authority to:
<PAGE>
(a) construe and interpret the Plan, any Award
Agreement and any other agreement or
document executed pursuant to the Plan;
(b) prescribe, amend and rescind rules and
regulations relating to the Plan;
(c) select persons to receive Awards;
(d) determine the form and terms of Awards;
(e) determine the number of Shares or other
consideration subject to Awards;
(f) determine whether Awards will be granted
singly, in combination, in tandem with, in
replacement of, or as alternatives to, other
Awards under the Plan or any other incentive
or compensation plan of the Company or any
Parent, Subsidiary or Affiliate of the
Company;
(g) grant waivers of Plan or Award conditions;
(h) determine the vesting, exercisability and
payment of Awards;
(i) correct any defect, supply any omission, or
reconcile any inconsistency in the Plan, any
Award or any Award Agreement;
(j) determine whether an Award has been earned;
and
(k) make all other determinations necessary or
advisable for the administration of the
Plan.
4.2 COMMITTEE DISCRETION. Any determination made by the
Committee with respect to any Award shall be made in its sole discretion at
the time of grant of the Award or, unless in contravention of any express
term of the Plan or Award, at any later time, and such determination shall be
final and binding on the company and all persons having an interest in any
Award under the Plan. The Committee may delegate to one or more officers of
the Company the authority to grant an Award under the Plan to Participants
who are not Insiders of the Company.
4.3 EXCHANGE ACT REQUIREMENTS. If the Company is subject to
the Exchange Act, the Company will take appropriate steps to comply with the
disinterested director requirements of Section 16(b) of the Exchange Act,
including but not limited to, the appointment by the Board of a Committee
consisting of not less than two (2) persons (who are members of the Board),
each of whom is a Disinterested Person.
5. OPTIONS. The Committee may grant Options to eligible persons and
shall determine whether such Options shall be Incentive Stock Options within
the meaning of the Code ("ISOs") or Nonqualified Stock Options ("NQSOs"), the
number of Shares subject to the
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Option, the Exercise Price of the Option, the period during which the Option
may be exercised, and all other terms and conditions of the Option, subject
to the following:
5.1 FORM OF OPTION GRANT. Each Option granted under the
Plan shall be evidenced by an Award Agreement which shall expressly identify
the Option as an ISO or NQSO ("STOCK OPTION AGREEMENT"), and be in such form
and contain such provisions (which need not be the same for each Participant)
as the Committee shall from time to time approve, and which shall comply with
and be subject to the terms and conditions of the Plan.
5.2 DATE OF GRANT. The date of grant of an Option shall be
the date on which the Committee makes the determination to grant such Option,
unless otherwise specified by the Committee. The Stock Option Agreement and a
copy of the Plan will be delivered to the Participant within a reasonable
time after the granting of the Option.
5.3 EXERCISE PERIOD. Options shall be exercisable within
the times or upon the events determined by the Committee as set forth in the
Stock Option Agreement; PROVIDED, HOWEVER, that no Option shall be
exercisable after the expiration of ten (10) years from the date the Option
is granted, and provided further that no Option granted to a person who
directly or by attribution owns more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or any Parent or
Subsidiary of the Company ("TEN PERCENT SHAREHOLDER") shall be exercisable
after the expiration of five (5) years from the date the Option is granted.
The Committee also may provide for the exercise of Options to become
exercisable at one time or from time to time, periodically or otherwise, in
such number or percentage as the Committee determines.
5.4 EXERCISE PRICE. The Exercise Price shall be determined
by the Committee when the Option is granted and may be not less than
eighty-five percent (85%) of the Fair Market Value of the Shares on the date
of grant; provided that (i) the Exercise Price of an ISO shall be not less
than one hundred percent (100%) of the Fair Market Value of the Shares on the
date of grant; and (ii) the Exercise Price of any Option granted to a Ten
Percent Shareholder shall not be less than one hundred ten percent (110%) of
the Fair Market Value of the Shares on the date of grant. Payment for the
Shares purchased may be made in accordance with Section 8 of the Plan.
5.5 METHOD OF EXERCISE. Options may be exercised only by
delivery to the Company of a written stock option exercise agreement (the
"EXERCISE AGREEMENT") in a form approved by the Committee (which need not be
the same for each Participant), stating the number of Shares being purchased,
the restrictions imposed on the Shares, if any, and such representations and
agreements regarding Participant's investment intent and access to
information and other matters, if any, as may be required or desirable by the
Company to comply with applicable securities laws, together with payment in
full of the Exercise Price for the number of Shares being purchased.
5.6 TERMINATION. Notwithstanding the exercise periods set
forth in the Stock Option Agreement, exercise of an Option shall always be
subject to the following:
(a) If the Participant is Terminated for any
reason except death or Disability, then
Participant may exercise such Participant's
Options only to the extent that such Options
would have been exercisable upon the
Termination Date no later than three (3)
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months after the Termination Date (or such
shorter time period as may be specified in
the Stock Option Agreement), but in any
event, no later than the expiration date of
the Options.
(b) If the Participant is terminated because of
death or Disability (or the Participant dies
within three (3) months of such
termination), then Participant's Options may
be exercised only to the extent that such
Options would have been exercisable by
Participant on the Termination Date and must
be exercised by Participant (or
Participant's legal representative or
authorized assignee) no later than twelve
(12) months after the Termination Date (or
such shorter time period as may be specified
in the Stock Option Agreement), but in any
event no later than the expiration date of
the Options; PROVIDED, HOWEVER, that in the
event of termination due to Disability other
than as defined in Section 22(e)(3) of the
Code, any ISO that remains exercisable after
ninety (90) days after the date of
termination shall be deemed a NQSO.
5.7 LIMITATIONS ON EXERCISE. The Committee may specify a
reasonable minimum number of Shares that may be purchased on any exercise of
an Option; PROVIDED, HOWEVER, that such minimum number will not prevent
Participant from exercising the Option for the full number of Shares for
which it is then exercisable.
5.8 LIMITATIONS ON ISOS. The aggregate Fair Market Value
(determined as of the date of grant) of Shares with respect to which ISOs are
exercisable for the first time by a Participant during any calendar year
(under the Plan or under any other incentive stock option plan of the Company
or any Affiliate, Parent or Subsidiary of the Company) shall not exceed One
Hundred Thousand Dollars ($100,000). If the Fair Market Value of Shares on
the date of grant with respect to which ISOs are exercisable for the first
time by a Participant during any calendar year exceeds One Hundred Thousand
Dollars ($100,000), the Options for the first One Hundred Thousand Dollars
($100,000) worth of Shares to become exercisable in such calendar year shall
be ISOs and the Options for the amount in excess of One Hundred Thousand
Dollars ($100,000) that become exercisable in that calendar year shall be
NQSOs. In the event that the Code or the regulations promulgated thereunder
are amended after the Effective Date of the Plan to provide for a different
limit on the Fair Market Value of Shares permitted to be subject to ISOs,
such different limit shall be automatically incorporated herein and shall
apply to any Options granted after the effective date of such amendment.
5.9 MODIFICATION, EXTENSION OR RENEWAL. The Committee may
modify, extend or renew outstanding Options and authorize the grant of new
Options in substitution therefor; PROVIDED, HOWEVER, that any such action may
not without the written consent of Participant, impair any of Participant's
rights under any Option previously granted. Any outstanding ISO that is
modified, extended, renewed or otherwise altered shall be treated in
accordance with Section 424(h) of the Code. The Committee may reduce the
Exercise Price of outstanding Options without the consent of Participants
affected by a written notice to them; PROVIDED, HOWEVER, that the Exercise
Price may not be reduced below the minimum Exercise price that would be
permitted under Section 5.4 of the Plan for Options granted on the date the
action is taken to reduce the Exercise Price.
5.10 NO DISQUALIFICATION. Notwithstanding any other provision
in the Plan, no term of the Plan relating to ISOs shall be interpreted, amended
or altered, nor shall any
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discretion or authority granted under the Plan be exercised, so as to
disqualify the Plan under Section 422 of the Code or, without the consent of
the Participant affected, to disqualify any ISO under Section 422 of the Code.
6. RESTRICTED STOCK. A Restricted Stock Award is an offer by the
Company to sell to an eligible person Shares that are subject to
restrictions. The Committee shall determine to whom an offer will be made,
the number of Shares the person may purchase, the price to be paid (the
"Purchase Price"), the restrictions to which the Shares shall be subject, and
all other terms and conditions of the Restricted Stock Award, subject to the
following:
6.1 FORM OF RESTRICTED STOCK AWARD. All purchases under a
Restricted Stock Award made pursuant to the Plan shall be evidenced by an
Award Agreement ("Restricted Stock Purchase Agreement") that shall be in such
form (which need not be the same for each Participant) as the Committee shall
from time to time approve, and shall comply with and be subject to the terms
and conditions of the Plan. The offer of Restricted Stock shall be accepted
by the Participant's execution and delivery of the Restricted Stock Purchase
Agreement and full payment for the shares to the Company within thirty (30)
days from the date the Restricted Stock Purchase Agreement is delivered to
the person. If such person does not execute and deliver the Restricted Stock
Purchase Agreement along with full payment for the Shares to the Company
within thirty (30) days, then the offer shall terminate, unless otherwise
determined by the Committee.
6.2 PURCHASE PRICE. The Purchase Price of Shares sold
pursuant to a Restricted Stock Award shall be determined by the Committee and
shall be at least eighty-five percent (85%) of the Fair Market Value of the
Shares on the date the Restricted Stock Award is granted, except in the case
of a sale to a Ten Percent Shareholder, in which case the Purchase Price
shall be one hundred and ten percent (110%) of the Fair Market Value. Payment
of the Purchase Price may be made in accordance with Section 8 of the Plan.
6.3 RESTRICTIONS. Restricted Stock Awards shall be subject
to such restrictions as the Committee may impose. The Committee may provide
for the lapse of such restrictions in installments and may accelerate or
waive such restrictions, in whole or in part, based on length of service,
performance or such other factors or criteria as the Committee may determine.
Restricted Stock Awards which the Committee intends to qualify under Code
section 162(m) shall be subject to a performance-based goal. Restrictions on
such stock shall lapse based on one or more of the following performance
goals: stock price, market share, sales increases, earning per share, return
on equity, cost reductions, or any other similar performance measure
established by the Committee. Such performance measures shall be established
by the Committee, in writing, no later than the earlier of (a) ninety (90)
days after the commencement of the performance period with respect to which
the Restricted Stock award is made and (b) the date as of which twenty-five
percent (25%) of such performance period has elapsed.
7. STOCK BONUSES.
7.1 AWARDS OF STOCK BONUSES. A Stock Bonus is an award of
Shares (which may consist of Restricted Stock) for services rendered to the
Company or any Parent, Subsidiary or Affiliate of the Company. A Stock Bonus may
be awarded for past services already rendered to the Company, or any Parent,
Subsidiary or Affiliate of the Company pursuant to an Award Agreement (the
"Stock Bonus Agreement") that shall be in such form (which need
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not be the same for each Participant) as the Committee shall from time to
time approve, and shall comply with and be subject to the terms and
conditions of the Plan subject to Section 7.2 herein, a Stock Bonus may be
awarded upon satisfaction of such performance goals as are set out in advance
in Participant's individual Award Agreement (the "Performance Stock Bonus
Agreement") that shall be in such form (which need not be the same for each
Participant) as the Committee shall from time to time approve, and shall
comply with and be subject to the terms and conditions of the Plan. Stock
Bonuses may vary from Participant to Participant and between groups of
Participants, and may be based upon such other criteria as the Committee may
determine; PROVIDED, HOWEVER, that performance-based bonuses shall be
restricted to individuals earning at least Sixty Thousand Dollars ($60,000)
per year and of adequate sophistication and sufficiently empowered to achieve
the performance goals.
7.2 CODE SECTION 162(m). A Stock Bonus that the Committee
intends to qualify for the performance-based exception under Code section
162(m) shall only be awarded based upon the attainment of one or more of the
following performance goals: stock price, market share, sales increases,
earning per share, return on equity, cost reductions, or any other similar
performance measure established by the Committee. Such performance measures
shall be established by the Committee, in writing, no later than the earlier
of: (a) ninety (90) days after the commencement of the performance period
with respect to which the Stock Bonus award is made; and (b) the date as of
which twenty-five percent (25%) of such performance period has elapsed.
7.3 TERMS OF STOCK BONUSES. The Committee shall determine
the number of Shares to be awarded to the Participant and whether such Shares
shall be Restricted Stock. If the Stock Bonus is being earned upon the
satisfaction of performance goals pursuant to a Performance Stock Bonus
Agreement, then the Committee shall determine: (a) the nature, length and
starting date of any period during which performance is to be measured (the
"Performance Period") for each Stock Bonus; (b) the performance goals and
criteria to be used to measure the performance, if any; (c) the number of
Shares that may be awarded to the Participant; and (d) the extent to which
such Stock Bonuses have been earned. Performance Periods may overlap and
Participants may participate simultaneously with respect to Stock Bonuses
that are subject to different Performance Periods and different performance
goals and other criteria. The number of Shares may be fixed or may vary in
accordance with such performance goals and criteria as may be determined by
the Committee. The Committee may adjust the performance goals applicable to
the Stock Bonuses to take into account changes in law and accounting or tax
rules and to make such adjustments as the Committee deems necessary or
appropriate to reflect the impact of extraordinary or unusual items, events
or circumstances to avoid windfalls or hardships.
7.4 FORM OF PAYMENT. The earned portion of a Stock Bonus
may be paid currently or on a deferred basis with such interest or dividend
equivalent, if any, as the Committee may determine. Payment may be made in
the form of cash, whole Shares, including Restricted Stock, or a combination
thereof, either in a lump sum payment or in installments, all as the
Committee shall determine.
7.5 TERMINATION DURING PERFORMANCE PERIOD. If a Participant
is Terminated during a Performance Period for any reason, then such
Participant shall be entitled to payment (whether in Shares, cash or
otherwise) with respect to the Stock Bonus only to the extent earned as of
the date of Termination in accordance with the Performance Stock Bonus
Agreement, unless the Committee shall determine otherwise.
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8. PAYMENT FOR SHARE PURCHASES.
8.1 PAYMENT. Payment for Shares purchased pursuant to the
Plan may be made in cash (by check) or, where expressly approved for the
Participant by the Committee and where permitted by law:
(a) by cancellation of indebtedness of the
Company to the Participant;
(b) by surrender of Shares that either (1) have
been owned by Participant for more than six
(6) months and have been paid for within the
meaning of SEC Rule 144 (and, if such shares
were purchased from the Company by use of a
promissory note, such note has been fully
paid with respect to such Shares); or (2)
were obtained by Participant in the public
market;
(c) by tender of a full recourse promissory note
having such terms as may be approved by the
Committee and bearing interest at a rate
sufficient to avoid imputation of income
under Sections 483 and 1274 of the Code;
PROVIDED, HOWEVER, that Participants who are
not employees of the Company shall not be
entitled to purchase Shares with a
promissory note unless the note is
adequately secured by collateral other than
the Shares.
(d) by waiver of compensation due or accrued to
Participant for services rendered;
(e) by tender of property;
(f) with respect only to purchases upon exercise
of an Option, and provided that a public
market for the Company's stock exists:
(1) through a "same day sale" commitment
from Participant and a broker-dealer
that is a member of the National
Association of Securities Dealers
(an "NASD Dealer") whereby the
Participant irrevocably elects to
exercise the Option and to sell a
portion of the Shares so purchased
to pay for the Exercise Price, and
whereby the NASD Dealer irrevocably
commits upon receipt of such Shares
to forward the Exercise Price
directly to the Company; or
(2) through a "margin" commitment from
Participant and an NASD Dealer
whereby Participant irrevocably
elects to exercise the Option and to
pledge the Shares so purchased to
the NASD Dealer in a margin account
as security for a loan from the NASD
Dealer in the amount of the Exercise
Price, and whereby the NASD Dealer
irrevocably commits upon receipt of
such Shares to forward the exercise
price directly to the Company; or
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(g) by any combination of the foregoing.
8.2 LOAN GUARANTIES. The Committee may help the Participant
pay for Shares purchased under the Plan by authorizing a guaranty by the
Company of a third-party loan to the Participant.
9. WITHHOLDING TAXES.
9.1 WITHHOLDING GENERALLY. Whenever Shares are to be issued
in satisfaction of Awards granted under the Plan, the Company may require the
Participant to remit to the Company an amount sufficient to satisfy federal,
state and local withholding tax requirements prior to the delivery of any
certificate or certificates for such Shares. Whenever, under the Plan,
payments in satisfaction of Awards are to be made in cash, such payment shall
be net of an amount sufficient to satisfy federal, state, and local
withholding tax requirements.
9.2 STOCK WITHHOLDING. When, under applicable tax laws, a
Participant incurs tax liability in connection with the exercise or vesting
of any Award that is subject to tax withholding and the Participant is
obligated to pay the Company the amount required to be withheld, the
Committee may allow the Participant to satisfy the minimum withholding tax
obligation by electing to have the Company withhold from the Shares to be
issued that number of Shares having a Fair Market Value equal to the minimum
amount required to be withheld, determined on the date that the amount of tax
to be withheld is to be determined (the "Tax Date"). All elections by a
Participant to have Shares withheld for this purpose shall be made in writing
in a form acceptable to the Committee and shall be subject to the following
restrictions:
(a) the election must be made on or prior to the
applicable Tax Date;
(b) once made, then except as provided below,
the election shall be irrevocable as to the
particular Shares as to which the election
is made;
(c) all elections shall be subject to the
consent or disapproval of the Committee;
(d) if the Participant is an Insider and if the
Company is subject to Section 16(b) of the
Exchange Act: (1) the election may not be
made within six (6) months of the date of
grant of the Award, except as otherwise
permitted by SEC Rule 16b-3(e) under the
Exchange Act, and (2) either (A) the
election to use stock withholding must be
irrevocably made at least six (6) months
prior to the Tax Date (although such
election may be revoked at any time at least
six (6) months prior to the Tax Date), or
(B) the exercise of the Option or election
to use stock withholding must be made in the
ten (10) day period beginning on the third
day following the release of the Company's
quarterly or annual summary statement of
sales or earnings; and
(e) in the event that the Tax Date is deferred
until six (6) months after the delivery of
Shares under Section 83(b) of the Code, the
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<PAGE>
Participant shall receive the full number of
Shares with respect to which the exercise
occurs, but such Participant shall be
unconditionally obligated to tender back to
the Company the proper number of Shares on
the Tax Date.
10. PRIVILEGES OF STOCK OWNERSHIP.
10.1 VOTING AND DIVIDENDS. No Participant shall have any of
the rights of a shareholder with respect to any Shares until the Shares are
issued to the Participant. After Shares are issued to the Participant, the
Participant shall be a shareholder and have all the rights of a shareholder
with respect to such Shares, including the right to vote and receive all
dividends or other distributions made or paid with respect to such Shares;
PROVIDED, HOWEVER, that if such Shares are Restricted Stock, then any new,
additional or different securities the Participant may become entitled to
receive with respect to such Shares by virtue of a stock dividend, stock
split or any other change in the corporate or capital structure of the
Company shall be subject to the same restrictions as the Restricted Stock.
10.2 FINANCIAL STATEMENTS. The Company shall provide
financial statements to each Participant prior to such Participant's purchase
of Shares under the Plan, and to each Participant annually during the period
such Participant has Awards outstanding; PROVIDED, HOWEVER, the Company shall
not be required to provide such financial statements to Participants whose
services in connection with the Company assure them access to equivalent
information.
11. TRANSFERABILITY. Awards granted under the Plan, and any interest
therein, shall not be transferable or assignable by Participant, and may not
be made subject to execution, attachment or similar process, otherwise than
by will or by the laws of descent and distribution or as consistent with the
specific Plan and Award Agreement provisions relating thereto. During the
lifetime of the Participant an Award shall be exercisable only by the
Participant, and any elections with respect to an Award, may be made only by
the Participant.
12. RESTRICTIONS ON SHARES. At the discretion of the Committee, the
Company may reserve to itself and/or its assignee(s) in the Award Agreement a
right of first refusal to purchase all Shares that a Participant (or a
subsequent transferee) may propose to transfer to a third party.
13. CERTIFICATES. All certificates for Shares or other securities
delivered under the Plan shall be subject to such stock transfer orders,
legends and other restrictions as the Committee may deem necessary or
advisable, including restrictions under any applicable federal, state or
foreign securities law, or any rules, regulations and other requirements of
the SEC or any stock exchange or automated quotation system upon which the
Shares may be listed.
14. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a
Participant's Shares, the Committee may require the Participant to deposit
all certificates representing Shares, together with stock powers or other
instruments of transfer approved by the Committee, appropriately endorsed in
blank, with the Company or an agent designated by the Company to hold in
escrow until such restrictions have lapsed or terminated, and the Committee
may cause a legend or legends referencing such restrictions to be placed on
the certificates. Any Participant who is permitted to execute a promissory
note as partial or full consideration for
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<PAGE>
the purchase of Shares under the Plan shall be required to place and deposit
with the Company all or part of the Shares so purchased as collateral to
secure the payment of Participant's obligation to the Company under the
promissory note; PROVIDED, HOWEVER, that the Committee may require or accept
other or additional forms of collateral to secure the payment of such
obligation and, in any event, the Company shall have full recourse against
the Participant under the promissory note notwithstanding any pledge of the
Participant's Shares or other collateral. In connection with any pledge of
the Shares, Participant shall be required to execute and deliver a written
pledge agreement in such form as the Committee shall from time to time
approve. The Shares purchased with the promissory note may be released from
the pledge on a pro rata basis as the promissory note is paid.
15. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time or
from time to time, authorize the Company, with the consent of the respective
Participants, to issue new Awards in exchange for the surrender and
cancellation of any or all outstanding Awards. The Committee may at any time
buy from a Participant an Award previously granted with payment in cash,
Shares (including Restricted Stock) or other consideration, based on such
terms and conditions as the Committee and the Participant shall agree.
16. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award shall
not be effective unless such Award is in compliance with all applicable
federal and state securities laws, rules and regulations of any governmental
body, and the requirements of any stock exchange or automated quotation
system upon which the Shares may then be listed, as they are in effect on the
date of grant of the Award and also on the date of exercise or other
issuance. Notwithstanding any other provision in the Plan, the Company shall
have no obligation to issue or deliver certificates for Shares under the Plan
prior to (a) obtaining any approvals from governmental agencies that the
Company determines are necessary or advisable, and/or (b) completion of any
registration or other qualification of such shares under any state or federal
law or ruling of any governmental body that the Company determines to be
necessary or advisable. The Company shall be under no obligation to register
the Shares with the SEC or to effect compliance with the registration,
qualification or listing requirements of any state securities laws, stock
exchange or automated quotation system, and the Company shall have no
liability for any inability or failure to do so.
17. NO OBLIGATION TO EMPLOY. Nothing in the Plan or any Award
granted under the Plan shall confer or be deemed to confer on any Participant
any right to continue in the employ of, or to continue any other relationship
with, the Company or any Parent, Subsidiary or Affiliate of the Company or
limit in any way the right of the Company or any Parent, Subsidiary or
Affiliate of the Company to terminate Participant's employment or other
relationship at any time, with or without cause.
18. CORPORATE TRANSACTIONS.
18.1 ASSUMPTION OR REPLACEMENT OF AWARDS BY SUCCESSOR. In the
event of (a) a merger or consolidation in which the Company is not the surviving
corporation (other than a merger or consolidation with a wholly-owned
subsidiary, a reincorporation of the Company in a different jurisdiction, or
other transaction in which there is no substantial change in the shareholders of
the company and the Awards granted under the Plan are assumed or replaced by the
successor corporation, which assumption shall be binding on all Participants);
(b) a dissolution or liquidation of the Company; (c) the sale of substantially
all of the assets of the Company; or (d) any other transaction which qualifies
as a "corporate transaction" under
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<PAGE>
Section 424(a) of the Code wherein the shareholders of the Company give up
all of their equity interest in the Company (EXCEPT for the acquisition, sale
or transfer of all or substantially all of the outstanding shares of the
Company), any or all outstanding Awards may be assumed or replaced by the
successor corporation (if any), which assumption or replacement shall be
binding on all Participants. In the alternative, the successor corporation
may substitute equivalent Awards or provide substantially similar
consideration to Participants as was provided to shareholders (after taking
into account the existing provisions of the Awards). The successor
corporation may also issue, in place of outstanding Shares of the Company
held by the Participant, substantially similar shares or other property
subject to repurchase restrictions no less favorable to the Participant.
In the event such successor corporation (if any) refuses to
assume or substitute Options, as provided above, pursuant to a transaction
described in this Subsection 18.1, such Options shall expire on such
transaction at such time and on such conditions as the Board shall determine.
18.2 OTHER TREATMENT OF AWARDS. Subject to any greater
rights granted to Participants under the foregoing provisions of this Section
18, in the event of the occurrence of any transaction described in Section
18.1, any outstanding Awards shall be treated as provided in the applicable
agreement or plan of merger, consolidation, dissolution, liquidation, sale of
assets or other "corporate transaction."
18.3 ASSUMPTION OF AWARDS BY THE COMPANY. The Company, from
time to time, also may substitute or assume outstanding awards granted by
another company, whether in connection with an acquisition of such other
company or otherwise, by either (a) granting an Award under the Plan in
substitution of such other company's award; or (b) assuming such award as if
it had been granted under the Plan if the terms of such assumed award could
be applied to an Award granted under the Plan. Such substitution or
assumption shall be permissible if the holder of the substituted or assumed
award would have been eligible to be granted an Award under the Plan if the
other company had applied the rules of the Plan to such grant. In the event
the Company assumes an award granted by another company, the terms and
conditions of such award shall remain unchanged (EXCEPT that the exercise
price and the number and nature of Shares issuable upon exercise of any such
option will be adjusted approximately pursuant to Section 424(a) of the
Code). In the event the Company elects to grant a new Option rather than
assuming an existing option, such new Option may be granted with a similarly
adjusted Exercise Price.
19. ADOPTION AND SHAREHOLDER APPROVAL. The Plan shall become effective
on the date that it is adopted by the Board (the "Effective Date"). The Plan
shall be approved by the shareholders of the Company (excluding Shares issued
pursuant to this Plan), consistent with applicable laws, within twelve months
before or after the Effective Date. Upon the Effective Date, the Board may grant
Awards pursuant to the Plan; PROVIDED, HOWEVER, that: (a) no Option may be
exercised prior to initial shareholder approval of the Plan; (b) no Option
granted pursuant to an increase in the number of Shares approved by the Board
shall be exercised prior to the time such increase has been approved by the
shareholders of the Company; and (c) in the event that shareholder approval is
not obtained within the time period provided herein, all Awards granted
hereunder shall be cancelled, any Shares issued pursuant to any Award shall be
cancelled and any purchase of Shares hereunder shall be rescinded. After the
Company becomes subject to Section 16(b) of the Exchange Act, the Company will
comply with the
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<PAGE>
requirements of Rule 16b-3 (or its successor), as amended, with respect to
shareholder approval.
20. TERM OF PLAN. The Plan will terminate ten (10) years from the
Effective Date or, if earlier, the date of shareholder approval of the Plan.
21. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time
terminate or amend the Plan in any respect, including without limitation
amendment of any form of Award Agreement or instrument to be executed
pursuant to the Plan; PROVIDED, HOWEVER, that the Board shall not, without
the approval of the shareholders of the Company, amend the Plan in any manner
that requires such shareholder approval pursuant to the Code or the
regulations promulgated thereunder as such provisions apply to ISO plans or
pursuant to the Exchange Act or Rule 16b-3 (or its successor), as amended,
thereunder.
22. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of the Plan by
the Board, the submission of the Plan to the shareholders of the Company for
approval, nor any provision of the Plan shall be construed as creating any
limitations on the power of the Board to adopt such additional compensation
arrangements as it may deem desirable, including, without limitation, the
granting of stock options and bonuses otherwise than under the Plan, and such
arrangements may be either generally applicable or applicable only in
specific cases.
23. DEFINITIONS. As used in the Plan, the following terms shall have
the following meanings:
"AFFILIATE" means any corporation that directly, or
indirectly through one or more intermediaries, controls or is controlled by,
or is under common control with, another corporation, where "control"
(including the terms "controlled by" and "under common control with") means
the possession, direct or indirect, of the power to cause the direction of
the management and policies of the corporation, whether through the ownership
of voting securities, by contract or otherwise.
"AWARD" means any award under the Plan, including any
Option, Restricted Stock or Stock Bonus.
"AWARD AGREEMENT" means, with respect to each Award, the
signed written agreement between the Company and the Participant setting
forth the terms and conditions of the Award.
"BOARD" means the Board of Directors of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the committee appointed by the Board to
administer the Plan, or if no committee is appointed, the Board.
"COMPANY" means PhaseCom, Inc., a corporation organized
under the laws of the State of Delaware, or any successor corporation.
"DISABILITY" means a disability, whether temporary or
permanent, partial or total, as determined by the Committee.
<PAGE>
"DISINTERESTED PERSON" means a director who has not, during
the period that person is a member of the Committee and for one (1) year
prior to service as a member of the Committee, been granted or awarded equity
securities pursuant to the Plan or any other plan of the Company or any
Parent, Subsidiary or Affiliate of the Company, except in accordance with the
requirements set forth in Rule 16b-3(c)(2)(i) (and any successor regulation
thereto) as promulgated by the SEC under Section 16(b) of the Exchange Act,
as such rule is amended from time to time and as interpreted by the SEC.
"EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
"EXERCISE PRICE" means the price at which a holder of an
Option may purchase the Shares issuable upon exercise of the Option.
"FAIR MARKET VALUE" means, as of any date, the value of a
share of the Company's Common Stock determined as follows:
(a) if such Common Stock is then quoted on the
Nasdaq National Market, its last reported
sale price on the Nasdaq National Market or,
if no such reported sale takes place on such
date, the average of the closing bid and
asked prices;
(b) if such Common Stock is publicly traded and
is then listed on a national securities
exchange, the last reported sale price or,
if no such reported sale takes place on such
date, the average of the closing bid and
asked prices on the principal national
securities exchange on which the Common
Stock is listed or admitted to trading;
(c) if such Common Stock is publicly traded but
is not quoted on the Nasdaq National Market
nor listed or admitted to trading on a
national securities exchange, the average of
the closing bid and asked prices on such
date, as reported by The Wall Street
Journal, for the over-the-counter market; or
(d) if none of the foregoing is applicable, by
the Board of Directors of the Company in
good faith.
"INSIDER" means an officer or director of the Company or
any other person whose transactions in the Company's Common Stock are subject
to Section 16 of the Exchange Act.
"OPTION" means an award of an option to purchase Shares
pursuant to Section 5.
"PARENT" means any corporation (other than the Company) in
an unbroken chain of corporations ending with the Company, if at the time of
the granting of an Award under the Plan, each of such corporations other than
the Company owns 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.
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<PAGE>
"PARTICIPANT" means a person who receives an Award under
the Plan.
"PLAN" means this PhaseCom, Inc. 1999 Employee and
Consultant Equity Incentive Plan, as amended from time to time.
"RESTRICTED STOCK AWARD" means an award of Shares pursuant
to Section 6.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as
amended.
"SHARES" means shares of the Company's Common Stock
reserved for issuance under the Plan, as adjusted pursuant to Sections 2 and
15, and any successor security.
"STOCK BONUS" means an award of Shares, or cash in lieu of
Shares, pursuant to Section 7.
"SUBSIDIARY" means any corporation (other than the Company)
in an unbroken chain of corporations beginning with the Company if, at the
time of granting of the Award, each of the corporations other than the last
corporation in the unbroken chain owns 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 claim.
"TERMINATION" or "TERMINATED" means, for purposes of the
Plan with respect to a Participant, that the Participant has ceased to
provide services as an employee, director, consultant or adviser, to the
Company or a Parent, Subsidiary or Affiliate of the Company, except in the
case of sick leave, military leave, or any other leave of absence approved by
the Committee; PROVIDED, HOWEVER, that such leave is for a period of not more
than ninety (90) days, or reinstatement upon the expiration of such leave is
guaranteed by contract or statute. The Committee shall have sole discretion
to determine whether a Participant has ceased to provide services and the
effective date on which the Participant ceased to provide services (the
"Termination Date").
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Exhibit 10.4
VYYO INC.
AMENDED AND RESTATED
2000 EMPLOYEE AND CONSULTANT EQUITY INCENTIVE PLAN
1. SECTION GENERAL PURPOSE OF PLAN; DEFINITIONS.
The name of this plan is the Vyyo Inc. Amended and Restated
2000 Employee and Consultant Equity Incentive Plan (the "Plan"). The Plan was
adopted by the Board (defined below) and approved by the stockholders of the
Company (defined below) on November 22, 1999. The Board subsequently amended
and restated Plan in its entirety on February 2, 2000 (the "Amendment"), and
such Amendment was approved by the stockholders of the Company on the same
date. The purpose of the Plan is to enable the Company to attract and retain
highly qualified personnel who will contribute to the Company's success and
to provide incentives to Participants (defined below) that are linked
directly to increases in stockholder value and will therefore inure to the
benefit of all stockholders of the Company. The Company wishes the issuance
of Awards (defined below) to its employees in Israel to conform with the
requirements of Section 3(9) of the Israeli Income Tax Ordinance, and for
this purpose the appended document Annex A amends this Plan to so conform.
For purposes of the Plan, the following terms shall be
defined as set forth below:
(a) "ADMINISTRATOR" means the Board, or if and to the
extent the Board does not administer the Plan, the Committee in accordance
with Section 2 below.
(b) "AFFILIATE" means any corporation that directly, or
indirectly through one or more intermediaries, controls or is controlled by,
or is under common control with, another corporation, where "control"
(including the terms "controlled by" and "under common control with") means
the possession, direct or indirect, of the power to cause the direction of
the management and policies of the corporation, whether through the ownership
of voting securities, by contract or otherwise.
(c) "AWARD" means any award under the Plan.
<PAGE>
(d) "AWARD AGREEMENT" means, with respect to each Award,
the signed written agreement between the Company and the Participant setting
forth the terms and conditions of the Award.
(e) "BOARD" means the Board of Directors of the Company.
(f) "CODE" means the Internal Revenue Code of 1986, as
amended from time to time, or any successor thereto.
(g) "COMMITTEE" means any committee the Board may appoint
to administer the Plan. To the extent necessary and desirable, the Committee
shall be composed entirely of individuals who meet the qualifications
referred to in Section 162(m) of the Code and Rule 16b-3 under the Exchange
Act. If at any time or to any extent the Board shall not administer the Plan,
then the functions of the Board specified in the Plan shall be exercised by
the Committee.
(h) "COMMON STOCK" means the common stock, par value
$0.0001 per share, of the Company.
(i) "COMPANY" means Vyyo Inc., a Delaware corporation (or
any successor corporation).
(j) "DEFERRED STOCK" means the right to receive Shares at
the end of a specified deferral period granted pursuant to Section 8 below.
(k) "DISABILITY" means the inability of a Participant to
perform substantially his or her duties and responsibilities to the Company
or to any Parent or Subsidiary by reason of a physical or mental disability
or infirmity (i) for a continuous period of six months, or (ii) at such
earlier time as the Participant submits medical evidence satisfactory to the
Administrator that the Participant has a physical or mental disability or
infirmity that will likely prevent the Participant from returning to the
performance of the Participant's work duties for six months or longer. The
date of such Disability shall be the last day of such six-month period or the
day on which the Participant submits such satisfactory medical evidence, as
the case may be.
(l) "ELIGIBLE RECIPIENT" means an officer, director,
employee, consultant or advisor of the Company or of any Parent or Subsidiary.
<PAGE>
(m) "EMPLOYEE DIRECTOR" means any director of the Company
who is also an employee of the Company or of any Parent or Subsidiary.
(n) "EXCHANGE ACT" means the Securities Exchange Act of
1934, as amended from time to time.
(o) "EXERCISE PRICE" means the per share price at which a
holder of an Award may purchase the Shares issuable upon exercise of the
Award.
(p) "FAIR MARKET VALUE" as of a particular date shall mean
the fair market value of a share of Common Stock as determined by the
Administrator in its sole discretion; PROVIDED, HOWEVER, that (i) if the
Common Stock is admitted to trading on a national securities exchange, fair
market value of a share of Common Stock on any date shall be the closing sale
price reported for such share on such exchange on such date or, if no sale
was reported on such date, on the last date preceding such date on which a
sale was reported, (ii) if the Common Stock is admitted to quotation on the
National Association of Securities Dealers Automated Quotation ("Nasdaq")
System or other comparable quotation system and has been designated as a
National Market System ("NMS") security, fair market value of a share of
Common Stock on any date shall be the closing sale price reported for such
share on such system on such date or, if no sale was reported on such date,
on the last date preceding such date on which a sale was reported, (iii) if
the Common Stock is admitted to quotation on the Nasdaq System but has not
been designated as an NMS security, fair market value of a share of Common
Stock on any date shall be the average of the highest bid and lowest asked
prices of such share on such system on such date or, if no bid and ask prices
were reported on such date, on the last date preceding such date on which
both bid and ask prices were reported; (iv) in the case of a Limited Stock
Appreciation Right, the fair market value of a share of Common Stock shall be
the "Change in Control Price" (as defined in the Award Agreement evidencing
such Limited Stock Appreciation Right) of a share of Common Stock as of the
date of exercise.
(q) "INCENTIVE STOCK OPTION" means any Option intended to
be designated as an "incentive stock option" within the meaning of Section
422 of the Code.
<PAGE>
(r) "LIMITED STOCK APPRECIATION RIGHT" means a Stock
Appreciation Right that can be exercised only in the event of a "Change in
Control" (as defined in the Award Agreement evidencing such Limited Stock
Appreciation Right).
(s) "NON-EMPLOYEE DIRECTOR" means a director of the Company
who is not an employee of the Company or of any Parent or Subsidiary.
(t) "NON-QUALIFIED STOCK OPTION" means any Option that is
not an Incentive Stock Option, including any Option that provides (as of the
time such Option is granted) that it will not be treated as an Incentive
Stock Option.
(u) "OPTION" means an option to purchase Shares granted
pursuant to Section 6 below.
(v) "PARENT" means any corporation (other than the Company)
in an unbroken chain of corporations ending with the Company, if each of the
corporations in the chain (other than the Company) owns stock possessing 50%
or more of the combined voting power of all classes of stock in one of the
other corporations in the chain.
(w) "PARTICIPANT" means (i) any Eligible Recipient selected
by the Administrator, pursuant to the Administrator's authority in Section 2
below, to receive grants of Options, Stock Appreciation Rights, Limited Stock
Appreciation Rights, awards of Restricted Stock, Deferred Stock, or
Performance Shares or any combination of the foregoing, or (ii) any
Non-Employee Director who is eligible to receive grants of Options pursuant
to Section 6(i) below.
(x) "PERFORMANCE SHARES" means Shares that are subject to
restrictions based upon the attainment of specified performance objectives
granted pursuant to Section 8 below.
(y) "REGISTRATION STATEMENT" means the registration
statement on Form S-1 filed with the Securities and Exchange Commission for
the initial underwritten public offering of the Common Stock.
(z) "RESTRICTED STOCK" means Shares subject to certain
restrictions granted pursuant to Section 8 below.
<PAGE>
(aa) "SHARES" means shares of Common Stock reserved for
issuance under the Plan, as adjusted pursuant to Sections 3 and 4, and any
successor security.
(bb) "STOCK APPRECIATION RIGHT" means the right pursuant to
an Award granted under Section 7 below to receive an amount equal to the
excess, if any, of (i) the Fair Market Value, as of the date such Stock
Appreciation Right or portion thereof is surrendered, of the Shares covered
by such right or such portion thereof, over (ii) the aggregate Exercise Price
of such right or such portion thereof.
(cc) "SUBSIDIARY" means any corporation (other than the
Company) in an unbroken chain of corporations beginning with the Company, if
each of the corporations (other than the last corporation) in the unbroken
chain owns stock possessing 50% or more of the total combined voting power of
all classes of stock in one of the other corporations in the chain.
2. SECTION ADMINISTRATION.
The Plan shall be administered in accordance with the
requirements of Section 162(m) of the Code (but only to the extent necessary
and desirable to maintain qualification of Awards under the Plan under
Section 162(m) of the Code) and, to the extent applicable, Rule 16b-3 under
the Exchange Act ("Rule 16b-3"), by the Board or, at the Board's sole
discretion, by the Committee, which shall be appointed by the Board, and
which shall serve at the pleasure of the Board.
Pursuant to the terms of the Plan, the Administrator shall
have the power and authority to grant to Eligible Recipients Options, Stock
Appreciation Rights or Limited Stock Appreciation Rights, Awards of
Restricted Stock, Deferred Stock or Performance Shares or any combination of
the foregoing; PROVIDED, HOWEVER, that automatic, nondiscretionary grants of
Options shall be made to Non-Employee Directors pursuant to and in accordance
with the terms of Section 6(i) below. Except as otherwise provided in Section
6(i) below, the Administrator shall have the authority:
(a) to select those Eligible Recipients who shall be
Participants;
(b) to determine whether and to what extent Options, Stock
Appreciation Rights, Limited Stock Appreciation Rights, Awards of Restricted
Stock,
<PAGE>
Deferred Stock or Performance Shares or a combination of any of the
foregoing, are to be granted hereunder to Participants;
(c) to determine the number of Shares to be covered by each
Award granted hereunder;
(d) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of each Award granted hereunder (including, but
not limited to, (x) the restrictions applicable to Awards of Restricted Stock
or Deferred Stock and the conditions under which restrictions applicable to
such Awards of Restricted Stock or Deferred Stock shall lapse, and (ii) the
performance goals and periods applicable to Awards of Performance Shares);
(e) to determine the terms and conditions, not inconsistent
with the terms of the Plan, which shall govern all written instruments
evidencing Options, Stock Appreciation Rights, Limited Stock Appreciation
Rights, Awards of Restricted Stock, Deferred Stock or Performance Shares or
any combination of the foregoing granted hereunder;
(f) to reduce the Exercise Price of any Option to the then
current Fair Market Value if the Fair Market Value of the Shares covered by
such Option has declined since the date such Option was granted; and
(g) the Committee may, at any time or from time to time,
authorize the Company, with the consent of the respective Participants, to
issue new Awards in exchange for the surrender and cancellation of any or all
outstanding Awards. The Committee may at any time buy from a Participant an
Award previously granted with payment in cash, Shares (including Restricted
Stock) or other consideration, based on such terms and conditions as the
Committee and the Participant shall agree.
(h) The Administrator shall have the authority, in its sole
discretion, to adopt, alter and repeal such administrative rules, guidelines
and practices governing the Plan as it shall from time to time deem
advisable; to interpret the terms and provisions of the Plan and any Award
issued under the Plan (and any Award Agreement relating thereto); and to
otherwise supervise the administration of the Plan.
<PAGE>
(i) All decisions made by the Administrator pursuant to the
provisions of the Plan shall be final, conclusive and binding on all persons,
including the Company and the Participants.
3. SECTION SHARES SUBJECT TO PLAN.
(a) The total number of shares of Common Stock reserved and
available for issuance under the Plan shall be 5,000,000 shares, plus an
annual increase to be added on the first day of the Company's fiscal year
(beginning 2001) equal to the lesser of (i) 900,000 shares or (ii) five
percent (5%) of the number of outstanding shares of Common Stock on the last
day of the immediately preceding fiscal year. Such shares may consist, in
whole or in part, of authorized and unissued shares or treasury shares. The
aggregate number of Shares as to which Options, Stock Appreciation Rights,
and Awards of Restricted Stock, Deferred Stock and Performance Shares may be
granted to any Participant during any calendar year may not, subject to
adjustment as provided in this Section 3, exceed 80% of the Shares reserved
for the purposes of the Plan.
(b) Consistent with the provisions of Section 162(m) of the
Code, as from time to time applicable, to the extent that (i) an Option
expires or is otherwise terminated without being exercised, or (ii) any
Shares subject to any Award of Restricted Stock, Deferred Stock or
Performance Shares granted hereunder are forfeited, such Shares shall again
be available for issuance in connection with future Awards granted under the
Plan. If any Shares have been pledged as collateral for indebtedness incurred
by a Participant in connection with the exercise of an Option and such Shares
are returned to the Company in satisfaction of such indebtedness, such Shares
shall again be available for issuance in connection with future Awards
granted under the Plan.
(c) In the event of any stock dividend, recapitalization,
stock split, reverse stock split, subdivision, combination, reclassification
or similar change in the capital structure of the Company without
consideration, an equitable substitution or proportionate adjustment shall be
made in (i) the aggregate number of Shares reserved for issuance under the
Plan, (ii) the kind, number and Exercise Prices of Shares subject to
outstanding Options, and (iii) the kind, number and Exercise Prices of Shares
subject to outstanding Awards of Restricted Stock, Deferred Stock and
Performance Shares, in each case as may be determined by the Administrator,
in its sole discretion, subject to any required action by the Board or the
stockhold-
<PAGE>
ers of the Company and in compliance with applicable securities laws;
PROVIDED, HOWEVER, that fractions of a Share shall not be issued but shall
either be paid in cash at Fair Market Value or shall be rounded up to the
nearest whole share, as determined by the Committee. An adjusted Exercise
Price shall also be used to determine the amount payable by the Company upon
the exercise of any Stock Appreciation Right or Limited Stock Appreciation
Right related to any Option.
4. SECTION CORPORATE TRANSACTIONS
(a) ASSUMPTION OR REPLACEMENT OF AWARDS BY SUCCESSOR. In
the event of (i) a merger or consolidation in which the Company is not the
surviving corporation (other than a merger or consolidation with a
wholly-owned subsidiary, a reincorporation of the Company in a different
jurisdiction, or other transaction in which there is no substantial change in
the stockholders of the Company and the Awards granted under the Plan are
assumed or replaced by the successor corporation, which assumption shall be
binding on all Participants); (ii) a dissolution or liquidation of the
Company; (iii) the sale of substantially all of the assets of the Company; or
(iv) any other transaction which qualifies as a "corporate transaction" under
Section 424(a) of the Code wherein the stockholders of the Company give up
all of their equity interest in the Company (EXCEPT for the acquisition, sale
or transfer of all or substantially all of the outstanding shares of the
Company), any or all outstanding Awards may be assumed or replaced by the
successor corporation (if any) or Parent thereof, which assumption or
replacement shall be binding on all Participants. In the alternative, the
successor corporation or Parent thereof may substitute equivalent awards or
provide substantially similar consideration to Participants as was provided
to stockholders of the Company (after taking into account the existing
provisions of the Awards). The successor corporation or Parent thereof may
also issue, in place of outstanding shares of the Company held by the
Participant, substantially similar shares or other property subject to
repurchase restrictions no less favorable to the Participant. In the event
such successor corporation (if any) or Parent thereof does not assume or
substitute awards, as provided above, pursuant to a transaction described in
this Section 4(a), such Awards shall automatically become fully vested and
exercisable and be released from any restrictions on transfer and repurchase
or forfeiture rights, immediately prior to the specified effective date of
such transaction, for all the Shares at the time represented by such Awards.
In such event, effective upon the consummation of the transaction, or at such
other time and on such conditions as the Board shall determine, all
outstanding Awards under the Plan shall terminate and cease to remain
<PAGE>
outstanding, except to the extent assumed by the successor corporation or its
Parent.
(b) OTHER TREATMENT OF AWARDS. Subject to any greater
rights granted to Participants under the foregoing provisions of this Section
4, in the event of the occurrence of any transaction described in Section
4(a), any outstanding Awards shall be treated as provided in the applicable
Award Agreement or plan of merger, consolidation, dissolution, liquidation,
sale of assets or other "corporate transaction."
(c) ASSUMPTION OF AWARDS BY THE COMPANY. The Company, from
time to time, also may substitute or assume outstanding awards granted by
another company, whether in connection with an acquisition of such other
company or otherwise, by either (i) granting an Award under the Plan in
substitution of such other company's award; or (ii) assuming such award as if
it had been granted under the Plan if the terms of such assumed award could
be applied to an award granted under the Plan. Such substitution or
assumption shall be permissible if the holder of the substituted or assumed
award would have been eligible to be granted an Award under the Plan if the
other company had applied the rules of the Plan to such grant. In the event
the Company assumes an award granted by another company, the terms and
conditions of such award shall remain unchanged (EXCEPT that the exercise
price and the number and nature of Shares issuable upon exercise of any such
option will be adjusted approximately pursuant to Section 424(a) of the
Code). In the event the Company elects to grant a new Option rather than
assuming an existing option, such new Option may be granted with a similarly
adjusted Exercise Price.
5. SECTION ELIGIBILITY.
Eligible Recipients shall be eligible to be granted
Options, Stock Appreciation Rights, Limited Stock Appreciation Rights, Awards
of Restricted Stock, Deferred Stock or Performance Shares or any combination
of the foregoing hereunder. The Participants under the Plan shall be selected
from time to time by the Administrator, in its sole discretion, from among
the Eligible Recipients, and the Administrator shall determine, in its sole
discretion, the number of Shares covered by each such Award.
<PAGE>
6. SECTION OPTIONS.
Options may be granted alone or in addition to other Awards
granted under the Plan. Any Option granted under the Plan shall be in such
form as the Administrator may from time to time approve, and the provisions
of each Option need not be the same with respect to each Participant.
Participants who are granted Options shall enter into an Award Agreement with
the Company, in such form as the Administrator shall determine, which Award
Agreement shall set forth, among other things, the Exercise Price of the
Option, the term of the Option and provisions regarding exercisability of the
Option granted thereunder.
The Options granted under the Plan may be of two types: (i)
Incentive Stock Options and (ii) Non-Qualified Stock Options.
The Administrator shall have the authority to grant to any
officer or employee of the Company or of any Parent or Subsidiary (including
directors who are also officers of the Company) Incentive Stock Options,
Non-Qualified Stock Options, or both types of Options (in each case with or
without Stock Appreciation Rights or Limited Stock Appreciation Rights).
Directors who are not also officers of the Company or of any Parent or
Subsidiary, consultants or advisors to the Company or to any Parent or
Subsidiary may only be granted Non-Qualified Stock Options (with or without
Stock Appreciation Rights or Limited Stock Appreciation Rights). To the
extent that any Option does not qualify as an Incentive Stock Option, it
shall constitute a separate Non-Qualified Stock Option. More than one Option
may be granted to the same Participant and be outstanding concurrently
hereunder.
Options granted under the Plan shall be subject to the
following terms and conditions and shall contain such additional terms and
conditions, not inconsistent with the terms of the Plan, as the Administrator
shall deem desirable:
(a) OPTION EXERCISE PRICE. The per share Exercise Price of
Shares purchasable under an Option shall be determined by the Administrator in
its sole discretion at the time of grant but shall not, (i) in the case of
Incentive Stock Options, be less than 100% of the Fair Market Value of the
Common Stock on such date, (ii) in the case of Non-Qualified Stock Options
intended to qualify as "performance-based compensation" within the meaning of
Section 162(m) of the Code, be less than 100% of the Fair Market Value of the
Common Stock on such date
<PAGE>
and (iii) in any event, be less than the par value (if any) of the Common
Stock. If a Participant owns or is deemed to own (by reason of the
attribution rules applicable under Section 424(d) of the Code) more than 10%
of the combined voting power of all classes of stock of the Company or of any
Parent or Subsidiary and an Incentive Stock Option is granted to such
Participant, the per share Exercise Price of such Incentive Stock Option (to
the extent required at the time of grant by the Code shall be no less than
110% of the Fair Market Value of the Common Stock on the date such Incentive
Stock Option is granted.
(b) OPTION TERM. The term of each Option shall be fixed by
the Administrator, but no Option shall be exercisable more than ten years
after the date such Option is granted; PROVIDED, HOWEVER, that if an employee
owns or is deemed to own (by reason of the attribution rules of Section
424(d) of the Code) more than 10% of the combined voting power of all classes
of stock of the Company or of any Parent or Subsidiary and an Incentive Stock
Option is granted to such employee, the term of such Incentive Stock Option
(to the extent required by the Code at the time of grant) shall be no more
than five years from the date of grant.
(c) EXERCISABILITY. Options shall be exercisable at such
time or times and subject to such terms and conditions as shall be determined
by the Administrator at or after the time of grant. The Administrator may
provide at the time of grant, in its sole discretion, that any Option shall
be exercisable only in installments, and the Administrator may waive such
installment exercise provisions at any time, in whole or in part, based on
such factors as the Administrator may determine, in its sole discretion,
including but not limited to in connection with any "change in control" of
the Company (as defined in the Award Agreement evidencing such Option).
(d) METHOD OF EXERCISE. Subject to Section 6(c), Options
may be exercised in whole or in part at any time during the Option period, by
giving written notice of exercise to the Company specifying the number of
Shares to be purchased, accompanied by payment in full of the aggregate
Exercise Price of the Shares so purchased in cash or its equivalent, as
determined by the Administrator. In addition, payment for Shares purchased
pursuant to the Plan may be made, where expressly approved for the
Participant by the Committee and where permitted by law:
<PAGE>
(i) by cancellation of indebtedness of the Company to
the Participant;
(ii) by surrender of shares of Common Stock that
either (1) have been owned by Participant for more than six
(6) months and have been paid for within the meaning of SEC
Rule 144 (and, if such shares were purchased from the Company
by use of a promissory note, such note has been fully paid
with respect to such Shares); or (2) were obtained by
Participant in the public market;
(iii) by waiver of compensation due or accrued to
Participant for services rendered;
(iv) by tender of property;
(v) with respect only to purchases upon exercise of
an Option, and provided that a public market for the Common
Stock exists: (i) through a "same day sale" commitment from
Participant and a broker-dealer that is a member of the
National Association of Securities Dealers (an "NASD Dealer")
whereby the Participant irrevocably elects to exercise the
Option and to sell a portion of the Shares so purchased to pay
for the aggregate Exercise Price of the Shares so purchased,
and whereby the NASD Dealer irrevocably commits upon receipt
of such Shares to forward such Exercise Price directly to the
Company; or (ii) through a "margin" commitment from
Participant and an NASD Dealer whereby Participant irrevocably
elects to exercise the Option and to pledge the Shares so
purchased to the NASD Dealer in a margin account as security
for a loan from the NASD Dealer in the amount of the aggregate
Exercise Price of the Shares so purchased, and whereby the
NASD Dealer irrevocably commits upon receipt of such Shares to
forward such Exercise Price directly to the Company;
(vi) in the case of the exercise of a Non-Qualified
Stock Option, in the form of Restricted Stock or Performance
Shares subject to an Award hereunder (based, in each case, on
the Fair Market Value of the Common Stock on the date the
Option is exercised); PROVIDED, HOWEVER, that in the case of
an Incentive Stock Option, the right to make payment in the
form of already owned shares of
<PAGE>
Common Stock may be authorized only at the time of grant.
If payment of the Exercise Price of a Non-Qualified Stock
Option is made in whole or in part in the form of
Restricted Stock or Performance Shares, the Shares received
upon the exercise of such Option shall be restricted in
accordance with the original terms of the Restricted Stock
Award or Performance Shares Award in question, except that
the Administrator may direct that such restrictions shall
apply only to that number of Shares equal to the number of
shares surrendered upon the exercise of such Option.
(vii) by any combination of the foregoing or
(viii) by any other form of consideration permitted
by applicable law.
A Participant shall generally have the rights to dividends
and any other rights of a stockholder with respect to the Shares subject to
the Option only after the Participant has given written notice of exercise,
has paid in full for such Shares, and, if requested, has given the
representation described in Section 11(b).
The Administrator may require the surrender of all or a
portion of any Option granted under the Plan as a condition precedent to the
grant of a new Option. Subject to the provisions of the Plan, such new Option
shall be exercisable at the Exercise Price, during such period and on such
other terms and conditions as are specified by the Administrator at the time
the new Option is granted. Consistent with the provisions of Section 162(m),
to the extent applicable, upon their surrender, Options shall be canceled and
the Shares previously subject to such canceled Options shall again be
available for future grants of Options and other Awards hereunder.
(e) LOANS. The Company or any Parent or Subsidiary may make
loans available to Option holders in connection with the exercise of
outstanding Options, as the Administrator, in its sole discretion, may
determine. Such loans shall (i) be evidenced by promissory notes entered into
by the Option holders in favor of the Company or any Parent or Subsidiary,
(ii) be subject to the terms and conditions set forth in this Section 6(e)
and such other terms and conditions, not inconsistent with the Plan, as the
Administrator shall determine, (iii) bear interest at the applicable Federal
interest rate or such other rate as the Administrator shall
<PAGE>
determine, and (iv) be subject to Board approval (or to approval by the
Administrator to the extent the Board may delegate such authority). In no
event may the principal amount of any such loan exceed the sum of (x) the
aggregate Exercise Price less the par value (if any) of the Shares covered by
the Option, or portion thereof, exercised by the holder, and (y) any Federal,
state, and local income tax attributable to such exercise. The initial term
of the loan, the schedule of payments of principal and interest under the
loan, the extent to which the loan is to be with or without recourse against
the holder with respect to principal and/or interest and the conditions upon
which the loan will become payable in the event of the holder's termination
of service to the Company or to any Parent or Subsidiary shall be determined
by the Administrator. Unless the Administrator determines otherwise, when a
loan is made, Shares having an aggregate Fair Market Value at least equal to
the principal amount of the loan shall be pledged by the holder to the
Company as security for payment of the unpaid balance of the loan, and such
pledge shall be evidenced by a pledge agreement, the terms of which shall be
determined by the Administrator, in its sole discretion; PROVIDED, HOWEVER,
that each loan shall comply with all applicable laws, regulations and rules
of the Board of Governors of the Federal Reserve System and any other
governmental agency having jurisdiction.
(f) NON-TRANSFERABILITY OF OPTIONS. Except under the laws
of descent and distribution, the Participant shall not be permitted to sell,
transfer, pledge or assign any Option, and all Options shall be exercisable,
during the Participant's lifetime, only by the Participant; PROVIDED,
HOWEVER, that the Participant shall be permitted to transfer one or more
Non-Qualified Stock Options to a trust controlled by the Participant during
the Participant's lifetime for estate planning purposes.
(g) TERMINATION OF EMPLOYMENT OR SERVICE. If a
Participant's employment with or service as a director, consultant or advisor
to the Company or to any Parent or Subsidiary terminates by reason of his or
her death, Disability or for any other reason, the Option may thereafter be
exercised to the extent provided in the Award Agreement evidencing such
Option, or as otherwise determined by the Administrator.
(h) ANNUAL LIMIT ON INCENTIVE STOCK OPTIONS. To the extent
that the aggregate Fair Market Value (determined as of the date the Incentive
Stock Option is granted) of Shares with respect to which Incentive Stock
Options granted to a Participant under this Plan and all other option plans
of the Company or of any Parent or Subsidiary become exercisable for the
first time by the Participant during
<PAGE>
any calendar year exceeds $100,000 (as determined in accordance with Section
422(d) of the Code), the portion of such Incentive Stock Options in excess of
$100,000 shall be treated as Non-Qualified Stock Options.
(i) AUTOMATIC GRANTS OF OPTIONS TO NON-EMPLOYEE DIRECTORS.
The Company shall grant Non-Qualified Stock Options to Non-Employee Directors
pursuant to this Section 6(i), which grants shall be automatic and
nondiscretionary and otherwise subject to the terms and conditions set forth
in this subsection (i) and the terms of the Plan (the "Automatic Non-Employee
Director Options"). Each Non-Employee Director who first becomes a director
of the Company following the Effective Date (as defined in Section 12) shall
be automatically granted a Non-Qualified Stock Option to purchase 50,000
Shares (an "Initial Option"). Each Non-Employee Director shall be
automatically granted a Non-Qualified Stock Option to purchase 15,000 Shares
(the "Annual Options") on the date immediately following the Company's annual
meeting of stockholders; PROVIDED, HOWEVER, that he or she is then a director
of the Company and, PROVIDED, FURTHER, that as of such date, such director
shall have served on the Board for at least the preceding six (6) months.
(j) The term of each Automatic Non-Employee Director Option
shall be ten (10) years, and the Exercise Price purchasable under an
Automatic Non-Employee Director Option shall be no less than 100% of the Fair
Market Value of the Common Stock on the date of grant, PROVIDED, HOWEVER, in
no event shall the Exercise Price purchasable under an Automatic Non-Employee
Director Option be less than the par value (if any) of the Common Stock. The
Initial Options shall vest and become exercisable in four equal annual
installments on each of the first four anniversaries of the date of grant.
The Annual Options shall be 100% vested and fully exercisable as of the date
of grant.
(k) In the event that the number of Shares available for
grant under the Plan is not sufficient to accommodate the Automatic
Non-Employee Director Options, then the remaining Shares available for
Automatic Non-Employee Director Options shall be granted to Non-Employee
Directors on a pro-rata basis. No further grants shall be made until such
time, if any, as additional Shares become available for grant under the Plan
through action of the Board and/or the stockholders of the Company to
increase the number of Shares that may be issued under the Plan or through
cancellation or expiration of Awards previously granted hereunder.
<PAGE>
7. SECTION STOCK APPRECIATION RIGHTS AND LIMITED STOCK APPRECIATION RIGHTS.
Stock Appreciation Rights and Limited Stock Appreciation
Rights may be granted either alone ("Free Standing Rights") or in conjunction
with all or part of any Option granted under the Plan ("Related Rights"). In
the case of a Non-Qualified Stock Option, Related Rights may be granted
either at or after the time of the grant of such Option. In the case of an
Incentive Stock Option, Related Rights may be granted only at the time of the
grant of the Incentive Stock Option. The Administrator shall determine the
Eligible Recipients to whom, and the time or times at which, grants of Stock
Appreciation Rights or Limited Stock Appreciation Rights shall be made; the
number of Shares to be awarded, the Exercise Price (or, in the case of a
Limited Stock Appreciation Right, the "Change in Control" price), and all
other conditions of Stock Appreciation Rights and Limited Stock Appreciation
Rights. The provisions of Stock Appreciation Rights and Limited Stock
Appreciation Rights need not be the same with respect to each Participant.
Stock Appreciation Rights and Limited Stock Appreciation
Rights granted under the Plan shall be subject to the following terms and
conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Administrator shall deem
desirable:
(a) AWARDS. The prospective recipient of a Stock
Appreciation Right or Limited Stock Appreciation Right shall not have any
rights with respect to such Award, unless and until such recipient has
executed an Award Agreement evidencing the Award (a "Stock Appreciation Right
Agreement" or "Limited Stock Appreciation Right Agreement," as appropriate)
and delivered a fully executed copy thereof to the Company, within a period
of sixty days (or such other period as the Administrator may specify) after
the award date. Participants who are granted Stock Appreciation Rights or
Limited Stock Appreciation Rights shall have no rights as stockholders of the
Company with respect to the grant or exercise of such rights.
(b) EXERCISABILITY.
(i) Stock Appreciation Rights that are Free Standing
Rights ("Free Standing Stock Appreciation Rights") shall be
exercisable at such time or times and subject to such terms
and conditions
<PAGE>
as shall be determined by the Administrator at or after
grant; PROVIDED, HOWEVER, that no Free Standing Stock
Appreciation Right shall be exercisable during the first
six months of its term, except that this additional
limitation shall not apply in the event of a Participant's
death or Disability prior to the expiration of such
six-month period.
(ii) Stock Appreciation Rights that are Related
Rights ("Related Stock Appreciation Rights") shall be
exercisable only at such time or times and to the extent that
the Options to which they relate shall be exercisable in
accordance with the provisions of Section 6 above and this
Section 7 of the Plan; PROVIDED, HOWEVER, that a Related Stock
Appreciation Right granted in connection with an Incentive
Stock Option shall be exercisable only if and when the Fair
Market Value of the Common Stock subject to the Incentive
Stock Option exceeds the Exercise Price of such Option;
PROVIDED, FURTHER, that no Related Stock Appreciation Right
shall be exercisable during the first six months of its term,
except that this additional limitation shall not apply in the
event of a Participant's death or Disability prior to the
expiration of such six-month period.
(iii) Limited Stock Appreciation Rights shall only be
exercised within the 30-day period following a "Change in
Control" (as defined by the Administrator in the Limited Stock
Appreciation Right Agreement evidencing such right) and, with
respect to Limited Stock Appreciation Rights that are Related
Rights ("Related Limited Stock Appreciation Rights"), only to
the extent that the Options to which they relate shall be
exercisable in accordance with the provisions of Section 6
above and this Section 7 of the Plan.
(c) PAYMENT UPON EXERCISE.
(i) Upon the exercise of a Free Standing Stock
Appreciation Right, the Participant shall be entitled to
receive up to, but not more than, an amount in cash or that
number of Shares (or any combination of cash and Shares) equal
in value to the excess of the Fair Market Value as of the date
of exercise over the per share Exercise Price specified in the
Free Standing Stock Appreciation Right
<PAGE>
(which Exercise Price shall be no less than 100% of the
Fair Market Value of the Common Stock on the date of grant)
multiplied by the number of Shares in respect of which the
Free Standing Stock Appreciation Right is being exercised,
with the Administrator having the right to determine the
form of payment.
(ii) A Related Right may be exercised by a
Participant by surrendering the applicable portion of the
related Option. Upon such exercise and surrender, the
Participant shall be entitled to receive up to, but not more
than, an amount in cash or that number of Shares (or any
combination of cash and Shares) equal in value to the excess
of the Fair Market Value as of the date of exercise over the
per share Exercise Price specified in the related Option
multiplied by the number of Shares in respect of which the
Related Stock Appreciation Right is being exercised, with the
Administrator having the right to determine the form of
payment. Options which have been so surrendered, in whole or
in part, shall no longer be exercisable to the extent the
Related Rights have been so exercised.
(iii) Upon the exercise of a Limited Stock
Appreciation Right, the Participant shall be entitled to
receive an amount in cash equal in value to the excess of the
"Change in Control Price" (as defined in the Award Agreement
evidencing such Limited Stock Appreciation Right) of a share
of Common Stock Share as of the date of exercise over (A) the
per share Exercise Price specified in the related Option, or
(B) in the case of a Limited Stock Appreciation Right which is
a Free Standing Stock Appreciation Right, the per share
Exercise Price specified in the Free Standing Stock
Appreciation Right, such excess to be multiplied by the number
of Shares in respect of which the Limited Stock Appreciation
Right shall have been exercised.
(d) NON-TRANSFERABILITY.
(i) Free Standing Stock Appreciation Rights shall be
transferable only when and to the extent that an Option would
be transferable under Section 6(f) of the Plan.
<PAGE>
(ii) Related Stock Appreciation Rights shall be
transferable only when and to the extent that the underlying
Option would be transferable under Section 6(f) of the Plan.
(iii) Limited Stock Appreciation Rights shall be
transferable only when and to the extent that an Option would
be transferable under Section 6(f) of the Plan.
(e) TERMINATION OF EMPLOYMENT OR SERVICE
(i) In the event of the termination of employment or
service of a Participant who has been granted one or more Free
Standing Stock Appreciation Rights, such rights shall be
exercisable at such time or times and subject to such terms
and conditions as shall be determined by the Administrator at
or after grant.
(ii) In the event of the termination of employment or
service of a Participant who has been granted one or more
Related Stock Appreciation Rights, such rights shall be
exercisable at such time or times and subject to such terms
and conditions as set forth in the related Options.
(iii) In the event of the termination of employment
or service of a Participant who has been granted one or more
Limited Stock Appreciation Rights, such rights shall be
exercisable at such time or times and subject to such terms
and conditions as shall be determined by the Administrator at
or after grant.
(f) TERM.
(i) The term of each Free Standing Stock
Appreciation Right shall be fixed by the Administrator, but
no Free Standing Stock Appreciation Right shall be
exercisable more than ten years after the date such right
is granted.
(ii) The term of each Related Stock Appreciation
Right shall be the term of the Option to which it relates, but
no Related
<PAGE>
Stock Appreciation Right shall be exercisable more than ten
years after the date such right is granted.
(iii) The term of each Limited Stock Appreciation
Right shall be fixed by the Administrator, but no Limited
Stock Appreciation Right shall be exercisable more than ten
years after the date such right is granted.
8. SECTION RESTRICTED STOCK, DEFERRED STOCK AND PERFORMANCE SHARES.
Awards of Restricted Stock, Deferred Stock or Performance
Shares may be issued either alone or in addition to other Awards granted
under the Plan. The Administrator shall determine the Eligible Recipients to
whom, and the time or times at which, Awards of Restricted Stock, Deferred
Stock or Performance Shares shall be made; the number of Shares to be
awarded; the Exercise Price, if any, to be paid by the Participant for the
acquisition of Restricted Stock, Deferred Stock or Performance Shares; the
Restricted Period (as defined in Section 8(b)) applicable to Awards of
Restricted Stock or Deferred Stock; the performance objectives applicable to
Awards of Deferred Stock or Performance Shares; and all other conditions of
the Awards of Restricted Stock, Deferred Stock and Performance Shares.
Subject to the requirements of Section 162(m) of the Code, as applicable, the
Administrator may also condition the grant of the Award of Restricted Stock,
Deferred Stock or Performance Shares upon the exercise of Options, or upon
such other criteria as the Administrator may determine, in its sole
discretion. The provisions of the Awards of Restricted Stock, Deferred Stock
or Performance Shares need not be the same with respect to each Participant.
In the sole discretion of the Administrator, loans may be made to
Participants in connection with the purchase of Restricted Stock under
substantially the same terms and conditions as provided in Section 6(e) of
the Plan with respect to the exercise of Options.
(a) AWARDS AND CERTIFICATES. The prospective recipient of
Awards of Restricted Stock, Deferred Stock or Performance Shares shall not
have any rights with respect to any such Award, unless and until such
recipient has executed an Award Agreement evidencing the Award (a "Restricted
Stock Award Agreement," "Deferred Stock Award Agreement" or "Performance
Shares Award Agreement," as appropriate) and delivered a fully executed copy
thereof to the Company, within a period of sixty days (or such other period
as the Administrator may specify) after the award date. Except as otherwise
provided below in Section
<PAGE>
8(b), (i) each Participant who is granted an Award of Restricted Stock or
Performance Shares shall be issued a stock certificate in respect of such
shares of Restricted Stock or Performance Shares; and (ii) such certificate
shall be registered in the name of the Participant, and shall bear an
appropriate legend referring to the terms, conditions, and restrictions
applicable to any such Award.
(b) The Company may require that the stock certificates
evidencing Restricted Stock or Performance Shares granted hereunder be held
in the custody of the Company until the restrictions thereon shall have
lapsed, and that, as a condition of any Award of Restricted Stock or
Performance Shares, the Participant shall have delivered a stock power,
endorsed in blank, relating to the Shares covered by such Award.
(c) With respect to Awards of Deferred Stock, at the
expiration of the Restricted Period, stock certificates in respect of such
Shares of Deferred Stock shall be delivered to the Participant, or his legal
representative, in a number equal to the number of Shares covered by the
Deferred Stock Award.
(d) RESTRICTIONS AND CONDITIONS. The Awards of Restricted
Stock, Deferred Stock and Performance Shares granted pursuant to this Section
8 shall be subject to the following restrictions and conditions:
(i) Subject to the provisions of the Plan and the
Restricted Stock Award Agreement, Deferred Stock Award
Agreement or Performance Shares Award Agreement, as
appropriate, governing any such Award, during such period as
may be set by the Administrator commencing on the date of
grant (the "Restricted Period"), the Participant shall not be
permitted to sell, transfer, pledge or assign shares of
Restricted Stock, Deferred Stock or Performance Shares awarded
under the Plan; PROVIDED, HOWEVER, that the Administrator may,
in its sole discretion, provide for the lapse of such
restrictions in installments and may accelerate or waive such
restrictions in whole or in part based on such factors and
such circumstances as the Administrator may determine, in its
sole discretion, including, but not limited to, the attainment
of certain performance related goals, the Participant's
termination of employment or service as a director, consultant
or advisor to the Company or any Parent or Subsidiary, the
Participant's death or Disability or the occurrence of a
"change in control" as defined in the Restricted Stock Award
Agreement,
<PAGE>
Deferred Stock Award Agreement or Performance Shares Award
Agreement, as appropriate, evidencing such Award.
(ii) Except as provided in Section 8(c)(i), the
Participant shall generally have the rights of a stockholder
of the Company with respect to Restricted Stock or Performance
Shares during the Restricted Period. The Participant shall
generally not have the rights of a stockholder with respect to
Shares subject to Awards of Deferred Stock during the
Restricted Period; PROVIDED, HOWEVER, that dividends declared
during the Restricted Period with respect to the number of
Shares covered by Awards of Deferred Stock shall be paid to
the Participant. Certificates for unrestricted Shares shall be
delivered to the Participant promptly after, and only after,
the Restricted Period shall expire without forfeiture in
respect of such Awards of Restricted Stock, Deferred Stock or
Performance Shares except as the Administrator, in its sole
discretion, shall otherwise determine.
(iii) The rights of Participants granted Awards of
Restricted Stock, Deferred Stock or Performance Shares upon
termination of employment or service as a director, consultant
or advisor to the Company or to any Parent or Subsidiary
terminates for any reason during the Restricted Period shall
be set forth in the Restricted Stock Award Agreement, Deferred
Stock Award Agreement or Performance Shares Award Agreement,
as appropriate, governing such Awards.
9. SECTION AMENDMENT AND TERMINATION.
The Board may amend, alter or discontinue the Plan, but no
amendment, alteration, or discontinuation shall be made that would impair the
rights of a Participant under any Award theretofore granted without such
Participant's consent, or that, without the approval of the stockholders (as
described below), would:
(a) except as provided in Section 3 of the Plan, increase
the total number of Shares reserved for issuance under the Plan;
<PAGE>
(b) change the class of officers, directors, employees,
consultants and advisors eligible to participate in the Plan; or
(c) extend the maximum Option period under Section 6(b) of
the Plan.
(d) Notwithstanding the foregoing, stockholder approval
under this Section 9 shall only be required at such time and under such
circumstances as stockholder approval would be required under Section 162(m)
of the Code or other applicable law, rule or regulation with respect to any
material amendment to an employee benefit plan of the Company.
(e) The Administrator may amend the terms of any Award
theretofore granted, prospectively or retroactively, but, subject to Section
3 of Plan, no such amendment shall impair the rights of any Participant
without his or her consent.
10. SECTION UNFUNDED STATUS OF PLAN.
The Plan is intended to constitute an "unfunded" plan for
incentive compensation. With respect to any payments not yet made to a
Participant by the Company, nothing contained herein shall give any such
Participant any rights that are greater than those of a general creditor of
the Company.
11. SECTION GENERAL PROVISIONS.
(a) Shares shall not be issued pursuant to the exercise of
any Award granted hereunder unless the exercise of such Award and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act
of 1933, as amended, the Exchange Act and the requirements of any stock
exchange upon which the Common Stock may then be listed, and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.
(b) The Administrator may require each person acquiring
Shares to represent to and agree with the Company in writing that such person
is acquiring the Shares without a view to distribution thereof. The
certificates for such Shares may include any legend which the Administrator
deems appropriate to reflect any restrictions on transfer.
<PAGE>
(c) All certificates for Shares delivered under the Plan
shall be subject to such stock-transfer orders and other restrictions as the
Administrator may deem advisable under the rules, regulations, and other
requirements of the Securities and Exchange Commission, any stock exchange
upon which the Common Stock is then listed, and any applicable Federal or
state securities law, and the Administrator may cause a legend or legends to
be placed on any such certificates to make appropriate reference to such
restrictions.
(d) Nothing contained in the Plan shall prevent the Board
from adopting other or additional compensation arrangements, subject to
stockholder approval, if such approval is required; and such arrangements may
be either generally applicable or applicable only in specific cases. The
adoption of the Plan shall not confer upon any Eligible Recipient any right
to continued employment or service with the Company or any Parent or
Subsidiary, as the case may be, nor shall it interfere in any way with the
right of the Company or any Parent or Subsidiary to terminate the employment
or service of any of its Eligible Recipients at any time.
(e) Each Participant shall, no later than the date as of
which the value of an Award first becomes includible in the gross income of
the Participant for Federal income tax purposes, pay to the Company, or make
arrangements satisfactory to the Administrator regarding payment of, any
Federal, state, or local taxes of any kind required by law to be withheld
with respect to such Award. The obligations of the Company under the Plan
shall be conditional on the making of such payments or arrangements, and the
Company shall, to the extent permitted by law, have the right to deduct any
such taxes from any payment of any kind otherwise due to the Participant.
(f) No member of the Board or the Administrator, nor any
officer or employee of the Company acting on behalf of the Board or the
Administrator, shall be personally liable for any action, determination, or
interpretation taken or made in good faith with respect to the Plan, and all
members of the Board or the Administrator and each and any officer or
employee of the Company acting on their behalf shall, to the extent permitted
by law, be fully indemnified and protected by the Company in respect of any
such action, determination or interpretation.
<PAGE>
12. SECTION STOCKHOLDER APPROVAL; EFFECTIVE DATE OF PLAN; EFFECTIVE DATE OF
AMENDMENTS.
(a) The grant of any Award hereunder shall be contingent
upon stockholder approval of the Plan being obtained within 12 months before
or after the date the Board adopts the Plan.
(b) Subject to the approval of the Plan by the stockholders
of the Company within twelve (12) months before or after the date the Plan is
adopted by the Board, the Plan shall be effective as of November 22, 1999.
(c) Subject to the approval of the Amendments by the
stockholders of the Company within twelve (12) months before or after the
date the Amendments are adopted by the Board, the Amendments to the Plan
shall be effective as of the first trading day on or after the date on which
the Securities and Exchange Commission declares the Company's Registration
Statement effective (the "Effective Date").
13. SECTION TERM OF PLAN.
No Option, Stock Appreciation Right, Limited Stock
Appreciation Right, or Awards of Restricted Stock, Deferred Stock or
Performance Shares shall be granted pursuant to the Plan on or after November
22, 2009, but Awards theretofore granted may extend beyond that date.
<PAGE>
Exhibit 10.5
VYYO INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
SECTION 1. GENERAL PURPOSE OF PLAN; DEFINITIONS.
The name of this plan is the Vyyo Inc. 2000 Employee Stock Purchase
Plan (the "Plan"). The Plan was adopted by the Board (defined below) on
February 2, 2000, and approved by the stockholders of the Company (defined
below) on February 2, 2000. The purpose of the Plan is to provide Employees
(defined below) of the Company (defined below), its Parent (defined below)
and any Designated Subsidiary (defined below) with the opportunity to
purchase Common Stock (defined below) through accumulated payroll deductions.
It is the intention of the Company that the Plan qualify as an "employee
stock purchase plan" within the meaning of Section 423 of the Code (defined
below), and that the provisions of the Plan be construed in a manner
consistent with the requirements of such Section of the Code.
For purposes of the Plan, the following terms shall be defined as
set forth below:
a. "ADMINISTRATOR" means the Board, or if and to the extent
the Board does not administer the Plan, the Committee in accordance with
Section 11 below.
b. "BOARD" shall mean the Board of Directors of the Company.
c. "CHANGE IN CAPITALIZATION" shall mean any increase,
reduction, change or exchange of Shares for a different number of shares
and/or kind of shares or other securities of the Company by reason of a
reclassification, recapitalization, merger, consolidation, reorganization,
issuance of warrants or rights, stock dividend, stock split or reverse stock
split, combination or exchange of Shares, repurchase of Shares, change in
corporate structure or otherwise.
d "CODE" shall mean the Internal Revenue Code of 1986, as
amended from time to time, or any successor thereto.
e. "COMMITTEE" shall mean a committee appointed by the Board
to administer the Plan and to perform the functions set forth herein.
f. "COMMON STOCK" shall mean the common stock, $0.0001 par
value, of the Company.
g. "COMPANY" shall mean Vyyo Inc., a Delaware corporation.
<PAGE>
h. "COMPENSATION" shall mean the fixed salary or wage paid by
the Company to an Employee as reported by the Company to the United States
government for Federal income tax purposes, including an Employee's portion
of salary deferral contributions pursuant to Section 401(k) of the Code and
any amount excludable pursuant to Section 125 of the Code, but excluding any
payments for overtime, shift premium, incentive compensation, bonuses,
commissions, severance pay, expense reimbursements or any credit or benefit
under any employee plan maintained by the Company.
i. "CONTINUOUS STATUS AS AN EMPLOYEE" shall mean the absence
of any interruption or termination of service as an Employee. Continuous
Status as an Employee shall not be considered interrupted in the case of a
leave of absence agreed to in writing by the Company, its Parent or a
Designated Subsidiary, as appropriate, provided that (x) such leave is for a
period of not more than 90 days or (y) reemployment with the Company, its
Parent or a Designated Subsidiary, as appropriate, is guaranteed by contract
or statute upon expiration of such leave.
j. "DESIGNATED SUBSIDIARY" shall mean a Subsidiary that has
been designated by the Administrator from time to time in its sole discretion
as eligible to participate in the Plan.
k. "EMPLOYEE" shall mean any person who is customarily
employed for at least twenty (20) hours per week and more than five (5)
months in a calendar year by the Company, its Parent or a Designated
Subsidiary.
l. "ENROLLMENT DATE" shall mean the first Trading Day of each
Offering Period.
m. "FAIR MARKET VALUE" as of a particular date shall mean the
fair market value of the Shares as determined by the Administrator in its
sole discretion; PROVIDED, HOWEVER, that (i) if the Shares are admitted to
trading on a national securities exchange, fair market value of the Shares on
any date shall be the closing sale price reported for the Shares on such
exchange on such date or, if no sale was reported on such date, on the last
date preceding such date on which a sale was reported, (ii) if the Shares are
admitted to quotation on the National Association of Securities Dealers
Automated Quotation ("Nasdaq") System or other comparable quotation system
and have been designated as a National Market System ("NMS") security, fair
market value of the Shares on any date shall be the closing sale price
reported for the Shares on such system on such date or, if no sale was
reported on such date, on the last date preceding such date on which a sale
was reported, or (iii) if the Shares are admitted to quotation on the Nasdaq
System but have not been designated as an NMS security, fair market value of
the Shares on
<PAGE>
any date shall be the average of the highest bid and lowest asked prices of
the Shares on such system on such date or, if no bid and ask prices were
reported on such date, on the last date preceding such date on which both bid
and ask prices were reported. Notwithstanding anything to the contrary
contained herein, for purposes of the Enrollment Date of the first Offering
Period under the Plan, fair market value of the Shares shall be the initial
price to the public as set forth in the final prospectus included within the
registration statement in Form S-1 filed with the Securities and Exchange
Commission for the initial underwritten public offering of the Stock (the
"Registration Statement").
n. "OFFERING PERIOD" shall mean a period as described in
Section 3 hereof.
o. "PARENT" shall mean any corporation (other than the
Company) in an unbroken chain of corporations ending with the Company if, at
the time of the granting of an option, each of the corporations other than
the Company owns Shares 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, whether or not such corporation now exists or
hereafter acquires the Company.
p. "PARTICIPANT" shall mean an Employee who elects to
participate in the Plan pursuant to Section 4 hereof.
q. "PURCHASE DATE" shall mean the last Trading Day of each
Purchase Period.
r. "PURCHASE PERIOD" shall mean the approximately six-month
period commencing after one Purchase Date and ending with the next Purchase
Date, except that the first Purchase Period of any Offering Period shall
commence on the Enrollment Date.
s. "PURCHASE PRICE" shall mean an amount equal to the lesser
of (i) 85% of the Fair Market Value of a Share on the Enrollment Date or (ii)
85% of the Fair Market Value of Share on the Purchase Date.
t. "SHARE" shall mean a share of Common Stock.
u. "SUBSIDIARY" shall mean any corporation (other than the
Company) in an unbroken chain of corporations, beginning with the Company,
if, at the time of the granting of an option, each of the corporations other
than the last
<PAGE>
corporation in the unbroken chain owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain, whether or not such corporation now exists or is
hereafter organized or acquired by the Company or a Subsidiary.
v. "TRADING DAY" shall mean a day on which national stock
exchanges and the Nasdaq System are open for trading.
SECTION 2. ELIGIBILITY.
a. Subject to the limitations set forth in Section 2(b)
hereof, any person who is an Employee as of an Enrollment Date shall be
eligible to participate in the Plan in accordance with Section 4 hereof and
shall be granted an option for the Offering Period commencing on such
Enrollment Date.
b. Notwithstanding any provision of the Plan to the contrary,
no Employee shall be granted an option under the Plan (i) if such Employee
(or any other person whose stock would be attributed to such Employee
pursuant to Section 424(d) of the Code) would own stock and/or hold
outstanding options to purchase stock possessing five percent (5%) or more of
the total combined voting power or value of all classes of stock of the
Company, its Parent or of any Subsidiary, or (ii) if such grant would permit
such Employee's right to purchase stock under all employee stock purchase
plans (described in Section 423 of the Code) of the Company, its Parent and
of any Subsidiary to accrue at a rate that exceeds twenty-five thousand
dollars ($25,000) of Fair Market Value of such stock (determined at the time
such option is granted) for any calendar year in which such option would be
outstanding. Any amounts received from an Employee that cannot be used to
purchase Shares as a result of this limitation shall be returned as soon as
reasonably practicable to the Employee without interest.
<PAGE>
SECTION 3. OFFERING PERIODS.
The Plan shall be implemented by a series of consecutive,
overlapping twenty-four month Offering Periods, with a new Offering Period
commencing on the first Trading Day on or after May 15 (beginning in the year
2001) and November 15 (beginning in the year 2000) of each year, or at such
other time or times as may be determined by the Administrator, and ending on
the last Trading Day on or before November 14 and May 14, respectively,
occurring twenty-four months later or at such other time or times as may be
determined by the Administrator; PROVIDED, HOWEVER, that the first Offering
Period under the Plan shall commence with the first Trading Day on or after
the date on which the Securities and Exchange Commission declares the
Company's Registration Statement effective and ending on the last Trading Day
on or before April 14, 2002. The Plan shall continue until terminated in
accordance with Section 17 hereof. Subject to Section 17 hereof, the
Administrator shall have the power to change the duration and/or the
frequency of Offering Periods with respect to future offerings and shall use
its best efforts to notify Employees of any such change at least fifteen (15)
days prior to the scheduled beginning of the first Offering Period to be
affected. In no event shall any option granted hereunder be exercisable more
than twenty-seven (27) months from its date of grant.
To the extent permitted by applicable laws, if the Fair Market Value
of a share of Common Stock on any Purchase Date in an Offering Period is
lower than the Fair Market Value of a share of Common Stock on the Enrollment
Date of such Offering Period, then all Participants in such Offering Period
shall be automatically withdrawn from such Offering Period immediately after
the exercise of their option on such Purchase Date and automatically
re-enrolled in the immediately following Offering Period as of the first day
thereof.
SECTION 4. ENROLLMENT; PARTICIPATION.
a. On each Enrollment Date, the Company shall commence an
offering by granting each eligible Employee who has elected to participate in
such Offering Period pursuant to Section 4(b) hereof an option to purchase on
each Purchase Date of such Offering Period up to a number of Shares
determined by dividing each Employee's payroll deductions accumulated prior
to such Purchase Date and retained in the Participant's account as of such
Purchase Date by the applicable Purchase Price; provided that in no event
shall a Participant be permitted to pur-
<PAGE>
chase during each Offering Period more than 10,000 Shares (subject to any
adjustment pursuant to Section 16 hereof), PROVIDED, FURTHER, that such
purchase shall be subject to the limitations set forth in Sections 2(b) and
10 hereof. Exercise of the option shall occur as provided in Section 6
hereof, unless the Participant has withdrawn pursuant to Section 8 hereof.
The option with respect to an Offering Period shall expire on the last
Purchase Date with respect to such Offering Period or the withdrawal date if
earlier.
b. Subject to the limitations set forth in Section 2(b)
hereof, an Employee may elect to become a Participant in the Plan by
completing and filing a subscription agreement authorizing the Company to
make payroll deductions (as set forth in Section 5 hereof) at least five (5)
business days prior to the applicable Enrollment Date unless a later time for
filing the subscription agreement is set by the Administrator for all
Employees. Unless a Participant, by giving written notice (or such other
notice as may from time to time be prescribed by the Administrator), elects
not to participate with respect to any subsequent Offering Period, the
Participant shall be deemed to have accepted each new offer and to have
authorized payroll deductions in respect thereof during each subsequent
Offering Period.
SECTION 5. PAYROLL DEDUCTIONS.
a. An Employee may, in accordance with rules and procedures
adopted by the Administrator and subject to the limitation set forth in
Section 2(b) hereof, authorize payroll deductions in amounts which are not
less than one percent (1%) and not more than fifteen percent (15%) of such
Employee's Compensation on each payday during the Offering Period. Payroll
deductions shall commence on the first payroll paid following the Enrollment
Date, and shall end on the last payroll paid prior to each Purchase Date of
the Offering Period to which the subscription agreement is applicable, unless
sooner terminated by the Participant's withdrawal from the Plan or termination
of the Participant's Continuous Status as an Employee as provided in Section 8
hereof. A Participant may increase or decrease his or her rate of payroll
deductions at any time during an Offering Period by giving written notice (or
such other notice as may from time to time be prescribed by the Administrator).
The change in rate shall be effective the first full payroll period following
five (5) business days after the Company's receipt of the new subscription
agreement unless the Company elects to process a given change in rate of
payroll deductions more quickly.
<PAGE>
b. All payroll deductions made by a Participant shall be
credited to such Participant's account under the Plan and shall be withheld
in whole percentages only. A Participant may not make any additional payments
into such account.
c. Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and Section 2(b) hereof, a
Participant's rate of payroll deductions may be decreased by the Company to
zero percent (0%) at any time during an Offering Period. Payroll deductions
shall recommence at the rate provided for in such Participant's subscription
agreement at the beginning of the first Offering Period which is scheduled to
end the following calendar year, unless a Participant increases or decreases
the rate of his or her payroll deductions as provided in Section 5(a) hereof,
or terminates his or her participation in the Plan as provided in Section 8
hereof.
SECTION 6. PURCHASE OF SHARES.
Unless a Participant withdraws from the Plan as provided in Section
8 hereof, such Participant's election to purchase Shares shall be exercised
automatically on each Purchase Date, and the maximum number of whole Shares
subject to option shall be purchased for each Participant at the applicable
Purchase Price with the accumulated payroll deductions in each Participant's
account as of the Purchase Date. No fractional Shares may be purchased
hereunder. Any payroll deductions accumulated in a Participant's account
following the purchase of Shares on any Purchase Date that are not sufficient
to purchase a full Share shall be retained in the Participant's account for
the subsequent Offering Period, subject to earlier withdrawal by the
Participant as provided in Section 8 hereof. Any additional amounts remaining
in a Participant's account following the purchase of Shares on any Purchase
Date that are equal to, or in excess of, the amount required under this
Section 6 to purchase at least one full Share shall be returned to the
Participant as soon as reasonably practicable following the Purchase Date.
During a Participant's lifetime, a Participant's option to purchase Shares
hereunder is exercisable only by the Participant.
SECTION 7. DELIVERY OF SHARES; WITHDRAWAL OR SALE OF SHARES.
As promptly as reasonably practicable after each Purchase Date, the
Company shall either arrange the delivery of the whole Shares purchased on
such date by each Participant to the Participant's brokerage account or
arrange the delivery to the Participant of a share certificate representing
such Shares.
<PAGE>
SECTION 8. WITHDRAWAL; TERMINATION OF EMPLOYMENT.
a. A Participant may withdraw all, but not less than all, of
the payroll deductions credited to such Participant's account (that have not
been used to purchase Shares) under the Plan by giving written notice to the
Company at least five (5) business days prior to the Purchase Date of the
Offering Period in which the withdrawal occurs. Withdrawal of payroll
deductions shall be deemed to be a withdrawal from the Plan. All of the
payroll deductions credited to such Participant's account (that have not been
used to purchase Shares) shall be paid to such Participant promptly after
receipt of such Participant's notice of withdrawal, and such Participant's
eligibility to participate in the Plan for the Offering Period in which the
withdrawal occurs shall be automatically terminated. No further payroll
deductions for the purchase of Shares shall be made for such Participant
during such Offering Period. If a Participant withdraws from an Offering
Period, payroll deductions for such Participant shall not resume at the
beginning of the succeeding Offering Period unless the Participant timely
delivers to the Company a new subscription agreement in accordance with the
provisions of Section 4 hereof. A Participant's withdrawal from an Offering
Period shall not have any effect upon a Participant's eligibility to
participate in any similar plan which may hereafter be adopted by the Company
or in succeeding Offering Periods which commence after termination of the
Offering Period from which the Participant withdraws.
a. Upon termination of a Participant's Continuous Status as an
Employee during the Offering Period for any reason, including Participant's
voluntary termination, retirement or death, all the payroll deductions
credited to such Participant's account (that have not been used to purchase
Shares) shall be returned to such Participant or, in the case of such
Participant's death, to the person or persons entitled thereto under Section
12 hereof, and such Participant's option shall be automatically terminated.
Such termination shall be deemed a withdrawal from the Plan.
SECTION 9. INTEREST.
No interest shall accrue on or be payable by the Company with
respect to the payroll deductions of a Participant in the Plan.
SECTION 10. STOCK SUBJECT TO PLAN.
<PAGE>
a. Subject to adjustment upon Changes in Capitalization of the
Company as provided in Section 16 hereof, the maximum aggregate number of
Shares which shall be reserved for sale under the Plan shall be 500,000
Shares, plus an annual increase to be added on the first day of the Company's
fiscal year (beginning 2001) equal to the lesser of (i) 200,000 shares or
(ii) one percent (1%) of the number of outstanding shares of Common Stock on
the last Trading Day of the immediately preceding fiscal year. Such Shares
shall be available as of the first day of the first Offering Period that
commences in each such fiscal year. The Shares may consist, in whole or in
part, of authorized and unissued Shares or treasury Shares. If the total
number of Shares which would otherwise be subject to options granted pursuant
to Section 2(a) hereof on an Enrollment Date exceeds the number of Shares
then available under the Plan (after deduction of all Shares for which
options have been exercised or are then outstanding), the Administrator shall
make a pro rata allocation of the Shares remaining available for option grant
in as uniform a manner as shall be practicable and as it shall determine to
be equitable. In such event, the Administrator shall give written notice to
each Participant of such reduction of the number of option Shares affected
thereby and shall similarly reduce the rate of payroll deductions, if
necessary.
b. No Participant shall have rights as a stockholder with
respect to any option granted hereunder until the date on which such Shares
shall be deemed to have been purchased by the Participant in accordance with
Section 6 hereof.
c. Shares purchased on behalf of a Participant under the Plan
shall be registered in the name of the Participant or, if requested in
writing by the Participant, in the names of the Participant and the
Participant's spouse.
SECTION 11. ADMINISTRATION.
The Plan shall be administered by the Board or a Committee. The
Board or the Committee shall have full power and authority, subject to the
provisions of the Plan, to promulgate such rules and regulations as it deems
necessary for the proper administration of the Plan, to interpret the
provisions and supervise the administration of the Plan, and to take all
action in connection therewith or in relation thereto as it deems necessary
or advisable. Any decision reduced to writing and signed by a majority of the
members of the Committee shall be fully effective as if it had been made at a
meeting duly held. The Company shall pay all expenses incurred in the
administration of the Plan. No member of the Board or Committee shall be
personally liable for any action, determination, or interpretation made in
good faith with respect to the Plan, and all members of the Board or
Committee shall be fully indemnified by the Company with respect to any such
action, determination or interpretation.
All decisions, determinations and interpretations of the Board or
Committee shall be final and binding on all persons, including the Company,
its Parent, any Subsidiary, the Employee (or any person claiming any rights
under the Plan through any Employee) and any stockholder of the Company, its
Parent or any Subsidiary.
The Committee may adopt rules or procedures relating to the
operation and administration of the Plan to accommodate the specific
requirements of local laws and procedures. Without limiting the generality of
the foregoing, the Committee is specifically authorized to adopt rules and
procedures regarding handling of payroll deductions, payment of interest,
conversion of local currency, payroll tax, withholding procedures and
handling of stock certificates which vary
<PAGE>
with local requirements. The Committee may also adopt sub-plans applicable to
particular Subsidiaries or locations, which sub-plans may be designed to be
outside the scope of Section 423 of the Code. The rules of such sub-plans may
take precedence over other provisions of this Plan, with the exception of
Section 10(a), but unless otherwise superseded by the terms of such sub-plan,
the provisions of this Plan shall govern the operation of such sub-plan.
SECTION 12. DESIGNATION OF BENEFICIARY.
a. A Participant may file, on forms supplied by and delivered
to the Company, a written designation of a beneficiary who is to receive
Shares and/or cash, if any, remaining in such Participant's account under the
Plan in the event of the Participant's death.
b. Such designation of beneficiary may be changed by the
Participant at any time by written notice. In the event of the death of a
Participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such Participant's death, the Company shall
deliver the balance of the Shares and/or cash credited to Participant's
account to the executor or administrator of the estate of the Participant or,
if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its discretion, may deliver such Shares and/or
cash to the spouse or to any one or more dependents or relatives of the
Participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
SECTION 13. TRANSFERABILITY.
Neither payroll deductions credited to a Participant's account nor
any rights with regard to the exercise of an option or any rights to receive
Shares under the Plan may be assigned, transferred, pledged or otherwise
disposed of in any way (other than by the laws of descent and distribution or
as provided in Section 12 hereof) by the Participant. Any such attempt at
assignment, transfer, pledge or other disposition shall be without effect,
except that the Company may treat such act as an election to withdraw funds
in accordance with Section 8 hereof.
SECTION 14. USE OF FUNDS.
All payroll deductions received or held by the Company under the
Plan may be used by the Company for any corporate purpose, and the Company
shall not be obligated to segregate such payroll deductions.
SECTION 15. REPORTS.
Individual accounts shall be maintained by the Company for each
Participant in the Plan. Statements of account shall be given to each
Participant at least annually which statements shall set forth the amounts of
payroll deductions, the Purchase Price, the number of Shares purchased and
the remaining cash balance, if any.
<PAGE>
SECTION 16. EFFECT OF CERTAIN CHANGES.
In the event of a Change in Capitalization or the distribution of an
extraordinary dividend, the Administrator shall conclusively determine the
appropriate equitable adjustments, if any, to be made under the Plan,
including without limitation adjustments to the number of Shares which have
been authorized for issuance under the Plan, but have not yet been placed
under option, as well as the Purchase Price of each option under the Plan
which has not yet been exercised. In the event of a Change in Control of the
Company, the Offering Period shall terminate unless otherwise provided by the
Administrator.
SECTION 17. AMENDMENT OR TERMINATION.
The Board may at any time terminate or amend the Plan. Except as
provided in Section 16 hereof, no such termination may adversely affect
options previously granted and no amendment may make any change in any option
theretofore granted which adversely affects the rights of any Participant. To
the extent necessary to comply with Section 423 of the Code (or any successor
rule or provision or any other applicable law, regulation or stock exchange
rule), the Company shall obtain stockholder approval in such a manner and to
such a degree as required.
SECTION 18. NOTICES.
All notices or other communications by a Participant to the Company
under or in connection with the Plan shall be deemed to have been duly given
when they are received in a timely manner in the form specified by the
Company at the location, or by the person, designated by the Company for the
receipt thereof.
SECTION 19. REGULATIONS AND OTHER APPROVALS; GOVERNING LAW.
(a) This Plan and the rights of all persons claiming hereunder
shall be construed and determined in accordance with the laws of the State of
California without giving effect to the choice of law principles thereof,
except to the extent that such law is preempted by Federal law.
(b) The obligation of the Company to sell or deliver Shares
with respect to options granted under the Plan shall be subject to all
applicable laws, rules and regulations, including all applicable federal and
state securities laws, and the obtaining of all such approvals by
governmental agencies as may be deemed necessary or appropriate by the
Administrator.
<PAGE>
SECTION 20. WITHHOLDING OF TAXES.
If the Participant makes a disposition, within the meaning of
Section 424(c) of the Code of any Share or Shares issued to Participant
pursuant to Participant's exercise of an option, and such disposition occurs
within the two-year period commencing on the day after the Enrollment Date or
within the one-year period commencing on the day after the Purchase Date,
Participant shall, within ten (10) days of such disposition, notify the
Company thereof and thereafter immediately deliver to the Company any amount
of Federal, state or local income taxes and other amounts which the Company
informs the Participant the Company may be required to withhold.
SECTION 21. EFFECTIVE DATE.
Subject to the approval of the Plan by the stockholders of the
Company within twelve (12) months before or after the date the Plan is
adopted by the Board, the Plan shall be effective as of the first Trading Day
on or after the date on which the Securities and Exchange Commission declares
the Company's Registration Statement effective (the "Effective Date").
SECTION 22. TERM OF PLAN.
No option shall be granted pursuant to the Plan and no Offering
Period shall commence on or after the tenth anniversary of the Effective
Date, but options theretofore granted may extend beyond that date.
<PAGE>
EXHIBIT 10.6
FORM OF STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this Agreement) is effective as of
December 28, 1999, by and between PHASECOM, INC., a Delaware corporation
(hereinafter the "Corporation"), and _________________ (hereinafter the
"Investor").
RECITAL
The Investor desires to purchase shares from the Corporation, and the
Corporation desires to sell to the Investor, shares of Common Stock on the
terms and conditions hereinafter set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual agreements, covenants,
representations and warranties contained in this Agreement, the parties agree
as follows:
1. SALE OF STOCK. Subject to the terms and conditions hereof, the
Corporation will issue and sell to the Investor, and the Investor will
purchase form the Corporation, two hundred thousand (200,000) shares of the
Corporation's Common Stock (the "Shares") at a per-share purchase price of
Twenty Five Hundredths U.S. Dollars ($0.25) for a total purchase price of
Fifty Thousand Dollars ($50,000) (the "Purchase Price").
2. ISSUANCE AND PAYMENT. Upon payment of the Purchase Price, the
Corporation will deliver to the Investor a certificate registered in the name
of the Investor, representing the Shares ("Certificate").
3. CORPORATION'S WARRANTIES. The Corporation hereby represents and
warrants effective as of the effective date of this Agreement as follows:
a. CORPORATE ORGANIZATION AND STANDING. The Corporation
is a corporation duly organized, existing and in good standing under the laws
of the Delaware. The Corporation has the requisite corporate power to carry
on its business and presently conducted, and as proposed or contemplated to
be conducted in the future, and to enter into and carry out the provisions of
this Agreement and the transactions contemplated hereby. The Corporation is
not presently qualified to do business as a foreign corporation in any
jurisdiction where the failure to be so qualified would materially and
adversely affect the Corporation's business.
b. AUTHORIZATION. All corporate action on the part of
the Corporation, its directors and shareholders necessary for the
authorization, execution, delivery and performance of this Agreement by the
Corporation, the authorization, sale, issuance and delivery of the stock and
the performance of all of the Corporation's obligations hereunder has been
taken or will be taken prior to the issuance of the Certificate. This
Agreement, when executed and delivered by the Corporation, shall constitute a
valid and binding obligation of the Corporation, enforceable in accordance
with its terms, except as may be limited by principles of public policy, and
subject to laws of general application relating to bankruptcy, insolvency and
the relief of debtors and rules of law governing specific performance,
injunctive relief or other equitable remedies. The Shares, when issued in
compliance with the provisions of this Agreement, will be validly issued,
will be fully paid and nonassessable, and will have the rights, preferences
and privileges described in the Articles, provided, however, that the Shares
may be subject to restrictions on transfer under state and/or federal
securities laws.
c. GOVERNMENTAL CONSENTS. To the Corporation's
knowledge, no consent, approval, order, authorization or registration,
qualifications, designation, license, declarations or filings with any
Federal or state governmental authority is required on the part of the
Corporation in connection with the consummation of the transactions
contemplated herein, except for security law filings and any IITSSA filings.
<PAGE>
4. INVESTOR REPRESENTATIONS AND WARRANTIES. The Investor represents
and warrants to the Corporation that:
a. INVESTMENT. The investor is acquiring the Shares for
investment for its own account, and not with a view to, or resale in
connection with, any distribution thereof, and he has no present intention of
selling or distributing any such Shares. The Investor understands that the
Shares have not been registered under the Securities Act of 1933 ("Securities
Act") by reason of a specific exemption from the registration provisions of
the Securities Act which depends upon, among other things, the bona fide
nature of the investment as expressed herein.
b. RULE 144. The Investor acknowledges that because the
Shares have not been registered under the Securities Act, the Shares must be
held indefinitely unless subsequently registered under the Securities Act or
an exemption from such registration is available. The Investor is aware of
the provisions of Rule 144 promulgated under the Securities Act that permits
limited resale of shares purchased in a private placement under certain
circumstances.
c. NO PUBLIC MARKET. The Investor understands that no
public market now exists for any securities issued by the Corporation and
that it is uncertain whether a public market will ever exist for any such
securities.
d. ACCESS TO DATA. The Investor has had an opportunity
to discuss the Corporation's business, management and financial affairs with
its management and to obtain any additional information given to the Investor
necessary or appropriate for deciding whether or not to purchase the Shares.
The Investor acknowledges that no representations or warranties have been
made by the Corporation or any agent thereof except as set forth in this
Agreement.
e. INVESTMENT EXPERIENCE. The Investor is an
"accredited investor" as that term is defined in Regulation D promulgated by
the Securities and Exchange Commission under the authority of the Securities
Act., and as set forth in Exhibit A, attached hereto and incorporated herein
by this reference.
f. PREVIOUS INVESTMENTS. The Investor is an investor in
securities of companies in the development stage and acknowledges that the
Investor is able to fend for himself, can bear the economic risk of its
investment and has such knowledge and experience in financial or business
matters that he is capable of evaluating the merits and risks of the
investment contemplated herein.
g. RISKS. The Investor understands that an investment
in the Corporation involves a high degree of risk and is suitable only for
investors who can afford a loss of their entire investment and who have no
need for liquidity from their investment.
h. IITSSA COMPLIANCE. If the Investor is a foreign
person, and if applicable, the Investor shall provide to the Corporation all
such information as is necessary to complete the forms required to be filed
by the Corporation with the U.S. Department of Commerce, Bureau of Economic
Analysis, under the International Investment and Trade in Services Survey
Act, as amended, and regulations issued thereunder.
i. GOVERNMENTAL CONSENTS. To the Investor's knowledge,
no consent, approval, order, authorization or registration, qualifications,
designation, license, declarations or filings with any governmental authority
outside of the United States is required on the part of the Investor in
connection with the consummation of the transactions contemplated herein.
5. RESTRICTIVE LEGENDS. Each certificate or other written
documentation representing any of the Shares which the Investor is purchasing
or may purchase hereunder and any other securities issued upon any stock
split, stock dividend, recapitalization, merger, consolidation or similar
event (unless no longer required
2
<PAGE>
in the opinion of the counsel for the Corporation) shall be stamped or
otherwise imprinted with a legend substantially in the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER ANY STATE
SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED
UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING
SUCH SECURITIES, OR THE HOLDER RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER
OF THE SECURITIES SATISFACTORY TO THE CORPORATION, STATING THAT SUCH SALE,
TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT AND THE QUALIFICATION
REQUIREMENTS UNDER STATE LAW."
The Corporation shall be entitled to enter stop transfer notices on
its books with respect to the Shares.
6. STAND-OFF AGREEMENT.
a. CERTIFICATES. The Investor agrees to have any
certificate or certificates representing his, her or its Shares which are to
be issued pursuant to this Agreement bear, in addition to any other
applicable securities legends, a legend stating that the shares represented
by that certificate may not be transferred by any means whatsoever, without
the agreement of the Corporation, for a period commencing on the date of an
initial public offering of the Shares ("Offering") and ending on the one
hundred eightieth (180th) day following the commencement of the Offering (the
"Lock-Up Period").
b. NO SALES. Until the Lock-up Period expires, the
Investor agrees unless released in writing by the Corporation, not to sell,
make any short sale of, loan, grant any option for the purchase of, or
otherwise dispose of any Shares (other than any shares included in the
Offering). The Corporation may impose stop transfer instructions with respect
to the shares subject to the foregoing restrictions, until the end of the
Lock-Up Period. The Investor agrees to execute any and all agreements with
the Corporation and/or its investment bankers which the Corporation deems
necessary to effect the Investor's agreement set forth in the previous
sentence.
7. MISCELLANEOUS.
a. 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.
b. ENTIRE AGREEMENT. This Agreement constitutes the
full and entire understanding and agreement between and among the parties
with regard to the subjects hereof and thereof.
c. NOTICE. Any notice, payment, report or other
communication required or permitted to be given by one party to any other
party by this Agreement shall be in writing and either (i) served personally
on the other party or parties; (ii) sent by express, registered or certified
first class mail, postage prepaid, addressed to the other party or parties at
its or their address or addresses as indicated next to their signatures
below, or to such other address as any addressee shall have theretofore
furnished to the other parties by like notice; (iii) delivered by commercial
courier to the other party or parties; or (iv) sent by facsimile. Such notice
shall be deemed received on the second day after transmittal if sent by one
day courier together with a transmission of such notice by facsimile if the
recipient has the capability to receive a facsimile at its address and if
sent by other methods shall be deemed received upon receipt.
3
<PAGE>
d. FINDER'S AND BROKER'S FEES. Each party hereto
represents and warrants that he, she or it has retained no finder or broker
in connection with the transactions contemplated by this Agreement, and
hereby agrees to indemnify and to hold the other harmless from any liability
for any finder's or broker's fee to any broker or other person or firm (and
the costs and expenses of defending against such liability or asserted
liability) for which such indemnifying person, or any of its employees or
representatives, are responsible.
e. TITLES AND SUBTITLES. The titles of the Sections and
subsections of this Agreement are for the convenience of reference only and
are not to be considered in construing this Agreement.
f. 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.
g. APPLICABLE LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of California
applicable to contracts between California residents entered into and to be
performed entirely within the State of California.
h. ARBITRATION. Any dispute between the parties arising
out of this Agreement shall be submitted to final and binding arbitration in
the City of San Jose, County of Santa Clara, State of California, under the
Commercial Arbitration Rules of the American Arbitration Association then in
effect, upon written notification and demand of either party therefor. In the
event either party demands such arbitration, the American Arbitration
Association shall be requested to submit a list of prospective arbitrators
consisting of persons experienced in matters involving securities offerings.
The provisions of California Code of Civil Procedure Section 1283.05 and the
laws of the State of California are incorporated herein and shall be
applicable to the arbitration. In making the award, the arbitrator shall
award recovery of costs and expenses of the arbitration and reasonable
attorney's fees to the prevailing party. Any award may be entered as a
judgement in any court of competent jurisdiction. Should judicial proceedings
be commenced to enforce or carry out this provision or any arbitration award,
the prevailing party in such proceedings shall be entitled to reasonable
attorneys' fees and costs in addition to other relief. Either party shall
have the right, prior to receiving an arbitration award, to obtain
preliminary relief from a court of competent jurisdiction to avoid injury or
prejudice to that party.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
to be effective as of the day and year hereinabove first written.
CORPORATION: INVESTOR:
PHASECOM, INC.
By:________________________ ____________________________
___________________________
(Print Name and Title)
4
<PAGE>
Exhibit 10.7
THE SECURITIES TO WHICH THIS STOCK PURCHASE AGREEMENT RELATES HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR UNDER ANY STATE SECURITIES LAWS ("BLUE SKY LAWS"), AND MAY NOT BE OFFERED OR
SOLD WITHOUT REGISTRATION UNDER THE SECURITIES ACT, AND AS REQUIRED BY BLUE SKY
LAWS IN EFFECT AS TO SUCH OFFER AND SALE, UNLESS AN EXEMPTION FROM SUCH
REGISTRATION UNDER FEDERAL AND STATE LAW IS AVAILABLE.
PHASECOM, INC.
FORM OF D97A STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is entered into as of the
date set forth on the signature page to this Agreement, by and between PHASECOM,
INC., a Delaware corporation (the "Corporation" or "PhaseCom"), and the
purchaser whose name and address are shown on the signature page to this
Agreement (the "Purchaser").
RECITALS
A. PhaseCom has duly authorized the issuance, sale and delivery of up to
one hundred thirty-nine thousand five hundred five (139,505) units (the
"Units"), each Unit consisting of one (1) share (the "Common Share") of its
common stock, par value $0.0001 per share (the "Common Stock"), and one (1)
share (the "Preferred Share") of its preferred stock, par value $0.001 per
share, designated as the Series A Convertible Preferred Stock (the "Series A
Preferred Stock") and having such rights, privileges and preferences as set
forth in the Certificate of Incorporation of PhaseCom attached hereto as Exhibit
A (the "Certificate").
B. The Units are being offered and sold by PhaseCom to Purchaser in
reliance upon and in conformity with an exemption from the registration
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
pursuant to Regulation D under the Securities Act ("Regulation D").
C. PhaseCom desires to offer and sell to Purchaser, and Purchaser desires
to buy from PhaseCom, the aggregate number of Units set out opposite Purchaser's
address on the signature page to this Agreement for delivery in accordance with
this Agreement.
D. Contemporaneously with the offer and sale of the Units, PhaseCom intends
to offer and sell up to sixty thousand two hundred sixty-one (60,261) additional
units to other investors who are not U.S. Persons (as defined in Regulation S
under the Securities Act) in reliance upon an exemption from registration
pursuant to Regulation S.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual agreements, covenants,
representations and warranties contained in this Agreement, the parties agree as
follows:
1. AGREEMENT TO SELL AND PURCHASE THE UNITS.
a. SALE AND PURCHASE OF UNITS. On the basis of the representations,
<PAGE>
warranties and agreements contained in this Agreement, but subject to the terms
and conditions hereof, the Corporation agrees to issue and sell to Purchaser,
and Purchaser agrees to purchase from the Corporation, on the scheduled date set
forth on the signature page to this Agreement or on such other date as shall be
mutually agreed upon by the Corporation and Purchaser (the "Closing Date"), the
aggregate number of Units set out opposite Purchaser's address on the signature
page to this Agreement (the "Designated Units"). The price for the Designated
Units shall be Nine and 77/100 Dollars ($9.77) per Designated Unit ($0.98
allocable to the Common Share and $8.79 allocable to the Preferred Share
comprising each Designated Unit), and Purchaser shall pay to the Corporation the
aggregate amount set out opposite Purchaser's address on the signature page to
this Agreement (the "Purchase Price").
b. PAYMENT. Payment of the Purchase Price shall be made by Purchaser
to the Corporation on the Closing Date by wire transfer of immediately available
funds in United States dollars to the account of PhaseCom, Inc., Account No.
011-129635, ABA No. 121141152, at Cupertino National Bank & Trust, 20230 Stevens
Creek Boulevard, Cupertino, California 95014, or by such other means as shall be
mutually agreed upon by the Corporation and Purchaser.
c. OTHER UNITS. The Corporation intends to offer and sell other Units
to other investors (together with Purchaser, the "Purchasers") pursuant to
separate substantially identical purchase agreements (together with this
Purchase Agreement, the "Purchase Agreements").
d. CLOSING. The closing of the sale and purchase of the Units (the
"Closing") shall be held at the offices of the Corporation's counsel, Pezzola &
Reinke, APC ("P&R"), located at 1999 Harrison Street, Suite 1300, Oakland,
California 94612 at 2:00 p.m. local time on the Closing Date.
e. DELIVERY. Within twenty (20) days after the Closing, the
Corporation shall deliver to Purchaser one or more certificate representing the
Common Shares and one or more certificates representing the Preferred Shares
comprising the Designated Units, each registered in the name of Purchaser, or
its nominee, against payment of the Purchase Price therefor in immediately
available funds to the account of the Corporation designated in Section 2(b) of
this Agreement.
2. REPRESENTATIONS AND WARRANTIES OF THE CORPORATION. The Corporation
hereby represents and warrants to Purchaser as follows:
a. CORPORATE ORGANIZATION AND STANDING. The Corporation is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite power and authority to carry on
its business as presently conducted. The Corporation is duly qualified to do
business as a foreign corporation in every jurisdiction where such qualification
is required by controlling law and where the failure to so qualify would have a
material adverse effect on the Corporation and its subsidiaries, taken as a
whole.
b. AUTHORIZED CAPITAL STOCK. The Corporation has an authorized capital
stock consisting of ten million (10,000,000) shares of Common Stock and four
million five hundred thousand (4,500,000) shares of Preferred Stock, of which
two million five hundred
<PAGE>
thousand (2,500,000) shares are designated as Series A Preferred Stock.
Immediately prior to the Closing, the Corporation will have a total of not more
than one million four hundred two thousand eight hundred twenty-four (1,402,824)
shares of Common Stock outstanding; not more than one million four hundred two
thousand eight hundred twenty-four (1,402,824) shares of Series A Preferred
Stock outstanding; up to five hundred fifty thousand (550,000) shares of Common
Stock reserved for issuance under the Corporation's 1996 Equity Incentive Plan;
and up to an aggregate of one million nine thousand one hundred four (1,009,104)
shares of Common Stock issuable pursuant to warrants of the Corporation.
c. ISSUANCE AND DELIVERY OF THE UNITS. As of the Closing, the offer,
issuance, sale and delivery of the Units in accordance with the Purchase
Agreements will have been duly authorized by all requisite corporate action of
the Corporation. The Common Shares and the Preferred Shares comprising the
Designated Units, as and when issued and sold to Purchaser pursuant to this
Agreement, and upon receipt by the Corporation of the Purchase Price therefor,
will be duly and validly issued and outstanding, fully paid and non-assessable,
and will be free and clear of any liens or other encumbrances, except such as
may have been created by Purchaser and except for such restrictions on transfer
created hereunder and under federal and/or state securities laws. This
Agreement, when executed and delivered by the Corporation, shall constitute a
valid and binding obligation of the Corporation, enforceable in accordance with
its terms, except as the enforceability thereof may be limited by applicable
bankruptcy, insolvency, reorganization or other similar laws relating to or
affecting creditors' rights generally and by general equitable principles,
regardless of whether such enforceability is considered in a proceeding in
equity or at law.
d. LITIGATION. There are no actions, proceedings or investigations
pending to which the Corporation is a party before or by any court or
governmental agency or body, which in the opinion of management of the
Corporation would result, individually or in the aggregate, in any material
adverse change in the financial condition or results of operations of the
Corporation and its subsidiaries, taken as a whole; and to the best knowledge of
the Corporation's management, no such actions, proceedings or investigations are
threatened by any person, corporation or governmental agency or body.
e. GOVERNMENTAL CONSENTS. No consent, approval, order, authorization
or registration, qualification, designation, license, declaration or filing with
any governmental authority is required on the part of the Corporation in
connection with the consummation of the transactions contemplated herein, except
for such applicable federal and state securities filings.
f. REPRESENTATIONS AND WARRANTIES AT THE CLOSING. Each of the
representations and warranties contained in this Section 2 is true and correct
as of the date of this Agreement. The Corporation will make the same
representations and warranties on the Closing Date and such representations and
warranties when so made shall be true and correct as of the Closing Date.
3. CERTAIN AGREEMENTS OF THE CORPORATION.
a. ADDITIONAL INFORMATION. The Corporation will make available to
Purchaser prior to the Closing Date the opportunity to ask questions and receive
answers
<PAGE>
concerning the terms and conditions of the offering of the Units and to
obtain any additional information that the Corporation possesses or can acquire
without unreasonable effort or expense that is necessary to verify the accuracy
of the information furnished in accordance herewith.
b. AUTHORIZED SHARES. If at any time the number of authorized by
unissued shares of Common Stock shall not be sufficient to effect the conversion
of all then outstanding shares of Series A Preferred Stock, the Corporation
shall request its shareholders to take such action as may, in the opinion of
counsel to the Corporation, be necessary to increase the Corporation's
authorized by unissued shares of Common Stock to such a number as shall be
sufficient for such purposes.
c. NOTICE TO HOLDERS OF SERIES A PREFERRED STOCK.
i. NOTICE OF MATERIAL EVENT. So long as Purchaser holds Preferred
Shares, in the event of any voluntary or involuntary liquidation, dissolution,
or winding up of the Corporation, any merger, consolidation, or sale, transfer
or lease of all or substantially all of the assets of the Corporation, or in the
event of any corporate reorganization, or of the setting of any record date of
shareholders for the purpose of entitling shareholders to receive any dividend
or other distribution, or for the purpose of establishing a date for a
shareholders meeting, the Corporation shall, within ten (10) days after the date
the Board of Directors approves such action, or within ten (10) days prior to
any date for any shareholders meeting (or the effective date of any matter
adopted by the consent of shareholders) or distribution, or within ten (10) days
after the commencement of any involuntary proceeding, as the case may be, give
each holder of shares of Series A Preferred Stock written notice of the proposed
action. If applicable, such written notice shall describe the material terms and
conditions of such proposed action, including a description of the stock, cash,
and property to be received by the holders of shares of Series A Preferred Stock
upon consummation of the proposed action and the date of delivery thereof. If
any material change in the facts set forth in the initial notice shall occur,
the Corporation shall promptly give written notice to each holder of Series A
Preferred Stock of such material change.
ii. CONSUMMATION OF MATERIAL EVENT. The Corporation shall not
consummate any voluntary or involuntary liquidation, dissolution, or winding up
of the Corporation or any merger, consolidation or sale, lease or transfer of
all or substantially all of the assets of the Corporation before the expiration
of ten (10) days after the mailing of the initial notice or any subsequent
written notice, whichever is later; PROVIDED that any such ten (10) day period
may be shortened upon the written consent of the holders of the majority of the
outstanding shares of Series A Preferred Stock.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF PURCHASER. Purchaser hereby
represents, warrants and covenants to the Corporation as follows:
a. COMPLIANCE WITH SECURITIES LAWS. Purchaser understands and
acknowledges that the Common Shares and the Preferred Shares have not been
registered under the Securities Act by reason of a specific exemption from the
registration provisions thereof which depends upon, among other things, the bona
fide nature of the investment as expressed herein.
b. STATUS OF PURCHASER.
<PAGE>
i. ACCREDITED INVESTOR. To the extent that Purchaser is an
"accredited investor" (as defined in Regulation D, which definition is set out
in Exhibit B hereto), Purchaser shall so represent, warrant and certify on the
signature page to this Agreement.
ii. INVESTMENT. Purchaser is purchasing the Designated Units
for its own account for investment purposes and not with a view to, or for
resale in connection with, any distribution thereof.
iii. KNOWLEDGE AND EXPERIENCE. Purchaser has such knowledge and
experience in financial and business matters, including investments in companies
in the development stage, that it is qualified to make decisions with respect to
investments is restricted securities such as this Agreement and the Designated
Units, and has requested, received, reviewed and considered all information it
deems relevant in making a decision to execute this Agreement and to purchase
the Designated Units. Purchaser acknowledges that it is capable of evaluating
the merits and risks of the investment in the Designated Units and it is able to
bear the economic risk of such investment.
iv. ACCESS TO INFORMATION. Purchaser acknowledges that the
Corporation has made available to Purchaser the opportunity to (A) discuss the
Corporation's business, management and financial affairs with its management,
(B) ask questions and receive answers concerning the terms and conditions of the
offering of the Units, and (C) obtain any additional information that the
Corporation possesses or can acquire without unreasonable effort or expense that
is necessary to verify the accuracy of the information furnished in accordance
herewith or to decide whether or not to purchase the Designated Units. Purchaser
acknowledges that no other representation or warranty has been made by the
Corporation or any agent thereof except as set forth in this Agreement.
v. RISK OF INVESTMENT. Purchaser understands that an investment
in the Corporation involves a high degree of risk and is suitable only for
investors who can afford a loss of their entire investment and who have no need
for liquidity from their investment.
vi. SUITABILITY. Purchaser has carefully considered and has, to
the extent Purchaser deems necessary, discussed with Purchaser's own
professional legal, tax and financial advisers the suitability of an investment
in the Designated Units for Purchaser's particular tax and financial situation,
and Purchaser has determined that the Units are a suitable investment.
vii. NO PUBLIC MARKET. Purchaser understands that no public
market now exists for the Common Shares or the Preferred Shares and that it is
uncertain whether a public market will ever exist for any such securities.
c. RESTRICTIONS ON RE-SALE.
i. RESTRICTIONS ON RE-SALES. Purchaser understands and
acknowledges that because the Common Shares and the Preferred Shares comprising
the Designated Units have not been registered under the Securities Act, such
Common Shares and Preferred Shares must be held indefinitely unless subsequently
registered under the
<PAGE>
Securities Act or an exemption from such registration is available. Purchaser
further understands and acknowledges that the Securities Act prohibits resales
of securities except pursuant to an effective registration statement or an
exemption from registration for which such securities and Purchaser qualifies.
Purchaser understands and acknowledges that there can be no assurance that
Purchaser will be able to qualify for such an exemption from registration.
ii. COMPLIANCE WITH SECURITIES ACT. Purchaser will not, directly
or indirectly, voluntarily offer, sell, pledge, transfer or otherwise dispose of
(or solicit any offers to buy, purchase or otherwise acquire or take a pledge
of) its rights under this Agreement and the Common Shares and Preferred Shares
comprising the Designated Units or any interest therein otherwise than in
compliance with the Securities Act, any applicable state securities or blue sky
laws, and the rules and regulations promulgated thereunder.
d. PUBLIC OFFERING LOCK-UP. In connection with any underwritten public
registration of the Corporation's securities, Purchaser (and any transferee of
Purchaser) agrees, upon the request of the Corporation or the underwriters
managing such underwritten offering of the Corporation's securities, not to
sell, make any short sale of, loan, grant any option for the purchase of, or
otherwise dispose of any Common Shares or Preferred Shares comprising the
Designated Units or any other securities of the Corporation heretofore or
hereafter acquired by Purchaser (other than those included in the registration)
without the prior written consent of the Corporation and such underwriters, as
the case may be, for a period of time, not to exceed one hundred eighty (180)
days from the effective date of such registration. Upon request by the
Corporation, Purchaser shall enter into any further agreement in writing in a
form reasonably satisfactory to the Corporation and such underwriter. The
Corporation may impose stop-transfer instructions with respect to the securities
subject to the foregoing restrictions until the end of said 180-day period.
e. LEGENDS. Purchaser agrees that the certificates (the "Stock
Certificates") representing the Common Shares and the Preferred Shares
comprising the Designated Units shall bear the legends set forth below:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER ANY
STATE SECURITIES LAWS, AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED
OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR
SUCH SECURITIES UNDER THE ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE
CORPORATION THAT AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER SET FORTH IN THAT CERTAIN D97A STOCK PURCHASE
AGREEMENT BETWEEN THE CORPORATION AND THE ORIGINAL HOLDER HEREOF.
f. DUE AUTHORIZATION, DELIVERY AND PERFORMANCE OF THIS AGREEMENT.
Purchaser has full right, power, authority and capacity to enter into this
Agreement and to
<PAGE>
consummate the transactions contemplated hereby; if Purchaser is a company or
corporation, the execution, delivery and performance of this Agreement by
Purchaser have been duly authorized by all requisite corporate action of
Purchaser. This Agreement, when executed and delivered by Purchaser, shall
constitute a valid and binding obligation of Purchaser, enforceable in
accordance with its terms, except as the enforceability thereof may be limited
by applicable bankruptcy, insolvency, reorganization or other similar laws
relating to or affecting creditors' rights generally and by general equitable
principles, regardless of whether such enforceability is considered in a
proceeding in equity or at law.
g. GOVERNMENTAL CONSENTS. No consent, approval, order, authorization
or registration, qualification, designation, license, declaration or filing with
any governmental authority is required on the part of Purchaser in connection
with the consummation of the transactions contemplated herein.
h. RELIANCE. Purchaser understands and acknowledges that the
Corporation is relying on the accuracy of the representations and warranties of
Purchaser contained herein to establish compliance with federal and state
securities laws. Purchaser agrees that if any such representation or warranty is
not true and accurate in any respect as of the Closing Date or at any time
thereafter, Purchaser shall immediately notify the Corporation in writing and
shall be cause for recision by the Corporation, at its sole election.
i. REPRESENTATIONS AND WARRANTIES AT THE CLOSING. Each of the
representations and warranties contained in this Section 4 is true and correct
as of the date of this Agreement. Purchaser will make the same representations
and warranties on the Closing Date and such representations and warranties when
so made shall be true and correct as of the Closing Date.
5. MISCELLANEOUS.
a. SURVIVAL. The representations, warranties, covenants and
agreements made herein shall survive the closing of the transactions
contemplated hereby.
b. EXECUTION AND DELIVERY OF OTHER DOCUMENTS. Purchaser agrees that it
will execute and deliver such other documents as may be reasonably requested by
the Corporation to complete the transactions contemplated hereby.
c. SEVERABILITY. The invalidity or unenforceability of any particular
provision of this Agreement shall not affect or limit the validity or
enforceability of the remaining provisions of this Agreement.
d. 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.
e. ENTIRE AGREEMENT. This Agreement and the exhibits attached hereto
and the other documents delivered pursuant hereto constitute the full and entire
understanding and agreement between and among the parties with regard to the
subjects hereof and thereof.
<PAGE>
f. NOTICE. Any notice, demand, consent or other communication under
this Agreement shall be in writing addressed to the other party at its address
on the signature page to this Agreement, or to such other address as such party
shall have theretofore furnished by like notice and either served personally,
sent by express, registered or certified first class mail, postage prepaid, sent
by facsimile transmission, or delivered by reputable commercial courier. Such
notice shall be deemed given (i) when so personally delivered, or (ii) if mailed
as aforesaid, seven (7) days after the same shall have been posted, or (iii) if
sent by facsimile transmission, as soon as written or telephonic confirmation is
received from the party to whom it was sent that the message has been received,
or (iv) if delivered by commercial courier, upon receipt.
g. FINDER'S AND BROKER'S FEES. Each party hereto represents and
warrants that it has retained no finder or broker in connection with the
transactions contemplated by this Agreement, and hereby agrees to indemnify and
to hold the other harmless from any liability for any finder's or broker's fee
to any broker or other person or firm (and the costs and expenses of defending
against such liability or asserted liability) for which such indemnifying
person, or any of its employees or representatives, are responsible.
h. CONFLICT OF INTEREST. PURCHASER ACKNOWLEDGES THAT P&R IS THE
GENERAL CORPORATE COUNSEL TO THE CORPORATION AND WAIVES ANY CONFLICTS ASSOCIATED
THEREWITH, AND HEREBY CONSENTS TO P&R'S ROLE HEREUNDER NOTWITHSTANDING ITS
POSITION AS THE CORPORATION'S LAW FIRM IN NEGOTIATING THE TERMS AND CONDITIONS
OF THIS AGREEMENT AND ALL OTHER ANCILLARY DOCUMENTS IN CONNECTION HEREWITH.
i. HEADINGS. The headings of the Sections and subsections of this
Agreement are for convenience of reference only and shall not affect the meaning
or interpretation of the contents of this Agreement.
j. APPLICABLE LAW. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of California applicable to contracts
between California residents entered into and to be performed entirely within
the State of California, except with respect to matters that by their nature
would be governed by Israeli Company Law, in which case, Israeli Company Law
shall apply.
k. ARBITRATION. Any dispute between the parties arising out of this
Agreement shall be submitted to final and binding arbitration in the City of
Santa Clara, County of Santa Clara, State of California, under the Commercial
Arbitration Rules of the American Arbitration Association then in effect, upon
written notification and demand of either party therefor. In the event either
party demands such arbitration, the American Arbitration Association shall be
requested to submit a list of prospective arbitrators consisting of persons
experienced in matters involving securities offerings. The provisions of
California Code of Civil Procedure Section 1283.05 and the laws of the State of
California are incorporated herein and shall be applicable to the arbitration.
In making the award, the arbitrator shall award recovery of costs and expenses
of the arbitration and reasonable attorneys' fees to the prevailing party. Any
award may be entered as a judgment in any court of competent jurisdiction.
Should judicial proceedings be commenced to enforce or carry out this provision
or any arbitration award, the prevailing party in such proceedings shall be
entitled to reasonable attorneys' fees and costs in addition to other relief.
Either party shall have the right, prior to receiving an arbitration award, to
obtain preliminary relief from a court of competent jurisdiction to avoid injury
or prejudice to that party.
<PAGE>
l. 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.
m. FACSIMILE SIGNATURES. The parties shall be entitled to rely upon
and enforce a facsimile of any authorized signature as if it were the original.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.)
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
April 1, 1997.
PHASECOM, INC. PURCHASER'S NAME:
a Delaware corporation
By:
----------------------------- ----------------------------------
Shaul Berger, President
----------------------------------------
20700 Valley Green Drive
----------------------------------------
Cupertino, CA 95014
Duly executed by:
----------------------------------------
(Signature)
----------------------------------------
(Print Name & Title)
PURCHASER HEREBY REPRESENTS, WARRANTS AND CERTIFIES TO THE CORPORATION THAT
PURCHASER IS AN "ACCREDITED INVESTOR" AS SUCH TERM IS DEFINED IN REGULATION D.
----------------------------------------
(Signature)
Scheduled Closing Date: April 1, 1997
Aggregate Number of PURCHASER'S ADDRESS:
Designated Units:
- -------------------------------- ----------------------------------
Total Purchase Price: ---------------------------------------
---------------------------------------
- -------------------------------
Stock Certificate registration instructions:
Name of Holder:
-------------------------------------------------------------
Address of Holder:
-------------------------------------------------------------
<PAGE>
EXHIBIT A
TO
STOCK PURCHASE AGREEMENT
CERTIFICATE OF INCORPORATION
The Certificate of Incorporation of PhaseCom, Inc. is set forth on the following
pages.
<PAGE>
EXHIBIT A
CERTIFICATE OF INCORPORATION
OF
PHASECOM, INC.
I, the undersigned, for the purpose of incorporating a corporation under
the General Corporation Law of the State of Delaware, do execute this
Certificate of Incorporation and do hereby certify as follows:
I.
The name of the corporation is PhaseCom, Inc. (this "Corporation").
II.
The registered office of this Corporation in the State of Delaware and New
Castle County shall be 1201 Market Street, Suite 1401, Wilmington, Delaware
19801. The registered agent at such address shall be PHS Corporate Services,
Inc.
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 Delaware.
IV.
A. AUTHORIZED SHARES. This Corporation is authorized to issue two classes
of shares, to be designated Common Stock and Preferred Stock, respectively. This
Corporation is authorized to issue 10,000,000 shares of Common Stock with a par
value of $0.0001 per share and 4,500,000 shares of Preferred Stock with a par
value of $0.001 per share. The Preferred Stock authorized by this Certificate of
Incorporation shall be issued from time to time in one or more series.
B. AUTHORIZED SHARES - PREFERRED STOCK. Within the limits and restrictions
stated in any resolution or resolutions of the Board of Directors originally
fixing the number of shares constituting any series of Preferred Stock, the
Board of Directors may increase or decrease (but neither above the total number
of authorized shares of the class, nor below the number of shares of such
series, then outstanding) the number of shares of any such series subsequent to
the issue of shares of that series. In addition, the Board of Directors is
authorized, subject to limitations prescribed by law and the provisions of
Article IV, to provide for the issuance of the shares of Preferred Stock in
series, and by filing a certificate pursuant to the applicable law of the State
of Delaware, to establish from time to time the number of shares to be included
in each such series, and to fix the designation, powers,
<PAGE>
preferences and rights of the shares of each such series and the qualifications,
limitations or restrictions thereof.
The authority of the Board with respect to each series shall include, but
not be limited to, determination of the following:
i) The number of shares constituting that series and the
distinctive designation of that series;
ii) The dividend rate on the shares of that series, whether dividends
shall be cumulative, and, if so, from which date or dates, and the
relative rights of priority, if any, of payment of dividends on shares of that
series;
iii) Whether that series shall have voting rights, in addition to the
voting rights provided by law, and, if so, the terms of such voting rights;
iv) Whether that series shall have conversion privileges, and, if so,
the terms and conditions of such conversion, including provision for adjustment
of the conversion rate in such events as the Board of Directors shall determine;
v) Whether or not shares of that series shall be redeemable, and, if
so, the terms and conditions of such redemption, including the date or date upon
or after which they shall be redeemable, and the amount per share payable in
case of redemption, which amount may vary under different conditions and at
different redemption dates;
vi) Whether that series shall have a sinking fund for the redemption
or purchase of shares of that series, and, if so, the terms and amount of such
sinking fund;
vii) The rights of the shares of that series in the event of voluntary
or involuntary liquidation, dissolution or winding up of this Corporation, and
the relative rights or priority, if any, of payment of shares of that series;
and
viii) Any other relative rights, preferences and limitations of that
series.
C. AUTHORIZED SHARES - SERIES A PREFERRED STOCK. The initial series of
Preferred Stock shall be comprised of an aggregate total of 2,500,000 shares all
to be designated "Series A Convertible Preferred Stock" ("Series A Stock").
D. ATTRIBUTES OF SERIES A STOCK. The rights, preferences, privileges and
restrictions of the Series A Stock and of the holders thereof shall be as
follows:
1. DIVIDENDS.
a. SERIES A STOCK-LIMITED RIGHT TO DIVIDENDS. Each holder of
outstanding shares of Series A Stock shall be entitled to receive, when and if
declared by
<PAGE>
the Board of Directors and out of any funds legally available therefor,
non-cumulative dividends at the annual rate of $0.0432 per share (the "Series A
Preferential Dividend"), payable during each fiscal year of this Corporation and
in preference to any declaration or payment (payable other than in Common Stock)
on the Common Stock.
b. PARTIAL PAYMENT. If the Board of Directors shall declare a
dividend on the outstanding shares of Series A Stock and the amount available
for payment thereof is insufficient to permit the payment of the full
preferential amounts required to be paid to the holders of the outstanding
shares of Series A Stock, then the amount available for such dividend payments
shall be distributed ratably among the holders of the outstanding shares of
Series A Stock. After the holders of Series A Preferred Stock receive their
preferential dividend in full in any one fiscal year, the holders of Series A
Preferred Stock shall participate ratably with the Common Stock on any other
dividends, as if such holders had converted their Series A Stock shares into the
number of shares of Common Stock into which outstanding shares of Series A Stock
are convertible pursuant to this Article IV, as of the record date of the
dividend.
c. DEFINITION OF DIVIDENDS. Dividends shall be deemed to include
payments by this Corporation, including, without limitation, any distribution of
assets, evidences of indebtedness, warrants, rights, options and other
securities, and excluding only the distribution of Common Stock to the holders
of Common Stock and the distribution of stock of a subsidiary in a spin-
off where the net asset value, the net income, and the revenues, of the
subsidiary spun-off is less than fifty percent (50%) of the net asset value, the
net income, and the revenues, as the case may be, of this Corporation before the
spin-off; provided, however, that the shares of the spun-off company are
distributed to the holders of the Series A Stock, as if such holders had
converted their Series A Stock into the number of shares of Common Stock into
which outstanding shares of Series A Stock are convertible pursuant to this
Article IV, as of the record date of the dividend.
2. PREFERENCE ON LIQUIDATION.
a. PREFERENCE PRICE. In the event of any liquidation, dissolution
or winding up of this Corporation, whether voluntary or involuntary, the holders
of the outstanding shares of Series A Stock shall be entitled to be paid out of
the assets of this Corporation available for distribution to its shareholders,
whether from capital, surplus or earnings, before any payment is made in respect
of the outstanding shares of Common Stock or any other equity security of this
Corporation of a lesser priority than the Series A Stock in an amount equal to
$5.40 per share in the case of the Series A Stock plus any declared but unpaid
dividends on each such share (the "Preference Price"). After distribution of the
Preference Price to the holders of the outstanding shares of Series A Stock, the
holders of the outstanding shares of Common Stock shall be entitled to an amount
per share equal to the Preference Price paid to the holders of the outstanding
shares of Series A Stock. Thereafter, any remaining assets of this Corporation
shall be distributed pro rata among the holders of the outstanding shares of
Common Stock and Series A Stock based on the number of shares of Common Stock
into which outstanding shares of Series A Stock are convertible pursuant to this
Article IV as of the date of distribution.
b. PARTIAL PAYMENT. If, upon any liquidation, dissolution or
<PAGE>
winding up of this Corporation, whether voluntary or involuntary, the assets of
this Corporation available for distribution to its shareholders shall be
insufficient to pay the full Preference Prices required to be paid to the
holders of the outstanding shares of Series A Stock, then all of the assets of
this Corporation legally available for distribution to the holders of equity
securities shall be distributed ratably among the holders of the outstanding
shares of Series A Stock.
3. CERTAIN TRANSACTIONS. The sale, transfer or other conveyance of all
or substantially all of the assets of this Corporation, in any transaction or
related series of transactions whether by merger or consolidation or otherwise,
shall not be deemed to be a liquidation, dissolution or winding up of this
Corporation, as those terms are used in this Article IV.D, unless elected to be
treated as such by a majority of this Corporation's Board of Directors.
4. CONSENT TO CERTAIN DISTRIBUTIONS. Each holder of outstanding shares
of Series A Stock, shall by virtue of its acceptance of a stock certificate
evidencing such shares, be treated as having consented to distributions made, or
to be made, by this Corporation for the repurchase of shares of Common Stock
from directors or employees of, or consultants or advisers to, this Corporation
upon the termination of employment by, or service to, this Corporation or any
subsidiary of this Corporation or otherwise, if such repurchase is made in
accordance with an agreement authorizing the right of said repurchase.
5. LIQUIDATION ADJUSTMENT. Notwithstanding anything to the contrary in
this Article IV, the Preference Price shall be adjusted downwards upon the
receipt by the holder of Preferred Stock of any non-cash dividends or
distributions (other than distributions of this Corporation's capital stock), by
the "cash value" of any such non-cash dividends or distributions made on Series
A Stock at any time since the issuance of such series. The "cash value" shall be
determined by this Corporation's Board of Directors in its sole discretion, or,
if the distribution is a stock dividend (other than this Corporation's capital
stock) whereby within 180 days after such distribution and prior to a
"liquidating" event such company's stock is publicly traded, then the initial
public offering price of such company's stock shall be the "cash value" whether
or not the distributed stock is itself publicly traded.
E. VOTING. The holders of the outstanding shares of Common Stock shall each
have one (1) vote per each share owned of Common Stock owned by such
stockholder. The holders of the outstanding shares of Series A Preferred Stock
shall be entitled to cast that number of votes equal to the number of shares of
Common Stock into which such holder's shares of Series A Stock are convertible
immediately after the close of business on the record date fixed for such
meeting or, if no such record date is established, the date such vote is taken
or the effective date of such written consent.
F. CONVERSION. The holders of the outstanding shares of Series A Stock
shall have the conversion rights set forth below (the "Conversion Rights"):
1. RIGHT TO CONVERT. Each share of Series A Stock shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance of such shares, at the office of this Corporation or any transfer agent
for the shares of Series A Stock, or Common Stock, into that number of shares of
Common Stock which is equal to the
<PAGE>
quotient obtained by dividing (A) $5.40 for each share of Series A Stock, by (B)
the Series A Conversion Price, immediately prior to the time of such conversion.
The "Series A Conversion Price" shall be $5.40 (as adjusted from time to time as
herein provided).
2. MECHANICS OF CONVERSION. Each holder of outstanding shares of
Series A Stock, shall convert when forced to by the terms of the mandatory
conversion as set forth in Article IV.F.9 (below), or at the option of the
holders of Series A Stock, by surrendering the certificate or certificates
therefor, duly endorsed, at the office of this Corporation or of any transfer
agent for the shares of Series A Stock or Common Stock and shall give written
notice to this Corporation at such office that such holder elects to convert the
same and shall state therein the number of shares of Series A Stock being
converted. Thereupon, this Corporation shall issue and deliver at such office to
such holder a certificate or certificates for the number of shares of Common
Stock to which such holder is entitled and shall promptly pay all declared but
unpaid dividends on the shares being converted in cash or, if this Corporation
so elects or is legally or financially unable to, pay in cash, shares of Common
Stock (valued at the Common Stock's fair market value at the time of surrender
as determined in good faith by the Board of Directors). Such conversion shall be
deemed to have been made immediately prior to the close of business on the date
of such surrender of the certificate or certificates representing the shares to
be converted, and the person entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all purposes as the record
holder of such shares of Common Stock on such date.
3. ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If this Corporation
at any time or from time to time after the date these Articles are filed with
the Secretary of State of the State of Delaware (the "Filing Date") effects a
division of the outstanding shares of Common Stock, then the Series A Conversion
Price shall be proportionately decreased and, conversely, if this Corporation at
any time, or from time to time, after the Filing Date combines the outstanding
shares of Common Stock, then the Series A Conversion Price shall be
proportionately increased. Any adjustment under this Article IV.F.3 shall be
effective on the close of business on the date such division or combination
becomes effective.
4. ADJUSTMENT FOR CERTAIN DIVIDENDS AND DISTRIBUTIONS. If this
Corporation at any time or from time to time after the Filing Date pays or fixes
a record date for the determination of holders of shares of Common Stock
entitled to receive a dividend or other distribution in the form of shares of
Common Stock, or rights or options for the purchase of, or securities
convertible into, Common Stock, then in each such event the Series A Conversion
Price shall be decreased, as of the time of such payment or, in the event a
record date is fixed, as of the close of business on such record date, by
multiplying the Series A Conversion Price by a fraction (i) the numerator of
which shall be the total number of shares of Common Stock outstanding
immediately prior to the time of such payment or the close of business on such
record date, as the case may be, and (ii) the denominator of which shall be (a)
the total number of shares of Common Stock outstanding immediately prior to the
time of such payment or the close of business on such record date, as the case
may be, plus (b) the number of shares of Common Stock issuable in payment of
such dividend or distribution or upon exercise of such option or right of
conversion; provided, however, that if a record date is fixed and such dividend
is not fully paid or such other distribution is not fully made on the date fixed
therefor, then the Series A Conversion Price shall not be decreased as of the
close of business on such record
<PAGE>
date as hereinabove provided as to the portion not fully paid or distributed and
thereafter the Series A Conversion Price shall be decreased pursuant to this
Article IV.F.4 as of the date or dates of actual payment of such dividend or
distribution.
5. ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. If this
Corporation at any time or from time to time after the Filing Date pays, or
fixes a record date for the determination of holders of shares of Common Stock
entitled to receive, a dividend or other distribution in the form of securities
of this Corporation other than shares of Common Stock or rights or options for
the purchase of, or securities convertible into, Common Stock, then in each such
event provision shall be made so that the holders of outstanding shares of
Series A Stock shall receive upon conversion thereof, in addition to the number
of shares of Common Stock receivable thereupon, the amount of securities of this
Corporation which they would have received had their respective shares of Series
A Stock been converted into shares of Common Stock on the date one day before
such event and had such holders thereafter, from the date of such event to and
including the actual date of conversion of their shares, retained such
securities, subject to all other adjustments called for during such period under
this Article IV.F.5 with respect to the rights of the holders of the outstanding
shares of Series A Stock.
6. ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE AND SUBSTITUTION. If at
any time or from time to time after the Filing Date the number of shares of
Common Stock issuable upon conversion of the shares of Series A Stock, is
changed into the same or a different number of shares of any other class or
classes of Stock or other securities, whether by recapitalization,
reclassification or otherwise (other than a recapitalization, division or
combination of shares or a stock dividend, or a reorganization, merger,
consolidation or sale of assets provided for elsewhere in this Article IV.F.6,
then in any such event each holder of outstanding shares of Series A Stock shall
have the right thereafter to convert such shares of Series A Stock into the same
kind and amount of Stock and other securities receivable upon such
recapitalization, reclassification or other change, as the maximum number of
shares of Common Stock into which such shares of Series A Stock, could have been
converted immediately prior to such recapitalization, reclassification or
change, all subject to further adjustment as provided herein.
7. REORGANIZATIONS, MERGERS, CONSOLIDATIONS OR SALES OF ASSETS. If at
any time or from time to time after the Filing Date there is a capital
reorganization of the Common Stock (other than a recapitalization, division,
combination, reclassification or exchange of shares provided for elsewhere in
this Article IV.F or a merger or consolidation of this Corporation into or with
another corporation or a sale of all or substantially all of this Corporation's
properties and assets to any other person, then, as a part of such capital
reorganization, merger, consolidation or sale, provision shall be made so that
the holders of outstanding shares of Series A Stock shall thereafter receive
upon conversion thereof the number of shares of Stock or other securities or
property of this Corporation, or of the successor corporation resulting from
such merger or consolidation or sale, to which a holder of the number of shares
of Common Stock into which their shares of Series A Stock were convertible would
have been entitled on such capital reorganization, merger, consolidation or
sale. In any such case, appropriate adjustment shall be made in the application
of the provisions of this Article IV.F with respect to the rights of the holders
of
<PAGE>
the outstanding shares of Series A Stock after such capital reorganization,
merger, consolidation, or sale. The provisions of this Article IV.F (including
adjustment of the Series A Conversion Price and the number of shares into which
the outstanding shares of Series A Stock may be converted) shall be applicable
after that event and be as nearly equivalent to such Conversion Prices and
number of shares as may be practicable.
8. CERTIFICATE OF ADJUSTMENT. On each adjustment of the Series A
Conversion Price, or the number of shares of Common Stock or other securities
issuable upon conversion of the shares of Series A Stock, this Corporation shall
promptly compute such adjustment or readjustment in accordance with the terms
hereof and furnish to each holder of Series A Stock, a certificate setting forth
such adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based.
9. AUTOMATIC CONVERSION.
a. Each outstanding share of Series A Stock shall automatically
be converted into shares of Common Stock based upon the Series A Conversion
Price upon (i) the closing of an underwritten public offering pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
covering the offering and sale of shares of Common Stock for the account of this
Corporation (other than a registration statement effected solely to implement an
employee benefit plan, a transaction in which Rule 145 of the Securities and
Exchange Commission is applicable or any other form or type of registration in
which the shares of Common Stock issuable upon conversion of the shares of
Series A Stock cannot be included pursuant to the Securities and Exchange
Commission rules or practices) resulting in aggregate proceeds to this
Corporation (before the payment of underwriting discounts and commissions and
the expense of the offering) in excess of $7,500,000; or (ii) a merger or
consolidation with or into another corporation or a sale of the shares of Common
Stock or a sale of all or substantially all of this Corporation's properties and
assets in which the aggregate gross cash proceeds received by the shareholders
of this Corporation is at least $7,500,000 in cash or marketable securities
("Qualified Public Offering").
b. Upon the occurrence of an event specified in Article IV.F.9.a.
above, the outstanding shares of Series A Stock shall be converted into shares
of Common Stock, whether or not the certificates representing such shares are
surrendered to this Corporation or its transfer agent; provided, however, that
this Corporation shall not be obligated to issue certificates evidencing the
shares of Common Stock issuable upon such conversion unless the certificates
evidencing such shares are either delivered to this Corporation or its transfer
agent as provided below or the holder notifies this Corporation or its transfer
agent that such certificates have been lost, stolen or destroyed and executes an
agreement satisfactory to this Corporation indemnifying this Corporation from
any loss incurred by it in connection with the issuance of such certificate.
Upon the occurrence of such automatic conversion of the outstanding shares of
Series A Stock, the holders of the outstanding shares of Series A Stock shall
surrender the certificates representing such shares at the office of this
Corporation or to any transfer agent for the shares of Series A Stock or Common
Stock. Thereupon there shall be issued and delivered to such holder, promptly at
such office and in its name as shown on such surrendered certificate or
certificates, a certificate or certificates for the number of shares of Common
Stock into which the surrendered shares of Series A Stock of such holder were
convertible on the date on which such automatic conversion occurred, and this
Corporation shall promptly,
<PAGE>
pay in cash all declared but unpaid dividends on the shares of Series A Stock so
converted.
10. FRACTIONAL SHARES. No fractional shares of Common Stock shall be
issued upon conversion of the shares of Series A Stock. In lieu of any
fractional share to which the holder of such shares would otherwise be entitled,
this Corporation shall pay cash equal to the product of (a) such fraction
multiplied by (b) the fair market value of one share of the Common Stock on the
date of conversion. The fair market value shall be determined by the average
trading price of the Common Stock over the past five (5) trading days, if such a
price is available, otherwise it shall be as determined in good faith by the
Board of Directors.
11. RESERVATION OF STOCK ISSUABLE UPON CONVERSION. This Corporation
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of Series A Stock, such number of shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all outstanding
shares of Series A Stock.
12. NOTICES. Any notice required by the provisions of this Article
IV.F to be given to a holder of shares of Series A Stock, shall be deemed given
upon the earlier of actual receipt or seventy-two (72) hours after the same has
been deposited in the United States mail, certified or registered mail, return
receipt requested, postage prepaid, addressed to the holder at the address of
such holder appearing on the books of this Corporation.
G. RESTRICTIONS AND LIMITATIONS.
1. CORPORATE ACTION. Except as otherwise required by law, so long as
at least 680,000 shares of Series A Stock remain outstanding (adjusted for stock
splits and combinations), this Corporation shall not, without the vote or
written consent of the holders of a majority of the shares of Series A Stock,
voting as a separate class:
a. increase the authorized number of shares of Series A Stock,
b. increase the authorized number of shares of Preferred Stock,
c. create any new class or series of shares having preference
over the Series A Stock,
d. merge, consolidate, or reorganize, where such merger,
consolidation, or reorganization would result, directly or
indirectly, in the change of a majority of the members of
the Board of Directors; or
e. sell all, or substantially all, of its assets or issue more
than 50% of this Corporation's Common Stock in one
transaction or series of related transactions.
2. DIVIDENDS. This Corporation shall not without the vote or written
consent of the holders of a majority of the shares of Series A Stock take any
action that would constitute the declaring of a dividend for holders of Series A
Stock or Common
<PAGE>
Stock.
H. REPLACEMENT OF CERTIFICATES. Upon receipt of evidence reasonably
satisfactory to this Corporation of the loss, theft, destruction, or mutilation
of a certificate representing any of the outstanding shares of Preferred Stock
or Common Stock, and, in the case of loss, theft, or destruction, the execution
of an agreement satisfactory to this Corporation to indemnify this Corporation
from any loss incurred by it in connection therewith, this Corporation will
issue a new certificate representing such shares of Preferred Stock or Common
Stock in lieu of such lost, stolen, destroyed or mutilated certificate.
I. RESTATED CERTIFICATE OF INCORPORATION. Upon the conversion of all
outstanding shares of the Series A Stock, Sections C, D, E, F, G, H, I and J of
this Article IV (the "Deleted Provisions") shall be of no further force or
effect, and this Certificate of Incorporation may be restated by a resolution of
the Board of Directors (and without further action by the stockholders) to
delete the Deleted Provisions and renumber or restate the remaining provisions.
V.
A. ELECTION OF DIRECTORS. The election of the Directors of this
Corporation need not be by written ballot, unless the Bylaws of this Corporation
shall so provide.
B. ARRANGEMENT WITH CREDITORS. Whenever a compromise or arrangement is
proposed between this Corporation and its creditors or any class of them and/or
between this Corporation and its stockholders or any class of them any court of
equitable jurisdiction within the State of Delaware may, on the application in a
summary way of this Corporation or of any creditor or stockholder thereof or on
the application of any receiver or receivers appointed for this Corporation
under the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
C. FIDUCIARY DUTY. A director of this Corporation shall not be personally
liable to this Corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to this Corporation or its stockholders; (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of the law; (iii) under Section 174 of the Delaware General
Corporation Law; or (iv) for any transaction from which the director derived an
improper personal benefit. If the Delaware General Corporation Law is amended
<PAGE>
after the filing of the Certificate of Incorporation of which this Article is a
part to authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of this Corporation
shall be eliminated or limited to the fullest extent permitted by the Delaware
General Corporation Law, as so amended. Any repeal or modification of the
foregoing paragraph by the stockholders of this Corporation shall not adversely
affect any right or protection of a director of this Corporation existing at the
time of such repeal or modification.
VI.
A. INDEMNIFICATION.
1. RIGHT TO INDEMNIFICATION. Each person who was or is made a
party, or is threatened to be made a party to, or is involved in, any action,
suit or proceeding, whether civil, criminal, administrative or investigative
("Proceeding"), including, without limitation, Proceedings by or in the right of
this Corporation to procure a judgment in its favor, by reason of the fact that
he or she, or a person for whom he or she is the legal representative, is or was
a director or officer, employee or agent of this Corporation, or is or was
serving at the request of this Corporation as a director or officer, employee or
agent of another corporation, or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, whether
the basis of such Proceeding is alleged action in an official capacity as a
director, officer, employee or agent, or in any other capacity while serving as
a director, officer, employee or agent, shall be indemnified and held harmless
by this Corporation to the fullest extent authorized by the General Corporation
Law of the State of Delaware, as the same exists or may hereafter be amended
(but, in the case of any such amendment, only to the extent such amendment
permits this Corporation to provide broader indemnification rights than said law
permitted this Corporation to provide prior to such amendment) against all
expenses, liability and loss (including attorneys' fees, judgments, fines, ERISA
excise taxes or penalties and amount paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith. Such
right shall be a contract right and shall include the right to be paid by this
Corporation for expenses incurred in defending any such Proceeding in advance of
its final disposition; provided, however, that the payment of such expenses
incurred by a director or officer of this Corporation in his or her capacity as
a director or officer (and not in any other capacity in which service was or is
rendered by such person while a director or officer, including, without
limitation, service to an employee benefit plan) in advance of the final
disposition of such Proceeding, shall be made only upon delivery to this
Corporation of an undertaking, by or on behalf of such director or officer, to
repay all amounts so advanced if it should be determined ultimately that such
director or officer is not entitled to be indemnified under this section, or
otherwise.
2. RIGHT OF CLAIMANT TO BRING SUIT. If a claim under Section 1 (above)
is not paid in full by this Corporation within ninety (90) days after a written
claim has been received by this Corporation, the claimant may at any time
thereafter bring suit against this 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 expense of prosecuting such claim.
<PAGE>
It shall be a defense to any such action (other than an action brought to
enforce a claim for expenses incurred in defending any Proceeding in advance of
its final disposition where the required undertaking has been tendered to this
Corporation), that the claimant has not met the standards of conduct which make
it permissible under the General Corporation Law of the State of Delaware for
this Corporation to indemnify the claimant for the amount claimed, but the
burden of proving such defense shall be on this Corporation. Neither the failure
of this Corporation (including its Board of Directors, independent legal
counsel, or its stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he or she has met the applicable standard of conduct
set forth in the General Corporation Law of the State of Delaware, nor an actual
determination by this Corporation (including its Board of Directors, independent
legal counsel, or its stockholders) that the claimant has not met such
applicable standard of conduct, shall be a defense to the action or create a
presumption that claimant had not met the applicable standard of conduct.
B. NON-EXCLUSIVITY OF RIGHTS. The rights conferred by Section A.1 and A.2
(above) shall not be exclusive of any other right which such person may have or
hereafter acquire under any statute, provision of the Certificate of
Incorporation, Bylaws, agreement, vote of stockholders or disinterested
directors, or otherwise.
C. AMENDMENT OR REPEAL. Neither any amendment nor repeal of this Article
VI, nor the adoption of any provision of this Corporation's Certificate of
Incorporation inconsistent with this Article VI, shall eliminate or reduce the
effect of this Article VI, in respect of any matter occurring, or any action or
Proceeding accruing or arising, or that, but for this Article VI would accrue or
arise, prior to such amendment, repeal or adoption of an inconsistent provision.
VII.
A. DIRECTORS' POWERS. The Directors of this Corporation shall have the
power to adopt, amend or repeal the Bylaws of this Corporation. The management
of the business and the conduct of the affairs of this Corporation shall be
vested in its Board of Directors. The number of directors which shall constitute
the whole Board of Directors shall be fixed exclusively by, or in the manner
provided in, the Bylaws of this Corporation.
B. CORPORATION EXISTENCE. This Corporation is to have perpetual existence.
<PAGE>
VIII.
A. QUALIFIED PUBLIC OFFERING. For the management of the business, and for
the conduct of the affairs of this Corporation, and in further definition,
limitation and regulation of the powers of this Corporation, of its directors
and of its stockholders or any class thereof, as the case may be, it is further
provided that, effective upon the closing of a Qualified Public Offering:
1. BOARD CLASSES AND TERMS. The Board of Directors shall be divided
into three classes, designated as Class I, Class II, and Class III,
respectively. Directors shall be assigned to each class in accordance with a
resolution or resolutions adopted by the Board of Directors. At the first annual
meeting of stockholders following the date of the Qualified Public Offering, the
term of office of the Class I directors shall expire, and Class I directors
shall be elected for a full term of three (3) years. At the second annual
meeting of stockholders following the date of the Qualified Public Offering, the
term of office of the Class II directors shall expire, and Class II directors
shall be elected for a full term of three (3) years). At the third annual
meeting of stockholders following the date of the Qualified Public Offering, the
term of office of the Class III directors shall expire, and Class III directors
shall be elected for a full term of three (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.
Notwithstanding the foregoing provisions of this Article, each
director shall serve until his or her successor is duly elected and qualified,
or under his or her death, resignation or removal. No decrease in the number of
directors constituting the Board of Directors shall shorten the term of any
incumbent director.
2. BOARD VACANCIES. Any vacancies on the Board of Directors resulting
from death, resignation, disqualification, removal, or other causes shall be
filled by either (i) the affirmative vote of the holders of a majority of the
voting power of the then-outstanding shares of voting stock of this Corporation
entitled to vote generally in the election of directors (the "Voting Stock"),
voting together as a single class; or (ii) by the affirmative vote of a majority
of the remaining directors then in office, even though less than a quorum of the
Board of Directors. Newly created directorships resulting from any increase in
the number of directors shall, unless the Board of Directors determines by
resolution that any such newly-created directorship shall be filled by the
stockholders, be filled only by the affirmative vote of the directors then in
office, even though less than a quorum of the Board of Directors. Any director
elected in accordance with the preceding sentence shall hold office for the
remainder of the full term of the class of directors in which the new
directorship was created or the vacancy occurred and until such director's
successor shall have been elected and qualified.
B. BYLAWS. In furtherance, and not in limitation, of the powers conferred
by statute, the Board of Directors is expressly authorized to make, alter,
amend, or repeal the Bylaws of this Corporation.
C. VOTE.
1. The affirmative vote of sixty-six and two-thirds percent (66-2/3%)
of the voting power of the then-outstanding shares of Voting Stock, voting
together as a
<PAGE>
single class, shall be required for the adoption, amendment or repeal of
Sections 2.2 (Annual Meeting) and 2.3 (Special Meeting) of this Corporation's
Bylaws.
2. Any director, or the entire Board of Directors, may be removed from
office at any time (i) with cause by the affirmative vote of the holders of at
least a majority of the voting power of all of the then-outstanding shares of
the voting stock, voting together as a single class; or (ii) without cause by
the affirmative vote of the holders of at least sixty-six and two-thirds percent
(66-2/3%) of the voting power of all of the then-outstanding shares of the
Voting Stock.
D. NO ACTION. No action shall be taken by the stockholders of this
Corporation, except at an annual or special meeting of the stockholders called
in accordance with the Bylaws. The Stockholders shall not take any action by
written consent.
E. STOCKHOLDER NOMINATION. Advance notice of stockholder nomination for the
election of directors and of business to be brought by stockholders before any
meeting of the stockholders of this Corporation shall be given in the manner
provided in the Bylaws of this Corporation.
F. AMENDMENT. Notwithstanding any other provisions of this Certificate of
Incorporation, or any provision of law which might otherwise permit a lesser
vote or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this Certificate
of Incorporation or any Preferred Stock Designation, the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting
power of all of the then-outstanding shares of the Voting Stock, voting together
as a single class, shall be required to alter, amend or repeal this Article
VIII.
IX.
This Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, except as provided in Article VIII of this
Certificate, and all rights conferred upon the stockholders herein are granted
subject to this right.
CERTIFICATE OF INCORPORATOR
I, THE UNDERSIGNED, being the Incorporator hereinafter named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, do make this Certificate, hereby declaring and certifying,
under penalties of perjury, that this is my act and deed, and that the facts
herein stated are true, and accordingly have hereunto set my hand this 21st day
of March, 1996.
/s/ Stephen P. Pezzola
---------------------------------------
STEPHEN P. PEZZOLA, Incorporator
<PAGE>
EXHIBIT B
TO
STOCK PURCHASE AGREEMENT
DEFINITION OF ACCREDITED INVESTOR
ACCREDITED INVESTOR. "Accredited investor" shall mean any person who comes
within any of the following categories as at the Closing Date:
(1) Any bank as defined in section 3(a)(2) of the Securities Act, or any
savings and loan association or other institution as defined in section
3(a)(5)(A) of the Securities Act whether acting in its individual or fiduciary
capacity; any broker or dealer registered pursuant to section 15 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"); any insurance
company as defined in section 2(13) of the Securities Act; any investment
company registered under the Investment Company Act of 1940 or a business
development company as defined in section 2(a)(48) of that Act; Small Business
Investment Company licensed by the U.S. Small Business Administration under
section 301(c) or (d) of the Small Business Investment Act of 1958; any plan
established and maintained by a state, its political subdivisions, or any agency
or instrumentality of a state or its political subdivisions for the benefit of
its employees, if such plan has total assets in excess of $5,000,000; employee
benefit plan within the meaning of the Employee Retirement Income Security Act
of 1974 if the investment decision is made by a plan fiduciary, as defined in
Section 3(21) of such Act, which is either a bank, savings and loan association,
insurance company, or registered investment adviser, or if the employee benefit
plan has total assets in excess of $5,000,000 or, if a self-directed plan, with
investment decision made solely by persons that are accredited investors;
(2) Any private business development company as defined in section
202(a)(22) of the Investment Advisers Act of 1940;
(3) Any organization described in section 501(c)(3) of the Internal Revenue
Code, corporation, Massachusetts or similar business trust, or partnership, not
formed for the specific purpose of acquiring the securities offered, with total
assets in excess of $5,000,000;
(4) Any director or executive officer of the Corporation;
(5) Any natural person whose individual net worth, or joint net worth with
that person's spouse, at the time of his purchase exceeds $1,000,000;
(6) Any natural person who had an individual income in excess of $200,000
in each of the two most recent years or joint income with that person's spouse
in excess of $300,000 in each of those years and has a reasonable expectation of
reaching the same income level in the current year;
(7) Any trust, with total assets in excess of $5,000,000, not formed for
the specific purpose of acquiring the securities offered, whose purchase is
directed by a person who has such knowledge and experience in financial and
business matters that he is
<PAGE>
capable of evaluating the merits and risks of the prospective investment; and
(8) Any entity in which all of the equity owners are accredited investors.
<PAGE>
Exhibit 10.8
THE SECURITIES TO WHICH THIS STOCK PURCHASE AGREEMENT RELATES HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR UNDER ANY STATE SECURITIES LAWS ("BLUE SKY LAWS"), AND MAY NOT BE OFFERED OR
SOLD WITHOUT REGISTRATION UNDER THE SECURITIES ACT, AND AS REQUIRED BY BLUE SKY
LAWS IN EFFECT AS TO SUCH OFFER AND SALE, UNLESS AN EXEMPTION FROM SUCH
REGISTRATION UNDER FEDERAL AND STATE LAW IS AVAILABLE.
PHASECOM, INC.
FORM OF D98 SERIES B PREFERRED STOCK PURCHASE AGREEMENT
THIS D98 SERIES B PREFERRED STOCK PURCHASE AGREEMENT (this
"Agreement") is entered into as of the date set forth on the signature page to
this Agreement, by and between PHASECOM, INC., a Delaware corporation (the
"Corporation" or "PhaseCom"), and the purchaser whose name and address are shown
on the signature page to this Agreement (the "Purchaser").
RECITALS
A. PhaseCom has issued and outstanding forty-five (45) day notes in the
aggregate amount of Two Hundred Ninety-seven Thousand Dollars ($297,000)
(collectively, the "Demand Notes"), which PhaseCom issued under the
understanding that they would be converted into the next financing of PhaseCom.
B. In order to restructure PhaseCom's obligations under the Demand
Notes and to raise other financing, PhaseCom has duly authorized the issuance,
sale and delivery of up to one million (1,000,000) shares (the "Offered Shares")
of its Series B Preferred Stock, par value $0.001 per share (the "Series B
Stock") and having such rights as set forth in the Certificate of Incorporation
of PhaseCom, as amended and restated to date, attached hereto as Exhibit A (the
"Certificate"), for an aggregate investment of One Million Dollars ($1,000,000).
PhaseCom is reserving the right to accept over-subscriptions up to a total
aggregate issuance of three million (3,000,000) shares of Series B Stock, plus
any and all conversion of debt up to an additional eight million (8,000,000)
shares.
C. The Offered Shares are being offered and sold by PhaseCom to
Purchaser in reliance upon and in conformity with an exemption from the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to Regulation D under the Securities Act
("Regulation D").
D. PhaseCom desires to offer and sell to Purchaser, and Purchaser
desires to buy from PhaseCom, the Purchased Shares (as defined herein) in
accordance with the terms and conditions of this Agreement.
E. Additionally, in the event that a Purchaser also holds a promissory
note and the
<PAGE>
amount paid by Purchaser under this Agreement is at least equal to the lesser of
One Hundred Thousand Dollars ($100,000), or ten percent (10%) of the principal
amount of that obligation, then the Purchaser may take advantage of conversion
rights set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual agreements, covenants,
representations and warranties contained in this Agreement, the parties hereto
agree as follows:
1. AGREEMENT TO SELL AND PURCHASE THE PURCHASED SHARES.
a. SALE AND PURCHASE OF PURCHASED SHARES. On the basis of the
representa tions, warranties and agreements contained in this Agreement, but
subject to the terms and condi tions hereof, the Corporation agrees to issue and
sell to Purchaser, and Purchaser agrees to purchase from the Corporation, on the
Closing Date (as defined in Section 1.c. herein), the number of shares set out
opposite Purchaser's address on the signature page to this Agreement (the
"Purchased Shares"). The price for the Purchased Shares shall be United States
One Dollar (US$1.00) per Purchased Share, and in exchange for receipt of the
Purchased Shares, Purchaser shall pay to the Corporation the amount set out
opposite Purchaser's address on the signature page to this Agreement (the
"Purchase Price"). Purchaser may provide the Purchase Price with delivery of
cash or cancellation of a Demand Note. The amount applied to the Purchase Price
for a Purchaser canceling a Demand Note shall equal the outstanding principal
balance and accrued interest of the Demand Note as of the Closing Date, unless
otherwise indicated on the signature page.
b. OTHER OFFERED SHARES. The Corporation intends to offer and
sell Offered Shares to other investors (together with Purchaser, the
"Purchasers") pursuant to separate substantially identical purchase agreements.
c. PAYMENT. Payment of the Purchase Price shall be made by
Purchaser on the Closing Date either by (i) wire transfer of immediately
available funds in United States Dollars, or (ii) by such other means as shall
be mutually agreed upon by the Corporation and Purchaser,
d. CLOSING. The closing of the sale and purchase of the
Purchased Shares (the "Closing") shall be held at the offices of the
Corporation's counsel, Venture Counsel Associates, LLP ("VCA"), located at 1999
Harrison Street, Suite 1300, Oakland, California 94612 at 2:00 p.m. local time
on or about December 1, 1998, or at such other place and at such other time and
from time to time as shall be mutually agreed upon by the Corporation and
Purchaser (the "Closing Date").
e. DELIVERY. Within thirty (30) days after the Closing, the
Corporation shall deliver to Purchaser one or more certificates representing the
Purchased Shares, each registered in the name of Purchaser, or its nominee,
against payment of the Purchase Price therefor in immediately available funds to
the account of the Corporation designated in Section 2(b) of this
<PAGE>
Agreement.
2. REPRESENTATIONS AND WARRANTIES OF THE CORPORATION. The Corporation
hereby represents and warrants to Purchaser as follows:
a. CORPORATE ORGANIZATION AND STANDING. The Corporation is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite power and authority to carry on
its business as presently conducted.
b. ISSUANCE AND DELIVERY OF THE PURCHASED SHARES. As of the
Closing, the offer, issuance, sale and delivery of the Purchased Shares in
accordance with this Agreement will have been duly authorized by all requisite
corporate action of the Corporation. As of the Closing, the Purchased Shares
will be duly and validly issued and outstanding, fully paid and non-assessable.
This Agreement, when executed and delivered by the Corporation, shall constitute
a valid and binding obligation of the Corporation, enforceable in accordance
with its terms, except as the enforceability thereof may be limited by
applicable bankruptcy, insolvency, reorganization or other similar laws relating
to or affecting creditors' rights generally and by general equitable principles,
regardless of whether such enforceability is considered in a proceeding in
equity or at law.
c. CAPITALIZATION PRIOR TO CLOSING. Immediately prior to the
Closing, the Corporation's authorized capital stock shall include only two (2)
authorized classes of capital stock consisting of (A) thirty-five million
(35,000,000) shares of Preferred Stock, six million (6,000,000) shares of which
have been designated as Series A Preferred Stock, and fifteen million
(15,000,000) shares of which have been designated as Series B Preferred Stock;
and (B) one hundred million (100,000,000) shares of Common Stock. Immediately
prior to the Closing Date (not taking into account the securities issued at the
Closing), the Corporation will have nine million sixty-nine thousand seven
hundred fifty-nine (9,069,759) shares of Common Stock outstanding; one million
six hundred five thousand two hundred thirty-three (1,605,233) shares of Series
A Preferred Stock outstanding; a total of three million two hundred ten thousand
four hundred sixty-six (3,210,466) Shares of Common Stock subject to issuance
upon conversion of the Series A Preferred Stock; and up to (V) one million two
hundred thirty-two thousand forty-two (1,232,042) shares of Common Stock subject
to issuance pursuant to outstanding options granted or pending options to be
granted to employees under stock plans, (W) three million five hundred
thirty-nine thousand four hundred seventy-nine (3,539,479) shares of Common
Stock subject to issuance pursuant to outstanding warrants issued to investors;
(X) one hundred forty-one thousand three hundred sixty-five (141,365) shares of
Series A Convertible Preferred Stock (the "Note Preferred Shares") subject to
issuance upon conversion of outstanding convertible notes; (Y) two hundred
eighty-two thousand seven hundred thirty-one (282,731) shares of Common Stock
subject to issuance upon conversion of the Note Preferred Shares; and (Z) three
million one hundred thirty-seven thousand seven hundred eighty-nine (3,137,789)
shares of Common Stock subject to issuance upon conversion of outstanding
convertible notes.
d. TAX IMPLICATIONS. The Corporation makes no representation
with respect to the tax implications to the Purchaser in connection with its
purchase of its Purchased Shares hereunder.
<PAGE>
e. SUBSIDIARIES. The Corporation does not own any of the
issued and outstanding capital stock of any other company, other than PhaseCom,
Ltd., an Israeli company ("Subsidiary").
f. FINANCIAL STATEMENTS. The Corporation has furnished
Purchaser with the financial statements attached hereto in Exhibit B (the
"Financial Statements"). The Financial Statements are true and correct in all
material respects, are in accordance with the books and records of the
Corporation, and fairly and accurately present in all material respects the
financial position of the Corporation as of such dates and the results of its
operations for the periods then ended.
3. ADDITIONAL INFORMATION. The Corporation will make available to
Purchaser prior to the Closing Date the opportunity to ask questions and receive
answers concerning the terms and conditions of the offering of the Purchased
Shares and to obtain any additional information that the Corporation possesses
or can acquire without unreasonable effort or expense that is necessary to
verify the accuracy of the information furnished in accordance herewith.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF PURCHASER. Purchaser
hereby represents, warrants and covenants to the Corporation as follows:
a. COMPLIANCE WITH SECURITIES LAWS. Purchaser understands and
acknowledges that the Purchased Shares have not been registered under the
Securities Act by reason of a specific exemption from the registration
provisions thereof which depends upon, among other things, the bona fide nature
of the investment as expressed herein.
b. STATUS OF PURCHASER.
i. ACCREDITED INVESTOR. Purchaser is an
"accredited investor" (as defined in Regulation D, which definition is set out
in Exhibit C attached hereto).
ii. INVESTMENT. Purchaser is purchasing the
Purchased Shares for its own account for investment purposes and not with a view
to, or for resale in connection with, any distribution thereof.
iii. KNOWLEDGE AND EXPERIENCE. Purchaser has
such knowledge and experience in financial and business matters, including
investments in companies in the development stage, that it is qualified to make
decisions with respect to investments in restricted securities such the
Purchased Shares, and has requested, received, reviewed and considered all
information it deems relevant in making a decision to execute this Agreement and
to purchase the Purchased Shares. Purchaser acknowledges that it is capable of
evaluating the merits and risks of the investment in the Purchased Shares and it
is able to bear the economic risk of such investment.
iv. ACCESS TO INFORMATION. Purchaser
acknowledges that the Corporation has made available to Purchaser the
opportunity to (A) discuss the Corporation's business, management and financial
affairs with its management, (B) ask questions and receive
<PAGE>
answers concerning the terms and conditions of the offering of the Purchased
Shares, and (C) obtain any additional information that the Corporation possesses
or can acquire without unreasonable effort or expense that is necessary to
verify the accuracy of the information furnished in accordance herewith or to
decide whether or not to purchase the Purchased Shares. Purchaser acknowledges,
warrants and agrees that Purchaser has received sufficient information to enable
Purchaser to make the investment contemplated in this Agreement. Purchaser
acknowledges that no other representation or warranty has been made by the
Corporation or any agent thereof except as set forth in this Agreement.
v. RISK OF INVESTMENT. Purchaser understands
that an investment in the Corporation involves a high degree of risk and is
suitable only for investors who can afford a loss of their entire investment and
who have no need for liquidity from their investment.
vi. SUITABILITY. Purchaser has carefully
considered and has, to the extent Purchaser deems necessary, discussed with
Purchaser's own professional legal, tax and financial advisers the suitability
of an investment in the Purchased Shares for Purchaser's particular tax and
financial situation, and Purchaser has determined that the Purchased Shares are
a suitable investment.
vii. NO PUBLIC MARKET. Purchaser understands
that no public market now exists for the Purchased Shares or any of the
Corporation's securities and that it is uncertain whether a public market will
ever exist for any such Purchased Shares.
c. RESTRICTIONS ON RE-SALE.
i. RESTRICTIONS ON RE-SALES. Purchaser
understands and acknowledges that because the Purchased Shares have not been
registered under the Securities Act, such Purchased Shares must be held
indefinitely unless subsequently registered under the Securities Act or an
exemption from such registration is available. Purchaser further understands and
acknowledges that the Securities Act prohibits resales of securities except
pursuant to an effective registration statement or an exemption from
registration for which such securities and Purchaser qualifies. Purchaser
understands and acknowledges that there can be no assurance that Purchaser will
be able to qualify for such an exemption from registration.
ii. COMPLIANCE WITH SECURITIES ACT. Purchaser
will not, directly or indirectly, voluntarily offer, sell, pledge, transfer or
otherwise dispose of (or solicit any offers to buy, purchase or otherwise
acquire or take a pledge of) its rights under this Agreement or the Purchased
Shares or any interest therein otherwise than in compliance with the Securities
Act, any applicable state securities or blue sky laws, and the rules and
regulations promulgated thereunder.
d. PUBLIC OFFERING LOCK-UP. In connection with any
underwritten public registration of the Corporation's securities, Purchaser (and
any transferee of Purchaser) agrees,
<PAGE>
upon the request of the Corporation or the underwriter(s) managing such
underwritten offering of the Corporation's securities, not to sell, make any
short sale of, loan, grant any option for the purchase of, or otherwise
dispose of any Purchased Share, or any other securities of the Corporation
heretofore or hereafter acquired by Purchaser (other than those included in
the registration) without the prior written consent of the Corporation and
such underwriter(s), as the case may be, for a period of time, not to exceed
one hundred eighty (180) days from the effective date of such registration.
Upon request by the Corporation, Purchaser shall enter into any further
agreement in writing in a form reasonably satisfactory to the Corporation and
such underwriter(s). The Corporation may impose stop-transfer instructions
with respect to the securities subject to the foregoing restrictions until
the end of said 180-day period. All Purchased Shares shall bear an
appropriate legend referencing this lock-up provision.
e. LEGENDS. Purchaser agrees that the instrument representing
the Purchased Shares shall bear the legends substantially in the form set forth
below:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER ANY
STATE SECURITIES LAWS, AND MAY NOT BE OFFERED, SOLD, TRANSFERRED,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR SUCH SECURITIES UNDER THE ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE CORPORATION THAT AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER SET FORTH IN
THAT CERTAIN D98 STOCK PURCHASE AGREEMENT BETWEEN THE
CORPORATION AND THE ORIGINAL HOLDER HEREOF.
f. DUE AUTHORIZATION, DELIVERY AND PERFORMANCE OF THIS
AGREEMENT. Purchaser has full right, power, and authority to enter into this
Agreement and to consummate the transactions contemplated hereby; if Purchaser
is a company or corporation, the execution, delivery and performance of this
Agreement by Purchaser have been duly authorized by all requisite corporate
action of Purchaser. This Agreement, when executed and delivered by Purchaser,
shall constitute a valid and binding obligation of Purchaser, enforceable in
accordance with its terms, except as the enforceability thereof may be limited
by applicable bankruptcy, insolvency, reorganization or other similar laws
relating to or affecting creditors' rights generally and by general equitable
principles, regardless of whether such enforceability is considered in a
proceeding in equity or at law.
g. GOVERNMENTAL CONSENTS. No consent, approval, order,
authorization or regis tration, qualification, designation, license, declaration
or filing with any governmental authority is required on the part of Purchaser
in connection with the consummation of the transactions contemplated herein.
h. IITSSA COMPLIANCE. Purchaser shall provide to the
Corporation all such
<PAGE>
information as is necessary to complete the forms required to be filed by the
Corporation with the U.S. Department of Commerce, Bureau of Economic
Analysis, under the International Investment and Trade in Services Survey
Act, as amended ("IITSSA"), and regulations issued thereunder.
i. TAX IMPLICATIONS. Purchaser has consulted with its tax
advisors as to the tax implications of its investment hereunder. Purchaser
acknowledges that Purchaser is purchasing the Purchased Shares with full
knowledge and understanding of the tax implications of this investment.
j. RELIANCE. Purchaser understands and acknowledges that the
Corporation is relying on the accuracy of the representations and warranties of
Purchaser contained herein to establish compliance with federal and state
securities laws. Purchaser agrees that if any such representation or warranty is
not true and accurate in any respect as of the Closing Date or at any time
thereafter, Purchaser shall immediately notify the Corporation in writing and
shall be cause for recission by the Corporation, at its sole election.
k. REPRESENTATIONS AND WARRANTIES AT THE CLOSING. Each of the
representations and warranties contained in this Section 4 is true and correct
as of the date of this Agreement and will be true and correct as of the Closing
Date.
5. NOTE CONVERSION/WARRANT ISSUANCE.
a. NOTES. The Purchaser may be owed monies by PhaseCom
pursuant to obligations other than Demand Notes ("Debt"). If the Purchaser has
invested, pursuant to this Agreement, an amount equal to the lesser of ten
percent (10%) of the principal amount of such obligations, or One Hundred
Thousand Dollars ($100,000), then the Purchaser may choose to convert all of the
Debt at any time until March 31, 1999. If the Purchaser checks "yes" denoting
the Purchaser's desire to be granted the option to convert the Debt into shares
of Series B Stock on the signature page herein, the Purchaser is also agreeing
to extend the payment due dates of any principal or interest on the Debt owed by
PhaseCom to Purchaser by five (5) months.
b. WARRANTS. The Purchaser shall receive a warrant to purchase
shares of PhaseCom's Common Stock within fifteen (15) days after the Closing.
The warrant shall be in form and substance identical to the warrant attached
hereto as Exhibit D. The number of warrant shares shall be zero (0) if PhaseCom
is able to raise additional equity financing of Two Million Dollars
($2,000,000), or more ("Additional Equity Financing"), after December 15, 1998,
and on or before June 30, 1999. If the Additional Equity financing does not
timely occur, then the number of warrant shares shall be equal to the number of
shares of Series B Preferred Stock purchased hereunder (not including any note
conversions under Section 5.a (above)), multiplied by ten percent (10%), for
each portion of the months after June 30, 1999, that the Additional Equity
Financing has not been completed. The maximum amount of warrant shares is equal
to sixty percent (60%) of the number of shares of Series B Preferred Stock
purchased hereunder. The warrant exercise price shall initially be United States
One Dollar (US$1.00). The warrant may be exercised at any time from June 30,
1999, until December 31, 2001.
<PAGE>
6. MISCELLANEOUS.
a. SURVIVAL. The representations, warranties, covenants and
agreements made herein shall survive the closing of the transactions
contemplated hereby.
b. EXECUTION AND DELIVERY OF OTHER DOCUMENTS. Purchaser agrees
that it will execute and deliver such other documents as may be reasonably
requested by the Corporation to complete the transactions contemplated hereby.
c. SEVERABILITY. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect or limit the validity or
enforceability of the remaining provisions of this Agreement.
d. 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.
e. INDEMNIFICATION OF AND RELIANCE BY VCA. To the extent that
VCA on behalf of and at the request of or instruction of the Corporation holds
and distributes funds received by Purchaser for purposes of purchasing the
Purchased Shares hereunder, the Corporation and Purchaser agree jointly and
severally to indemnify VCA and each of its agents for, and to hold each of them
harmless against, any loss, liability or expense, incurred without bad faith or
willful misconduct, arising out of or in connection with the holding and
distribution of such funds, as well as the reasonable costs and expenses of
defending against any claim of liability arising therefrom, including but not
limited to reasonable attorneys' fees, and for any interpleader action that the
Corporation and/or Purchaser might bring to resolve perceived or actual
conflicts. The obligations of the Corporation and Purchaser under this Section
shall survive the termination of this Agreement. VCA shall not be required to
expend or risk its own funds or otherwise incur personal financial liability in
holding and distributing such funds and shall have no related fiduciary duty to
either the Corporation or Purchaser. VCA shall be protected and shall incur no
liability for or in respect of any action taken or thing suffered by it in
reliance on any instruction, notice, direction, consent, certificate, affidavit,
statement, or other paper or document believed by it, in good faith and without
bad faith or willful misconduct, to be genuine and to have been passed or signed
by the proper parties.
f. ENTIRE AGREEMENT. This Agreement and the exhibits attached
hereto and the other documents delivered pursuant hereto constitute the full and
entire understanding and agreement between and among the parties with regard to
the subjects hereof and thereof.
g. NOTICE. Any notice, demand, consent or other communication
under this Agreement shall be in writing addressed to the other party at its
address on the signature page to this Agreement, or to such other address as
such party shall have theretofore furnished by like notice, and either served
personally, sent by express, registered or certified first class mail,
<PAGE>
postage prepaid, sent by facsimile transmission, or delivered by reputable
commercial courier. Such notice shall be deemed given (i) when so personally
delivered, or (ii) if mailed as aforesaid, seven (7) days after the same
shall have been posted, or (iii) if sent by facsimile transmission, as soon
as the sender receives written or telephonic confirmation that the message
has been received and such facsimile is followed the same day by mailing by
prepaid express, registered or certified mail as set forth herein, or (iv) if
delivered by commercial courier, upon receipt.
h. FINDER'S AND BROKER'S FEES. Each party hereto represents
and warrants that it has retained no finder or broker in connection with the
transactions contemplated by this Agreement, and hereby agrees to indemnify and
to hold the other harmless from any liability for any finder's or broker's fee
to any broker or other person or firm (and the costs and expenses of defending
against such liability or asserted liability) for which such indemnifying
person, or any of its employees or representatives, are responsible.
i. CONFLICT OF INTEREST. PURCHASER ACKNOWLEDGES THAT VCA, IS
THE GENERAL CORPORATE COUNSEL TO THE CORPORATION AND WAIVES ANY CONFLICTS
ASSOCIATED THEREWITH, AND HEREBY CONSENTS TO VCA'S ROLE HEREUNDER
NOTWITHSTANDING ITS POSITION AS THE CORPORATION'S LAW FIRM IN NEGOTIATING THE
TERMS AND CONDITIONS OF THIS AGREEMENT AND ALL OTHER ANCILLARY DOCUMENTS IN
CONNECTION HEREWITH.
j. HEADINGS. The headings of the Sections and subsections of
this Agreement are for convenience of reference only and shall not affect the
meaning or interpretation of the contents of this Agreement.
k. APPLICABLE LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California applicable to
contracts between California residents entered into and to be performed entirely
within the State of California.
l. ARBITRATION. Any dispute between the parties arising out of
this Agreement shall be submitted to final and binding arbitration in the City
of Santa Clara, County of Santa Clara, State of California, under the Commercial
Arbitration Rules of the American Arbitration Association then in effect, upon
written notification and demand of either party therefor. In the event either
party demands such arbitration, the American Arbitration Association shall be
requested to submit a list of prospective arbitrators consisting of persons
experienced in matters involving securities offerings. The provisions of
California Code of Civil Procedure ss.1283.05 and the laws of the State of
California are incorporated herein and shall be applicable to the arbitration.
In making the award, the arbitrator shall award recovery of costs and expenses
of the arbitration and reasonable attorneys' fees to the prevailing party. Any
award may be entered as a judgment in any court of competent jurisdiction.
Should judicial proceedings be commenced to enforce or carry out this provision
or any arbitration award, the prevailing party in such proceedings shall be
entitled to reasonable attorneys' fees and costs in addition to other relief.
Either party shall have the right, prior to receiving an arbitration award, to
obtain preliminary relief from a court of competent jurisdiction to avoid injury
or prejudice to that party.
m. 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
<PAGE>
instrument.
n. FACSIMILE SIGNATURES. The parties shall be entitled to rely
upon and enforce a facsimile of any authorized signature as if it were the
original.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.)
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to
be effective as of November 16, 1998.
PHASECOM, INC. PURCHASER'S NAME:
a Delaware corporation
By:
----------------------------------- ------------------------------
Stephen P. Pezzola, Secretary ------------------------------
20400 Stevens Creek Blvd., 7th Fl. ------------------------------
Cupertino, CA 95014
Duly executed by:
------------------------------
(Signature)
------------------------------
(Print Name & Title)
Scheduled Closing Date: December 1, 1998
Purchase Price: PURCHASER'S ADDRESS:
$
- ------------------------------ ------------------------------
Number of Shares: ------------------------------
------------------------------
- ------------------------------ ------------------------------
DEFERRAL OF NOTES
The undersigned agrees to defer the principal and interest payments due
on all notes owed by PhaseCom to Purchaser by five (5) months, in exchange for
the right at any time between the date hereof and March 31, 1999, to convert all
of the principal and interest due under these obligations to Series B Stock.
Yes No
----- -----
CONVERSION OF 45-DAY DEMAND NOTE(S)
The undersigned agrees to cancel its Demand Note(s) (principal and
accrued interest) through December 1, 1998, in exchange for Series B Stock
pursuant to the foregoing.
Yes No
----- -----
Purchased Shares registration instructions:
Name of Shareholder:
-------------------------------------------------------
<PAGE>
Address of Shareholder:
----------------------------------------------------
----------------------------------------------------
<PAGE>
EXHIBIT A
TO
PURCHASE AGREEMENT
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
The Amended and Restated Certificate of Incorporation of the
Corporation is set forth on the following pages.
<PAGE>
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
PHASECOM, INC.
PHASECOM, INC., a corporation organized and existing under the General
Corporation Law of the State of Delaware (the "Corporation"), hereby certifies:
FIRST: The name of the Corporation is PHASECOM, INC., that the original
Certificate of Incorporation of the Corporation was filed with the Secretary of
State of the State of Delaware on March 21, 1996; that a Certificate of
Amendment of Certificate of Incorporation of PhaseCom, Inc. was filed on
February 13, 1998; and that a Certificate of Amendment of Certificate of
Incorporation of PhaseCom, Inc. was filed on September 15, 1998 (collectively,
"Certificate of Incorporation").
SECOND: Pursuant to Section 245 of the General Corporation Law of the
State of Delaware, this Amended and Restated Certificate of Incorporation amends
and restates the provisions of the Certificate of Incorporation. This Amended
and Restated Certif icate of Incorporation was duly approved by the
Corporation's Board of Directors, and was duly approved by the holders of the
requisite number of shares of the Corporation in accordance with Sections 242
and 245 of the Delaware General Corporation Law. The total number of outstanding
shares of Common Stock and Series A Preferred Stock entitled to vote with
respect to this amendment and restatement was nine million sixty-nine thousand
seven hundred fifty-nine (9,069,759) shares, and one million six hundred five
thousand two hundred thirty-three (1,605,233) shares, respectively. The number
of shares voting in favor of such amendment and restatement equaled or exceeded
the vote required, such required vote being a majority of the outstanding shares
of Common Stock and Series A Preferred Stock, each voting as a separate class.
THIRD: The text of the Certificate of Incorporation of the
Corporation is hereby amended and restated to read in its entirety
as follows:
"VI.
The name of this corporation is PHASECOM, INC. (this "Corporation").
VII.
The address of the registered office of this Corporation in the State
of Delaware and County of New Castle shall be 1201 Market Street, Suite 1401,
Wilmington, Delaware, 19801. The name
<PAGE>
of its registered agent at that address is PHS Corporate Services, Inc.
VIII.
The nature of the business or purposes to be conducted or promoted by
this Corporation 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.
IX.
A. AUTHORIZED SHARES. This Corporation is authorized to issue two
classes of shares, to be designated Common Stock and Preferred Stock,
respectively. This Corporation is authorized to issue one hundred million
(100,000,000) shares of Common Stock with a par value of $0.0001 per share and
thirty-five million (35,000,000) shares of Preferred Stock with a par value of
$0.001 per share. The Preferred Stock authorized by this Certificate of
Incorporation shall be issued from time to time in one or more series.
B. AUTHORIZED SHARES - PREFERRED STOCK. Within the limits and
restrictions stated in any resolution or resolutions of the Board of Directors
originally fixing the number of shares constitu ting any series of Preferred
Stock, the Board of Directors may increase or decrease (but neither above the
total number of authorized shares of the class, nor below the number of shares
of such series, then outstanding) the number of shares of any such series
subsequent to the issue of shares of that series. In addition, the Board of
Directors is authorized, subject to limita tions prescribed by law and the
provisions of Article D, to provide for the issuance of the shares of Preferred
Stock in series, and by filing a certificate pursuant to the applicable law of
the State of Delaware, to establish from time to time the number of shares to be
included in each such series, and to fix the designation, powers, preferences
and rights of the shares of each such series and the qualifications, limitations
or restrictions thereof.
The authority of the Board with respect to each series shall include,
but not be limited to, determination of the following:
i) The number of shares constituting that series and the
distinctive designation of that series;
ii) The dividend rate on the shares of that series, whether
dividends shall be cumulative, and, if so, from which date or dates, and the
relative rights of priority, if any,
<PAGE>
of payment of dividends on shares of that series;
iii) Whether that series shall have voting rights, in addition
to the voting rights provided by law, and, if so, the terms of such voting
rights;
iv) Whether that series shall have conversion privileges, and,
if so, the terms and conditions of such conversion, including provision for
adjustment of the conversion rate in such events as the Board of Directors shall
determine;
v) Whether or not shares of that series shall be redeemable,
and, if so, the terms and conditions of such redemp tion, including the date or
date upon or after which they shall be redeemable, and the amount per share
payable in case of redemption, which amount may vary under different conditions
and at different redemption dates;
vi) Whether that series shall have a sinking fund for the
redemption or purchase of shares of that series, and, if so, the terms and
amount of such sinking fund;
vii) The rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding up of this
Corporation, and the relative rights or priority, if any, of payment of shares
of that series; and
viii) Any other relative rights, preferences and limitations
of that series.
C. AUTHORIZED SHARES - SERIES A PREFERRED STOCK AND SERIES B PREFERRED
STOCK. The initial two series of Preferred Stock shall be comprised of an
aggregate total of twenty-one million (21,000,000) shares, of which six million
(6,000,000) shares shall be designated "Series A Convertible Preferred Stock"
(also referred to herein as "Series A Preferred Stock" or "Series A Stock"), and
fifteen million (15,000,000) shares shall be designated "Series B Convertible
Preferred Stock" (also referred to herein as "Series B Preferred Stock" or
"Series B Stock").
D. ATTRIBUTES OF SERIES A STOCK AND SERIES B STOCK. The rights,
preferences, privileges and restrictions of the Series A Stock and Series B
Stock and of the holders thereof shall be as follows:
1. DIVIDENDS.
a. SERIES A STOCK RIGHT TO CASH DIVIDENDS.
Each holder of outstanding shares of Series A Stock shall be entitled to
receive, when and if declared by the Board of Directors and out of any assets
legally available therefor, non-cumulative dividends in cash in an amount equal
to $0.0432 per share of
<PAGE>
Series A Stock per annum (the "Series A Preferential Dividend"), payable in
cash during each fiscal year of this Corporation and in preference to any
declaration or payment (payable other than in Common Stock) to the Common
Stock (but not without the holders of Series B Stock first receiving the
Series B Preferential Dividend (as defined below).
b. SERIES B STOCK RIGHT TO CASH DIVIDENDS.
Each holder of outstanding shares of Series B Stock shall be entitled to
receive, when and if declared by the Board of Directors and out of any assets at
the time legally available therefor, non-cumulative dividends in cash in an
amount equal to $0.0800 per share of Series B Stock per annum (the "Series B
Preferential Dividend"), payable in cash during each fiscal year of this
Corporation and in preference to any declaration or payment (payable other than
in Common Stock) to the Common Stock and Series A Stock.
c. PARTIAL CASH PAYMENT. If the Board of
Directors shall declare a dividend on the Series A Stock or Series B Stock and
the amount available for payment thereof is insufficient to permit the payment
of the full preferential amounts required to be paid to the holders of
outstanding shares of Series A Stock and/or Series B Stock, then the amount
available for such dividend payments shall be distributed ratably first among
the holders of shares of Series B Stock according to the number of issued and
outstanding shares of Series B Stock held by each such holder until each such
holder has received its Series B Preferen tial Dividend in full, then the amount
available for such dividend payments shall be distributed ratably among the
holders of shares of Series A Stock according to the number of issued and
outstanding shares of Series A Stock held by each such holder until each such
holder has received its Series A Preferential Dividend in full.
d. DIVIDENDS AFTER PAYMENT OF PREFERENTIAL
DIVIDENDS. After the holders of record of the Series A Stock and Series B Stock
have been paid their Preferential Dividends in full, then the holders of record
of Series A Stock, Series B Stock and Common Stock shall share ratably in any
additional dividends during such fiscal year on an as converted basis (i.e, the
number of shares of Common Stock which would be outstanding if the Series A
Stock and Series B Stock were converted to Common Stock).
e. DIVIDEND ADJUSTMENT. The Series A
Preferential Dividend and Series B Preferential Dividend amounts shall be
appropriately adjusted for any stock dividends, combinations and splits, as
applicable.
<PAGE>
2. PREFERENCE ON LIQUIDATION.
a. SERIES A STOCK PREFERENCE PRICE. In the
event of any liquidation, dissolution or winding up of this Corporation,
whether voluntary or involuntary (a "Liquidation Event") and after payment of
the "Series B Liquidation Price" (as defined below) and after payment of the
"Series B to Common Liquidation Price" (as defined below), the holders of the
outstanding shares of Series A Stock shall be entitled to be paid out of the
assets of this Corporation available for distribution to its shareholders,
whether from capital, surplus or earnings, before any payment is made in
respect of the outstanding shares of Common Stock or any other equity
security of this Corporation of a lesser priority than the Series A Stock in
an amount equal to Four Dollars and Sixty Cents ($4.60) per share plus any
declared but unpaid dividends on each such share (the "Series A Liquidation
Price").
b. SERIES B STOCK PREFERENCE PRICE. Before
payment of any portion of the Series A Liquidation Price or the Series B to
Common Stock Liquidation Price, in the event of a Liquidation Event, the holders
of the outstanding shares of Series B Stock shall be entitled to be paid out of
the assets of this Corporation available for distribution to its shareholders,
whether from capital, surplus or earnings, before any payment is made in respect
of the outstanding shares of Common Stock, Series A Stock or any other equity
security of this Corporation of a lesser priority than the Series B Stock in an
amount equal to One Dollar and Fifty Cents ($1.50) per share, plus any declared
but unpaid dividends on each such share (the "Series B Liquidation Price").
c. SERIES B TO COMMON STOCK LIQUIDATION PRICE.
Before payment of any portion of the Series A Liquidation Prefer ence Price, and
after payment of the Series B Liquidation Price, in the event of a Liquidation
Event, the holders of the outstanding shares of Series B Stock, Series A Stock,
and Common Stock shall each be entitled to be paid out of the assets of this
Corporation available for distribution to its shareholders, whether from
capital, surplus or earnings, before any further payment is made in respect of
the outstanding shares of Series A Stock or any other equity security of this
Corporation, an amount equal to Forty Cents ($0.40) per share (the "Series B to
Common Stock Liquidation Price"), as if all Series A Preferred Stock and all
Series B Preferred Stock had been converted into Common Stock as of the date of
the Liquidation Event.
d. PARTIAL PAYMENT. If, upon a Liquidation
Event, the assets of this Corporation available for distribution to its
shareholders shall be insufficient to pay the full Liquidation Prices required
to be paid to the holders of the
<PAGE>
outstanding shares of Series A Stock, the holders of the outstanding shares
of Series B Stock, and the holders of the outstanding shares of Common Stock,
then all of the assets of this Corporation legally available for distribution
to the holders of equity securities shall be dis tributed ratably: first,
among the holders of the outstanding shares of Series B Stock based upon
their Liquidation Price until payment in full of the Series B Liquidation
Price on all Series B Stock; next, ratably to the holders of Series B Stock,
Series A Stock, and Common Stock based upon an as converted to Common Stock
basis, the payment in full of the Series B to Common Stock Liquidation Price;
and then ratably among the holders of the outstanding shares of Series A
Stock until payment in full of their Series A Liquidation Price on all Series
A Stock.
e. AFTER PAYMENT OF PREFERRED LIQUIDATION
PRICES. After the holders of record of the Series A Stock, Series B Stock, and
Common Stock have been paid their Series A Liquidation Price Series B to Common
Stock Liquidation Price, and Series B Liquidation Price, respectively, in full,
then the remaining assets of this Corporation shall be distributed to the
holders of shares of Common Stock, Series A Preferred Stock and Series B
Preferred Stock in an equal amount per share as if all Series A Preferred Stock
and Series B Preferred Stock had been converted into Common Stock as of the date
of the Liquidation Event.
f. LIQUIDATION ADJUSTMENT. Notwithstanding the
foregoing, the amount to be paid for each share of Series A Preferred Stock,
Series B Preferred Stock and Common Stock upon a Liquidation Event shall be
appropriately adjusted for any combination(s), stock split(s), stock
distribution(s) or divi dend(s) with respect to such shares.
3. CERTAIN TRANSACTIONS. Notwithstanding anything to the
contrary in Section D.2 (above), the following shall be deemed to be a
Liquidation Event within the meaning of this Section D with respect to the
Series A Stock, Series B Stock and Common Stock: (A) a sale of all or
substantially all of this Corporation's assets; or (B) a consolidation, merger
or reorganization of this Corporation with or into any other corporation or
corporations, unless such event results in the Common Stock equivalent value of
this Corporation's stock as a result of such event and determined as if all
Series A Stock and all Series B Stock had converted to Common Stock, is Three
Dollars ($3.00), or more, per share (adjusted for stock split(s),
combination(s), reclassification(s), and the like).
<PAGE>
4. CONSENT TO CERTAIN DISTRIBUTIONS. Each holder of
outstanding shares of Series A Stock and Series B Stock, shall by virtue of its
acceptance of a stock certificate evidencing such shares, be treated as having
consented to distributions made, or to be made, by this Corporation for the
repurchase of shares of Common Stock from directors or employees of, or
consultants or advisers to, this Corporation upon the termination of employment
by, or service to, this Corporation or any subsidiary of this Corporation or
otherwise, if such repurchase is made in accordance with an agreement approved
by this Corporation's Board of Directors authorizing the right of said
repurchase.
E. VOTING. The holders of the outstanding shares of Common Stock
shall each have one (1) vote per each share owned of Common Stock owned by
such stockholder. The holders of the outstanding shares of Series A Preferred
Stock and Series B Preferred Stock shall be entitled to cast that number of
votes equal to the number of shares of Common Stock into which such holder's
shares of Series A Preferred Stock and Series B Preferred Stock are
convertible immediately after the close of business on the record date fixed
for such meeting or, if no such record date is established, the date such
vote is taken or the effective date of such written consent.
F. CONVERSION. The holders of the outstanding shares of
Series A Stock and Series B Stock shall have the conversion rights
set forth below (the "Conversion Rights"):
1. SERIES A STOCK CONVERSION RIGHTS. Each share of Series A
Stock shall be convertible, at the option of the holder thereof, at any time
after the date of issuance of such share, at the office of this Corporation or
any transfer agent for the shares of Series A Stock, or Common Stock, into that
number of fully paid and nonassessable shares of Common Stock which is equal to
the quotient obtained by dividing (A) Five Dollars and Forty Cents ($5.40), by
(B) the Series A Conversion Price, immediately prior to the time of such
conversion. The "Series A Conversion Price" shall initially be Two Dollars and
Seventy Cents ($2.70) (as adjusted from time to time as hereinafter provided).
2. SERIES B STOCK CONVERSION RIGHTS. Each share of Series B
Stock shall be convertible, at the option of the holder thereof, at any time
after the date of issuance of such shares, at the office of this Corporation or
any transfer agent for the shares of Series B Stock, or Common Stock, into that
number of fully paid and nonassessable shares of Common Stock which is equal to
the quotient obtained by dividing (A) One Dollar ($1.00), by (B) the Series B
Conversion Price, immediately prior to the time of such conversion. The "Series
B Conversion Price" shall initially be One Dollar ($1.00) (as adjusted from time
to time as hereinafter provided).
<PAGE>
3. AUTOMATIC CONVERSION.
a. PREFERRED STOCK. Each outstanding share
of Series A Stock and Series B Stock shall automatically be converted into
shares of Common Stock based upon their respective Conversion Prices upon (i)
the closing of an underwritten public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended, covering
the offering and sale of shares of Common Stock for the account of this
Corporation (other than a registration statement effected solely to implement
an employee benefit plan, a transaction in which Rule 145 of the Securities
and Exchange Commission is applicable or any other form or type of
registration in which the shares of Common Stock issuable upon conversion of
the shares of Series A Stock or Series B Stock cannot be included pursuant to
the Securities and Exchange Commission rules or practices) resulting in
aggregate proceeds to this Corporation (before the payment of underwriting
discounts and commissions and the expense of the offering) in excess of Seven
Million Five Hundred Thousand Dollars ($7,500,000), or (ii) a merger or
consolidation with or into another corporation or a sale of all the shares of
Common Stock or a sale of all or substantially all of this Corporation's
properties and assets in which the Common Stock equivalent value of this
Corporation's stock as a result of such event and determined as if all Series
A Stock and all Series B Stock had converted to Common Stock, is Three
Dollars ($3.00), or more, per share (adjusted for stock split(s),
combination(s), reclassification(s), and the like).
b. AUTOMATIC CONVERSION MECHANICS. Upon the
occurrence of any event specified in Section F.3.a (above), the outstanding
shares of Series A Stock and Series B Stock shall be converted into shares of
Common Stock, whether or not the certificates representing such shares are
surrendered to this Corporation or its transfer agent; PROVIDED, HOWEVER, that
this Corporation shall not be obligated to issue certificates evidencing the
shares of Common Stock issuable upon such conversion unless the certificates
evidencing such shares are either delivered to this Corporation or its transfer
agent as provided below or the holder notifies this Corporation or its transfer
agent that such certifi cates have been lost, stolen or destroyed and executes
an agreement satisfactory to this Corporation indemnifying this Corporation from
any loss incurred by it in connection with the issuance of such certificate.
Upon the occurrence of such automatic conversion of the outstanding shares of
Series A Stock and Series B Stock, the holders of the outstanding shares of
Series A Stock and Series B Stock shall surrender the certificates representing
such shares at the office of this Corporation or to any transfer agent for the
shares of Series A Stock, Series B Stock or Common Stock. There upon, there
shall be issued and delivered to such holder, promptly at such
<PAGE>
office and in its name as shown on such surrendered certificate or
certificates, a certificate or certificates for the number of shares of
Common Stock into which the surrendered shares of Series A Stock and Series B
Stock of such holder were con vertible on the date on which such automatic
conversion occurred, and this Corporation shall promptly, pay in cash all
declared but unpaid dividends on the shares of Series A Stock and Series B
Stock so converted.
4. MECHANICS OF NON-AUTOMATIC CONVERSION. Each holder of
outstanding shares of Preferred Stock shall convert, or at the option of the
holders of Preferred Stock, by surrendering the certificate or certificates
therefor, duly endorsed, at the office of this Corporation or of any transfer
agent for the shares of Preferred Stock or Common Stock and shall give
written notice to this Corporation at such office that such holder elects to
convert the same and shall state therein the number of shares of Preferred
Stock being converted. Thereupon, this Corporation shall issue and deliver at
such office to such holder a certificate or certificates for the number of
shares of Common Stock to which such holder is entitled and shall promptly
pay all declared but unpaid dividends on the shares being converted in cash
or, if this Corporation so elects or is legally or financially unable to, pay
in cash, shares of Common Stock (valued at the Common Stock's fair market
value at the time of surrender as determined in good faith by the Board of
Directors), subject to the limitations on the payment of accrued dividends as
set forth in Section D.1 (above). Such conversion shall be deemed to have
been made immediately prior to the close of business on the date of such
surrender of the certificate or certificates representing the shares to be
converted, and the person entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all purposes as the record
holder of such shares of Common Stock on such date. If the con version is in
connection with an underwritten offer of securities registered pursuant to
the Securities Act of 1933, as amended, the conversion may, at the option of
any holder tendering Series A Stock or Series B Stock for conversion, be
conditioned upon the closing with the underwriter of the sale of securities
pursuant to such offering, in which event the person(s) entitled to receive
the Common Stock issuable upon such conversion of the Series A Stock or
Series B Stock shall not be deemed to have converted such Series A Stock or
Series B Stock until immediately prior to the closing of such sale of
securities.
5. ADJUSTMENTS TO SERIES A AND SERIES B CONVERSION
PRICE.
a. ADJUSTMENT FOR STOCK SPLITS AND
COMBINATIONS. If this Corporation at any time or from time to time after the
date this Amended and Restated Certificate of Incorporation is
<PAGE>
filed with the Delaware Secretary of State (the "Filing Date") effects a
division of the outstanding shares of Common Stock, the Series A Conversion
Price and the Series B Conversion Price shall be proportionately decreased
and, conversely, if this Corporation at any time, or from time to time, after
the Filing Date combines the outstanding shares of Common Stock, the Series A
Conversion Price and the Series B Conversion Price shall be proportionately
increased. Any adjustment under this Section F.5.a shall be effective on the
close of business on the date such division or combination becomes effective.
b. ADJUSTMENT FOR CERTAIN DIVIDENDS AND
DISTRIBUTIONS. If this Corporation at any time or from time to time after the
Filing Date pays or fixes a record date for the determination of holders of
shares of Common Stock entitled to receive a dividend or other distribution
in the form of shares of Common Stock, or rights or options for the purchase
of, or securities convertible into, Common Stock, then in each such event the
Series A Conversion Price and the Series B Conversion Price shall be
decreased, as of the time of such payment or, in the event a record date is
fixed, as of the close of business on such record date, by multiplying the
Series A Conversion Price and the Series B Conversion Price by a fraction (i)
the numerator of which shall be the total number of shares of Common Stock
outstanding immediately prior to the time of such payment or the close of
business on such record date and (ii) the denominator of which shall be (A)
the total number of shares of Common Stock outstanding immediately prior to
the time of such payment or the close of business on such record date plus
(B) the number of shares of Common Stock issuable in payment of such dividend
or distribution or upon exercise of such option or right of conversion;
PROVIDED, HOWEVER, that if a record date is fixed and such dividend is not
fully paid or such other distribution is not fully made on the date fixed
therefor, the Series A Conversion Price and the Series B Conversion Price
shall not be decreased as of the close of business on such record date as
hereinabove provided as to the portion not fully paid or distributed and
thereafter the Series A Conversion Price and the Series B Conversion Price
shall be decreased pursuant to this Section F.5.b as of the date or dates of
actual payment of such dividend or distribution.
c. ADJUSTMENTS FOR OTHER DIVIDENDS AND
DISTRIBUTIONS. If this Corporation at any time or from time to time after the
Filing Date pays, or fixes a record date for the determination of holders of
shares of Common Stock entitled to receive, a dividend or other distribution in
the form of securities of this Corporation other than shares of Common Stock or
rights or options for the purchase of, or securities convertible into, Common
Stock, then in each such event provision shall be made so that the holders of
the outstanding shares of Series A Stock and the holders of the outstanding
shares of
<PAGE>
Series B Stock shall receive upon conversion thereof, in addition to the
number of shares of Common Stock receivable thereupon, the amount of
securities of this Corporation which they would have received had their
respective shares of Series A Stock and Series B Stock been converted into
shares of Common Stock on the date of such event and had such holders
thereafter, from the date of such event to and including the actual date of
conversion of their shares, retained such securities, subject to all other
adjustments called for during such period under this Section F with respect
to the rights of the holders of the outstanding shares of Series A Stock and
the holders of the outstanding shares of Series B Stock.
d. ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE
AND SUBSTITUTION. If, at any time or from time to time after the Filing Date,
the number of shares of Common Stock issuable upon conversion of the shares
of Series A Stock and Series B Stock is changed into the same or a different
number of shares of any other class or classes of stock or other securities,
whether by recapitalization, reclassification or otherwise (other than a
recapitalization, division or combination of shares or stock dividend or a
reorganization, merger, consolidation or sale of assets provided for
elsewhere in this Section F), then, in any such event, each holder of
outstanding shares of Series A Stock and each holder of outstanding shares of
Series B Stock shall have the right thereafter to convert such shares of
Series A Stock and Series B Stock into the same kind and amount of stock and
other securities receivable upon such recapitalization, reclassification or
other change, as the maximum number of shares of Common Stock into which such
shares of Series A Stock and Series B Stock could have been converted
immediately prior to such recapitalization, reclassifica tion or change, all
subject to further adjustment as provided herein.
e. REORGANIZATIONS, MERGERS, CONSOLIDATIONS OR
SALES OF ASSETS. If, at any time or from time to time after the Filing Date,
there is a capital reorganization of the Common Stock (other than a
recapitalization, division, combination, reclass ification or exchange of shares
provided for elsewhere in this Section F) or a merger or consolidation of this
Corporation into or with another corporation or a sale of all or substantially
all of this Corporation's properties and assets to any other person, then, as a
part of such capital reorganization, merger, consolidation or sale, provision
shall be made so that the holders of the outstanding shares of Series A Stock
and the holders of the outstanding shares of Series B Stock shall thereafter
receive upon conversion thereof the number of shares of stock or other
securities or property of this Corporation, or
<PAGE>
of the successor corporation resulting from such merger or consolidation or
sale, to which a holder of the number of shares of Common Stock into which
their shares of Series A Stock and Series B Stock were convertible would have
been entitled on such capital reorganization, merger, consolidation or sale.
In any such case, appropriate adjustment shall be made in the application of
the provisions of this Section F with respect to the rights of the holders of
the outstanding shares of Series A Stock and Series B Stock after the capital
reorganization, merger, consolidation, or sale to the end that the provisions
of this Section F (including adjustment of the Series A Conversion Price and
Series B Conversion Price and the number of shares into which the shares of
Series A Stock and Series B Stock may be converted) shall be applicable after
that event and be as nearly equivalent to such Conversion Prices and number
of shares as may be practicable.
f. CERTIFICATE OF ADJUSTMENT. Upon the
occurrence of each adjustment or readjustment of the Series A Conversion Price
or Series B Conversion Price, this Corporation, at its sole expense, shall
promptly compute such adjustment or readjustment in accordance with the terms
hereof and prepare and furnish to each holder of Series A Stock or Series B
Stock, as applicable, a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. This Corporation shall, upon the written request at any
time of any holder of Series A Stock or Series B Stock furnish or cause to be
furnished to such holder a like certificate setting forth (i) such adjustments
and readjustments, (ii) the applicable Conversion Price at the time in effect,
and (iii) the number of shares of Common Stock and the amount, if any,
of other property which at the time would be received upon the conversion of
Series A Stock or Series B Stock, as the case may be.
g. NOTICES OF RECORD DATE. In the event of
(i) any taking by this Corporation 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 (ii) any capital
reorganization of this Corporation, any reclassification or recapitalization of
the capital stock of this Corporation, any merger or consolidation of this
Corporation with or into any other corporation, or any transfer of all or
substantially all of the assets of this Corporation, or any voluntary or
involuntary dissolution, liquidation or winding up of this Corporation, this
Corporation shall mail to each holder of shares of Series A Stock and Series B
Stock at least twenty (20) days prior to the record date specified therein, a
notice specifying (i) the date on which any such record is to be taken for the
purpose of such dividend or distribution and a description of such dividend or
distribution; (ii) the date on which any such reorganization, reclassification,
<PAGE>
transfer, consoli dation, merger, dissolution, liquidation or winding up is
expected to become effective and the specific details thereof; and (iii) the
date, if any, that is to be fixed as to when the holders of record of shares 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
upon such reorganization, reclassification, transfer, consolidation, merger,
dissolution, liquidation or winding up.
h. FRACTIONAL SHARES. No fractional shares of
Common Stock shall be issued upon conversion of the shares of Series A Stock or
Series B Stock. In lieu of any fractional share to which the holder of such
shares would otherwise be entitled, this Corporation shall pay cash equal to the
product of (a) such fraction multiplied by (b) the fair market value of one
share of the Common Stock on the date of conversion. The fair market value shall
be determined by the average trading price of the Common Stock over the past
five (5) trading days, if such a price is available, otherwise it shall be as
determined in good faith by the Board of Directors.
i. RESERVATION OF STOCK ISSUABLE UPON
CONVERSION. This Corporation shall at all times reserve and keep available
out of its authorized but unissued shares of Common Stock, solely for the
purpose of effecting the conversion of the shares of Series A Stock and
Series B Stock, such number of shares of Common Stock as shall from time to
time be sufficient to effect the conversion of all outstanding shares of
Series A Stock and Series B Stock; and if at any time the number of
authorized, but unissued, shares of Common Stock shall not be sufficient to
effect the conversion of all then-outstanding shares of the Series A Stock or
the Series B Stock, in addition to such other remedies as shall be available
to the holder of such stock, this Corporation will take such corporate action
as may, in the opinion of its counsel, be necessary to increase its
authorized, but unissued, shares of Common Stock to such number of shares as
shall be sufficient for such purposes, without the necessity of any
stockholder vote or approval.
j. NOTICES. Any notice required by the
provisions of this Section F to be given to a holder of shares of Series A Stock
or Series B Stock, shall be deemed given upon the earlier of actual receipt or
seventy-two (72) hours after the same has been deposited in the United States
mail, certified or registered mail, return receipt requested, postage prepaid,
addressed to the holder at the address of such holder appearing on the books of
this Corporation.
<PAGE>
G. RESTRICTIONS AND LIMITATIONS.
1. CORPORATE ACTION. Except as otherwise required by law, so
long as at least six hundred eighty thousand (680,000) shares of Series A Stock
remain outstanding (adjusted for stock split(s) and combination(s)), this
Corporation shall not, without the vote or written consent of the holders of a
majority of the shares of Series A Stock, voting as a separate class:
a. Increase the authorized number of shares of
Series A Stock,
b. Increase the authorized number of Preferred
Stock,
c. Create any new class or series of shares
having preference over the Series A Stock,
d. Merge, consolidate, or reorganize, where
such merger, consolidation, or reorganization would result, directly or
indirectly, in the change of a majority of the members of the Board of
Directors; or,
e. Sell all, or substantially all, of its
assets or issue more than fifty percent (50%) of this Corporation's Common Stock
in one transaction or series of related transactions.
2. DIVIDENDS. This Corporation shall not, without the vote or
written consent of the holders of a majority of the shares of Series A Stock,
take any action that would constitute the declaring of a dividend for holders of
Series A Stock or Common Stock.
H. REPLACEMENT OF CERTIFICATES. Upon receipt of evidence reasonably
satisfactory to this Corporation of the loss, theft, destruction, or
mutilation of a certificate representing any of the outstanding shares of
Preferred Stock or Common Stock, and, in the case of loss, theft, or
destruction, the execution of an agreement satisfactory to this Corporation
to indemnify this Corporation from any loss incurred by it in connection
therewith, this Corporation will issue a new certificate representing such
shares of Preferred Stock or Common Stock in lieu of such lost, stolen,
destroyed or mutilated certificate.
I. ARRANGEMENT WITH CREDITORS. Whenever a compromise or arrangement is
proposed between this Corporation and its creditors or any class of them and/or
between this Corporation and its stockholders or any class of them any court of
equitable jurisdiction within the State of Delaware may, on the application in a
summary way of this Corporation or of any creditor or
<PAGE>
stockholder thereof or on the application of any receiver or receivers
appointed for this Corporation under the provisions of Section 291 of Title 8
of the Delaware Code or on the application of trustees in dissolution or of
any receiver or receivers appointed for this Corporation under the provisions
of Section 279 of Title 8 of the Delaware Code order a meeting of the
creditors or class of creditors and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing
three-fourths (3/4) in value of the creditors or class of creditors, and/or
of the stockholders or class of stockholders of this Corporation, as the case
may be, agree to any compromise or arrangement and to any reorganization of
this Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this Corporation, as the case may be, and also on this
Corporation.
J. FIDUCIARY DUTY. A director of this Corporation shall not be
personally liable to this Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability (i)
for any breach of the director's duty of loyalty to this Corporation or its
stockholders; (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of the law; (iii) under Section
174 of the Delaware General Corporation Law; or (iv) for any transaction from
which the director derived an improper personal benefit. If the Delaware
General Corporation Law is amended after the filing of the Certificate of
Incorporation of which this Article V is a part to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director of this Corporation shall be eliminated or limited to
the fullest extent permitted by the Delaware General Corporation Law, as so
amended. Any repeal or modification of the foregoing paragraph by the
stockholders of this Corporation shall not adversely affect any right or
protection of a director of this Corporation existing at the time of such
repeal or modification.
X.
A. INDEMNIFICATION.
1. RIGHT TO INDEMNIFICATION. Each person who was or is made a
party, or is threatened to be made a party to, or is
<PAGE>
involved in, any action, suit or proceeding, whether civil, criminal,
administrative or investigative ("Proceeding"), including, without
limitation, Proceedings by or in the right of this Corporation to procure a
judgment in its favor, by reason of the fact that he or she, or a person for
whom he or she is the legal representative, is or was a director or officer,
employee or agent of this Corporation, or is or was serving at the request of
this Corporation as a director or officer, employee or agent of another
corporation, or of a partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, whether the basis
of such Proceeding is alleged action in an official capacity as a director,
officer, employee or agent, or in any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held harmless
by this Corporation to the fullest extent authorized by the General
Corporation Law of the State of Delaware, as the same exists or may hereafter
be amended (but, in the case of any such amendment, only to the extent such
amendment permits this Corporation to provide broader indemnification rights
than said law permitted this Corporation to provide prior to such amendment)
against all expenses, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amount paid or to be
paid in settlement) reasonably incurred or suffered by such person in
connection therewith. Such right shall be a contract right and shall include
the right to be paid by this Corporation for expenses incurred in defending
any such Proceeding in advance of its final disposition; PROVIDED, HOWEVER,
that the payment of such expenses incurred by a director or officer of this
Corporation in his or her capacity as a director or officer (and not in any
other capacity in which service was or is rendered by such person while a
director or officer, including, without limitation, service to an employee
benefit plan) in advance of the final disposition of such Pro ceeding, shall
be made only upon delivery to this Corporation of an undertaking, by or on
behalf of such director or officer, to repay all amounts so advanced if it
should be determined ultimately that such director or officer is not entitled
to be indemnified under this section, or otherwise.
2. RIGHT OF CLAIMANT TO BRING SUIT. If a claim under
Section 1 (above) is not paid in full by this Corporation within ninety (90)
days after a written claim has been received by this Corporation, the
claimant may at any time thereafter bring suit against this 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 expense of
prosecuting such claim. It shall be a defense to any such action (other than
an action brought to enforce a claim for expenses incurred in defending any
Proceeding in advance of its final disposition where the required undertaking
has been tendered to this Corporation), that the claimant has not met the
standards of conduct which make it permissible under the General Corporation
<PAGE>
Law of the State of Delaware for this Corporation to indemnify the claimant
for the amount claimed, but the burden of proving such defense shall be on
this Corporation. Neither the failure of this Corporation (includ ing its
Board of Directors, independent legal counsel, or its stockholders) to have
made a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances because he or
she has met the applicable standard of conduct set forth in the General
Corporation Law of the State of Delaware, nor an actual determination by this
Corporation (including its Board of Directors, independent legal counsel, or
its stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that
claimant had not met the applicable standard of conduct.
B. NON-EXCLUSIVITY OF RIGHTS. The rights conferred by Section A.1 and
A.2 (above) shall not be exclusive of any other right which such person may have
or hereafter acquire under any statute, provision of the Certificate of
Incorporation, Bylaws, agreement, vote of stockholders or disinterested
directors, or otherwise.
C. AMENDMENT OR REPEAL. Neither any amendment nor repeal of this
Article V, nor the adoption of any provision of this Corporation's Certificate
of Incorporation inconsistent with this Article V, shall eliminate or reduce the
effect of this Article V, in respect of any matter occurring, or any action or
Proceeding accruing or arising, or that, but for this Article V would accrue or
arise, prior to such amendment, repeal or adoption of an inconsistent provision.
XI.
A. DIRECTORS' POWERS. The Directors of this Corporation shall have the
power to adopt, amend or repeal the Bylaws of this Corporation. The management
of the business and the conduct of the affairs of this Corporation shall be
vested in its Board of Directors. The number of directors which shall constitute
the whole Board of Directors shall be fixed exclusively by, or in the manner
provided in, the Bylaws of this Corporation or this Certificate of
Incorporation.
B. CORPORATION EXISTENCE. This Corporation is to have
perpetual existence.
C. ELECTION OF DIRECTORS. The election of the Directors of
this Corporation need not be by written ballot, unless the Bylaws
of this Corporation so shall provide.
<PAGE>
XII.
For the management of the business, and for the conduct of the affairs
of this Corporation, and in further definition, limitation and regulation of the
powers of this Corporation, of its directors and of its stockholders or any
class thereof, as the case may be, it is further provided that, effective upon
the closing of a Qualified Public Offering:
A. BOARD CLASSES AND TERMS. The Board of Directors shall be divided
into three (3) classes, designated at Class I, Class II, and Class III,
respectively. Directors shall be assigned to each class in accordance with a
resolution or resolutions adopted by the Board of Directors. At the first annual
meeting of stockholders following the date of the Qualified Public Offering, the
term of office of the Class I directors shall expire, and Class I directors
shall be elected for a full term of three (3) years. At the second annual
meeting of stockholders following the date of the Qualified Public Offering, the
term of office of the Class II directors shall expire, and Class II directors
shall be elected for a full term of three (3) years). At the third annual
meeting of stockholders following the date of the Qualified Public Offering, the
term of office of the Class III directors shall expire, and Class III directors
shall be elected for a full term of three (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.
Notwithstanding the foregoing provisions of this Article, each director
shall serve until his or her successor is duly elected and qualified, or under
his or her death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
B. BOARD VACANCIES. Any vacancies on the Board of Directors resulting
from death, resignation, disqualification, removal, or other causes shall be
filled by either (i) the affirmative vote of the holders of a majority of the
voting power of the then-outstanding shares of voting stock of this Corporation
entitled to vote generally in the election of directors (the "Voting Stock"),
voting together as a single class; or (ii) by the affirmative vote of a majority
of the remaining directors then in office, even though less than a quorum of the
Board of Directors. Newly created directorships resulting from any increase in
the number of directors shall, unless the Board of Directors determines by
resolution that any such newly-created directorship shall be filled by the
stockholders, be filled only by the affirmative vote of the
<PAGE>
directors then in office, even though less than a quorum of the Board of
Directors. Any director elected in accordance with the preceding sentence shall
hold office for the remainder of the full term of the class of directors in
which the new directorship was created or the vacancy occurred and until such
director's successor shall have been elected and qualified.
C. BYLAWS. In furtherance, and not in limitation, of the
powers conferred by statute, the Board of Directors is expressly
authorized to make, alter, amend, or repeal the Bylaws of this
Corporation.
1. VOTE.
a. The affirmative vote of sixty-six and two-
thirds percent (66-2/3%) of the voting power of the then-outstanding shares of
Voting Stock, voting together as a single class, shall be required for the
adoption, amendment or repeal of Sections 2.2 (Annual Meeting) and 2.3 (Special
Meeting) of this
Corporation's Bylaws.
b. Any director, or the entire Board of
Directors, may be removed from office at any time (i) with cause by the
affirmative vote of the holders of at least a majority of the voting power of
all of the then-outstanding shares of the voting stock, voting together as a
single class; or (ii) without cause by the affirmative vote of the holders of at
least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of
the then-outstanding shares of the Voting Stock.
2. NO ACTION. No action shall be taken by the stock holders of
this Corporation, except at an annual or special meeting of the stockholders
called in accordance with the Bylaws. The Stockholders shall not take any action
by written consent.
3. STOCKHOLDER NOMINATION. Advance notice of stock holder
nomination for the election of directors and of business to be brought by
stockholders before any meeting of the stockholders of this Corporation shall be
given in the manner provided in the Bylaws of this Corporation.
4. AMENDMENT. Notwithstanding any other provisions of this
Certificate of Incorporation, or any provision of law which might otherwise
permit a lesser vote or no vote, but in addition to any affirmative vote of the
holders of any particular class or series of the Voting Stock required by law,
this Certificate of Incorporation or any Preferred Stock Designation, the
affirmative vote of the holders of at least sixty-six and
<PAGE>
two-thirds percent (66-2/3%) of the voting power of all of the
then-outstanding shares of the Voting Stock, voting together as a single
class, shall be required to alter, amend or repeal this Article VII.
XIII.
This Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, except as provided in this Certificate, and
all rights conferred upon the stockholders herein are granted subject to this
right."
IN WITNESS WHEREOF, the Corporation has caused this Amended and
Restated Certificate of Incorporation to be signed and attested by SHAUL BERGER,
its Chief Executive Officer, and STEPHEN P. PEZZOLA, its Secretary, as of
November 30, 1998.
PHASECOM, INC.
BY: ,
----------------------
SHAUL BERGER,
Chief Executive Officer
ATTEST: ,
-------------------
STEPHEN P. PEZZOLA,
Secretary
<PAGE>
EXHIBIT B
TO
PURCHASE AGREEMENT
FINANCIAL STATEMENTS
The Financial Statements of the Corporation are set forth on the
following pages.
<PAGE>
EXHIBIT C
TO
STOCK PURCHASE AGREEMENT
DEFINITION OF ACCREDITED INVESTOR
ACCREDITED INVESTOR. "Accredited investor" shall mean any person who comes
within any of the following categories as at the Closing Date:
(1) Any bank as defined in section 3(a)(2) of the Securities Act, or
any savings and loan association or other institution as defined in section
3(a)(5)(A) of the Securities Act whether acting in its individual or fiduciary
capacity; any broker or dealer registered pursuant to section 15 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"); any insurance
company as defined in section 2(13) of the Securities Act; any investment
company registered under the Investment Company Act of 1940 or a business
development company as defined in section 2(a)(48) of that Act; Small Business
Investment Company licensed by the U.S. Small Business Administration under
section 301(c) or (d) of the Small Business Investment Act of 1958; any plan
established and maintained by a state, its political subdivisions, or any agency
or instrumentality of a state or its political subdivisions for the benefit of
its employees, if such plan has total assets in excess of $5,000,000; employee
benefit plan within the meaning of the Employee Retirement Income Security Act
of 1974 if the investment decision is made by a plan fiduciary, as defined in
Section 3(21) of such Act, which is either a bank, savings and loan association,
insurance company, or registered investment adviser, or if the employee benefit
plan has total assets in excess of $5,000,000 or, if a self-directed plan, with
investment decision made solely by persons that are accredited investors;
(2) Any private business development company as defined in section
202(a)(22) of the Investment Advisers Act of 1940;
(3) Any organization described in section 501(c)(3) of the Internal
Revenue Code, corporation, Massachusetts or similar business trust, or
partnership, not formed for the specific purpose of acquiring the securities
offered, with total assets in excess of $5,000,000;
(4) Any director or executive officer of the Corporation;
(5) Any natural person whose individual net worth, or joint net worth
with that person's spouse, at the time of his purchase exceeds $1,000,000;
(6) Any natural person who had an individual income in excess of
$200,000 in each of the two most recent years or joint income with that person's
spouse in excess of $300,000 in each of those years and has a reasonable
expectation of reaching the same income level in the current year;
(7) Any trust, with total assets in excess of $5,000,000, not formed
for the specific purpose of acquiring the securities offered, whose purchase is
directed by a person who has such
<PAGE>
knowledge and experience in financial and business matters that he is capable
of evaluating the merits and risks of the prospective investment; and
(8) Any entity in which all of the equity owners are accredited
investors.
<PAGE>
EXHIBIT D
TO
PURCHASE AGREEMENT
WARRANT #98B-3-1__
THE SECURITIES REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), OR UNDER ANY STATE SECURITIES LAWS, AND MAY NOT BE
OFFERED, SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE ACT OR AN OPINION
OF COUNSEL SATISFACTORY TO THE CORPORATION THAT AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER SET FORTH HEREIN AND IN THAT CERTAIN 1998 SERIES B
PREFERRED STOCK PURCHASE AGREEMENT BETWEEN THE CORPORATION AND THE ORIGINAL
HOLDER HEREOF ("PURCHASE AGREEMENT").
1998 SERIES B-3 WARRANT
FOR PAYMENT VALUE RECEIVED, PHASECOM, INC., a Delaware corporation
(the "Corporation"), hereby grants to _________________________ ("Holder"),
subject to the terms herein, the right to purchase from the Corporation up to
the number of shares of the Corporation's Common Stock equal to sixty percent
(60%) of the number of shares of Series B Preferred Stock issued to the
Holder pursuant to the Purchase Agreement (the "Maximum Warrant Shares"). The
number of shares of Series B Preferred Stock purchased by the Holder was .
1. SERIES. This Warrant is one of a duly authorized series of warrants
of the Corporation (which are identical except for the variations necessary to
express the identification numbers, names of the holder, number of common shares
issuable upon exercise thereof and warrant issue dates) designated as its "1998
Series B-3 Warrants."
2. TERM. This Warrant may be exercised in whole, or in part at any
time, and from time to time, from June 30, 1999, through December 31, 2001 (the
"Exercise Period").
3. PURCHASE PRICE/NUMBER OF SHARES. The Warrant Exercise Price for each
Warrant Share purchasable hereunder shall be equal to United States One Dollar
(US$1.00). The number of Warrant Shares shall be zero (0) if PhaseCom is able to
raise additional equity financing of Two Million Dollars ($2,000,000), or more
("Additional Equity Financing"), after December 15, 1998, and on or before June
30, 1999. If the Additional Equity Financing does not timely occur, then the
number of Warrant Shares shall be equal to the number of shares of Series B
Preferred Stock purchased pursuant to the Purchase Agreement (not including any
note conversions under Section 5.a of the Purchase Agreement), multiplied by ten
percent (10%), for each month or portion of a month after June 30, 1999, that
the Additional Equity Financing has not been completed, up to the Maximum
Warrant Shares.
4. EXERCISE OF WARRANT. The purchase rights represented by this Warrant
may be
<PAGE>
exercised by the Holder, in whole or in part, in accordance with paragraph 2,
herein before the end of the Exercise Period by surrender of this Warrant at
the principal office of the Corporation in Cupertino, California (or such
other office or agency of the Corporation as may be designated by notice in
writing to the Holder at the address of the Holder appearing on the books of
the Corporation), together with the Notice of Exercise annexed hereto duly
completed and executed on behalf of the Holder accompanied by payment in full
of the amount of the aggregate Warrant Exercise Price in immediately
available funds in United States Dollars. Certificates for shares purchased
hereunder shall be delivered to the Holder within thirty (30) business days
after the date on which this Warrant shall have been exercised as aforesaid,
but Holder shall be deemed the record owner of such Warrant Shares as of and
from the close of business on the date on which this Warrant shall be
surrendered.
5. FRACTIONAL INTEREST. The Corporation shall not be required to issue
any fractional shares on the exercise of this Warrant.
6. WARRANT CONFERS NO RIGHTS OF SHAREHOLDER. Holder shall not have any
rights as a shareholder of the Corporation with regard to the Warrant Shares
prior to actual exercise resulting in the purchase of the Warrant Shares.
7. INVESTMENT REPRESENTATION. Neither this Warrant nor the Warrant
Shares issuable upon the exercise of this Warrant have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), or under any
applicable state securities laws. Holder acknowledges by acceptance of this
Warrant that (a) it has acquired this Warrant for investment and not with a view
toward distribution; (b) it has a pre-existing personal or business relationship
with the Corporation, or its executive officers, or by reason of its business or
financial experience it has the capacity to protect its own interests in
connection with the transaction; and (c) it is an accredited investor as that
term is defined in Regulation D promulgated under the Securities Act or is note
a U.S. Person as that term is defined in Regulation S promulgated under the
Securities Act. Holder agrees that any Warrant Shares issuable upon exercise of
this Warrant will be acquired for investment and not with a view toward
distribution; and acknowledges that to the extent such Warrant Shares will not
be registered under the Securities Act and applicable state securities laws,
that such Warrant Shares may have to be held indefinitely unless they are
subsequently registered or qualified under the Securities Act and applicable
state securities laws; or, based on an opinion of counsel reasonably
satisfactory to the Corporation, an exemption from such registration and
qualification is available. Holder, by acceptance hereof, consents to the
placement of the following restrictive legends, or similar legends, on each
certificate to be issued to Holder by the Corporation in connection with the
issuance of such Warrant Shares:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER ANY
STATE SECURITIES LAWS, AND MAY NOT BE OFFERED, SOLD, TRANSFERRED,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR SUCH SECURITIES UNDER THE ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE CORPORATION THAT AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER SET FORTH IN THAT CERTAIN 1998 SERIES B-3 NOTE
AND WARRANT PURCHASE AGREEMENT BETWEEN THE CORPORATION AND THE ORIGINAL
HOLDER HEREOF.
8. RESERVATION OF SHARES. The Corporation agrees at all times during
the Exercise Period
<PAGE>
to have authorized and reserved, for the exclusive purpose of issuance and
delivery upon exercise of this Warrant, a sufficient number of shares of its
Common Stock to provide for the exercise of the rights represented hereby.
9. ADJUSTMENT FOR RE-CLASSIFICATION OF CAPITAL STOCK. If the
Corporation at any time during the Exercise Period shall, by subdivision,
combination or re-classification of securities, change any of the securities
to which purchase rights under this Warrant exist under the same or different
number of securities of any class or classes, this Warrant shall thereafter
entitle the Holder to acquire such number and kind of securities as would
have been issuable as a result of such change with respect to the Warrant
Shares immediately prior to such subdivision, combination or
re-classification. If shares of the Corporation's common stock are subdivided
into a greater number of shares of common stock, the purchase price for the
Warrant Shares upon exercise of this Warrant shall be proportionately reduced
and the Warrant Shares shall be proportionately increased; and conversely, if
shares of the Corporation's common stock are combined into a smaller number
of common stock shares, the price shall be proportionately increased, and the
Warrant Shares shall be proportionately decreased.
10. PUBLIC OFFERING LOCK-UP. In connection with any public registration
of this Corporation's securities, the Holder (and any transferee of Holder)
agrees, upon the request of the Corporation or the underwriter(s) managing such
underwritten offering of the Corporation's securities, not to sell, make any
short sale of, loan, grant any option for the purchase of, or otherwise dispose
of this Warrant, any of the shares of Common Stock issuable upon exercise of
this Warrant or any other securities of the Corporation heretofore or hereafter
acquired by Holder (other than those included in the registration) without the
prior written consent of the Corporation and such underwriter(s), as the case
may be, for a period of time not to exceed on hundred eighty (180) days from the
effective date of the registration. Upon request by the Corporation, Holder (and
any transferee of Holder) agrees to enter into any further agreement in writing
in a form reasonably satisfactory to the Corporation and such underwriter(s).
The Corporation may impose stop-transfer instructions with respect to the
securities subject to the foregoing restrictions until the end of said 180-day
period. Any shares issued upon exercise of this Warrant shall bear an
appropriate legend referencing this lock-up provision.
11. ASSIGNMENT. With respect to any offer, sale or other disposition of
this Warrant or any underlying securities, the Holder will give written notice
to the Corporation prior thereto, describing briefly the manner thereof,
together with a written opinion of such Holder's counsel, to the effect that
such offer, sale or other distribution may be effected without registration or
qualification (under any applicable federal or state law then in effect).
Furthermore, no such transfer shall be made unless the transferee meets the same
investor suitability standards set forth in Section 7 of this Warrant. Promptly
upon receiving such written notice and reasonably satisfactory opinion, if so
requested, the Corporation, as promptly as practicable, shall notify such Holder
that such Holder may sell or otherwise dispose of this Warrant or the underlying
securities, as the case may be, all in accordance with the terms of the written
notice delivered to the Corporation. If a determination has been made pursuant
to this Section 11 that the opinion of counsel for the Holder is not reasonably
satisfactory to the Corporation, the Corporation shall so notify the Holder
promptly after such determination has been made. Each Warrant thus transferred
shall bear the same legends appearing on this Warrant, and underlying securities
thus transferred shall bear the legends required by Section 7. The Corporation
may impose stop-transfer instructions in connection with such restrictions.
Subject to any restrictions on transfer described elsewhere herein, the rights
and obligations of the Corporation and the Holder of this Warrant shall be
binding upon and benefit the successors, assigns, heirs, administrators and
transferees of the parties hereto.
<PAGE>
12. NOTICE. Any notice, demand, consent or other communication
hereunder shall be in writing addressed to the other party at its principal
office or, in respect of Holder, as its address as shown on the books of the
Corporation, or to such other address as such party shall have theretofore
furnished by like notice, and either served personally, sent by express,
registered or certified first class mail, postage prepaid, sent by facsimile
transmission, or delivered by reputable commercial courier. Such notice shall be
deemed given (i) when so personally delivered, or (ii) if mailed as aforesaid,
seven (7) days after the same shall have been posted, or (iii) if sent by
facsimile transmission, as soon as sender receives written or telephonic
confirmation that the message has been received and such facsimile is followed
the same day by mailing by prepaid express, registered or certified mail as set
forth herein, or (iv) if delivered by commercial courier, upon receipt.
13. GOVERNING LAW. This Warrant shall be governed by and construed in
accordance with the laws of the State of California, applicable to contracts
between California residents entered into and to be performed entirely within
the State of California.
14. ATTORNEYS' FEES. If any action at law or in equity is necessary to
enforce or interpret the terms of this Warrant, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and disbursements in addition to
any other relief to which such party may be entitled.
15. DESCRIPTIVE HEADINGS. The headings used herein are descriptive only
and for the convenience of identifying provisions, and are not determinative of
the meaning or effect of any such provisions.
Dated: ______________, 1998 PHASECOM, INC.
By:
---------------------------
Shaul Berger, President
<PAGE>
NOTICE OF EXERCISE
1998 SERIES B-3 WARRANT
TO: PHASECOM, INC.
(1) The undersigned hereby elects to purchase ________________
shares of Common Stock of PhaseCom, Inc., pursuant to the terms of the
attached 1998 Series B-3 Warrant, and tenders herewith payment in full of the
purchase price for such shares.
(2) In exercising this Warrant, the undersigned hereby confirms and
acknowledges that the shares of Common Stock are being acquired solely for the
account of the undersigned and not as a nominee for any other party, for
investment, and that the undersigned will not offer, sell or otherwise dispose
of any such shares of Common Stock except under circumstances that will not
result in a violation of the Securities Act of 1933, as amended, or any state
securities laws.
(3) Please issue a certificate representing said shares of Common Stock
in the name of the undersigned.
(4) Please issue a new Warrant for the unexercised portion of the
attached Warrant in the name of the undersigned.
Date: , 199
------------------ ---- -------------------------------
(Name)
-------------------------------
(Signature)
-------------------------------
-------------------------------
(Print Address)
<PAGE>
Exhibit 10.13
EMPLOYMENT AGREEMENT
OF DAVIDI GILO
WITH
PHASECOM, INC.
THIS EMPLOYMENT AGREEMENT (this "Agreement"), made and entered into as
of the 1st day of January, 2000, by and between PHASECOM, INC., a Delaware
corporation (hereinafter the "Corporation"), and DAVIDI GILO (hereinafter
"Gilo").
RECITALS
A. The Corporation has employed Gilo as Chief Executive Officer
and Chairman of the Board.
B. In connection with Gilo's employment with the Corporation, the
Corporation and Gilo desire to enter into this Employment Agreement according to
the terms and conditions set forth below.
AGREEMENT
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. EMPLOYMENT DUTIES.
a. GENERAL. The Corporation hereby agrees to employ Gilo,
and Gilo hereby agrees to accept employment with the Corporation, on the
terms and conditions hereinafter set forth.
b. CORPORATION'S DUTIES. The Corporation shall allow Gilo to, and Gilo
shall, perform responsibilities normally incident to the position of Chief
Executive Officer and Chairman of the Board, commensurate with his background,
education, experience and professional standing. The Corporation shall provide
Gilo with such office equipment, supplies, customary services and cooperation
suitable for the performance of his duties.
c. GILO'S DUTIES. Unless otherwise agreed to by the parties, Gilo shall
serve as Chief Executive Officer and Chairman of the Board of the Corporation.
Gilo shall devote approximately thirty (30) hours per week to the business of
the Corporation, and shall not become engaged to render similar services on
behalf of any other entity while employed hereunder which is in any way
competitive to the Corporation, without the consent of the Corporation's Board
of Directors. Gilo shall report directly to the Corporation's Board of
Directors. Gilo's duties shall be performed primarily in Woodside and/or
Cupertino, California.
2. TERM. The initial term of this employment is three (3) years.
Thereafter, this Agreement may be renewed by Gilo and the Corporation on such
terms as the parties may agree
<PAGE>
to in writing. Absent written notice to the contrary, given at least thirty (30)
days prior to the end of the initial three (3) year employment term, this
Agreement will be automatically renewed for consecutive one (1) year extensions.
Should the term of employment not be renewed after the expiration of the first
three (3) year term, Gilo shall be entitled to eighteen (18) months salary as
severance, in exchange for a release as to any and all claims Gilo may have
against the Corporation.
3. COMPENSATION. Gilo shall be compensated as follows:
a. FIXED SALARY. Gilo shall receive a fixed annual salary of Three
Hundred Fifty Thousand Dollars ($350,000). The Corporation agrees to review the
fixed salary on, or before, January 1, 2001, and thereafter at the end of each
calendar year during the employment term based upon Gilo's services and the
financial results of the Corporation, and to make such increases as may be
determined appropriate in the sole discretion of the Corporation's Compensation
Committee or Board of Directors.
b. PAYMENT. Gilo's fixed salary shall be payable on a semi-monthly
basis, in accordance with the Corporation's usual payroll practices.
c. BONUS COMPENSATION. During the Employment Term, Gilo shall
participate in each bonus plan adopted by the Corporation's Board of Directors.
Commencing in 2000, Gilo shall be entitled to receive an annual bonus equal to
(i) fifteen percent (15%) of his annual base salary should the Corporation meet
eighty percent (80%) of its plan as presented to the Board in January of each
year, during the term of Gilo's employment ("Yearly Plan"); (ii) fifty percent
(50%) of his annual base salary should the Corporation meet its Yearly Plan; and
(iii) ninety percent (90%) of his annual base salary should the Corporation meet
one hundred twenty percent (120%) of its Yearly Plan, with the bonus prorated if
the Yearly Plan is met between eighty percent (80%) and one hundred percent
(100%); or between one hundred percent (100%) and one hundred twenty percent
(120%). For purposes of this Section, the meeting of the Yearly Plan shall be
based upon the actual revenues set forth by management and the Compensation
Committee for each applicable year (each compared to the revenues and other
items projected in the Yearly Plan). Gilo shall be entitled to receive an
additional annual bonus based on his performance and that of the Company each
year as determined by the Board of this Corporation, or its Compensation
Committee. The bonus shall be prorated should Gilo's employment terminate prior
to the full calendar year.
d. STOCK OPTIONS. Gilo shall be eligible for stock options that may be
awarded by the Corporation, from time to time, in recognition of Gilo's
contribution to the Corporation's success.
e. VACATION. Gilo shall accrue paid vacation at the rate of thirty (30)
days for each twelve (12) months of employment. Gilo shall be compensated at his
usual rate of compensation during any such vacation. Gilo shall be entitled to
paid holidays as generally given by the
<PAGE>
Corporation. Gilo shall receive sick leave or disability leave in accordance
with the terms of the Corporation's standard sick leave or disability leave
policy.
f. BENEFITS. During the employment term, Gilo and his dependents shall
be entitled to participate in any group plans or programs maintained by the
Corporation for any employees relating to group health, disability, life
insurance and other related benefits as in effect from time to time. Gilo shall
also be entitled to Director and Officer ("D&O") insurance in such amounts and
coverage and such indemnification provisions as are afforded other officers and
directors of the Corporation. Benefits under this Section 3.f. will be paid by
the Corporation.
g. EXPENSES. The Corporation shall reimburse Gilo for his normal and
reasonable expenses incurred for travel, entertainment and similar items in
promoting and carrying out the business of the Corporation in accordance with
the Corporation's general policy as adopted by the Corporation's management from
time to time. In addition, Gilo shall be reimbursed for the reasonable costs
associated with one cellular telephone and shall be entitled reimbursement for
such reasonable continuing professional education, memberships and
certifications as are deemed normal and appropriate for Chief Executive Officers
and Chairmen of the Boards. As a condition of payment or reimbursement, Gilo
agrees to provide the Corporation with copies of all available invoices and
receipts, and otherwise account to the Corporation in sufficient detail to allow
the Corporation to claim an income tax deduction for such paid item, if such
item is deductible. Reimbursements shall be made on a monthly, or more frequent,
basis.
4. CONFIDENTIALITY AND COMPETITIVE ACTIVITIES. Gilo agrees that during the
employment term he is in a position of special trust and confidence and has
access to confidential and proprietary information about the Corporation's
business and plans. Gilo agrees that he will not directly or indirectly, either
as an employee, employer, consultant, agent, principal, partner, stockholder,
corporate officer, director, or in any similar individual or representative
capacity, engage or participate in any business that is in competition, in any
manner whatsoever, with the Corporation. Notwithstanding anything in the
foregoing to the contrary, Gilo shall be allowed to invest as a shareholder in
publicly traded companies, or through a venture capital firm or an investment
pool.
5. TRADE SECRETS.
a. SPECIAL TECHNIQUES. It is hereby agreed that the Corporation has
developed or acquired certain products, technology, unique or special methods,
manufacturing and assembly processes and techniques, trade secrets, special
written marketing plans and special customer arrangements, and other proprietary
rights and confidential information and shall during the employment term
continue to develop, compile and acquire said items (all hereinafter
collectively referred to as the "Corporation's Property"). It is expected that
Gilo will gain knowledge of and utilize the Corporation's Property during the
course and scope of his employment with the Corporation, and will be in a
position of trust with respect to the
<PAGE>
Corporation's Property.
b. CORPORATION'S PROPERTY. It is hereby stipulated and agreed that the
Corporation's Property shall remain the Corporation's sole property. In the
event that Gilo's employment is terminated, for whatever reason, Gilo agrees not
to copy, make known, disclose or use, any of the Corporation's Property without
the Corporation's prior written consent. In such event, Gilo further agrees not
to endeavor or attempt in any way to interfere with or induce a breach of any
prior proprietary contractual relationship that the Corporation may have with
any employee, customer, contractor, supplier, representative, or distributor for
nine (9) months after any termination of this Agreement. Gilo agrees upon
termination of employment to deliver to the Corporation all confidential papers,
documents, records, lists and notes (whether prepared by Gilo or others)
comprising or containing the Corporation's Property. Gilo recognizes that
violation of covenants and agreements contained in this Section 5 may result in
irreparable injury to the Corporation which would not be fully compensable by
way of money damages.
6. TERMINATION.
a. GENERAL. The Corporation may terminate this Agreement without cause,
on ninety (90) days written notice. Gilo may voluntarily terminate his
employment hereunder upon ninety (90) days' advance written notice to the
Corporation.
b. TERMINATION FOR CAUSE. The Corporation may immediately terminate
Gilo's employment at any time for cause. Termination for cause shall be
effective from the receipt of written notice thereof to Gilo specifying the
grounds for termination and all relevant facts. Cause shall be deemed to
include: (i) material neglect of his duties or a significant violation of any of
the provisions of this Agreement, which continues after written notice and a
reasonable opportunity (not to exceed thirty (30) days) in which to cure; (ii)
fraud, embezzlement, defalcation or conviction of any felonious offense; or
(iii) intentionally imparting confidential information relating to the
Corporation or any of the Corporation's subsidiaries, or their business, to
competitors or to other third parties other than in the course of carrying out
his duties hereunder. The Corporation's exercise of its rights to terminate with
cause shall be without prejudice to any other remedy it may be entitled at law,
in equity, or under this Agreement .
c. TERMINATION UPON DEATH OR DISABILITY. This Agreement shall
automatically terminate upon Gilo's death. In addition, if any disability or
incapacity of Gilo to perform his duties as the result of any injury, sickness,
or physical, mental or emotional condition continues for a period of thirty (30)
business days (excluding any accrued vacation) out of any one hundred twenty
(120) calendar day period, the Corporation may terminate Gilo's employment upon
written notice. Payment of salary to Gilo during any sick leave shall only be to
the extent that Gilo has accrued sick leave or vacation days. Gilo shall accrue
sick leave at the same rate generally available to the Corporation's employees.
<PAGE>
d. SEVERANCE PAY. If this Agreement is terminated by the
Corporation without cause pursuant to Section 6.a. (above), the Corporation
shall pay Gilo a severance fee equal to the greater of (a) the full amount of
the compensation that he could have expected under this Agreement, as and
when payable under this Agreement, without deduction except for tax
withholding amounts, through the end of the term; or (b) eighteen (18) months
of his then-current salary without bonus, subject to tax withholding amounts.
If this Agreement is terminated by the Corporation for cause pursuant to
Section 6.b, the Corporation shall pay to Gilo a severance fee equal to three
(3) months of his then-current salary without bonus, subject to tax
withholding amounts, in exchange for a release as to any and all claims Gilo
may have against the Corporation. There shall be a nine (9) month severance
in the event that this Agreement is terminated voluntarily by Gilo. During
the time period for which Gilo is receiving severance pay, he shall remain as
a full-time employee of the Corporation in a non-policy making role, and his
options shall continue to vest.
7. CORPORATE OPPORTUNITIES.
a. DUTY TO NOTIFY. In the event that Gilo, during the employment term,
shall become aware of any material and significant business opportunity directly
related to any of the Corporation's significant businesses, Gilo shall promptly
notify the Corporation's Chairman of the Board of such opportunity. Gilo shall
not appropriate for himself or for any other person other than the Corporation,
or any affiliate of the Corporation, any such opportunity unless, as to any
particular opportunity, the Board of Directors of the Corporation fails to take
appropriate action within thirty (30) days. Gilo's duty to notify the
Corporation and to refrain from appropriating all such opportunities for thirty
(30) days shall neither be limited by, nor shall such duty limit, the
application of the general law of California relating to the fiduciary duties of
an agent or employee.
b. FAILURE TO NOTIFY. In the event that Gilo fails to notify the
Corporation of, or so appropriates, any such opportunity without the express
written consent of the Corporation, Gilo shall be deemed to have violated the
provisions of this Section notwithstanding the following:
i. The capacity in which Gilo shall have acquired such
opportunity; or
ii. The probable success in the Corporation's
hands of such opportunity.
8. MISCELLANEOUS.
a. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
and understanding between the parties with respect to the subject matters
herein, and supersedes and replaces any prior agreements and understandings,
whether oral or written between them with respect to such matters. The
provisions of this Agreement may be waived, altered, amended or repealed in
whole or in part only upon the written consent of both parties to this
Agreement.
b. NO IMPLIED WAIVERS. The failure of either party at any time to
require performance by the other party of any provision hereof shall not affect
in any way the right to
<PAGE>
require such performance at any time thereafter, nor shall the waiver by either
party of a breach of any provision hereof be taken or held to be a waiver of any
subsequent breach of the same provision or any other provision. c. PERSONAL
SERVICES. It is understood that the services to be performed by Gilo hereunder
are personal in nature and the obligations to perform such services and the
conditions and covenants of this Agreement cannot be assigned by Gilo. Subject
to the foregoing, and except as otherwise provided herein, this Agreement shall
inure to the benefit of and bind the successors and assigns of the Corporation.
d. SEVERABILITY. If for any reason any provision of this Agreement
shall be determined to be invalid or inoperative, the validity and effect of the
other provisions hereof shall not be affected thereby, provided that no such
severability shall be effective if it causes a material detriment to any party.
e. APPLICABLE LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, applicable to contracts
between California residents entered into and to be performed entirely within
the State of California.
f. NOTICES. All notices, requests, demands, instructions or other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given upon delivery, if
delivered personally, or if given by prepaid telegram, or mailed first-class,
postage prepaid, registered or certified mail, return receipt requested, shall
be deemed to have been given seventy-two (72) hours after such delivery, if
addressed to the other party at the addresses as set forth on the signature page
below. Either party hereto may change the address to which such communications
are to be directed by giving written notice to the other party hereto of such
change in the manner above provided.
g. MERGER, TRANSFER OF ASSETS, OR DISSOLUTION OF THE CORPORATION. This
Agreement shall not be terminated by any dissolution of the Corporation
resulting from either merger or consolidation in which the Corporation is not
the consolidated or surviving corporation or a transfer of all or substantially
all of the assets of the Corporation. In such event, the rights, benefits and
obligations herein shall automatically be assigned to the surviving or resulting
corporation or to the transferee of the assets.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
PHASECOM, INC. DAVIDI GILO
a Delaware corporation 1733 Milton Street
20400 Stevens Creek Blvd., Ste. 800 Redwood City, CA 94061
Cupertino, CA 95014
By: /s/ Lewis Broad /s/ Davidi Gilo
------------------------------ ------------------------
Lewis Broad, Chairman of (Signature)
the Compensation Committee
<PAGE>
Exhibit 10.14
EMPLOYMENT AGREEMENT
OF ERAN PILOVSKY
WITH
PHASECOM, INC.
THIS EMPLOYMENT AGREEMENT (this "Agreement"), made and entered into
effective as of the 15th day of January, 2000, by and between PHASECOM, INC., a
Delaware corporation (hereinafter the "Corporation"), and ERAN PILOVSKY
(hereinafter "Pilovsky").
RECITALS
A. The Corporation has offered employment to Pilovsky as Vice
President, Finance and Chief Financial Officer.
B. In connection with Pilovsky's employment with the Corporation, the
Corporation and Pilovsky desire to enter into this Employment Agreement
according to the terms and conditions set forth below.
AGREEMENT
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. EMPLOYMENT DUTIES.
a. GENERAL. The Corporation hereby agrees to employ Pilovsky,
and Pilovsky hereby agrees to accept employment with the Corporation, on the
terms and conditions hereinafter set forth.
b. CORPORATION'S DUTIES. The Corporation shall allow Pilovsky to, and
Pilovsky shall, perform responsibilities normally incident to the position of
Vice President, Finance and Chief Financial Officer, commensurate with his
background, education, experience and professional standing. The Corporation
shall provide Pilovsky with such office equipment, supplies, customary services
and cooperation suitable for the performance of his duties.
c. PILOVSKY'S DUTIES. Unless otherwise agreed to by the parties,
Pilovsky shall serve as Vice President, Finance and Chief Financial Officer of
the Corporation. Pilovsky shall devote all of his productive time, attention,
energy and skill to the business of the Corporation, and shall not become
engaged to render similar services on behalf of any other entity while employed
hereunder which is in any way competitive to the Corporation, without the
consent of the Corporation's Chief Executive Officer or Chairman of the Board.
Pilovsky shall report directly
<PAGE>
to the Chief Executive Officer of the Corporation. Pilovsky shall inform the
Chief Executive Officer of any other positions that he takes with any other
entity. Pilovsky's duties shall be performed primarily in Cupertino, California.
2. TERM. The initial term of this employment is three (3) years.
Thereafter, this Agreement may be renewed by Pilovsky and the Corporation on
such terms as the parties may agree to in writing. Absent written notice to
the contrary given at least thirty (30) days prior to the end of the initial
three (3) year employment term, this Agreement will be automatically renewed
for consecutive twelve (12) month extensions. Should the term of employment
not be renewed after the expiration of the first three (3) year term,
Pilovsky shall be entitled to six (6) months salary as severance, in exchange
for a release as to any and all claims Pilovsky may have against the
Corporation.
3. COMPENSATION. Pilovsky shall be compensated as follows:
a. FIXED SALARY. Pilovsky shall receive a fixed annual salary of Two
Hundred Fifty Thousand Dollars ($250,000). The Corporation agrees to review the
fixed salary on, or before, January 1, 2001, and thereafter at the end of each
calendar year during the employment term based upon Pilovsky's services and the
financial results of the Corporation, and to make such increases as may be
determined appropriate in the sole discretion of the Corporation.
b. PAYMENT. Pilovsky's fixed salary shall be payable on a semi-monthly
basis, in accordance with the Corporation's usual payroll practices.
c. BONUS COMPENSATION. During the Employment Term, Pilovsky shall
participate in each bonus plan adopted by the Corporation's Board of Directors.
Commencing in 2000, Pilovsky shall be entitled to receive an annual bonus equal
to (i) fifteen percent (15%) of his annual base salary should the Corporation
meet eighty percent (80%) of its plan as presented to the Board in January of
each year, during the term of Pilovsky's employment ("Yearly Plan"); (ii) fifty
percent (50%) of his annual base salary should the Corporation meet its Yearly
Plan; and (iii) ninety percent (90%) of his annual base salary should the
Corporation meet one hundred twenty percent (120%) of its Yearly Plan, with the
bonus prorated if the Yearly Plan is met between eighty percent (80%) and one
hundred percent (100%); or between one hundred percent (100%) and one hundred
twenty percent (120%). For purposes of this Section, the meeting of the Yearly
Plan shall be based upon the actual revenues set forth by management and the
Compensation Committee for each applicable year (each compared to the revenues
and other items projected in the Yearly Plan). Pilovsky shall be entitled to
receive an additional annual bonus based on his performance and that of the
Company each year as determined by the Board of this Corporation, or its
Compensation Committee. The bonus shall be prorated should Pilovsky's employment
terminate prior to the full calendar year.
d. STOCK OPTIONS. Pilovsky shall be eligible for stock options that may
be awarded
<PAGE>
by the Corporation, from time to time, in recognition of Pilovsky's contribution
to the Corporation's success.
e. VACATION. Pilovsky shall accrue paid vacation at the rate of twenty
(20) days for each twelve (12) months of employment. Pilovsky shall be
compensated at his usual rate of compensation during any such vacation. Pilovsky
shall be entitled to paid holidays as generally given by the Corporation.
Pilovsky shall receive sick leave or disability leave in accordance with the
terms of the Corporation's standard sick leave or disability leave policy.
f. BENEFITS. During the employment term, Pilovsky and his dependents
shall be entitled to participate in any group plans or programs maintained by
the Corporation for any employees relating to group health, disability, life
insurance and other related benefits as in effect from time to time. Pilovsky
shall also be entitled to Director and Officer ("D&O") insurance in such amounts
and coverage and such indemnification provisions as are afforded other officers
and directors of the Corporation. Benefits under this Section 3.f. will be paid
by the Corporation.
g. EXPENSES. The Corporation shall reimburse Pilovsky for his normal and
reasonable expenses incurred for travel, entertainment and similar items in
promoting and carrying out the business of the Corporation in accordance with
the Corporation's general policy as adopted by the Corporation's management from
time to time. In addition, Pilovsky shall be reimbursed for the reasonable costs
associated with one cellular telephone and shall be entitled reimbursement for
such reasonable continuing professional education, memberships and
certifications as are deemed normal and appropriate for Chief Financial
Officers. As a condition of payment or reimbursement, Pilovsky agrees to provide
the Corporation with copies of all available invoices and receipts, and
otherwise account to the Corporation in sufficient detail to allow the
Corporation to claim an income tax deduction for such paid item, if such item is
deductible. Reimbursements shall be made on a monthly, or more frequent, basis.
4. CONFIDENTIALITY AND COMPETITIVE ACTIVITIES. Pilovsky agrees that
during the employment term he is in a position of special trust and confidence
and has access to confidential and proprietary information about the
Corporation's business and plans. Pilovsky agrees that he will not directly or
indirectly, either as an employee, employer, consultant, agent, principal,
partner, stockholder, corporate officer, director, or in any similar individual
or representative capacity, engage or participate in any business that is in
competition, in any manner whatsoever, with the Corporation. Notwithstanding
anything in the foregoing to the contrary, Pilovsky shall be allowed to invest
as a shareholder in publicly traded companies, or through a venture capital firm
or an investment pool.
5. TRADE SECRETS.
a. SPECIAL TECHNIQUES. It is hereby agreed that the Corporation has
developed or acquired certain products, technology, unique or special methods,
manufacturing and assembly
<PAGE>
processes and techniques, trade secrets, special written marketing plans and
special customer arrangements, and other proprietary rights and confidential
information and shall during the employment term continue to develop, compile
and acquire said items (all hereinafter collectively referred to as the
"Corporation's Property"). It is expected that Pilovsky will gain knowledge of
and utilize the Corporation's Property during the course and scope of his
employment with the Corporation, and will be in a position of trust with respect
to the Corporation's Property.
b. CORPORATION'S PROPERTY. It is hereby stipulated and agreed that the
Corporation's Property shall remain the Corporation's sole property. In the
event that Pilovsky's employment is terminated, for whatever reason, Pilovsky
agrees not to copy, make known, disclose or use, any of the Corporation's
Property without the Corporation's prior written consent. In such event,
Pilovsky further agrees not to endeavor or attempt in any way to interfere with
or induce a breach of any prior proprietary contractual relationship that the
Corporation may have with any employee, customer, contractor, supplier,
representative, or distributor for nine (9) months after any termination of this
Agreement. Pilovsky agrees upon termination of employment to deliver to the
Corporation all confidential papers, documents, records, lists and notes
(whether prepared by Pilovsky or others) comprising or containing the
Corporation's Property. Pilovsky recognizes that violation of covenants and
agreements contained in this Section 5 may result in irreparable injury to the
Corporation which would not be fully compensable by way of money damages.
6. TERMINATION.
a. GENERAL. The Corporation may terminate this Agreement without cause,
on sixty (60) days written notice. Pilovsky may voluntarily terminate his
employment hereunder upon sixty (60) days' advance written notice to the
Corporation.
b. TERMINATION FOR CAUSE. The Corporation may immediately terminate
Pilovsky's employment at any time for cause. Termination for cause shall be
effective from the receipt of written notice thereof to Pilovsky specifying the
grounds for termination and all relevant facts. Cause shall be deemed to
include: (i) material neglect of his duties or a significant violation of any of
the provisions of this Agreement, which continues after written notice and a
reasonable opportunity (not to exceed thirty (30) days) in which to cure; (ii)
fraud, embezzlement, defalcation or conviction of any felonious offense; or
(iii) intentionally imparting confidential information relating to the
Corporation or any of the Corporation's subsidiaries, or their business, to
competitors or to other third parties other than in the course of carrying out
his duties hereunder. The Corporation's exercise of its rights to terminate with
cause shall be without prejudice to any other remedy it may be entitled at law,
in equity, or under this Agreement .
c. TERMINATION UPON DEATH OR DISABILITY. This Agreement shall
automatically
<PAGE>
terminate upon Pilovsky's death. In addition, if any disability or
incapacity of Pilovsky to perform his duties as the result of any injury,
sickness, or physical, mental or emotional condition continues for a period of
thirty (30) business days (excluding any accrued vacation) out of any one
hundred twenty (120) calendar day period, the Corporation may terminate
Pilovsky's employment upon written notice. Payment of salary to Pilovsky during
any sick leave shall only be to the extent that Pilovsky has accrued sick leave
or vacation days. Pilovsky shall accrue sick leave at the same rate generally
available to the Corporation's employees.
d. SEVERANCE PAY. If this Agreement is terminated by the Corporation
without cause pursuant to Section 6.a. (above) the Corporation shall pay
Pilovsky a severance fee equal to the greater of (a) the full amount of the
compensation that he could have expected under this Agreement, as and when
payable under this Agreement, without deduction except for tax withholding
amounts, through the end of the term; or (b) six (6) months of his
then-current salary without bonus, subject to tax withholding amounts. If
this Agreement is terminated by the Corporation for cause pursuant to Section
6.b, the Corporation shall pay to Pilovsky a severance fee equal to three (3)
months of his then-current salary without bonus, subject to tax withholding
amounts, in exchange for a release as to any and all claims Pilovsky may have
against the Corporation. There shall be no severance in the event that this
Agreement is terminated voluntarily by Pilovsky. During the time period for
which Pilovsky is receiving severance pay, he shall remain as a full-time
employee of the Corporation in a non-policy making role, and his options
shall continue to vest.
7. CORPORATE OPPORTUNITIES.
a. DUTY TO NOTIFY. In the event that Pilovsky, during the employment
term, shall become aware of any material and significant business opportunity
directly related to any of the Corporation's significant businesses, Pilovsky
shall promptly notify the Corporation's Chairman of the Board of such
opportunity. Pilovsky shall not appropriate for himself or for any other person
other than the Corporation, or any affiliate of the Corporation, any such
opportunity unless, as to any particular opportunity, the Board of Directors of
the Corporation fails to take appropriate action within thirty (30) days.
Pilovsky's duty to notify the Corporation and to refrain from appropriating all
such opportunities for thirty (30) days shall neither be limited by, nor shall
such duty limit, the application of the general law of California relating to
the fiduciary duties of an agent or employee.
b. FAILURE TO NOTIFY. In the event that Pilovsky fails to notify the
Corporation of, or so appropriates, any such opportunity without the express
written consent of the Corporation, Pilovsky shall be deemed to have violated
the provisions of this Section notwithstanding the following:
<PAGE>
i. The capacity in which Pilovsky shall have acquired such
opportunity; or
ii. The probable success in the Corporation's hands of such
opportunity.
8. MISCELLANEOUS.
a. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement and
understanding between the parties with respect to the subject matters herein,
and supersedes and replaces any prior agreements and understandings, whether
oral or written between them with respect to such matters. The provisions of
this Agreement may be waived, altered, amended or repealed in whole or in part
only upon the written consent of both parties to this Agreement.
b. NO IMPLIED WAIVERS. The failure of either party at any time to
require performance by the other party of any provision hereof shall not affect
in any way the right to require such performance at any time thereafter, nor
shall the waiver by either party of a breach of any provision hereof be taken or
held to be a waiver of any subsequent breach of the same provision or any other
provision.
c. PERSONAL SERVICES. It is understood that the services to be performed
by Pilovsky hereunder are personal in nature and the obligations to perform such
services and the conditions and covenants of this Agreement cannot be assigned
by Pilovsky. Subject to the foregoing, and except as otherwise provided herein,
this Agreement shall inure to the benefit of and bind the successors and assigns
of the Corporation.
d. SEVERABILITY. If for any reason any provision of this Agreement shall
be determined to be invalid or inoperative, the validity and effect of the other
provisions hereof shall not be affected thereby, provided that no such
severability shall be effective if it causes a material detriment to any party.
e. APPLICABLE LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, applicable to contracts
between California residents entered into and to be performed entirely within
the State of California.
f. NOTICES. All notices, requests, demands, instructions or other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given upon delivery, if
delivered personally, or if given by prepaid telegram, or mailed first-class,
postage prepaid, registered or certified mail, return receipt requested, shall
be deemed to have been given seventy-two (72) hours after such delivery, if
addressed to the other party at the addresses as set forth on the signature page
below. Either party hereto may change the address to which such communications
are to be directed by giving written notice to the other party hereto of such
change in the manner above provided.
g. MERGER, TRANSFER OF ASSETS, OR DISSOLUTION OF THE CORPORATION. This
Agreement shall not be terminated by any dissolution of the Corporation
resulting from either merger or consolidation in which the Corporation is not
the consolidated or surviving corporation
<PAGE>
or a transfer of all or substantially all of the assets of the Corporation. In
such event, the rights, benefits and obligations herein shall automatically be
assigned to the surviving or resulting corporation or to the transferee of the
assets.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
PHASECOM, INC. ERAN PILOVSKY
a Delaware corporation 2802 Cowper Street
20400 Stevens Creek Blvd., Ste. 800 Palo Alto, CA 94306
Cupertino, CA 95014
By: /s/ Stephen P. Pezzola /s/ Eran Pilovsky
------------------------------------ -------------------------------
Stephen P. Pezzola, General Counsel (Signature)
<PAGE>
Exhibit 10.15
EMPLOYMENT AGREEMENT
OF STEPHEN P. PEZZOLA
WITH
PHASECOM, INC.
THIS EMPLOYMENT AGREEMENT (this "Agreement"), made and entered into
effective as of the 1st day of January, 2000, by and between PHASECOM, INC., a
Delaware corporation (hereinafter the "Corporation"), and STEPHEN P. PEZZOLA
(hereinafter "Pezzola").
RECITALS
A. The Corporation has employed Pezzola as General Counsel.
B. In connection with Pezzola's employment with the Corporation, the
Corporation and Pezzola desire to enter into this Employment Agreement according
to the terms and conditions set forth below.
AGREEMENT
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. EMPLOYMENT DUTIES.
a. GENERAL. The Corporation hereby agrees to employ Pezzola, and
Pezzola hereby agrees to accept employment with the Corporation, on the terms
and conditions hereinafter set forth.
b. CORPORATION'S DUTIES. The Corporation shall allow Pezzola to, and
Pezzola shall, perform responsibilities normally incident to the position of
General Counsel, commensurate with his background, education, experience and
professional standing. The Corporation shall provide Pezzola with such office
equipment, supplies, customary services, office, and cooperation suitable for
the performance of his duties at his current office location.
c. PEZZOLA'S DUTIES. Unless otherwise agreed to by the parties, Pezzola
shall serve as General Counsel of the Corporation. Pezzola shall devote such
amount of his productive time, attention, energy and skill to the business of
the Corporation as shall be deemed appropriate, upon consultation with the
Chairman of the Board up to thirty (30) hours per week. Pezzola shall report
directly to the Chairman of the Board. Pezzola shall inform the Chairman of the
Board of any other positions that he takes with any other entity. Pezzola duties
shall be
<PAGE>
performed primarily in California at his current office location.
2. TERM. The initial term of this employment is three (3) years.
Thereafter, this Agreement may be renewed by Pezzola and the Corporation on such
terms as the parties may agree to in writing. Absent written notice to the
contrary given at least thirty (30) days prior to the end of the initial three
(3) year employment term, this Agreement will be automatically renewed for
consecutive one (1) year extensions. Should the term of employment not be
renewed after the expiration of the first three (3) year term, Pezzola shall be
entitled to nine (9) months salary as severance, in exchange for a release as to
any and all claims Pezzola may have against the Corporation.
3. COMPENSATION. Pezzola shall be compensated as follows:
a. FIXED SALARY. Pezzola shall receive a fixed annual salary of Two
Hundred Two Thousand Five Hundred Dollars ($202,500). The Corporation agrees to
review the fixed salary on, or before, January 1, 2001, and thereafter at the
end of each calendar year during the employment term based upon Pezzola's
services and the financial results of the Corporation, and to make such
increases as may be determined appropriate in the sole discretion of the
Corporation's Chief Executive Officer or Board of Directors.
b. PAYMENT. Pezzola's fixed salary shall be payable on a semi-monthly
basis, in accordance with the Corporation's usual payroll practices.
c. BONUS COMPENSATION.
A. Pezzola shall be entitled to a bonus of Twenty-five Thousand Dollars
($25,000), as and when the Corporation files a registration statement with the
Securities and Exchange Commission to issue securities to the public (a "public
offering."); and
B. During the Employment Term, Pezzola shall participate in each bonus
plan adopted by the Corporation's Board of Directors. Commencing in 2000,
Pezzola shall be entitled to receive an annual bonus equal to (i) fifteen
percent (15%) of his annual base salary should the Corporation meet eighty
percent (80%) of its plan as presented to the Board in January of each year,
during the term of Pezzola's employment ("Yearly Plan"); (ii) fifty percent
(50%) of his annual base salary should the Corporation meet its Yearly Plan; and
(iii) ninety percent (90%) of his annual base salary should the Corporation meet
one hundred twenty percent (120%) of its Yearly Plan, with the bonus prorated if
the Yearly Plan is met between eighty percent (80%) and one hundred percent
(100%); or between one hundred percent (100%) and one hundred twenty percent
(120%). For purposes of this Section, the meeting of the Yearly Plan shall be
based upon the actual revenues set forth by management and the Compensation
Committee for each applicable year (each compared to the revenues and other
items projected in the Yearly Plan). Pezzola shall be entitled to receive an
additional annual bonus based on his performance and that of the Company each
year as determined by the Board of this Corporation,
<PAGE>
or its Compensation Committee. The bonus shall be prorated should Pezzola's
employment terminate prior to the full calendar year.
d. STOCK OPTIONS. Pezzola shall be eligible for stock options that may
be awarded by the Corporation, from time to time, in recognition of Pezzola's
contribution to the Corporation's success.
e. VACATION. Pezzola shall accrue paid vacation at the rate of
twenty-five (25) days for each twelve (12) months of employment. Pezzola shall
be compensated at his usual rate of compensation during any such vacation.
Pezzola shall be entitled to paid holidays as generally given by the
Corporation. Pezzola shall receive sick leave or disability leave in accordance
with the terms of the Corporation's standard sick leave or disability leave
policy.
f. BENEFITS. During the employment term, Pezzola and his dependents
shall be entitled to participate in any group plans or programs maintained by
the Corporation for any employees relating to group health, disability, life
insurance and other related benefits as in effect from time to time. Pezzola
shall also be entitled to Director and Officer ("D&O") insurance in such amounts
and coverage and such indemnification provisions as are afforded other officers
and directors of the Corporation. Benefits under this Section 3.f. will be paid
by the Corporation.
g. EXPENSES. The Corporation shall reimburse Pezzola for his normal and
reasonable expenses incurred for travel, entertainment and similar items in
promoting and carrying out the business of the Corporation in accordance with
the Corporation's general policy as adopted by the Corporation's management from
time to time. In addition, Pezzola shall be reimbursed for the reasonable costs
associated with one cellular telephone and shall be entitled reimbursement for
such reasonable continuing professional education, memberships and
certifications as are deemed normal and appropriate for General Counsel. As a
condition of payment or reimbursement, Pezzola agrees to provide the Corporation
with copies of all available invoices and receipts, and otherwise account to the
Corporation in sufficient detail to allow the Corporation to claim an income tax
deduction for such paid item, if such item is deductible. Reimbursements shall
be made on a monthly, or more frequent, basis.
4. CONFIDENTIALITY AND COMPETITIVE ACTIVITIES. Pezzola agrees that during the
employment term he is in a position of special trust and confidence and has
access to confidential and proprietary information about the Corporation's
business and plans. Pezzola agrees that he will not directly or indirectly,
either as an employee, employer, consultant, agent, principal, partner,
stockholder, corporate officer, director, or in any similar individual or
representative capacity, engage or participate in any business that is in
competition, in any manner whatsoever, with the Corporation. Notwithstanding
anything in the foregoing to the contrary, Pezzola shall be allowed to invest as
a shareholder in publicly traded companies, or through a venture capital firm or
an investment pool.
<PAGE>
5. TRADE SECRETS.
a. SPECIAL TECHNIQUES. It is hereby agreed that the Corporation has
developed or acquired certain products, technology, unique or special methods,
manufacturing and assembly processes and techniques, trade secrets, special
written marketing plans and special customer arrangements, and other proprietary
rights and confidential information and shall during the employment term
continue to develop, compile and acquire said items (all hereinafter
collectively referred to as the "Corporation's Property"). It is expected that
Pezzola will gain knowledge of and utilize the Corporation's Property during the
course and scope of his employment with the Corporation, and will be in a
position of trust with respect to the Corporation's Property.
b. CORPORATION'S PROPERTY. It is hereby stipulated and agreed that the
Corporation's Property shall remain the Corporation's sole property. In the
event that Pezzola's employment is terminated, for whatever reason, Pezzola
agrees not to copy, make known, disclose or use, any of the Corporation's
Property without the Corporation's prior written consent. In such event, Pezzola
further agrees not to endeavor or attempt in any way to interfere with or induce
a breach of any prior proprietary contractual relationship that the Corporation
may have with any employee, customer, contractor, supplier, representative, or
distributor for nine (9) months after any termination of this Agreement. Pezzola
agrees upon termination of employment to deliver to the Corporation all
confidential papers, documents, records, lists and notes (whether prepared by
Pezzola or others) comprising or containing the Corporation's Property. Pezzola
recognizes that violation of covenants and agreements contained in this Section
5 may result in irreparable injury to the Corporation which would not be fully
compensable by way of money damages.
6. TERMINATION.
a. GENERAL. The Corporation may terminate this Agreement without cause,
on ninety (90) days written notice. Pezzola may voluntarily terminate his
employment hereunder upon ninety (90) days' advance written notice to the
Corporation.
b. TERMINATION FOR CAUSE. The Corporation may immediately terminate
Pezzola's employment at any time for cause. Termination for cause shall be
effective from the receipt of written notice thereof to Pezzola specifying the
grounds for termination and all relevant facts. Cause shall be deemed to
include: (i) material neglect of his duties or a significant violation of any of
the provisions of this Agreement, which continues after written notice and a
reasonable opportunity (not to exceed thirty (30) days) in which to cure; (ii)
fraud, embezzlement, defalcation or conviction of any felonious offense; or
(iii) intentionally imparting confidential information relating to the
Corporation or any of the Corporation's subsidiaries, or their business, to
competitors or to other third parties other than in the course of carrying out
his duties hereunder. The Corporation's exercise of its rights to terminate with
cause shall be without
<PAGE>
prejudice to any other remedy it may be entitled at law, in equity, or under
this Agreement . c. TERMINATION UPON DEATH OR DISABILITY. This
Agreement shall automatically terminate upon Pezzola's death. In addition, if
any disability or incapacity of Pezzola to perform his duties as the result
of any injury, sickness, or physical, mental or emotional condition continues
for a period of thirty (30) business days (excluding any accrued vacation)
out of any one hundred twenty (120) calendar day period, the Corporation may
terminate Pezzola's employment upon written notice. Payment of salary to
Pezzola during any sick leave shall only be to the extent that Pezzola has
accrued sick leave or vacation days. Pezzola shall accrue sick leave at the
same rate generally available to the Corporation's employees. d.
SEVERANCE PAY. If this Agreement is terminated by the Corporation without
cause pursuant to Section 6.a. (above) the Corporation shall pay Pezzola a
severance fee equal to the greater of (a) the full amount of the compensation
that he could have expected under this Agreement, as and when payable under
this Agreement, without deduction except for tax withholding amounts, through
the end of the term; or (b) nine (9) months of his then-current salary
without bonus, subject to tax withholding amounts. If this Agreement is
terminated by the Corporation for cause pursuant to Section 6.b, the
Corporation shall pay to Pezzola a severance fee equal to three (3) months of
his then-current salary without bonus, subject to tax withholding amounts, in
exchange for a release as to any and all claims Pezzola may have against the
Corporation. There shall be a three (3) month severance in the event that
this Agreement is terminated voluntarily by Pezzola. During the time period
for which Pezzola is receiving severance pay, he shall remain as an employee
of the Corporation in a non-policy making role, and his options shall
continue to vest.
7. CORPORATE OPPORTUNITIES.
a. DUTY TO NOTIFY. In the event that Pezzola, during the employment
term, shall become aware of any material and significant business opportunity
directly related to any of the Corporation's significant businesses, Pezzola
shall promptly notify the Corporation's Chairman of the Board of such
opportunity. Pezzola shall not appropriate for himself or for any other person
other than the Corporation, or any affiliate of the Corporation, any such
opportunity unless, as to any particular opportunity, the Board of Directors of
the Corporation fails to take appropriate action within thirty (30) days.
Pezzola's duty to notify the Corporation and to refrain from appropriating all
such opportunities for thirty (30) days shall neither be limited by, nor shall
such duty limit, the application of the general law of California relating to
the fiduciary duties of an agent or employee.
b. FAILURE TO NOTIFY. In the event that Pezzola fails to notify the
Corporation of, or so appropriates, any such opportunity without the express
written consent of the Corporation,
<PAGE>
Pezzola shall be deemed to have violated the provisions of this Section
notwithstanding the following:
i. The capacity in which Pezzola shall have acquired such
opportunity; or
ii. The probable success in the Corporation's hands of such
opportunity.
8. MISCELLANEOUS.
a. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
and understanding between the parties with respect to the subject matters
herein, and supersedes and replaces any prior agreements and understandings,
whether oral or written between them with respect to such matters. The
provisions of this Agreement may be waived, altered, amended or repealed in
whole or in part only upon the written consent of both parties to this
Agreement.
b. NO IMPLIED WAIVERS. The failure of either party at any time to
require performance by the other party of any provision hereof shall not affect
in any way the right to require such performance at any time thereafter, nor
shall the waiver by either party of a breach of any provision hereof be taken or
held to be a waiver of any subsequent breach of the same provision or any other
provision.
c. PERSONAL SERVICES. It is understood that the services to be
performed by Pezzola hereunder are personal in nature and the obligations to
perform such services and the conditions and covenants of this Agreement cannot
be assigned by Pezzola. Subject to the foregoing, and except as otherwise
provided herein, this Agreement shall inure to the benefit of and bind the
successors and assigns of the Corporation.
d. SEVERABILITY. If for any reason any provision of this Agreement
shall be determined to be invalid or inoperative, the validity and effect of the
other provisions hereof shall not be affected thereby, provided that no such
severability shall be effective if it causes a material detriment to any party.
e. APPLICABLE LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, applicable to contracts
between California residents entered into and to be performed entirely within
the State of California.
f. NOTICES. All notices, requests, demands, instructions or other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given upon delivery, if
delivered personally, or if given by prepaid telegram, or mailed first-class,
postage prepaid, registered or certified mail, return receipt requested, shall
be deemed to have been given seventy-two (72) hours after such delivery, if
addressed to the other party at the addresses as set forth on the signature page
below. Either party hereto may change the address to which such communications
are to be directed by giving written notice to the other party hereto of such
change in the manner above provided.
g. MERGER, TRANSFER OF ASSETS, OR DISSOLUTION OF THE CORPORATION. This
<PAGE>
Agreement shall not be terminated by any dissolution of the Corporation
resulting from either merger or consolidation in which the Corporation is not
the consolidated or surviving corporation or a transfer of all or substantially
all of the assets of the Corporation. In such event, the rights, benefits and
obligations herein shall automatically be assigned to the surviving or resulting
corporation or to the transferee of the assets.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
PHASECOM, INC. STEPHEN P. PEZZOLA
a Delaware corporation 40 Yorkshire Drive
20400 Stevens Creek Blvd., Ste. 800 Oakland, CA 94618
Cupertino, CA 95014
By: /s/ Davidi Gilo /s/ Stephen P. Pezzola
------------------------------- ---------------------------
Davidi Gilo, Chief Executive (Signature)
Officer
<PAGE>
Exhibit 10.16
EMPLOYMENT AGREEMENT
OF MICHAEL CORWIN
WITH
PHASECOM, INC.
THIS EMPLOYMENT AGREEMENT (this "Agreement"), made and entered into
effective as of the 1st day of January, 2000, by and between PHASECOM, INC., a
Delaware corporation (hereinafter the "Corporation"), and MICHAEL CORWIN
(hereinafter "Corwin").
RECITALS
A. The Corporation has employed Corwin as Chief Operating Officer.
B. In connection with Corwin's employment with the Corporation, the
Corporation and Corwin desire to enter into this Employment Agreement according
to the terms and conditions set forth below.
AGREEMENT
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. EMPLOYMENT DUTIES.
a. GENERAL. The Corporation hereby agrees to employ Corwin,
and Corwin hereby agrees to accept employment with the Corporation, on the terms
and conditions hereinafter set forth.
b. CORPORATION'S DUTIES. The Corporation shall allow Corwin to, and
Corwin shall, perform responsibilities normally incident to the position of
Chief Operating Officer, commensurate with his background, education, experience
and professional standing. The Corporation shall provide Corwin with such office
equipment, supplies, customary services and cooperation suitable for the
performance of his duties.
c. CORWIN'S DUTIES. Unless otherwise agreed to by the parties, Corwin
shall serve as Chief Operating Officer of the Corporation. Corwin shall devote
all of his productive time, attention, energy and skill to the business of the
Corporation, and shall not become engaged to render similar services on behalf
of any other entity while employed hereunder which is in any way competitive to
the Corporation, without the consent of the Corporation's Chief Executive
Officer or Chairman of the Board. Corwin shall report directly to the Chief
Executive Officer of the Corporation. Corwin shall inform the Chief Executive
Officer of any other positions that he takes with any other entity. Corwin
duties shall be performed primarily in Cupertino, California.
<PAGE>
2. TERM. The initial term of this employment is three (3) years. Thereafter,
this Agreement may be renewed by Corwin and the Corporation on such terms as the
parties may agree to in writing. Absent written notice to the contrary given at
least thirty (30) days prior to the end of the initial three (3) year employment
term, this Agreement will be automatically renewed for consecutive one (1) year
extensions. Should the term of employment not be renewed after the expiration of
the first three (3) year term, Corwin shall be entitled to eighteen (18) months
salary as severance, in exchange for a release as to any and all claims Corwin
may have against the Corporation.
3. COMPENSATION. Corwin shall be compensated as follows:
a. FIXED SALARY. Corwin shall receive a fixed annual salary of Two
Hundred Twenty-five Thousand Dollars ($225,000). The Corporation agrees to
review the fixed salary on, or before, January 1, 2001, and thereafter at the
end of each calendar year during the employment term based upon Corwin's
services and the financial results of the Corporation, and to make such
increases as may be determined appropriate in the sole discretion of the
Corporation's Chief Executive Officer or Board of Directors.
b. PAYMENT. Corwin's fixed salary shall be payable on a semi-monthly
basis, in accordance with the Corporation's usual payroll practices.
c. BONUS COMPENSATION. During the Employment Term, Corwin shall
participate in each bonus plan adopted by the Corporation's Board of Directors.
Commencing in 2000, Corwin shall be entitled to receive an annual bonus equal to
(i) fifteen percent (15%) of his annual base salary should the Corporation meet
eighty percent (80%) of its plan as presented to the Board in January of each
year, during the term of Corwin's employment ("Yearly Plan"); (ii) fifty percent
(50%) of his annual base salary should the Corporation meet its Yearly Plan; and
(iii) ninety percent (90%) of his annual base salary should the Corporation meet
one hundred twenty percent (120%) of its Yearly Plan, with the bonus prorated if
the Yearly Plan is met between eighty percent (80%) and one hundred percent
(100%); or between one hundred percent (100%) and one hundred twenty percent
(120%). For purposes of this Section, the meeting of the Yearly Plan shall be
based upon the actual revenues set forth by management and the Compensation
Committee for each applicable year (each compared to the revenues and other
items projected in the Yearly Plan). Corwin shall be entitled to receive an
additional annual bonus based on his performance and that of the Company each
year as determined by the Board of this Corporation, or its Compensation
Committee. The bonus shall be prorated should Corwin's employment terminate
prior to the full calendar year.
d. STOCK OPTIONS. Corwin shall be eligible for stock options that may
be awarded by the Corporation, from time to time, in recognition of Corwin's
contribution to the Corporation's success.
<PAGE>
e. VACATION. Corwin shall accrue paid vacation at the rate of twenty
(20) days for each twelve (12) months of employment. Corwin shall be compensated
at his usual rate of compensation during any such vacation. Corwin shall be
entitled to paid holidays as generally given by the Corporation. Corwin shall
receive sick leave or disability leave in accordance with the terms of the
Corporation's standard sick leave or disability leave policy.
f. BENEFITS. During the employment term, Corwin and his dependents
shall be entitled to participate in any group plans or programs maintained by
the Corporation for any employees relating to group health, disability, life
insurance and other related benefits as in effect from time to time. Corwin
shall also be entitled to Director and Officer ("D&O") insurance in such amounts
and coverage and such indemnification provisions as are afforded other officers
and directors of the Corporation. Benefits under this Section 3.f.
will be paid by the Corporation.
g. EXPENSES. The Corporation shall reimburse Corwin for his normal and
reasonable expenses incurred for travel, entertainment and similar items in
promoting and carrying out the business of the Corporation in accordance with
the Corporation's general policy as adopted by the Corporation's management from
time to time. In addition, Corwin shall be reimbursed for the reasonable costs
associated with one cellular telephone and shall be entitled reimbursement for
such reasonable continuing professional education, memberships and
certifications as are deemed normal and appropriate for Chief Operating
Officers. As a condition of payment or reimbursement, Corwin agrees to provide
the Corporation with copies of all available invoices and receipts, and
otherwise account to the Corporation in sufficient detail to allow the
Corporation to claim an income tax deduction for such paid item, if such item is
deductible. Reimbursements shall be made on a monthly, or more frequent, basis.
4. CONFIDENTIALITY AND COMPETITIVE ACTIVITIES. Corwin agrees that during the
employment term he is in a position of special trust and confidence and has
access to confidential and proprietary information about the Corporation's
business and plans. Corwin agrees that he will not directly or indirectly,
either as an employee, employer, consultant, agent, principal, partner,
stockholder, corporate officer, director, or in any similar individual or
representative capacity, engage or participate in any business that is in
competition, in any manner whatsoever, with the Corporation. Notwithstanding
anything in the foregoing to the contrary, Corwin shall be allowed to invest as
a shareholder in publicly traded companies, or through a venture capital firm or
an investment pool.
5. TRADE SECRETS.
a. SPECIAL TECHNIQUES. It is hereby agreed that the Corporation has
developed or acquired certain products, technology, unique or special methods,
manufacturing and assembly processes and techniques, trade secrets, special
written marketing plans and special customer arrangements, and other proprietary
rights and confidential information and shall during the
<PAGE>
employment term continue to develop, compile and acquire said items (all
hereinafter collectively referred to as the "Corporation's Property"). It is
expected that Corwin will gain knowledge of and utilize the Corporation's
Property during the course and scope of his employment with the Corporation, and
will be in a position of trust with respect to the Corporation's Property.
b. CORPORATION'S PROPERTY. It is hereby stipulated and agreed that the
Corporation's Property shall remain the Corporation's sole property. In the
event that Corwin's employment is terminated, for whatever reason, Corwin agrees
not to copy, make known, disclose or use, any of the Corporation's Property
without the Corporation's prior written consent. In such event, Corwin further
agrees not to endeavor or attempt in any way to interfere with or induce a
breach of any prior proprietary contractual relationship that the Corporation
may have with any employee, customer, contractor, supplier, representative, or
distributor for nine (9) months after any termination of this Agreement. Corwin
agrees upon termination of employment to deliver to the Corporation all
confidential papers, documents, records, lists and notes (whether prepared by
Corwin or others) comprising or containing the Corporation's Property. Corwin
recognizes that violation of covenants and agreements contained in this Section
5 may result in irreparable injury to the Corporation which would not be fully
compensable by way of money damages.
6. TERMINATION.
a. GENERAL. The Corporation may terminate this Agreement without cause,
on ninety (90) days written notice. Corwin may voluntarily terminate his
employment hereunder upon ninety (90) days' advance written notice to the
Corporation.
b. TERMINATION FOR CAUSE. The Corporation may immediately terminate
Corwin's employment at any time for cause. Termination for cause shall be
effective from the receipt of written notice thereof to Corwin specifying the
grounds for termination and all relevant facts. Cause shall be deemed to
include: (i) material neglect of his duties or a significant violation of any of
the provisions of this Agreement, which continues after written notice and a
reasonable opportunity (not to exceed thirty (30) days) in which to cure; (ii)
fraud, embezzlement, defalcation or conviction of any felonious offense; or
(iii) intentionally imparting confidential information relating to the
Corporation or any of the Corporation's subsidiaries, or their business, to
competitors or to other third parties other than in the course of carrying out
his duties hereunder. The Corporation's exercise of its rights to terminate with
cause shall be without prejudice to any other remedy it may be entitled at law,
in equity, or under this Agreement .
c. TERMINATION UPON DEATH OR DISABILITY. This Agreement shall
automatically terminate upon Corwin's death. In addition, if any disability or
incapacity of Corwin to perform his duties as the result of any injury,
sickness, or physical, mental or emotional condition
<PAGE>
continues for a period of thirty (30) business days (excluding any accrued
vacation) out of any one hundred twenty (120) calendar day period, the
Corporation may terminate Corwin's employment upon written notice. Payment of
salary to Corwin during any sick leave shall only be to the extent that Corwin
has accrued sick leave or vacation days. Corwin shall accrue sick leave at the
same rate generally available to the Corporation's employees.
d. SEVERANCE PAY. If this Agreement is terminated by the
Corporation without cause pursuant to Section 6.a. (above) the Corporation
shall pay Corwin a severance fee equal to the greater of (a) the full amount
of the compensation that he could have expected under this Agreement, as and
when payable under this Agreement, without deduction except for tax
withholding amounts, through the end of the term; or (b) six (6) months of
his then-current salary without bonus, subject to tax withholding amounts. If
this Agreement is terminated by the Corporation for cause pursuant to Section
6.b, the Corporation shall pay to Corwin a severance fee equal to three (3)
months of his then-current salary without bonus, subject to tax withholding
amounts, in exchange for a release as to any and all claims Corwin may have
against the Corporation. There shall be a three (3) month severance in the
event that this Agreement is terminated voluntarily by Corwin. During the
time period for which Corwin is receiving severance pay, he shall remain as
a full-time employee of the Corporation in a non-policy making role, and his
options shall continue to vest.
7. CORPORATE OPPORTUNITIES.
a. DUTY TO NOTIFY. In the event that Corwin, during the employment
term, shall become aware of any material and significant business opportunity
directly related to any of the Corporation's significant businesses, Corwin
shall promptly notify the Corporation's Chairman of the Board of such
opportunity. Corwin shall not appropriate for himself or for any other person
other than the Corporation, or any affiliate of the Corporation, any such
opportunity unless, as to any particular opportunity, the Board of Directors of
the Corporation fails to take appropriate action within thirty (30) days.
Corwin's duty to notify the Corporation and to refrain from appropriating all
such opportunities for thirty (30) days shall neither be limited by, nor shall
such duty limit, the application of the general law of California relating to
the fiduciary duties of an agent or employee.
b. FAILURE TO NOTIFY. In the event that Corwin fails to notify the
Corporation of, or so appropriates, any such opportunity without the express
written consent of the Corporation, Corwin shall be deemed to have violated the
provisions of this Section notwithstanding the following:
I. The capacity in which Corwin shall have acquired such
opportunity; or
II. The probable success in the Corporation's hands of
such opportunity.
<PAGE>
8. MISCELLANEOUS.
a. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
and understanding between the parties with respect to the subject matters
herein, and supersedes and replaces any prior agreements and understandings,
whether oral or written between them with respect to such matters. The
provisions of this Agreement may be waived, altered, amended or repealed in
whole or in part only upon the written consent of both parties to this
Agreement.
b. NO IMPLIED WAIVERS. The failure of either party at any time to
require performance by the other party of any provision hereof shall not affect
in any way the right to require such performance at any time thereafter, nor
shall the waiver by either party of a breach of any provision hereof be taken or
held to be a waiver of any subsequent breach of the same provision or any other
provision.
c. PERSONAL SERVICES. It is understood that the services to be
performed by Corwin hereunder are personal in nature and the obligations to
perform such services and the conditions and covenants of this Agreement cannot
be assigned by Corwin. Subject to the foregoing, and except as otherwise
provided herein, this Agreement shall inure to the benefit of and bind the
successors and assigns of the Corporation.
d. SEVERABILITY. If for any reason any provision of this Agreement
shall be determined to be invalid or inoperative, the validity and effect of the
other provisions hereof shall not be affected thereby, provided that no such
severability shall be effective if it causes a material detriment to any party.
e. APPLICABLE LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, applicable to contracts
between California residents entered into and to be performed entirely within
the State of California.
f. NOTICES. All notices, requests, demands, instructions or other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given upon delivery, if
delivered personally, or if given by prepaid telegram, or mailed first-class,
postage prepaid, registered or certified mail, return receipt requested, shall
be deemed to have been given seventy-two (72) hours after such delivery, if
addressed to the other party at the addresses as set forth on the signature page
below. Either party hereto may change the address to which such communications
are to be directed by giving written notice to the other party hereto of such
change in the manner above provided.
g. MERGER, TRANSFER OF ASSETS, OR DISSOLUTION OF THE CORPORATION. This
Agreement shall not be terminated by any dissolution of the Corporation
resulting from either merger or consolidation in which the Corporation is not
the consolidated or surviving corporation or a transfer of all or substantially
all of the assets of the Corporation. In such event, the rights, benefits and
obligations herein shall automatically be assigned to the surviving or resulting
<PAGE>
corporation or to the transferee of the assets.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
PHASECOM, INC. MICHAEL CORWIN
a Delaware corporation 15 Shasta Lane
20400 Stevens Creek Blvd., Ste. 800 Menlo Park, CA
Cupertino, CA 95014
By: /s/ Davidi Gilo /s/ Michael Corwin
----------------------------- -----------------------------
Davidi Gilo, Chief (Signature)
Executive Officer
<PAGE>
EMPLOYMENT AGREEMENT
OF ARNON KOHAVI
WITH
PHASECOM, INC.
THIS EMPLOYMENT AGREEMENT (this "Agreement"), made and entered into
effective as of the 22nd day of November, 1999, by and between PHASECOM, INC., a
Delaware corporation (hereinafter the "Corporation"), and ARNON KOHAVI
(hereinafter "Kohavi").
RECITALS
A. The Corporation has offered employment to Kohavi as Senior Vice
President for Business Development.
B. In connection with Kohavi's employment with the Corporation, the
Corporation and Kohavi desire to enter into this Employment Agreement according
to the terms and conditions set forth below.
AGREEMENT
NOW, THEREFORE, the parties hereto hereby agree as follows:
a. EMPLOYMENT DUTIES.
a. GENERAL. The Corporation hereby agrees to employ Kohavi, and Kohavi
hereby agrees to accept employment with the Corporation, on the terms and
conditions hereinafter set forth.
b. CORPORATION'S DUTIES. The Corporation shall allow Kohavi to, and
Kohavi shall, perform responsibilities normally incident to the position of
Senior Vice President, Business Development of the Corporation, commensurate
with his background, education, experience and professional standing. The
Corporation shall provide Kohavi with such office equipment, supplies, customary
services and cooperation suitable for the performance of his duties. Kohavi also
shall be responsible for overseeing investor relations.
c. KOHAVI'S DUTIES. Unless otherwise agreed to by the parties, Kohavi
shall serve as Senior Vice President, Business Development of the Corporation.
Kohavi shall devote all of his productive time, attention, energy and skill to
the business of the Corporation, and shall not become engaged to render similar
services on behalf of any other entity while employed hereunder which is in any
way competitive to the Corporation, without the consent of the Corporation's
Chairman of the Board. Kohavi shall report directly to the Chairman of the Board
of the Corporation. Kohavi shall inform the Chairman of the Board of any other
positions that he takes with any other entity. Kohavi's duties shall be
performed primarily in Cupertino, California.
<PAGE>
a. TERM. The initial term of this employment is eighteen (18) months.
Thereafter, this Agreement may be renewed by Kohavi and the Corporation on such
terms as the parties may agree to in writing. Absent written notice to the
contrary, thirty (30) days prior to the end of the initial eighteen (18) month
employment term, this Agreement will be renewed for consecutive six (6) month
extensions. Should the term of employment not be renewed after the expiration of
the first eighteen (18) month term, Kohavi shall be entitled to six (6) months
salary as severance, in exchange for a release as to any and all claims Kohavi
may have against the Corporation.
b. COMPENSATION. Kohavi shall be compensated as follows:
a. FIXED SALARY. Kohavi shall receive a fixed annual salary of One
Hundred Fifty-five Thousand Dollars ($155,000). The Corporation agrees to review
the fixed salary on, or before, January 1, 2001, and thereafter at the end of
each calendar year during the employment term based upon Kohavi's services and
the financial results of the Corporation, and to make such increases as may be
determined appropriate in the sole discretion of the Corporation.
b. PAYMENT. Kohavi's fixed salary shall be payable on a semi-monthly
basis, in accordance with the Corporation's usual payroll practices.
c. BONUS COMPENSATION. During the Employment Term, Kohavi shall
participate in each bonus plan adopted by the Corporation's Board of Directors.
Commencing in 2000, Kohavi shall be entitled to receive an annual bonus equal to
(i) twenty-five percent (25%) of his annual base salary should the Corporation
meet eighty percent (80%) of its plan as presented to the Board in January of
each year, during the term of Kohavi's employment ("Yearly Plan"); (ii)
seventy-five percent (75%) of his annual base salary should the Corporation meet
its Yearly Plan; and (iii) one hundred twenty-five percent (125%) of his annual
base salary should the Corporation meet one hundred twenty percent (120%) of its
Yearly Plan, with the bonus prorated if the Yearly Plan is met between eighty
percent (80%) and one hundred percent (100%); or between one hundred percent
(100%) and one hundred twenty percent (120%). For purposes of this Section, the
meeting of the Yearly Plan shall be based upon the actual revenues and earnings
per share for each applicable year (each weighted fifty percent (50%)) compared
to the revenues and earnings per share projected in the Yearly Plan (with each
item weighted fifty percent (50%)), and no item shall be counted if it is not at
least eighty percent (80%) met. The bonus shall be payable only if Kohavi's
employment extends for the full calendar year. It may be prorated at the
discretion of the Chairman of the Board should Kohavi's employment terminate
prior to the full calendar year.
d. STOCK OPTIONS. Kohavi shall be eligible for certain stock option
that may be awarded by the Corporation, from time to time, in recognition of
Kohavi's contribution to the Corporation's success. The initial option grant
shall vest as follows: 25% immediately; 25% in six (6) months; 25% in twelve
(12) months; and the balance within eighteen (18) months from issuance, subject
to the approval of the Corporation's Board of Directors or Compensation
2
<PAGE>
Committee, as appropriate.
e. VACATION. Kohavi shall accrue paid vacation at the rate of twenty
(20) days for each twelve (12) months of employment. Kohavi shall be compensated
at his usual rate of compensation during any such vacation. Kohavi shall be
entitled to paid holidays as generally given by the Corporation. Kohavi shall
receive sick leave or disability leave in accordance with the terms of the
Corporation's standard sick leave or disability leave policy.
f. BENEFITS. During the employment term, Kohavi and his dependents
shall be entitled to participate in any group plans or programs maintained by
the Corporation for any employees relating to group health, disability, life
insurance and other related benefits as in effect from time to time.
c. EXPENSES. The Corporation shall reimburse Kohavi for his normal and
reasonable expenses incurred for travel, entertainment and similar items in
promoting and carrying out the business of the Corporation in accordance with
the Corporation's general policy as adopted by the Corporation's management from
time to time. As a condition of payment or reimbursement, Kohavi agrees to
provide the Corporation with copies of all available invoices and receipts, and
otherwise account to the Corporation in sufficient detail to allow the
Corporation to claim an income tax deduction for such paid item, if such item is
deductible. Reimbursements shall be made on a monthly, or more frequent, basis.
d. CONFIDENTIALITY AND COMPETITIVE ACTIVITIES. Kohavi agrees that during the
employment term he is in a position of special trust and confidence and has
access to confidential and proprietary information about the Corporation's
business and plans. Kohavi agrees that he will not directly or indirectly,
either as an employee, employer, consultant, agent, principal, partner,
stockholder, corporate officer, director, or in any similar individual or
representative capacity, engage or participate in any business that is in
competition, in any manner whatsoever, with the Corporation. Notwithstanding
anything in the foregoing to the contrary, Kohavi shall be allowed to invest as
a shareholder in publicly traded companies, or through a venture capital firm or
an investment pool.
e. TRADE SECRETS.
a. SPECIAL TECHNIQUES. It is hereby agreed that the Corporation has
developed or acquired certain products, technology, unique or special methods,
manufacturing and assembly processes and techniques, trade secrets, special
written marketing plans and special customer arrangements, and other proprietary
rights and confidential information and shall during the employment term
continue to develop, compile and acquire said items (all hereinafter
collectively referred to as the "Corporation's Property"). It is expected that
Kohavi will gain knowledge of and utilize the Corporation's Property during the
course and scope of his employment with the Corporation, and will be in a
position of trust with respect to the Corporation's Property.
3
<PAGE>
b. CORPORATION'S PROPERTY. It is hereby stipulated and agreed that the
Corporation's Property shall remain the Corporation's sole property. In the
event that Kohavi's employment is terminated, for whatever reason, Kohavi agrees
not to copy, make known, disclose or use, any of the Corporation's Property
without the Corporation's prior written consent. In such event, Kohavi further
agrees not to endeavor or attempt in any way to interfere with or induce a
breach of any prior proprietary contractual relationship that the Corporation
may have with any employee, customer, contractor, supplier, representative, or
distributor for nine (9) months after any termination of this Agreement. Kohavi
agrees upon termination of employment to deliver to the Corporation all
confidential papers, documents, records, lists and notes (whether prepared by
Kohavi or others) comprising or containing the Corporation's Property. Kohavi
recognizes that violation of covenants and agreements contained in this Section
6 may result in irreparable injury to the Corporation which would not be fully
compensable by way of money damages.
f. TERMINATION.
a. GENERAL. The Corporation may terminate this Agreement without cause,
on sixty (60) days written notice. Kohavi may voluntarily terminate his
employment hereunder upon sixty (60) days' advance written notice to the
Corporation.
b. TERMINATION FOR CAUSE. The Corporation may immediately terminate
Kohavi's employment at any time for cause. Termination for cause shall be
effective from the receipt of written notice thereof to Kohavi specifying the
grounds for termination and all relevant facts. Cause shall be deemed to
include: (i) material neglect of his duties or a significant violation of any of
the provisions of this Agreement, which continues after written notice and a
reasonable opportunity (not to exceed thirty (30) days) in which to cure; (ii)
fraud, embezzlement, defalcation or conviction of any felonious offense; or
(iii) intentionally imparting confidential information relating to the
Corporation, PhaseCom or any of PhaseCom's subsidiaries, or their business, to
competitors or to other third parties other than in the course of carrying out
his duties hereunder. The Corporation's exercise of its rights to terminate with
cause shall be without prejudice to any other remedy it may be entitled at law,
in equity, or under this Agreement.
c. TERMINATION UPON DEATH OR DISABILITY. This Agreement shall
automatically terminate upon Kohavi's death. In addition, if any disability or
incapacity of Kohavi to perform his duties as the result of any injury,
sickness, or physical, mental or emotional condition continues for a period of
thirty (30) business days (excluding any accrued vacation) out of any one
hundred twenty (120) calendar day period, the Corporation may terminate Kohavi's
employment upon written notice. Payment of salary to Kohavi during any sick
leave shall only be to the extent that Kohavi has accrued sick leave or vacation
days. Kohavi shall accrue sick leave at the same rate generally available to the
Corporation's employees.
d. SEVERANCE PAY. If this Agreement is terminated by the Corporation
without cause pursuant to Section 7.a. (above), or if after the initial eighteen
(18) month term, the Corporation
4
<PAGE>
shall pay Kohavi a severance fee equal to the greater of (a) the full amount of
the compensation that he could have expected under this Agreement, as and when
payable under this Agreement, without deduction except for tax withholding
amounts, through the end of the term; or (b) six (6) months of his then-current
salary without bonus, subject to tax withholding amounts. There shall be no
severance in the event that this Agreement is terminated for cause in accordance
with Section 7.b. During the time period that Kohavi is receiving severance pay,
he shall remain as a full-time employee of the Corporation in a non-policy
making role, and his options shall continue to vest. The foregoing sentence
shall be applicable only for the first eighteen (18) months of this Agreement.
g. CORPORATE OPPORTUNITIES.
a. DUTY TO NOTIFY. In the event that Kohavi, during the employment
term, shall become aware of any material and significant business opportunity
directly related to any of the Corporation's significant businesses, Kohavi
shall promptly notify the Corporation's Chairman of the Board of such
opportunity. Kohavi shall not appropriate for himself or for any other person
other than the Corporation, or any affiliate of the Corporation, any such
opportunity unless, as to any particular opportunity, the Board of Directors of
the Corporation fails to take appropriate action within thirty (30) days.
Kohavi's duty to notify the Corporation and to refrain from appropriating all
such opportunities for thirty (30) days shall neither be limited by, nor shall
such duty limit, the application of the general law of California relating to
the fiduciary duties of an agent or employee.
b. FAILURE TO NOTIFY. In the event that Kohavi fails to notify the
Corporation of, or so appropriates, any such opportunity without the express
written consent of the Corporation, Kohavi shall be deemed to have violated the
provisions of this Section notwithstanding the following:
i. The capacity in which Kohavi shall have acquired such
opportunity; or
ii. The probable success in the Corporation's hands of such
opportunity.
h. MISCELLANEOUS.
a. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
and understanding between the parties with respect to the subject matters
herein, and supersedes and replaces any prior agreements and understandings,
whether oral or written between them with respect to such matters. The
provisions of this Agreement may be waived, altered, amended or repealed in
whole or in part only upon the written consent of both parties to this
Agreement.
b. NO IMPLIED WAIVERS. The failure of either party at any time to
require performance by the other party of any provision hereof shall not affect
in any way the right to require such performance at any time thereafter, nor
shall the waiver by either party of a breach of any provision hereof be taken or
held to be a waiver of any subsequent breach of the same provision or any other
provision.
5
<PAGE>
c. PERSONAL SERVICES. It is understood that the services to be
performed by Kohavi hereunder are personal in nature and the obligations to
perform such services and the conditions and covenants of this Agreement cannot
be assigned by Kohavi. Subject to the foregoing, and except as otherwise
provided herein, this Agreement shall inure to the benefit of and bind the
successors and assigns of the Corporation.
d. SEVERABILITY. If for any reason any provision of this Agreement
shall be determined to be invalid or inoperative, the validity and effect of the
other provisions hereof shall not be affected thereby, provided that no such
severability shall be effective if it causes a material detriment to any party.
e. APPLICABLE LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, applicable to contracts
between California residents entered into and to be performed entirely within
the State of California.
f. NOTICES. All notices, requests, demands, instructions or other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given upon delivery, if
delivered personally, or if given by prepaid telegram, or mailed first-class,
postage prepaid, registered or certified mail, return receipt requested, shall
be deemed to have been given seventy-two (72) hours after such delivery, if
addressed to the other party at the addresses as set forth on the signature page
below. Either party hereto may change the address to which such communications
are to be directed by giving written notice to the other party hereto of such
change in the manner above provided.
g. MERGER, TRANSFER OF ASSETS, OR DISSOLUTION OF THE CORPORATION. This
Agreement shall not be terminated by any dissolution of the Corporation
resulting from either merger or consolidation in which the Corporation is not
the consolidated or surviving corporation or a transfer of all or substantially
all of the assets of the Corporation. In such event, the rights, benefits and
obligations herein shall automatically be assigned to the surviving or resulting
corporation or to the transferee of the assets.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
PHASECOM, INC. ARNON KOHAVI
a Delaware corporation
20400 Stevens Creek Blvd., Ste. 800 /s/ Arnon Kohavi
Cupertino, CA 95014 -------------------------------
(Signature)
-------------------------------
By: /s/ Stephen P. Pezzola
----------------------------------- -------------------------------
Stephen P. Pezzola, General Counsel (Print Address)
6
<PAGE>
Exhibit 10.19
COLLABORATION AGREEMENT
OEM AGREEMENT (the "Agreement") dated August 6, 1999, between Phasecom
Ltd., an Israeli company having its principal address at 11, Kiryat Hamada
Street, Har Hotzvim, P. O. Box 45017, Jerusalem 91450, Israel, ("Phasecom") and
ADC Telecommunications, Inc., a Minnesota corporation having its principal
address at P. O. Box 1101, Minneapolis, Minnesota 55440-1101, USA ("Buyer" or
"ADC").
WHEREAS, the Parties wish to collaborate with each other with respect to
the development, manufacture, and marketing of certain Products (as defined
herein) on the terms and condition set forth in this Agreement and in its
various Exhibits, which are as follows:
Exhibit A: Products and Pricing
Exhibit B: Specifications
Exhibit C : Product Developments
Exhibit D : Statement of Work
Exhibit E : Marketing
Exhibit F: Change Procedures
Exhibit G: Product Qualification and Regulatory Approvals Process
Exhibit H: Terms and Conditions of Sale
Exhibit I: Training
Exhibit J: Quality and Inspection
Exhibit K: Packaging Standards
Exhibit L: Form of Escrow Agreement
Exhibit M: Support of Products; Problem Escalation
Exhibit N: MAC License and Supply Agreement
Exhibit O: IP Disclosure
WHEREAS, ADC and Phasecom wish to collaborate in connection with the
development, supply, and marketing of the Products (defined below) covered by
this Agreement;
WHEREAS, Phasecom intends to devote sufficient energy and resource to the
development and supply of the Products (defined below) to achieve commercial
success of the collaboration; and
WHEREAS, ADC intends to devote sufficient energy and resource to the
marketing of the Products to achieve commercial success of the collaboration.
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the parties agree as follows:
1. COLLABORATION.
a. The parties agree to collaborate with each other with respect to the
development, production and marketing of the products specified in Part I of
Exhibit A and any new products made subject hereto pursuant to Section 2, below
(collectively the "Products") in accordance with the terms of this Agreement. In
addition, the parties intend to enter into future
COLLABORATION AGREEMENT PAGE 1
<PAGE>
negotiations to expand their collaboration to wireless LMDS products, either via
amendment to this Agreement or via a separate agreement.
b. Phasecom hereby grants to Buyer the right to purchase the Products
(as they are and become available) for resale and distribution to Buyer's
customers ("Customers") worldwide (subject to those exceptions, if any, set
forth in Exhibit E) and for internal, evaluation, demonstration, and marketing
uses incident thereto; and to service and maintain the Products for such
Customers subject to the terms and conditions set forth in this Agreement. It is
understood that Buyer's subsidiaries and affiliates will have the same right as
Buyer to purchase the Products under the terms of this Agreement; provided, that
Buyer will guaranty payment for any purchases of Product made by any such
subsidiary or affiliate.
c. The foregoing rights granted to Buyer will be subject to the
exclusivity and non-exclusivity provisions of Exhibit E.
d. Buyer is fully familiar with the existing Products and will assume
responsibility for the marketing of the Products to the Customers as a
value-added reseller and will provide the level of after-sales technical support
normally associated with value-added resellers.
e. Each party shall at all times act as an independent contractor in
fulfilling its obligations in accordance with the terms of this Agreement.
Nothing in this Agreement shall constitute or be deemed to create an agency or
partnership or employment relationship between the parties hereto for any
purpose whatsoever. Neither party shall have any authority or power to bind the
other, to give any representation, warranty or other commitment except as
expressly authorized in writing by the other party.
f. This Collaboration Agreement shall be effective and binding on the
parties on and after the date that the purchase of shares contemplated under the
terms of that certain Series C Preferred Stock Purchase Agreement closes.
2. PRODUCT SPECIFICATIONS, NEW PRODUCTS, QUALIFICATION; APPROVALS
a. The functional requirements and performance specifications for the
Products will be as set out in Exhibit B to this Agreement (the
"Specifications"). Once established and made a part of Exhibit B, such
Specifications will not be changed other than through the engineering change
procedures set out in Exhibit F hereto. The parties may, by mutual agreement,
add new Products to the scope of this Agreement on the basis described in
Exhibit C. For new Products thus added to this Agreement, the Parties will
negotiate in good faith to establish separate Specifications to be included as
part of Exhibit B. For Products which are not yet fully developed, Phasecom will
develop such Products in accordance with the provisions of Exhibits C and D to
comply with all applicable Specifications for such Products. The ownership of
intellectual properties arising out of such developments will be as set out in
Exhibit C.
b. The allocation of responsibilities and the processes to be used for
qualifying each Product covered by this Agreement are set out in the attached
Exhibit G.
c. The allocation of responsibilities and the processes to be used for
obtaining applicable regulatory approvals for each Product covered by this
Agreement are set out in the attached Exhibit G.
COLLABORATION AGREEMENT PAGE 2
<PAGE>
3.BUYER'S PURCHASE AND PAYMENT.
a. Phasecom agrees to sell Buyer the Products in accordance with
purchase orders placed by Buyer and accepted by Phasecom pursuant to this
agreement. All purchase orders submitted by Buyer to Phasecom shall: (i) specify
a delivery date no sooner than thirty (30) days from the date of the purchase
order; (ii) contain definitive list prices, Product numbers, quantities and
discounts to the extent applicable; and (iii) shall be signed and dated by an
authorized representative of Buyer. Purchase orders shall be binding on Phasecom
only when accepted in writing by Phasecom. Phasecom shall accept all Buyer
orders which conform to the above requirements and are consistent with Buyer's
forecasts. Phasecom will use all reasonable commercial endeavors to accept and
fill orders which differ from Buyer's forecasts. Phasecom will confirm each
order by Buyer and notify Buyer of the date of delivery within seven (7) days of
receipt of the order. All purchase orders will be subject to the terms and
conditions of sale set out in Exhibit H to this Agreement, as such may be from
time-to-time amended by written agreement between the parties.
b. For any Product, the Purchase Price will be as set forth in Part II
of Exhibit A. New or customized versions of the Products will be sold at prices
and discounts to be negotiated by Phasecom and Buyer consistent with the pricing
principles underlying the pricing described in Part II of Exhibit A.
c. Buyer's Purchase Price does not include any excise, sales, use,
value added or other taxes, tariffs, duties or fees that may be applicable to
the Products which amounts shall be paid by Buyer.
d. Buyer will be entitled to [***] for wireless applications of the
Product, meaning that:
(1) if Phasecom makes a Product (or substantially similar
Product) [***] then Phasecom shall notify Buyer [***]; and
(2) if such other Phasecom [***] is an [***], rather than a
[***] will be understood to mean [***].
[***] Denotes language for which Vyyo has requested confidential treatment
pursuant to the rules and regulations of the Securities Act of 1933, as
amended.
e. The parties contemplate that during the term of this Agreement, ADC
may become a supplier to Phasecom of wireless modems which incorporate the
Phasecom MAC Product (as defined in Exhibit N). In that event, it is the
intention of the Parties that Phasecom
COLLABORATION AGREEMENT PAGE 3
<PAGE>
would be extended comparable MFC status for its purchases of such wireless
modems from ADC.
f. In order to assist Phasecom in planning its production, Buyer shall
provide Phasecom with twelve (12) month rolling forecasts of its anticipated
purchases of Products. The first such forecast shall be provided within five (5)
days after execution of this Agreement. Thereafter, subsequent forecasts will be
provided on a monthly basis. The first two months of any forecast will be
considered to be a binding forecast. The third and fourth months of the forecast
will be subject to change in the subsequent forecast provided that for each
month, the forecast may not be less than xxx of the preceding value and not more
than xxx greater than the preceding value. The fifth and subsequent months of
the forecast will be subject to change without restriction. Phasecom will not be
obligated to accept orders which exceed the forecast quantities for the most
current (i.e. binding) month, but will use all reasonable endeavors to
accommodate such orders.
g. Buyer shall pay for all Products ordered in US dollars (to one or
more US depository accounts designated in writing by Phasecom) by paying the
Purchase Price [***] days after confirmed receipt of conforming goods (per
Exhibit B) by Buyer, or [***] after Phasecom's invoice date, whichever is
later (the "Payment Terms"). Receipt of goods will be confirmed via dock
receipt or equivalent documentation. Payment according to the Payment Terms
is subject to credit approval by Phasecom prior to delivery of Products. If
Phasecom does not approve Buyer's credit, Buyer shall pay the Purchase Price
cash on delivery (COD) for all Products. At Buyer's request and expense,
Phasecom shall re-evaluate Buyer's credit for approval by Phasecom. If upon
such review Phasecom approves Buyer's credit, then Buyer may (as long as
Buyer's credit remains approved by Phasecom) pay Phasecom according to the
Payment Terms for all purchase orders submitted after the date of such
approval . Past due balances shall be subject to a late fee of [***] per
month computed from the due date of each invoice previously issued, or the
maximum legal rate, whichever is lower. If Buyer remains delinquent with
regard to the payment of any invoice due more than [***] days after receipt
of written notice, Phasecom may terminate this Agreement for material breach.
[***] Denotes language for which Vyyo has requested confidential treatment
pursuant to the rules and regulations of the Securities Act of 1933, as
amended.
h. Buyer agrees to pay the cancellation charges specified below in the
event Buyer cancels any purchase order. The cancellation charges are as follows
(days referred to are days between Phasecom's receipt of the written
cancellation and Phasecom's scheduled delivery date):
<TABLE>
<CAPTION>
Cancellation Fee
Days Prior to Scheduled Delivery as a Percentage of List Price
-------------------------------- -----------------------------
<S> <C>
[***] [***]
</TABLE>
[***] Denotes language for which Vyyo has requested confidential treatment
pursuant to the rules and regulations of the Securities Act of 1933, as
amended.
The parties agree that it would be extremely difficult to determine the exact
damages incurred by Phasecom from Buyer's cancellation of a purchase order. The
parties agree that the foregoing amounts represent the parties' best estimates
of such damages, and that the amounts to be paid as cancellation fees as
specified above are fair and reasonable, and will be the exclusive remedy
available to Phasecom for cancellation.
COLLABORATION AGREEMENT PAGE 4
<PAGE>
i. ADC may not reschedule any orders less than [***] prior to the
scheduled delivery date. At least [***] prior to the scheduled delivery date
for an order, ADC may reschedule the delivery of the order for a period not
to exceed [***]; provided that ADC may reschedule any order only one time.
j. In the case where Phasecom makes a change to any Product which
enhances product safety or corrects a product safety defect in any way, Phasecom
shall notify Buyer and afford Buyer a right to return any of its stock of the
affected Product for an equal and offsetting quantity of the improved Product,
at no charge to Buyer other than the cost of return freight to a US destination.
k. Phasecom will negotiate in good faith with ADC on a case-by-case
basis to make such changes in the terms of this Agreement (e.g. - warranty and
delivery terms) as may reasonably be necessary for ADC to win business with its
Customers and prospects while maintaining reasonable margins for Phasecom and
ADC. When agreed in advance by the parties before a Customer contract is made by
ADC, back-to-back provisions from the Customer contract will supersede
inconsistent portions of these standard terms and conditions. Likewise, when
warranted by the circumstances and agreed in advance in writing by the parties,
the "first deliveries" of a particular product will be subject to the same
acceptance procedures as specified in the corresponding Customer contract,
whereby acceptance of the Product will take place upon acceptance by the
Customer of such Product.
[***] Denotes language for which Vyyo has requested confidential treatment
pursuant to the rules and regulations of the Securities Act of 1933, as
amended.
4. DELIVERY AND SHIPPING.
a. All deliveries will be [***] Phasecom's shipping locations,
provided however, if for any calendar quarter, the shipping and other costs
associated with a shipping location exceed those from [***] by more than [***],
the incremental costs are to be borne by Phasecom. In this Agreement, the
term [***] will be as defined in the [***] published by the [***]. With the
exception of [***], Buyer will have [***].
b. All Products shipped to Buyer shall contain at least one packing
slip for each order, which shall state the quantity, Product numbers, country of
origin, applicable purchase order number, Buyer's name as importer and Buyer's
address.
[***] Denotes language for which Vyyo has requested confidential treatment
pursuant to the rules and regulations of the Securities Act of 1933, as
amended.
5. DUTIES OF BUYER.
a. Buyer shall not acquire any rights in respect of Phasecom's name or
marks, including without limitation "Phasecom"; provided, however, that Buyer
may represent itself as an authorized reseller of the Products during the term
of this Agreement. After the termination of this Agreement, Buyer will not use
names or marks of Phasecom or any words so similar to such names or marks as to
be likely to cause confusion or deception.
b. Except as permitted by Section 12, Buyer agrees not to reverse
engineer, reverse assemble, reverse compile, copy, modify or remanufacture any
Product or any part
COLLABORATION AGREEMENT PAGE 5
<PAGE>
thereof. Buyer agrees that all mask sets, design types, processing information
and other intellectual property of Phasecom shall be and remain the sole
property of Phasecom.
c. Buyer will demonstrate, sell and support Phasecom's Products
purchased or licensed under this Agreement and will provide first tier
maintenance for those Products. Buyer shall employ, train, and maintain
sufficient personnel with technical skill and sales experience to demonstrate,
sell and support such Products and to provide such first tier maintenance.
Except as may be otherwise specified in Exhibit M, "first tier maintenance" will
mean basic customer support and diagnostics relative to claimed Product
problems. For modem units, first tier maintenance will not include any
diagnostics or repairs which require opening the housing. For MTS Products,
first tier maintenance will include board replacements, software/firmware
upgrades and replacements, but will not include any lower-level repairs or
component changes.
d. Buyer shall at all times during the term of this Agreement use all
reasonable commercial efforts in the promotion of the Product consistent with
good business ethics and in a manner that will reflect favorably on Phasecom's
Products and on the good will and reputation of Phasecom. During the term of
this Agreement, Buyer will not supply any wireless data-only modem products
(other than the Products or Products manufactured by ADC under the terms of this
Agreement) to any account which remains "exclusive" to ADC in accordance with
the terms of Exhibit E.
e. Regardless of any disclosure made by Buyer to Phasecom of an
ultimate destination of the Product, Buyer agrees not to export, either directly
or indirectly, any Product without first obtaining a license to export or
re-export from the United States Government, as may be required, and to comply
with the United States Government Export Regulations, as applicable.
f. Buyer shall comply with all applicable legal requirements respecting
the Products and this Agreement and shall refrain from engaging in any illegal
trade practices with respect to the Products.
6. DUTIES OF PHASECOM.
a. In furtherance of the distribution of the Products pursuant to this
Agreement, Phasecom shall, at its expense unless otherwise specified:
i. provide for training relative to the Products on the basis set
out in Exhibit I. Training shall be provided at Buyer's facilities at times to
be mutually agreed upon.
ii. promptly provide Buyer with copies of all internal Phasecom
problem reports respecting issues affecting the safety, performance, or
reliability of the Products covered by this Agreement.
iii. notify Buyer of changes to the Products in accordance with
Exhibit F. In the event Phasecom decides to discontinue any Product, it shall
provide Buyer with [***] and afford Buyer an opportunity to make a last time
buy of the Products.
[***] Denotes language for which Vyyo has requested confidential treatment
pursuant to the rules and regulations of the Securities Act of 1933, as
amended.
COLLABORATION AGREEMENT PAGE 6
<PAGE>
iv. supply technical support and spare parts for the Products
at charges to be set in the reasonable discretion of Phasecom for [***] from
the date of supply, or, if any of the Products are discontinued, for [***]
from the date of discontinuance.
v. make available to Buyer for distribution hereunder such new
Products, upgrades and fixes, if any, as Phasecom may introduce to supplement or
replace the Products. Unless otherwise agreed in writing by the parties, the
discounts and terms for such Products will be those set out in this Agreement.
vi. promptly provide Buyer with all applicable product manuals,
brochures, and other reseller and user documentation, in electronic format, as
such is developed and released by Phasecom to its resellers and customers.
b. Phasecom agrees to deliver Products having Buyer's trademarks and
logos as directed by Buyer. Phasecom shall not use any names or trademarks of
Buyer in any way without the prior written consent of Buyer and shall not
acquire any rights in respect of Buyer's name or trade marks; provided, however
that upon receipt of prior written approval from Buyer, Phasecom may state that
it is manufacturing the Products for Buyer during the term of Agreement. After
the termination of this Agreement, Phasecom will not use names or marks of
Buyer.
c. Phasecom shall comply with all applicable legal requirements
respecting the Products and this Agreement and shall refrain from engaging in
any illegal trade practices with respect to the Products.
[***] Denotes language for which Vyyo has requested confidential treatment
pursuant to the rules and regulations of the Securities Act of 1933, as
amended.
7. MAINTENANCE AND BACK UP SUPPORT.
a. Buyer shall be responsible for providing ongoing after-sales
technical support to its Customers for the Products.
b. In addition to the repair of Products in accordance with the
warranty contained in Section 9, Phasecom will make available to Buyer, upon
request, any technical information or assistance that Buyer may reasonably
require to meet its obligations under Section 5.c., above.
8. QUALITY; INSPECTION TESTING.
a. Phasecom will provide all Products to Buyer in accordance with
Buyer's Quality Control Procedures, attached hereto as Exhibit J.
b. Phasecom will use its best efforts to achieve certification by
the International Standards Organization (ISO) by [***]. All Products
supplied by Phasecom will be designed and manufactured in accordance with all
applicable ISO 9001 standards and processes following Phasecom's ISO
certification.
c. Phasecom shall operate and maintain a quality system of documented
processes and procedures and shall endeavor to achieve zero defects in
connection with the Products.
COLLABORATION AGREEMENT PAGE 7
<PAGE>
d. Following the execution of this Agreement and semi-annually
thereafter, Buyer shall have the right to perform an audit of the quality
processes and procedures of Phasecom and its vendors (to the extent permitted by
such vendors). Buyer shall provide Phasecom with at least fifteen days prior
notice of such audit and shall conduct the audit in a manner that avoids
unnecessary disruption to Phasecom's business activities. Any third party
auditors engaged by ADC to perform the auditing function will be bound by
confidentiality provisions consistent with those set out in Section 13.
e. Phasecom will inspect all Products prior to shipment in accordance
with the Joint Test Plan set out in Exhibit J, or such higher standards as
Phasecom normally applies to its own products.
f. Phasecom will support the initial Product qualification testing
process (described in Exhibit G) at a designated Buyer facility. Reasonable
travel, board, and living expenses for the supporting Phasecom team and any
transportation cost for material/equipment used in the testing shall be at
Buyer's expense.
[***] Denotes language for which Vyyo has requested confidential treatment
pursuant to the rules and regulations of the Securities Act of 1933, as
amended.
9. LIMITED WARRANTY, DISCLAIMER AND LIMITATION OF LIABILITY.
a. Phasecom warrants that the Products are free from defects in
material and workmanship for a period of [***] from delivery date of Product
to Buyer at the FCA point, or [***] from the date of Buyer's invoice to its
Customer, whichever occurs first (provided, however, that for any system sold
by ADC, the warranty on the Products included in the system will not extend
beyond the warranty term for other hardware components of the system.) This
warranty period may be extended by negotiated agreement of the parties, and
Phasecom will in good faith negotiate with ADC with respect to any longer
warranty periods reasonably required by ADC Customers. During the warranty
period, Phasecom will repair or replace any defective Product or component of
Product which is promptly reported or sent to Phasecom. Buyer will pay
transportation and insurance costs to ship the Product to the repair depot.
Phasecom will pay the transportation cost of returning Product to Buyer if
the Product, or a component of Product, was defective. If the Product is
determined to be out of warranty or not defective, Phasecom will promptly
advise Buyer and offer to repair the Product at standard out-of-warranty
rates.
b. The warranty does not cover repair of damage attributable to (i)
alterations to the Product made by a person other than Phasecom; (ii) accidents,
misuse, negligence or failure of Buyer or an end-user to follow instructions for
proper use, care and cleaning of Product; (iii) external factors (e.g., failure
or fluctuation of electrical power, fire, flood, or other act of God); (iv)
failure of Buyer or end-user to comply with the environmental specifications
contained in the Phasecom manual; or (v) wear and tear.
c. The warranty does not cover any indirect damage and/or any damage
caused to people, animals, equipment and property.
COLLABORATION AGREEMENT PAGE 8
<PAGE>
d. Phasecom further warrants that any services provided by Phasecom
under this agreement shall be performed in a fully workmanlike manner and in
accordance with the prevailing professional standards of Phasecom's industry.
Any repaired Product shall have the benefit of the remaining period of the
warranty [***] which shall begin upon Buyer's receipt of such repaired period.
e. Phasecom is not responsible for the accuracy of any content supplied
as part of the Products, or for the validity of any links or cross references
provided to the end-user as part of the Product.
f. Phasecom has taken commercially reasonable measures to verify that
the Products are "Year 2000 Compliant," which means that such measures have been
taken to verify that the Products are designed to:
1. Correctly and unambiguously handle and process date information
before, during and after 1 January 2000.
2. Correctly process functions that are programmed to commence
and/or end at a particular date, including month-end, year-end, leap year and
any combination thereof, irrespective of the change in the century identifier.
3. Function accurately and without interruption before, during,
and after 1 January 2000 without any change in operations and/or parameters
associated with the advent of the new century.
4. Respond to two-digit year input in a way that resolves the
ambiguity as to the century, and to store and provide output of date information
in ways that are unambiguous as to the century.
Provided, however, that PhaseCom does not makes any representations as to the
ability of the product to be Year 2000 compliant when used or interfaced with
non-Phasecom system(s), software, hardware, data or equipment which is not Year
2000 Compliant or which does not properly exchange date-related data.
Furthermore, the above representations shall not apply in the event that
applicable hardware/operating system platform or any module of the Product is
altered, modified or adjusted in any manner by any party without Phasecom's
prior written authorization.
g. THE ABOVE WARRANTIES AND REMEDIES ARE EXCLUSIVE AND ARE EXPRESSLY IN
LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED. PHASECOM SPECIFICALLY
DISCLAIMS ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE AND MAKES NO REPRESENTATIONS REGARDING SUITABILITY FOR USE OR
PERFORMANCE NOT CONTAINED IN THIS AGREEMENT. THE PARTIES' LIABILITIES ARE
FURTHER LIMITED BY SECTION 19, BELOW.
[***] Denotes language for which Vyyo has requested confidential treatment
pursuant to the rules and regulations of the Securities Act of 1933, as
amended.
COLLABORATION AGREEMENT PAGE 9
<PAGE>
10. PACKAGING
All Products will be packed or packaged for U.S. shipment in accordance with the
packaging standards specified in Exhibit K.
11. SOFTWARE LICENSE.
a. Subject to the terms and conditions contained herein, Phasecom
grants Buyer a nontransferable, nonexclusive license solely to use (i) the
embedded software only in connection with the use of the Products (or with other
wireless modem products, herein called the "MAC Products," which are
manufactured by or for ADC and sold by ADC and which contain the MAC Products
provided by Phasecom); (ii) the non-embedded Phasecom software provided with the
Products or the MAC Products, which shall be in machine readable object code
form, and (iii) all Related Documentation (collectively, the "Software"). This
grant shall be limited to use with Products listed in Part I of Exhibit A, as
such is amended to include new Products in accordance with Section 2.b., and
with the MAC Products. This license shall continue during the useful life of the
Products (or MAC Products, as the case may be), or until the license is
terminated in accordance with the Agreement, whichever is sooner.
b. Buyer shall not sublicense the software or otherwise transfer any of
its rights in the software, except as provided in the Agreement. Buyer may grant
sublicenses to its Customers and end-users of the Products and of the MAC
Products; solely for their use of the software in connection with the use of the
Products or the MAC Products, as the case may be. Such sublicenses will survive
termination of this Agreement.
c. Buyer may not modify or copy the software without the prior written
consent of Phasecom. Buyer agrees to refrain from taking any steps, including
without limitation reverse engineering, reverse assembly or reverse compilation,
to obtain or develop a source code equivalent of the software.
d. Unless otherwise agreed in writing, all Software supplied in
whatever form is supplied under license and not by way of sale, and will be the
Software release current at the time of offer.
e. Buyer hereby acknowledges that copyright and all other intellectual
property rights and patent ownership in the software and all connected,
modified, improved or enhanced versions or derivatives thereof and the relevant
documentation is owned by and will remain vested in Phasecom. Title and all
intellectual property rights in or relating to the Product and the Products
documentation are and shall remain owned by Phasecom. Buyer shall include
Phasecom's copyright and/or trade secret notices on all copies and authorized
adaptations in any form of the software contained in the Products.
f. Except as otherwise provided in Section 17(b), if Buyer fails to
comply with its license obligations hereunder and does not cure such default
within ten (10) days after receipt of notice from Phasecom, then Phasecom may
terminate such license grant and require the immediate return to Phasecom of all
Products containing the software. Upon request by
COLLABORATION AGREEMENT PAGE 10
<PAGE>
Phasecom, Buyer shall certify, in writing, that it has returned all copies of
the software and Product.
g. During the term of this Agreement, Phasecom will promptly notify
Buyer of the planned availability of any upgrades and/or enhancements to the
Products and to new products which are based on the Products and will make all
such upgrades, enhancements, and new products available to Buyer under the terms
of this Agreement.
12. LICENSING AND ESCROW; OTHER ADC RECOURSE.
a. ESCROW. Within thirty (30) days after the execution of this
Agreement, the parties shall negotiate and execute an Escrow Agreement in
substantially the form set out in Exhibit L among themselves and an independent
third party escrow agent. The Escrow Agreement will require Phasecom to place on
deposit with the escrow agent complete engineering design and manufacturing
documentation and any vendor authorizations (such materials collectively called
the "Documentation") reasonably required for Buyer to acquire tooling and
components and to manufacture the Products and the MAC Product with minimal
delay.
b. CONTINGENT LICENSE. In the event Phasecom ceases to generate any net
revenue from the sale of any wireless product for any three consecutive calendar
months, then Buyer may immediately upon notice invoke a perpetual, royalty-free,
fully-paid license under all Phasecom intellectual properties (other than
trademarks) to develop, have developed, manufacture, have manufactured, use and
sell Products (and derivatives thereof) and, if ADC's access to the MAC Product
is affected by the event giving rise to the license, the right to source the
chip for the MAC Product from Phasecom's chip vendor.
c. RELEASE OF ESCROW. At the time Buyer invokes a license under this
Section 12, Buyer may instruct the escrow agent to release all of the
Documentation to Buyer on the basis described in the Escrow Agreement.
d. DELIVERY, QUALITY, OTHER PROBLEMS. In the event that:
(1) in any calendar quarter, deliveries representing more than xxx
of Products to be delivered by Phasecom during that quarter are at least x weeks
late and Phasecom cannot reasonably demonstrate that the lateness is not caused
by Phasecom's gross negligence or willful misconduct, or
(2) for [***] consecutive calendar quarters, ADC experiences any
of the following chronic quality problems:
(a) the return rate [i.e. the number of Products returned in
a quarter divided by the number of Products shipped in that quarter] for each
quarter exceeds [***],
(b) the "dead on arrival" rate [i.e. for any quarter, the
number of Products which fail to operate at all when first powered during that
quarter] for each quarter exceeds [***], or
COLLABORATION AGREEMENT PAGE 11
<PAGE>
(c) the ADC incoming inspection failure rate for Products for
both calendar quarters exceeds [***],
provided that within [***] business days after the end of the first such
quarter, ADC has provided Phasecom with notice of such quality problem; or
(3) any other material breach of this Agreement remains uncured
more than [***] after notice hereunder by ADC;
then, in addition to any other remedies ADC may have, ADC may demand the
opportunity to work with Phasecom to correct the subject problem and Phasecom
will be obligated to pay all reasonable and documented expenses ADC incurs in
connection with such corrective actions. Phasecom will cooperate fully and in
good faith with ADC to develop and implement a practical corrective action plan.
[***] Denotes language for which Vyyo has requested confidential treatment
pursuant to the rules and regulations of the Securities Act of 1933, as
amended.
13. CONFIDENTIALITY AND PUBLICITY.
a. "Confidential Information" means any information, technical data, or
know-how, including, but not limited to, that which relates to research,
Products, software, services, development, invention, processes, designs,
drawing, engineering, marketing or finances of either party, or information
obtained in the course of the audit described in Section 8.d.; provided that
such information is transmitted in written or other tangible form and
conspicuously marked as being "Confidential" or "Proprietary." Confidential
Information does not include information, technical data or know-how which (i)
is in the possession of receiving party at the time of disclosure as shown by
written documentation; or (ii) prior to or after the time of disclosure becomes
part of the public knowledge or literature, not as a result of any inaction or
action of the receiving party; or (iii) is disclosed to the receiving party by a
third party who lawfully acquired and has no obligation not to disclose such
information, or (iv) can be shown in written documentation to have been
independently developed by the receiving party without reference to information
provided by the disclosing party.
b. Each party agrees not to use Confidential Information disclosed to
it by the other for purposes other than related to performance of this
agreement. Except as permitted in Subsection 13.c., neither party will disclose
Confidential Information of the other to a third party unless such disclosure is
specifically consented to in writing by the other party. Each party hereby
consents to the disclosure of Confidential Information to affiliates (i.e.
parent corporations, sister corporations, and subsidiaries) which are bound to
comparable obligations of confidentiality.
c. Each party will restrict access of the other's Confidential
Information to those of its employees or independent contractors who require
such access and have agreed in writing to hold the same in confidence and abide
by the terms hereof. Each party agrees that it will take all responsible steps
to protect the security of and avoid the unauthorized disclosure and use of
Confidential Information of the other to prevent it from falling into public
domain or the possession of unauthorized persons. Each party agrees to notify
the other in writing of any misuse or misappropriation of Confidential
Information of the other that may come to its attention.
COLLABORATION AGREEMENT PAGE 12
<PAGE>
d. These non-disclosure and non use obligations shall survive
termination of this agreement for a period of [***]. Any Confidential
Information disclosed under any confidentiality agreement previously signed by
the parties shall be deemed Confidential Information under this Section 13.
e. The parties acknowledge that the unauthorized use, disclosure or
transfer of Confidential Information will (i) substantially diminish the value
to the other party of the Confidential Information; (ii) render the injured
party's remedy at law for such unauthorized use, disclosure or transfer
inadequate; and (iii) cause irreparable injury in a short period of time.
f. If either party breaches any of its obligations with respect to the
use or confidentiality of the Confidential Information, then the other party
shall be entitled to equitable relief to protect its interests therein,
including, but not limited to, preliminary and permanent injunctive relief.
g. The parties will treat the terms of this Agreement as Confidential
Information and will not issue any press release or other public disclosure
relative to the content of this Agreement without the prior written consent of
the other party.
h. For the avoidance of doubt, the parties acknowledge that there are
no implied licenses granted hereunder other than the limited right to use
confidential information in connection with this agreement. Specifically,
neither party will have any implied license under the patents or patent
applications of the other party except for the purposes of providing products
under this agreement.
[***] Denotes language for which Vyyo has requested confidential treatment
pursuant to the rules and regulations of the Securities Act of 1933, as
amended.
14. INTELLECTUAL PROPERTY; INDEMNIFICATION.
a. Phasecom represents and warrants that it is the sole owner of all
intellectual property incorporated into the Products, free and clear of all
liens or adverse claims by third parties. Except as disclosed to ADC in the
attached Exhibit O, Phasecom is unaware of any claim by any third party upon the
basis of which Phasecom has any reason to believe that ADC's use of any of the
Products will infringe or misappropriate any patent, trade secret or other
intellectual property rights of a third party except as are later proved to be
technically necessary to implement DOCSIS or other recognized industry standards
and Phasecom is unaware that ADC's use of any of the Products will infringe or
misappropriate any patent, trade secret or other intellectual property right of
a third party, except as are later proved to be technically necessary to
implement DOCSIS or other recognized industry standards. Phasecom will keep ADC
informed relative to material developments relative the matters disclosed in
Exhibit O.
b. Subject to subsection (c) below, Phasecom agrees to defend Buyer
against any proceeding or action to the extent the proceeding or action alleges
that any Product sold to Buyer hereunder directly infringes any patent,
copyright, mask work right, or other intellectual property right, and Phasecom
will indemnify Buyer against all liabilities, damages, costs and expenses,
including negotiated royalties payable and reasonable attorneys fees in
connection therewith, provided that (i) Buyer provides Phasecom written notice
of the proceeding or action
COLLABORATION AGREEMENT PAGE 13
<PAGE>
within ten (10) business days of receipt by Buyer of such proceeding or action,
(ii) Buyer allows Phasecom to control the defense and the settlement of the
proceeding or action, and (iii) Buyer provides to Phasecom reasonable assistance
in connection therewith, at no charge to Phasecom. In the event Phasecom
resolves any infringement claims or suits with any party made the subject of the
attached Exhibit O and such resolution involves the payment of license fees or
royalties, ADC will in good faith negotiate with Phasecom to share a portion of
the costs of such fees or royalties related to Products sold by ADC hereunder.
c. In the event there is a claim, or Phasecom believes a claim is
likely, alleging intellectual property infringement with respect to any Product
sold to Buyer hereunder, Phasecom shall be entitled, without obligation to do
so, at its option and expense and in full satisfaction of its obligations
hereunder, to (i) modify the Product so it is no longer infringing, (ii) obtain
a license with respect to the applicable intellectual property rights, or (iii)
accept the return of each such Product purchased by Buyer hereunder and in
Buyer's possession and control, and provide to Buyer a refund of the price paid
by Buyer to Phasecom therefor, subject to deductions for damage.
d. Notwithstanding the foregoing, Phasecom will have no liability or
obligation, and buyer shall defend and indemnify Phasecom to the same extent as
Phasecom's defense and indemnity of Buyer in subsection 14(b) above (and not
including the limitations in subsection 14(c)), with respect to any proceeding
or action arising out of (i) modification of the Product other than by Phasecom,
(ii) combination of the Product with any other item (including without
limitation any claim for contributory infringement or inducing infringement), or
(iii) compliance with Buyer's specifications or design.
e. THE FOREGOING SUBSECTIONS 14(A) THROUGH 14(D) STATE PHASECOM'S SOLE
LIABILITY AND OBLIGATION, AND BUYER'S EXCLUSIVE REMEDY, ARISING OUT OF ANY
ACTUAL OR ALLEGED THIRD PARTY INTELLECTUAL PROPERTY INFRINGEMENT OF ANY KIND
THROUGHOUT THE WORLD. In no case will the liability of either party to the other
under this Section exceed the cumulative value of Products sold hereunder prior
to the date of the resolution of the claim.
15. PRODUCT LIABILITY.
a. Phasecom agrees to defend Buyer against any proceeding or action for
products liability based on a claim that any Product provided by Phasecom
hereunder is defective in respect of its design, manufacture, or warnings or
instructions provided by Phasecom, and Phasecom will indemnify Buyer against all
liabilities, damages, costs and expenses, including reasonable attorneys fees in
connection therewith, provided that (i) Buyer provides Phasecom written notice
of the proceeding or action within ten (10) business days of receipt by Buyer of
such proceeding or action, (ii) Buyer allows Phasecom to control the defense and
the settlement of the proceeding or action, and (iii) Buyer provides to Phasecom
reasonable assistance in connection therewith, at no charge to Phasecom.
b. Notwithstanding the foregoing, Phasecom will have no liability or
obligation, and Buyer shall defend and indemnify Phasecom to the same extent as
Phasecom's defense and indemnity of Buyer in subsection 15(a) above (and not
including the limitations in subsection 15(b)), with respect to claims arising
out of (i) modification of the Product other than
COLLABORATION AGREEMENT PAGE 14
<PAGE>
by Phasecom, (ii) representations or warnings supplied by Buyer, to the extent
such differ from those provided by Phasecom, or (iii) compliance with Buyer's
specifications or design.
c. THE FOREGOING SUBSECTIONS 15(A) AND 15(B) STATE PHASECOM'S SOLE
LIABILITY AND OBLIGATION, AND BUYER'S EXCLUSIVE REMEDY, ARISING OUT OF ANY
ACTUAL OR ALLEGED PRODUCT LIABILITY OF ANY KIND THROUGHOUT THE WORLD.
16. TERM OF AGREEMENT.
a. This agreement shall be effective from the date hereof, and continue
for [***] thereafter, unless earlier terminated pursuant to subsection
b. hereof (the "Term"). Thereafter, this Agreement may be extended by mutual
consent in writing.
b. This Agreement may be terminated by notice in writing:
i. by either party, in the event of the insolvency, bankruptcy or
liquidation of, or the appointment of a receiver or trustee of the assets or
business of, or the filing for relief under any status providing for such events
by, the other party; or
ii. by Buyer if Phasecom ceases active operation of its business
or discontinues the sale, licensing or maintenance of the Documentation and
related software in material breach of the OEM Agreement or applicable
maintenance agreement; or
iii. by either party, in the event of any material breach of the
terms of this Agreement by the other party, which breach is not remedied within
[***] of written notice from the terminating party, or
iv. by either party, if a new law, new ordinance or new regulation
prevents substantial performance by such party of its obligations hereunder.
[***] Denotes language for which Vyyo has requested confidential treatment
pursuant to the rules and regulations of the Securities Act of 1933, as
amended.
17. RIGHTS AND OBLIGATIONS ON TERMINATION OF AGREEMENT.
a. Upon termination of this Agreement for any reason, each party will
return immediately to the other all Confidential Information of the other that
it has received pursuant to this Agreement and that is not necessary for
performance of obligations continuing after termination.
b. The software license granted by Phasecom to Buyer in Section 11
shall cease except to the extent necessary to enable Buyer to fulfill its
contractual obligations existing at the date of termination and to support
sub-licenses granted by Buyer to its Customers pursuant to this Agreement. All
end user Customer sub-licenses shall continue notwithstanding termination of
this Agreement.
c. Phasecom shall continue to supply to Buyer, and Buyer is obligated
to receive and pay, according to the terms of this agreement, the Products
required to fulfill contractual obligations entered into by Buyer prior to the
termination of the Agreement. In addition, in the event that Buyer fails to pay
any amount due under this Agreement, then Phasecom shall not be
COLLABORATION AGREEMENT PAGE 15
<PAGE>
obligated to deliver any more Product to Buyer. After termination, Phasecom
shall continue to provide Product support in accordance with section 6(a),
section 9 and section 11 at Phasecom's standard prices (unless such Product is
under warranty as provided in Section 9, in which event such support shall be
free of charges).
d. The obligations of the parties pursuant to section 5.a, e, and f;
6.a.(iv), b, and c.; 7, 9, 11.a, b, e and f; 13, 14, 15, 17, 18, 19 and 22, and
all rights to payment previously accrued hereunder, shall survive termination of
this Agreement. All provisions of the Exhibits which are referenced in any of
such sections and which are continuing in nature will also survive termination.
18. GOVERNING LAW, DISPUTES AND ARBITRATION.
a. This Agreement shall be governed by and interpreted in accordance
with the law of the state of [***].
b. The parties shall to the greatest extent possible endeavor to
resolve any technical issues, channel conflicts, and disputes through
executive-level negotiations in accordance with the Problem Escalation
procedures set out in Exhibit M.
c. The parties desire to reduce the cost of any dispute by agreeing
that any dispute between the parties arising out of this Agreement shall be
submitted to final and binding arbitration upon written notification and
demand by one of the parties. If arbitration is invoked by Buyer, the
arbitration shall take place in the [***]. If arbitration is invoked by
Phasecom, the arbitration shall take place in the [***]. Such arbitration
shall be conducted under the rules of the American Arbitration Association.
In making the award, the arbitrator shall award recovery of costs and
expenses of the arbitration and reasonable attorneys' fees to the prevailing
party. Any award may be entered as a judgment in any court of competent
jurisdiction. Notwithstanding the reference to binding arbitration, in the
event a party is exposed to the prospect of irreparable harm as a result of a
material breach by the other party, it may seek appropriate injunctive relief
through the courts. Should judicial proceedings be commenced to enforce or
carry out this provision, or any arbitration award, the prevailing party in
such proceedings shall be entitled to reasonable attorneys' fees and costs in
addition to other relief.
[***] Denotes language for which Vyyo has requested confidential treatment
pursuant to the rules and regulations of the Securities Act of 1933, as
amended.
19. LIMITATION ON DAMAGES.
a. EXCEPT AS OTHERWISE SPECIFIED HEREIN OR IN SECTIONS 14 OR 15,
NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR ANY SPECIAL, DIRECT, INDIRECT OR
CONSEQUENTIAL DAMAGES EXPENSES OR LOSSES OF ANY KIND, INCLUDING BUT NOT LIMITED
TO LOSS OF PROFITS, USE, CONTRACTS, REVENUE OR GOODWILL, OR ANY THIRD PARTY
CLAIM AGAINST THE OTHER NOT SPECIFICALLY INDEMNIFIED AGAINST HEREUNDER, EVEN IF
THE PARTY KNEW OR HAD BEEN ADVISED OF THE POSSIBILITY OF THE OTHER PARTY
INCURRING THE SAME.
b. EXCEPT AS SPECIFIED IN SECTIONS 14 AND 15, NEITHER PARTY SHALL BE
LIABLE TO THE OTHER FOR AN AMOUNT IN EXCESS OF THE AMOUNT PAID BY
COLLABORATION AGREEMENT PAGE 16
<PAGE>
BUYER TO PHASECOM HEREUNDER FOR THE PRODUCT GIVING RISE TO THE LIABILITY.
c. THE PARTIES ACKNOWLEDGE THAT THE PROVISIONS ON LIMITATIONS OF
LIABILITY AND WARRANTIES IN THIS AGREEMENT ALLOCATE THE RISKS BETWEEN THE
PARTIES AND THIS ALLOCATION IS REFLECTED IN THE PRICING OF THE PRODUCTS AND IS
AN ESSENTIAL ELEMENT OF THE BARGAIN BETWEEN THE PARTIES.
d. THESE LIMITATIONS SHALL APPLY NOTWITHSTANDING ANY FAILURE OF
ESSENTIAL PURPOSE OF ANY LIMITED REMEDY.
20. FORCE MAJEURE.
a. If the performance by either party to this agreement or of any
obligation arising out of, or in connection with, this Agreement (except for the
payment of money), is prevented, restricted or interfered with by any event of
the force majeure, including, but not limited to, fire, flood, war, civil
disturbance, labor disputes, shipping delays, material shortage, any law, order,
proclamation, regulation, ordinance, demand or requirement having the legal
effect of any government or any judicial authority, or any other event
whatsoever, whether similar or dissimilar to those referred to herein, that is
beyond the responsible control of any party affected, then the party so affected
shall, upon giving prior written notice to the other party, be excused from any
non-performance under this Agreement to the extent of such prevention,
restriction or interference, provided that the parties so affected shall use
best effort to avoid or remove such cause of non-performance under this
Agreement, and shall continue to perform hereunder whenever such cause or causes
are removed or avoided.
b. In the event an event of force majeure continues for a cumulative
period of three (3) months, the other party may terminate this Agreement.
21. ASSIGNMENT. Buyer agrees that Phasecom may assign its rights and duties
hereunder to any related corporation, provided such corporation has the
capability to fully and faithfully discharge all obligations of Phasecom
hereunder. Phasecom shall provide Buyer with prompt notice of any such
assignment, and Phasecom will remain responsible for the performance of the
assignee hereunder.
22. MISCELLANEOUS.
a. Headings are inserted for convenience of reference only and shall
not be used to interpret this Agreement.
b. Where there exists any conflict between this Agreement and the
standard terms and condition of sales shown on either party's purchase order,
invoice form or other standard form, this agreement shall govern.
c. No waiver by any party of any breach by the other hereunder shall be
inferred from any omission or failure to take action; and no express waiver by a
party shall affect any of such party's rights other than with respect to the
breach specified in such wavier shall be
COLLABORATION AGREEMENT PAGE 17
<PAGE>
operative only for the time and to the extent therein stated. Waiver by a party
of any particular breach shall not be construed as a waiver of any subsequent
breach.
d. This Agreement is made and entered solely for the benefit and
protection of the parties hereto and their successors, and no other person or
entity shall have any right or right of action hereunder.
e. The terms of this Agreement shall be binding upon and inure to the
benefit of the successors and permitted assign of the parties hereto. Subject to
Section 21 herein, neither party may, without the prior written consent of the
other party (except to a controlling parent, controlled subsidiary or controlled
affiliate or by way of merger, consolidation, or sale or transfer of all or
substantially all of the assets or outstanding shares of the party), assign any
right or duty under this agreement. Consent to sale, assignment or transfer
shall not be unreasonably withheld. Any assignment without such consent shall be
void.
f. All notices required or contemplated under this Agreement shall be
deemed given ten (10) days after deposition registered or otherwise certified
first class air mail, postage prepaid, addressed to the parties as follows, or
upon telephone confirmation of receipt of a facsimile transmission sent to the
fax number set forth below:
To Phasecom:
Phasecom, Ltd.
11, Kiryat Hamada Street
Har Hotzvim,
P. O. Box 45017
Jerusalem 91450
Israel
Attn: President
Copy to: President and to General Counsel
Phasecom, Inc.
20400 Stephens Creek Blvd.
Cupertino, CA 95014
Copy to: Stephen Pezzola,
1999 Harrison Street
Suite 1300
Oakland, CA 94612
To Buyer:
ADC Telecommunications, Inc.
P. O. Box 1101
Minneapolis, MN 55440-1101
Attn: President, Broadband Wireless Group
Copy to: General Counsel
COLLABORATION AGREEMENT PAGE 18
<PAGE>
A party may change the address at which it will receive notice upon the given,
as provided above, of reasonable notice to the other parties.
g. If any provision of this Agreement shall be invalid or
unenforceable, such invalidity or unenforceability shall not invalidate or
render unenforceable the entire agreement, but rather the entire agreement shall
be construed as if not containing the particular invalid or unenforceable
provision or provisions, and the rights and obligations of the parties shall be
construed and enforced accordingly.
h. This agreement, including all exhibits hereto which are incorporated
herein by reference and made a part hereof, represent the complete and entire
agreement of the parties hereto, superseding all prior negotiation,
representation and agreements. This agreement may not be amended except by a
writing executed by the parties hereto.
[***]
PAGE 19
<PAGE>
EXHIBIT A
PRODUCTS AND PRICES
I. PRODUCTS
A. In this Agreement, "Products" will be understood to mean Phasecom's
present and future head-end modem termination system ("MTS") products
and user-end modem units ("MU") products, including the following:
1. [***] of Phasecom's MTS and MU products (existing)
a) Proprietary modem termination system (MTS) and related
components and sub-assemblies
b) Proprietary modem unit (MU)
c) Proprietary configuration and network management software
(NMS) for the MTS and MU.
2. [***] of Phasecom's MTS and MU products (to be developed)
a) Proprietary modem termination system (MTS) and related
components and sub-assemblies
b) Proprietary modem unit (MU)
c) Proprietary configuration and network management software
(NMS) for the MTS and MU.
3. [***] of Phasecom's MTS and MU products (to be
developed)
a) Proprietary modem termination system (MTS) and related
components and sub-assemblies
b) Proprietary modem unit (MU)
c) Proprietary configuration and network management software
(NMS) for the MTS and MU.
4. Such new Products as may be added to this Agreement by mutual
agreement of the Parties on the basis specified in Exhibit C.
B. All of the Products are intended to enable end-to-end telephony, data
and video communications between a head end modem termination system
and an customer-premise modem unit.
[***] Denotes language for which Vyyo has requested confidential treatment
pursuant to the rules and regulations of the Securities Act of 1933, as
amended.
II. PRICES
A. Unless otherwise agreed in writing, all Products supplied to Buyer
will be at the prices set out in this Exhibit. For any Head-End
Product (as defined in the following subsection) for [***], the
price will be [***] (1) the price in effect as of
COLLABORATION AGREEMENT PAGE 20
<PAGE>
the effective date of this Agreement or (2) the price determined in
accordance with the following subsection B.
B. PRICING
Prices for Products covered by this Agreement will be based on market
prices (the "Market Prices") to be established by good faith
negotiations between the Parties in accordance with Section C.2. of
this Exhibit. For exclusive accounts (listed in Section I.A.1 of
Exhibit E), the Market Price will be established by ADC in
consultation with Phasecom. The initial Market Prices for
currently-available Products for non-exclusive accounts are as
follows:
<TABLE>
<CAPTION>
Product Market Price
----------------------------------------------- ----------------------
<S> <C>
P2001 - 1.5W Network Ctlr Package w/SNMP [***]
P2001 - 1.5W Network Ctlr Package no SNMP [***]
P2001 - RCVR Single Channel Upstream Card [***]
P2001 - RCVR Dual Channel Upstream Card [***]
P2001 - QoS Quality of Service Module [***]
P200 - EX Speed-Demon Wireless Modem [***]
P200 - SH SOHO Speed-Demon Wireless Modem [***]
</TABLE>
[***] Denotes language for which Vyyo has requested confidential treatment
pursuant to the rules and regulations of the Securities Act of 1933, as
amended.
The price for a Product to be sold hereunder will be the [***]. The
[***] will depend whether the Product is intended for use on customer
premises (a "CPE Product") or at the head-end of a system (a "Head-End
Product"). The [***] will also depend whether ADC's customer will be
an exclusive account (as listed in Section I.A.1 of Exhibit E) or a
non-exclusive account. The [***] will be determined as follows:
<TABLE>
<CAPTION>
[***]
----------------------------------------------------------------------
----------------------------------------------------------------------
Type of Equipment
--------------------------------------------
Type of Account CPE Product Head-End Product
------------------------ -------------------- ----------------------
<S> <C> <C>
Exclusive [***] [***]
Non-Exclusive [***] [***]
</TABLE>
[***] Denotes language for which Vyyo has requested confidential treatment
pursuant to the rules and regulations of the Securities Act of 1933, as
amended.
COLLABORATION AGREEMENT PAGE 21
<PAGE>
C. GENERAL
1. All prices will be [***] Phasecom's [***] (per Section 4.a. of
the Agreement), unless mutually agreed upon otherwise in
an applicable negotiated Annex. Although Phasecom may publish
suggested wholesale or retail prices, these are suggestions only
and Buyer will be entirely free to determine the actual prices
and license fees at which the Products will be sold or licensed
to its Customers.
2. Market Prices will be valid until superseded by new Market
Prices. Marked Prices will be subject to [***] on a quarterly
basis, in February, May, August and November, beginning in
November 1999. Key considerations for the establishment of
Market Prices will be (1) those prices charged by Phasecom and
ADC to their respective customers for comparable products, and
(2) competitive pricing in the market. It is acknowledged by
Phasecom that, in general, ADC will endeavor to sell above the
Market Price. [***] Market Prices will be reduced to written
Annexes, which, when signed and dated by both parties, will
serve as an amendment to this Agreement, and will supersede any
earlier Market Price determinations.
3. All prices are subject to the provisions of Section 3.d. of the
Agreement.
4. The parties agree that obtaining accurate information regarding
sales prices charged by the other party will be vital to the
calculation under subsection 2, above. The parties therefore
agree that sales by each party may be audited by the other party
in accordance with reasonable procedures to be agreed upon by the
parties at the time of audit.
[***] Denotes language for which Vyyo has requested confidential treatment
pursuant to the rules and regulations of the Securities Act of 1933, as
amended.
COLLABORATION AGREEMENT PAGE 22
<PAGE>
EXHIBIT B
PRODUCT SPECIFICATIONS
I. GENERAL PRODUCT SPECIFICATION
The Specifications for the initial Products to be covered by this Agreement
are as follows:
Version 1.X Products -- see attached Exhibit B.1
Version 2.X Products -- the parties will negotiate in good faith to
agree on these specifications and to attach them as Exhibit B.2
within 30 days after the date of this Agreement.
Version 3.0 & 3.X Products -- the parties will negotiate in good
faith to agree on these specifications and to attach them as
Exhibit B.3 within 30 days after the date of this Agreement B.3
II. DOCUMENTATION
A. User documentation: Phasecom will supply soft copy (in Microsoft Word
format) of user documentation describing installation, use,
user-configurable options, function and interface.
B. Operation documentation: Phasecom will supply soft copy (in Microsoft
Word format) of operation documentation that describes the theory of
operations, installation and turn-up, problem diagnosis and
resolution, system and functional description, and maintenance.
C. ADC will be responsible for any changes it makes to documentation
supplied by Phasecom. ADC will at its discretion provide Phasecom with
copies of such documentation which ADC has changed to meet customer
requirements.
III. COMMERCIAL OR AGENCY REQUIREMENTS
A. At the request of ADC, Phasecom will assist Buyer with obtaining
certification and homologation of products in countries where Buyer
has rights to sell the Products, as described in Exhibit E.
B. At the request of ADC, Phasecom will assist Buyer with obtaining
Product power supplies that meet homologation requirements of
specified countries.
C. When appropriate, the parties will negotiate on a case-by-case basis
for fees to be paid by ADC to Phasecom for assistance provided under
this section.
IV. MARKING AND LABELLING
A. HARDWARE LABELING.
ADC will provide Phasecom with either (1) artwork and specifications
for labels to be furnished by Phasecom or (2) actual labels to be
applied to the Product bearing ADC's name and logo. Phasecom will
apply the resulting labels in accordance with ADC's written
instructions.
B. SOFTWARE LABELING. Through any of the configuration ports, the
software in the Product will transmit to the configuration device a
start-up screen which shows the
COLLABORATION AGREEMENT PAGE 23
<PAGE>
C. ADC logo and company information (to be provided or approved by ADC)
and makes no references to Phasecom other than a copyright notice.
V. APPEARANCE
A. Buyer will specify Product appearance and supply artwork and color
specifications to Phasecom. Additional costs to implement appearance
changes will be borne by Buyer.
COLLABORATION AGREEMENT PAGE 24
<PAGE>
EXHIBIT C
PRODUCT DEVELOPMENTS
Phasecom hereby agrees to develop or complete the development of the Products
listed in Exhibit A (other than those for which development is already complete)
to comply with the applicable Specifications (set out in Exhibit B), in
accordance with the applicable Statements of Work (attached as Exhibit D), and
in accordance with the terms and conditions set out in this Exhibit.
For any new Product which is to be developed and subsequently added to this
Agreement, the Parties will negotiate in good faith for appropriate
Specifications, test plans, development Schedule, and other requirements
relative to such new Product, and will amend this Agreement accordingly to
include documents reflecting such requirements.
1. DEVELOPMENT. Unless otherwise agreed in writing, Phasecom will perform all
of the development of the Products and will bear its own costs associated
with such development.
2. DELIVERABLES; MILESTONES; SCHEDULE. For each Product to be developed,
Phasecom will be responsible for delivering all Deliverables (f.o.b.
Phasecom's facilities in either the US or Israel) and for achieving all
Milestones in full compliance with the Schedule set out in the applicable
Statement of Work.
3. DEVELOPMENT LIAISONS. In the Statement of Work for each Product to be
developed hereunder, each party hereunder will designate a person to be its
Development Liaison for that Product. A Party may designate a new
Development Liaison by notice to the other Party.
4. MANUALS. Unless otherwise agreed in a Statement of Work, Phasecom will be
responsible for the development of all user, installation and maintenance
manuals (in English) for the subject Products. Master copies of such
manuals will be Deliverables and will be provided in both hard copy and
electronic form. ADC will have a license under Phasecom's copyrights to
translate, reproduce, and make derivative works of any such manuals
provided by Phasecom, provided that ADC makes appropriate copyright
notices, giving proper copyright attribution, and will be fully responsible
for any changes to content made by ADC. ADC grants Phasecom a license under
any ADC copyrights in the resulting derivative works to translate,
reproduce and make further derivative works thereof; provided that Phasecom
makes appropriate copyright notices, giving proper attribution, and will be
fully responsible for any changes to content made by Phasecom.
5. DESIGN REVIEW PROCESS. From time to time, as identified in the applicable
Schedule, the parties will have design review meetings. ADC will be
actively involved in the critical design review for each Product to be
developed hereunder.
COLLABORATION AGREEMENT PAGE 25
<PAGE>
6. DESIGN TEST PLAN AND DESIGN ACCEPTANCE. ADC and Phasecom will collaborate
to develop a mutually agreed design verification test plan for each Product
to be developed hereunder. Phasecom will take the lead in the development
of such plan, but ADC will be actively involved in the development of such
plan. Phasecom will notify and demonstrate to ADC when each designed
Product has successfully passed the verification test plan. ADC will
provide its written acceptance of the Product's design [***] from
such demonstration by Phasecom.
[***] Denotes language for which Vyyo has requested confidential treatment
pursuant to the rules and regulations of the Securities Act of 1933, as
amended.
7. PRODUCTION TEST PLAN AND PRODUCTION ACCEPTANCE. As part of development of
each Product, ADC and Phasecom will collaborate to develop a
mutually-agreed production verification test plan for such Product.
Phasecom will take the lead in the development of such plan but ADC will be
actively involved in the development of such plan. Phasecom will notify and
demonstrate to ADC that such Product has successfully passed the production
verification test plan. ADC will provide its written acceptance of the
Product for production [***] from such demonstration by Phasecom.
8. INTELLECTUAL PROPERTY RIGHTS. For each Product to be developed hereunder,
the parties will specify the ownership of any new intellectual property
rights arising out of the subject development ("Foreground IPR"). In the
event ownership is not so specified, the default rules are as follows: (1)
each Party retains ownership of its own pre-existing intellectual property
rights ("Background IPR"); (2) each party will own whatever Foreground IPR
it develops at its own expense in connection with the development; (3) if
one party pays for a development effort by the other, any intellectual
property arising out of such development will be owned by the funding
party; and (4) intellectual property that is either jointly-developed or
developed by one party with partial funding by the other will be
jointly-owned, and either party may exploit such jointly-owned intellectual
property without obligation or accounting to the other.
9. DESIGN CHANGES; MAINTENANCE; MODIFICATIONS AND ENHANCEMENTS.
Phasecom will work with ADC regarding modifications to the Product
reasonably required to capture business with the exclusive ADC accounts
listed in Exhibit E. Phasecom will be required to maintain prioritized
listing and documentation of maintenance changes, modifications and
enhancements.
10. RIGHTS OF INDEPENDENT ACTIVITY.
Other than as specifically provided by this agreement, each party shall be
free to pursue, either by itself or with third parties, technology or
products in the same field as that pertaining to the Products covered by
this Agreement.
11. PRE-PRODUCTION UPGRADES. It is understood that ADC intends to purchase
reasonable quantities of the pre-production (Alpha release, Beta release,
or other pre-productions units) Products at Market Prices, provided that if
these units cannot later be upgraded to production release specifications,
then Phasecom will replace such units with production release units when
they become available.
COLLABORATION AGREEMENT PAGE 26
<PAGE>
EXHIBIT D
STATEMENT OF WORK
[Statements of Work for all Products to be developed hereunder are to be
negotiated in good faith and added to this Agreement [***] (or such longer
period as the parties may agree in writing) after the execution of this
Agreement]
[***] Denotes language for which Vyyo has requested confidential treatment
pursuant to the rules and regulations of the Securities Act of 1933, as
amended.
COLLABORATION AGREEMENT PAGE 27
<PAGE>
EXHIBIT E
MARKETING AND EXCLUSIVITY
I. MARKETING RIGHTS
A. [***] Rights.
1. Phasecom hereby grants ADC the [***] right to market, sell, and
otherwise distribute the Products directly and indirectly for resale to the
following Customers (and their majority-owned subsidiaries):
a. [***]
b. [***]
c. [***]
d. [***]
e. [***]
2. For as long as ADC retains [***] with respect to a particular
account:
a. Phasecom will grant ADC the [***] right to market, sell and
otherwise distribute [***] (i.e. those other than the Products covered by
this Agreement, such products herein called "Other Phasecom Products")
directly and indirectly for resale to that account. Except as otherwise
agreed in writing, the terms of this Agreement will apply to Phasecom's
supply of such Other Phasecom Products to ADC; and
b. ADC will employ all reasonable commercial efforts to market and
sell the Other Phasecom Products to that account;
c. In the event ADC declines to sell a particular Other
Phasecom Product to that account, Phasecom may [***] with respect to that
Other Phasecom Product for that account. Phasecom will promptly notify ADC in
writing (in accordance with Section 22(f) of the Agreement when a new
Phasecom wireless product has become available ("New Other Phasecom
Product"). ADC will have 30 days after such notice to decline to sell such
product or to have it included among the Other Phasecom Products. If ADC
fails to provide such notice, ADC will be deemed to have declined the
inclusion of it among the Other Phasecom Products covered under this
Agreement.
[***] Denotes language for which Vyyo has requested confidential treatment
pursuant to the rules and regulations of the Securities Act of 1933, as
amended.
B. Loss of [***]
1. Phasecom will have the option to terminate ADC's [***] with
respect to any such Customer prospect if: (a) the prospect declines to offer
ADC a request for quotation (RFQ), (b) the prospect eliminates ADC from
consideration during the RFQ process; or (c) if ADC ceases to actively bid
and sell Products(s) to such prospect. In any of these instances, ADC may
present a business case for retaining the [***] and Phasecom will give due
consideration to the business case and to any ADC proposals for the retention
of [***].
COLLABORATION AGREEMENT PAGE 28
<PAGE>
2. It is understood that, to address the needs of the [***] accounts
for customer premise equipment ("CPE"), ADC may plan to sell three different
types of products, as follows: (1) Products covered by this Agreement which
are for customer premise applications ("CPE Products"), (2) CPE products
which have different functions and capabilities from the Products covered by
this Agreement ("Complementary CPE Products"), and (3) in certain cases, ADC
may elect to sell CPE products which are not sourced from Phasecom but which
perform the same function and provide essentially the same capabilities as
the CPE Products ("Substitute CPE Products") available hereunder. (It is
understood, however, that in the event Phasecom discontinues selling a
specific CPE Product, CPE products which correspond to the discontinued CPE
Product will not be considered to be "Substitute CPE Products"). For any
calendar quarter, the "Non-Phasecom Percentage" will be determined by
dividing (a) ADC's total sales of both Complementary CPE Products and
Substitute CPE Products to the exclusive accounts during that quarter by (b)
ADC's total sales of CPE Products, Complementary CPE Products and Substitute
CPE Products to the exclusive accounts during that quarter.
Phasecom will have the following rights to modify ADC's [***] if the
Non-Phasecom Percent for any [***] consecutive calendar quarters exceeds a
specified percentage, as follows:
[***] Denotes language for which Vyyo has requested confidential treatment
pursuant to the rules and regulations of the Securities Act of 1933, as
amended.
<TABLE>
<CAPTION>
Non-Phasecom
Percentage for two
consecutive calendar Phasecom rights to modify [***]
quarters (to be exercised by written notice)
- --------------------------- ---------------------------------------------------------------
<S> <C>
Less than [***] No right to change [***].
At least [***] Phasecom may cancel [***] to the limited extent that it may
market and sell to [***] a CPE product which is comparable
in terms of functions and features to the [***] CPE
Product provided by ADC to [***].
At least [***] Phasecom may cancel ADC's [***] on ALL [***] Products.
At least [***] Phasecom may cancel ADC's [***] on all Products.
</TABLE>
3. If ADC desires to add a new account to the list in Subsection I.A.1
of this Addendum, it may provide Phasecom with a request and a business case for
such addition, and Phasecom will give due consideration to such request and
business case.
4. It is understood that the foregoing [***] will be unaffected by
ADC's invocation of [***] under Section 12.b. of the Agreement.
C. [***] Rights. Phasecom hereby grants ADC the [***] right to market,
sell, and otherwise distribute the Products directly and indirectly for
resale to any other Customers [***] except that ADC shall not have the right
to market, sell or otherwise distribute the Products to [***] (which is an
existing house account for Phasecom) within the [***].
[***] Denotes language for which Vyyo has requested confidential treatment
pursuant to the rules and regulations of the Securities Act of 1933, as
amended.
D. MARKETING COLLABORATION.
1. For [***] accounts, the Parties will cooperate with each other to
market the Products and to determine which will take the lead for specific
accounts. To the
COLLABORATION AGREEMENT PAGE 29
<PAGE>
greatest extent permitted by law, the parties will use their best efforts to
prevent channel conflicts.
2. During the term of this Agreement, ADC shall keep Phasecom informed
about ADC high-level marketing plans and requirements relating to wireless modem
products.
E.AUDIT RIGHTS. The parties agree that obtaining accurate information
regarding sales made by ADC will be vital to the calculation determination of
the marketing and exclusivity rights under this Exhibit E. The parties therefore
agree that sales by ADC may be audited by Phasecom party in accordance with
reasonable procedures to be agreed upon by the parties at the time of audit.
COLLABORATION AGREEMENT PAGE 30
<PAGE>
EXHIBIT F
CHANGE PROCEDURES
The following change procedure requirements shall apply to Products that are not
in an alpha or beta test stage and have been accepted by ADC as Products that
are ready for final production under the terms of Exhibit C, Sections 6 and 7:
I. Phasecom may, at any time, make changes to the Products or modify the
drawings and specifications relating thereto, or substitute Products of
later design to fill an order (hereinafter referred to as "Product
Change"), provided that any such Product Change, under normal and proper
use, does not affect price, operation, reliability, look, feel, or life
of the Products or the interchangeability and interoperability of the
Products with other Products, and that Phasecom notifies Buyer in
writing thereof [***] days prior to shipment of the planned change. In
the event any Product Change affects price, operation, reliability,
look, feel or life of the Products, or the interchangeability and
interoperability of the Products with other Products, Phasecom shall
notify Buyer in writing thereof [***] days prior to any planned change.
In the event Buyer may reject the planned change and so notifies
Phasecom within thirty (30) days and Phasecom fails to reach agreement
thereon, Buyer shall have the right to terminate any and all orders, in
whole or in part for the Products affected by such change.
Notwithstanding any notice requirement above to the contrary, Phasecom
shall immediately notify Buyer when it determines that a Class A Product
Change (as defined hereinafter) shall be made. Phasecom shall be
authorized to make Class A Product changes as soon as practical. Buyer's
manufacturing process uses Bellcore Generic Requirements for Product
Change Notices (Document GR-209-CORE, Issue 2, January 1996) to
determine classes of Product Change Notices contained herein. Change
class definitions shall be governed by the referenced Bellcore document.
[***] Denotes language for which Vyyo has requested confidential treatment
pursuant to the rules and regulations of the Securities Act of 1933, as
amended.
II. Notwithstanding any notice requirements to the contrary elsewhere in this
Agreement, all Class A Product Change Notices shall be provided, at no
charge, and forwarded in accordance with the section "Notices". All Product
Change Notices for Class A, Class AC, Class C, Class D or Class E (as
hereinafter defined) shall contain a filled-in Product Change Notice (See
attachment), which has detailed reasons of the change, technical
description of the change, supporting user documentation, affect of change
on product line, any compatibility information, and effective date of first
shipment of planned change in addition to the information set forth in
Notices. If Phasecom cancels a Product Change Notice, Phasecom must provide
notification in accordance with clause title "Notices" hereto and state the
reason for cancellation and what action, if any, is to be taken in
locations where the change may already have been implemented. All notices
shall be sent to BUYER Product Management.
III. Phasecom shall determine the classification of any proposed Product Change.
If Buyer disagrees with any classification assigned by Phasecom, Buyer
shall have the right to
COLLABORATION AGREEMENT PAGE 31
<PAGE>
challenge the classification, and Phasecom shall, in good faith,
re-evaluate its classification. In the event that Buyer and Phasecom fail
to reach agreement on any such classification, then Buyer shall have the
right to terminate any or all Orders, in whole or in part, for Products
affected by such Product Change without penalty or obligation of any kind.
Phasecom shall provide Buyer copies of all Product Change Notices and
copies of Phasecom ECOs including the cognizant engineer's name, that
affect products.
A. Class A Product Change - A classification code used to indicate a
product recall for all shipped product.
1. Changes which are:
a) needed to correct conditions which result in safety hazards,
b) conditions which result in safety hazards where the
conditions in (a) or (b) are caused by circuit combinations
or options that exist only on certain hardware;
c) needed to compensate for marginal (worse circuit) cases
where the inoperative or unsatisfactory conditions exist on
certain hardware and cannot be associated with specific
circuit combinations or options. Such changes shall be made
on Product in process and if requested by Buyer on Product
in stock or returned to an authorized repair center.
2. Class A Product changes require immediate action by Phasecom to
correct all affected products, whether in the hands of Phasecom
or Buyer or their Customers including spare Products. In some
cases, however, it may be necessary to make a change to only a
limited number of a particular type or Product. (This occurs when
it is necessary to correct a condition that occurs only in
certain Product combinations or with the use of certain options).
Such conditions shall be described in the Product Change Notice.
3. Phasecom shall, no later than [***] from the date of the
notification of a Class A Product Change, provide a schedule,
acceptable to Buyer, for promptly implementing such changes
with respect to Products in the possession of Buyer or its
Customers. The resulting implementation shall include the
deinstallation, if necessary, of existing Products and the
engineering and installation of replacement or modified
Products or any additional materials. Phasecom will bear the
costs of its own engineering personnel and the costs of
replacement parts and subassemblies associated with the
implementation of the changes.
4. For Class A Product Changes which involve only an exchange of
products, Phasecom may, at Buyer's option, provide such products
and Buyer shall implement such change and invoice Phasecom for
associated costs. Unless otherwise agreed to between the Parties,
Phasecom shall not furnish component parts for Class A Product
Changes to Buyer for Buyer assembly into product.
COLLABORATION AGREEMENT PAGE 32
<PAGE>
5. Notices.
Phasecom shall furnish monthly status reports to BUYER for all
Class A
6. Product Changes of which Phasecom has notified Buyer. This report
shall contain the following information:
a) Product Change Notice number.
b) Identity of the Products.
c) Model or part number and issue.
d) Date Product Change Notice issued.
e) Product ship date.
f) Installation or application responsibility.
g) Locations at which change is to be made (supplied by Buyer).
h) Date completed, by location.
i) Changes on hold at any location.
j) Serial numbers of the affected products.
B. Class AC Product Change -
Class AC Product changes are:
1. needed to correct:
a) inoperative electrical or mechanical conditions,
b) unsatisfactory maintenance or operating conditions,
c) conditions which result in safety hazards, where the
conditions in (a) or (b) are caused by circuit combinations
or options which exist only on certain hardware; and
2. needed to compensate for marginal (worse circuit) cases where the
inoperative or unsatisfactory condition exist on certain hardware
and cannot be associated with specific circuit combinations or
options. Such changes shall be made on Product in process and if
requested by Buyer on Products in stock or returned to an
authorized repair center.
C. Class C Product Change - product upgrade or improvement which is
suggested to be implemented on shipped products.
COLLABORATION AGREEMENT PAGE 33
<PAGE>
1. This would be used when the change would result in better
operation, improved testing and maintenance, longer life, service
improvements, cost reductions to the Customer, and additional new
features. The decision to apply these changes would be the
Customer's responsibility.
2. All products shipped to Buyer after the effective date of any
Class C product Change shall incorporate such change. Any
Products shipped to Buyer prior to such date may be modified by
Buyer at its option and expense.
3. No Class C changes shall affect the interoperability of the
product.
D. Class D Product Change - a product upgrade/improvement which is not
require to be implemented on shipped products
1. The Product Change Notice will be used for notification purposes
only. Class D changes would incorporate minor new features and
design improvements that do not affect existing functionality or
other minor service improvement and test capabilities.
2. No Class D changes shall affect the interoperability of the
product.
E. A Class D Product Change is one in which any single or combination of
the following apply:
1. A changed plug-in product is not bi-directional interchangeable
physically, electrically or functionally with its predecessor.
2. A changed hard-wired Product is substantially different than its
predecessor.
3. Phasecom's part, model, drawing or identification number is
changed for that Product.
4. Phasecom's company name is changed.
5. Phasecom shall furnish in accordance with the "Notices" section a
quarterly report listing all Product Change Notices released
during the previous twelve (12) months. This report will contain
the following information:
a) Product Change Notice Number,
b) Issue date of change,
c) Drawing number,
d) Change classification,
e) Modification expiration date.
Phasecom will provide Buyer a copy of all change notices as soon
as they become available.
COLLABORATION AGREEMENT PAGE 34
<PAGE>
F. Class E Product Changes - indicates a routine product/design
upgrade/improvement which does not impact form, fit or function or
diminish product reliability or quality.
1. No class E changes shall affect the interoperability of the
product.
IV. Support and upgrade
A. This section describes the responsibilities of Phasecom and Buyer with
respect to hardware and software upgrades that are required to resolve
demonstrated problems with the equipment. These are known as "problem
fix upgrades." Hardware and software upgrades whose purpose is to
enhance the functionality of the equipment ("feature upgrades") are
quoted by Phasecom on a case-by-case basis and are not covered in this
Exhibit.
B. For software problems that are reported by Buyer, verified and/or
recreated by Phasecom and which are fixed on a subsequent revision of
software, Phasecom shall provide to Buyer two (2) master copies of the
software revision that incorporates the fix., and the accompanying
Engineering Change Request notification. The software will be
accompanied by a completed "Engineering Change Request (Software" form
which, among other information, stated the severity of the problem
("Class of Change") and a non-binding recommendation to Buyer on the
handling of the change in the field ("Field Effectivity Status"). The
decision on the deployment, if any, of the software fix to one or more
end-users in the field is the responsibility of the Buyer and all
costs associated with that deployment will by borne entirely by Buyer.
C. For hardware problems that are reported by Buyer, verified and/or
recreated by Phasecom and which are fixed by a hardware modification
to the card, module or subsystem, Phasecom shall provide to Buyer a
completed "Engineering Change Request (Hardware)" form which, among
other information, states the severity of the problem ("Class of
Change"). The Class of Change defines Phasecom's responsibilities with
regard to the performance of the hardware upgrade to units that are
already in the field.
1. If assigned as a Class A Product Change, then Phasecom will
perform the required hardware upgrade at no charge to ADC
2. If assigned as a Class AC Product Change, then Phasecom will
perform the required hardware upgrade to affected units at no
charge if Buyer so requests in writing [***] of receipt of
the associated ECR.
3. If assigned as a Class C, D or E Product Change, then Phasecom
will not upgrade any installed units an no charge. At Buyer's
request, Phasecom will quote such upgrades on a case-by-case
basis.
[***] Denotes language for which Vyyo has requested confidential treatment
pursuant to the rules and regulations of the Securities Act of 1933, as
amended.
D. In all instances where the Class of Change obligates Phasecom to
perform no-charge hardware upgrades, Buyer shall request and receive a
Return Authorization and shall promptly return all parts requiring the
upgrade, freight prepaid by Buyer to Phasecom's service department.
Phasecom will use its best efforts to perform the
COLLABORATION AGREEMENT PAGE 35
<PAGE>
E. upgrade and return the part, freight prepaid, to Buyer [***] days
after receipt.
F. For enhancements or new feature upgrades, Buyer may send the Product
to be upgraded freight prepaid to Phasecom's service department. Buyer
must issue a purchase order for the upgrade cost as specified in
Phasecom's then current upgrade price list. A Return Authorization
must be included with the Product sent to Phasecom. The upgraded
product will be returned to Buyer within [***] business days.
G. Advance replacement service. If necessary, Buyer may request an
advance replacement exchange for the unit to be upgraded for those
cases in which Buyer can not wait the standard return period. Buyer
may arrange for this service as follows:
1. Secure a Return Authorization for the product to be exchanged
2. Issue a purchase order for the product required at Buyer's then
current contract price plus the cost of the upgrade.
3. Upon receipt of the proper purchase order, Phasecom will ship to
Buyer an upgrade product for exchange. Upon receipt of the
product Buyer will immediately return the exchanged product in
the same container.
4. Upon receipt of the returned product Phasecom will issue a credit
against Buyers purchase order for the list price of the returned
product.
If the exchanged product is not returned [***], Buyer will be
invoiced for the product shipped at the contract price and Buyer
agrees to pay said invoice due upon receipt.
[***] Denotes language for which Vyyo has requested confidential treatment
pursuant to the rules and regulations of the Securities Act of 1933, as
amended.
COLLABORATION AGREEMENT PAGE 36
<PAGE>
EXHIBIT G
REGULATORY APPROVALS PROCESS
Phasecom will be responsible for the following regulatory certification on all
Products (additional requirements may be contained in Exhibit D):
I. SAFETY
The WMTS shall be certified to:
1. [***]
2. [***]
3. [***]
The WMU shall be certified to:
1. [***]
2. [***]
3. [***]
4. [***]
II. ELECTRO-MAGNETIC CONFORMANCE
The WMTS shall be certified to:
1. [***]
2. [***]
3. [***]
4. [***]
5. [***]
The WMU shall be certified to
1. [***]
2. [***]
3. [***]
4. [***]
5. [***]
[***] Denotes language for which Vyyo has requested confidential treatment
pursuant to the rules and regulations of the Securities Act of 1933, as
amended.
COLLABORATION AGREEMENT PAGE 37
<PAGE>
EXHIBIT H
TERMS AND CONDITIONS OF SALE
[Note: The parties will negotiate in good faith to reach agreement on this
Exhibit within 30 days after execution of this Agreement.]
COLLABORATION AGREEMENT PAGE 38
<PAGE>
EXHIBIT I
TRAINING
Training curriculum will be in modules consisting of Overview, Products and
Applications, Design and Engineering, Installation and Maintenance.
Each training module is directed toward the user of the information. Buyer
assumes the responsibility for the attendees' ability and background skills
levels to be able to benefit from the curriculum.
Phasecom will provide up to 3 trainer-days of training for each new Product
release. Phasecom will provide such additional training as may be requested by
ADC, but will be entitled to charge for such additional training at reasonable
rates, not to exceed Phasecom's then-current standard training rates.
Training materials will be available as follows:
15 sets Product Overview
15 sets Products & Applications
5 sets Design & Engineering
5 sets Installation & Maintenance
Training shall be at Buyer's provided facility. Reasonable travel, board, and
living expenses for instructor(s) and any transportation cost for
material/equipment used in class shall be at Buyer's expense. Travel and living
expenses for each of Buyer's attendees shall be the responsibility of Buyer.
COLLABORATION AGREEMENT PAGE 39
<PAGE>
EXHIBIT J
QUALITY AND INSPECTION
I. Buyer shall be notified prior to changes in location of Product
manufacture. Buyer has the right to perform an audit of any new
manufacturing locations prior to receiving Product produced from the new
location. Buyer and seller must mutually agree on corrective action if
issue arise out of this audit prior to Product being produced for the
buyer.
II. Buyer shall be notified and allowed to review new Product designs and
major Product revisions for compliance to industry standard design,
quality and workmanship standards.
III. Seller shall, at buyers request, provide a list of recommended test
equipment and procedures to be used for testing of incoming Product and
verification of returned Product.
IV. The Products will meet all applicable quality standards published by the
[***], as such are from time to time amended. These will include, but
not be limited to the following:
[***]
[***] Denotes language for which Vyyo has requested confidential treatment
pursuant to the rules and regulations of the Securities Act of 1933, as
amended.
COLLABORATION AGREEMENT PAGE 40
<PAGE>
EXHIBIT K
PACKAGING STANDARDS
Products will be packed or packaged for U.S. shipment in accordance with
standard commercial practices in containers bearing labels to be provided or
approved by Buyer.
1.0 BAGS
All product is to be placed in a bag. The type of bag is dependent upon the
assembly to be bagged. Clear polyethylene (3 mil minimum thickness) is
acceptable for those assemblies not being sensitive to Electrostatic Discharge
(ESD).
If the product itself is sensitive to ESD, a static shielding bag should be used
to protect the product. The bag is to be sealed or folded over (closed with a
re-sealable ESD label) so as to complete a faraday cage.
2.0 CUSHIONING MATERIAL
Foam cushioning should be made of expanded polystyrene, polyethylene or a
polyurethane foam. Antistatic versions of the above are required when the
product is sensitive to ESD or is used in an ESD area/facility.
Corrugated cushioning may be constructed of appropriate weight corrugated
material which is required to protect the product during the normal distribution
cycle. Kraft color is acceptable.
3.0 CARTONS
The corrugated carton is to be at a minimum, 200# B or C flute (32 ECT), mottle
white one side. The ADC logo is to be printed in black ink on the carton. On a
standard Regular Slotted Container (RSC), the ADC logo shall be located on the
two length body panels. Current approximate logo sizes are as follows:
1.0" x 4.0"
1.5" x 6.0"
2.0" x 8.0"
3.5" x 16.0"
4.0" x 17.0"
COLLABORATION AGREEMENT PAGE 41
<PAGE>
4.0 PRODUCT/PACKAGE SYSTEM TESTING
Product/package systems shall pass, at a minimum, the International Safe Transit
Association (ISTA) Preshipment Test Procedures (Procedure 1 or 1A). All
product/package systems shall be approved by Buyer prior to use.
5.0 PACKAGE LABELING
The unit carton is to be labeled with the ADC Catalog Number, the quantity per
unit package (usually 1 each), the date code (date product is packaged) and the
serial number of the assembly if it is a serialized product. This information is
to be both human readable and bar coded per the Telecommunications Industry
Forum (TCIF) Product Package Label Specification.
6.0 OVERPACKS
Unit packs are to be overpacked in cartons and on a pallet. Carton weights
should not exceed 40 lb.. Pallet dimensions should be 40" x 48". Pallet loads
are to be stretch wrapped at a minimum to secure load to pallet.
COLLABORATION AGREEMENT PAGE 42
<PAGE>
EXHIBIT L
FORM OF ESCROW AGREEMENT
[NOTE: THE PARTIES WILL NEGOTIATE IN GOOD FAITH TO REACH AGREEMENT ON THIS
EXHIBIT WITHIN 30 DAYS AFTER EXECUTION OF THIS AGREEMENT.]
COLLABORATION AGREEMENT PAGE 43
<PAGE>
EXHIBIT M
SUPPORT OF PRODUCTS; PROBLEM ESCALATION
A. PHASECOM SUPPORT RESPONSIBILITIES
1. Problem Severity Definitions - Buyer will determine the severity level
in conjunction with the end user or service provider.
a. Severity 1 - A "Network Emergency" which is defined as the
failure of a previously operating Phasecom product or system
which renders the product or system inoperable. Further defined
as any problem causing service unavailability or severe
degradation to the lesser of [***] customers or [***] of the
installed base.
b. Severity 2 - Problems resulting in some loss of functionality
and/or some degradation of performance. The system is still
available.
c. Severity 3 - Problems resulting in degraded performance not
deemed significant to the end user or the service provider.
System availability is not affected.
d. Severity 4 - Problems resulting in a nuisance to operations, a
minor feature enhancement or a bug not deemed significant. System
availability is not affected.
[***] Denotes language for which Vyyo has requested confidential treatment
pursuant to the rules and regulations of the Securities Act of 1933, as
amended.
2. Response Levels
Except as otherwise provided in this Exhibit M, PhaseCom shall be
required to respond to service requests within a reasonable time. If
and only if ADC has sold Products in commercial quantities to
exclusive accounts will PhaseCom be required to meet the service
response times set forth in this Section 2.
a. Phasecom will respond to service requests initiated by the Buyer
in the time frames contained in the following table:
<TABLE>
<CAPTION>
--------------------------------------------------------------------
Severity Response Time Targeted Remedy Time
--------------------------------------------------------------------
<S> <C> <C>
1 [***] [***]
2 [***] [***]
3 [***] [***]
4 [***] [***]
</TABLE>
Severity 1 and 2 times are measured in calendar hours 24 hours
per day, 7 days per week. Severity 3 and 4 times correspond with
standard business hours of the respective parties.
b. Subject to Buyer's obligation to provide first-tier maintenance
(as defined in Section 5.c. of the Agreement), Phasecom will,
once a problem has been
COLLABORATION AGREEMENT PAGE 44
<PAGE>
identified as originating with the system or device, respond to
Buyer within the Response Time (see preceding table) and provide
workarounds promptly within the Targeted Remedy Time (see
preceding table). For a Severity 1 (see preceding table) network
emergency, Phasecom will assign a systems engineer to follow
through and report status to Buyer, when information is requested
by Buyer, until the problem is resolved.
Phasecom will report to Buyer's technical support director any
problems received and unresolved by Phasecom according to the
following timeframes:
i. Severity one: [***]
ii. Severity 2: [***]
iii. Severity 3: [***]
iv. Severity 4: [***]
c. Each product change will include a written correction notice to
Buyer and a new issuance of software or hardware, or hardware
repair, and will be accompanied by documentation as outlined in
Exhibit F.
d. Phasecom will provide Buyer access to Phasecom technical support
engineers via a telephone "Hot Line" to assist Buyer with
Severity One and Two Network Emergencies twenty-four (24) hours a
day, seven (7) days a week. Phasecom will provide access to
Phasecom technical support engineers via a telephone "Hot Line"
to assist Buyer with Severity Three and Four problems during
Phasecom's normal business hours.
e. Phasecom will provide reasonable support services to Buyer during
the term of this Agreement at no charge to Buyer.
[***] Denotes language for which Vyyo has requested confidential treatment
pursuant to the rules and regulations of the Securities Act of 1933, as
amended.
B. SUPPORT RESPONSIBILITIES OF BUYER
1. Buyer will maintain a technically competent staff sufficiently
trained to provide direct support for Phasecom Products to the
End User. Problem determination and resolution will be
communicated between Phasecom and Buyer, and not the Phasecom and
the End User, unless mutually agreed otherwise beforehand.
2. Buyer technical support representatives will attend Phasecom
training program prior to the start of any support services
requests.
3. To the extent reasonably required for maintenance, Buyer shall be
responsible for maintaining a database regarding Product
installations, including Product identity, version numbers,
serial numbers and date of installation, and will share this
database with PhaseCom.
C. PROBLEM DISPUTE ESCALATION
1. Disputed problems may occur when the parties' support staffs
disagree as to Buyer's characterization of problem severity,
resolution priority, adequacy of
COLLABORATION AGREEMENT PAGE 45
<PAGE>
Phasecom's response, or other disputes relative to field support
of products. In order to provide minimum levels of customer
service, disputed problems will be escalated to increasingly
senior management levels to achieve resolution.
2. Phasecom will establish problem resolution priorities that are
consistent with the Problem Severity Definitions in section A.1.
of this Exhibit.
3. In the case of Severity 1 problems which Phasecom staff
believes are inappropriately characterized by Buyer, problem
ownership may be referred by the parties' respective staffs to
Buyer's Technical Support Director and Phasecom's Technical
Service Director if no agreement is reached within [***]. If
no agreement is reached between this management level within
an additional [***], problem ownership will be referred to
Buyer's Program Manager or higher level representative, and
Phasecom's Sales Account Manager. If no agreement is reached
at this management level within an additional xxxxx (x) xxxxx,
problem ownership is escalated to Buyer's Vice Presidential
level and Phasecom's CEO level.
4. In the case of Severity 2 and lower problems, problem
ownership may be referred by the parties' respective staffs to
Buyer's Technical Support Director and Phasecom's Technical
Service Director if no agreement is reached within [***]. If
no agreement is reached between this management level within
an additional [***], problem ownership will be referred to
Buyer's Program Manager or higher level representative, and
Phasecom's Sales Account Manager. If no agreement is reached
at this management level within an additional [***] hours,
problem ownership is escalated to Buyer's Vice Presidential
level and Phasecom's CEO level.
5. In the event that Phasecom's response to a Severity 1 problem
is judged to be inadequate by Buyer problem ownership may be
referred by the parties' respective staffs to Buyer's
Technical Support Director and Phasecom's Technical Service
Director if no agreement is reached within [***]. If no
agreement is reached between this management level within an
additional [***], problem ownership will be referred to
Buyer's Program Manager or higher level representative, and
Phasecom's Sales Account Manager. If no agreement is reached
at this management level within an additional [***], problem
ownership is escalated to Buyer's Vice Presidential level and
Phasecom's CEO level.
[***] Denotes language for which Vyyo has requested confidential treatment
pursuant to the rules and regulations of the Securities Act of 1933, as
amended.
D. MAINTENANCE FEES
If ADC is able to generate on-going revenue for maintenance of
Products covered by this Agreement, ADC and Phasecom will negotiate in
good faith to equitably divide the revenue based on the level of
support each is providing.
COLLABORATION AGREEMENT PAGE 46
<PAGE>
EXHIBIT N
MAC PRODUCT LICENSE AND SUPPLY AGREEMENT
[NOTE: THE PARTIES WILL NEGOTIATE IN GOOD FAITH TO REACH AGREEMENT ON THIS
EXHIBIT WITHIN 30 DAYS AFTER EXECUTION OF THIS AGREEMENT. THIS EXHIBIT WILL BE A
COMPLETE, STANDALONE AGREEMENT FOR THE SUPPLY AND LICENSING TO ADC OF "MAC
PRODUCTS," TO BE DEFINED TO INCLUDE THE PHASECOM MAC CHIP AND RELATED
TECHNOLOGY. THIS EXHIBIT WILL ALSO PROVIDE, AMONG OTHER THINGS, THAT:
1. UNTIL SUCH TIME AS PHASECOM NO LONGER USES COMMERCIALLY-AVAILABLE MAC CHIPS
IN THE PRODUCTS, PHASECOM WILL PROVIDE ADC WITH ACCESS TO ANY AND ALL
INFORMATION REASONABLY REQUIRED FOR ADC TO DEVELOP ITS OWN CPE PRODUCTS THAT
WILL BE FULLY INTEROPERABLE WITH THE PHASECOM WMTS PRODUCT COVERED BY THIS
AGREEMENT.
2. WHEN PHASECOM HAS COMPLETED THE DEVELOPMENT OF ITS OWN CPE MAC CHIP,
[***].
[***] Denotes language for which Vyyo has requested confidential treatment
pursuant to the rules and regulations of the Securities Act of 1933, as
amended.
COLLABORATION AGREEMENT PAGE 47
<PAGE>
EXHIBIT O
IP DISCLOSURES
PhaseCom was contacted by [***] in approximately [***] with an offer to
license [***]. PhaseCom has opened a dialog with [***] regarding this license
offer and has undertaken an analysis of [***] to determine whether they are
relevant to PhaseCom products. [***] has offered to forward copies of these
[***] file histories to PhaseCom [***] counsel for analysis. However, such
copies have not yet been received. PhaseCom expects to gain an understanding
of these [***] relevance, if any, to PhaseCom products [***] of the file
history copies from [***]. It is unclear at this time whether PhaseCom's
products or technology does, or will, infringe on any of [***] intellectual
property.
[***] Denotes language for which Vyyo has requested confidential treatment
pursuant to the rules and regulations of the Securities Act of 1933, as
amended.
COLLABORATION AGREEMENT PAGE 48
<PAGE>
Exhibit 10.20
LICENSE AND DEVELOPMENT AGREEMENT
This Software License and Development Agreement (the "Agreement") is
entered into as of this ____ day of December, 1999 (the "Effective Date") by and
between Philips Semiconductors Inc., a Delaware corporation having its principal
place of business at 811 East Arques Avenue, Sunnyvale, CA 94088-3409,
(hereinafter "PHILIPS"), and Phasecom Ltd., an Israeli corporation, having its
principal place of business at 11 Kiriat Hamada Street, Bldg. 6, 1st Floor, Har
Hotzvim 91450, Jerusalem, ISRAEL ("PCOM"), a wholly owned subsidiary of Phasecom
Inc., a Delaware corporation, with its principle place of business at 20400
Stevens Creek Blvd., 8th Floor, Cupertino, CA 95014 ("PHASECOM INC"). (PHILIPS,
PCOM and PHASECOM INC. are occasionally referred to herein individually as a
"Party" and collectively as the "Parties.")
WHEREAS, PCOM has developed a DOCSIS MAC including both hardware and
software (as defined below) that is compliant to the version 1.0 MAC standard;
WHEREAS, PCOM is developing a DOSIS MAC including both hardware and
software that will be compliant to the versions 1.1 MAC standard;
WHEREAS, PHILIPS desires to license such a DOSIS MAC including both
hardware and software from PCOM under the terms and conditions of this Agreement
for use as part of its integrated circuit products;
WHEREAS, PCOM desires to provide and license to PHILIPS such DOCSIS MAC
under the terms and conditions of this Agreement;
WHEREFORE, in consideration of the mutual promises hereinafter set
forth, PHILIPS and PCOM and PHASECOM INC. agree as follows:
1.0 DEFINITIONS.
As used in this Agreement, the following capitalized terms shall have the stated
meanings:
1.1 "Affiliates" of a Party means any corporation, company or other entity
which directly or indirectly controls, is controlled by, or is under
common control with such Party. An entity shall be regarded as in
control of another so long as it owns or controls, directly or
indirectly, more than fifty percent (50%) of the shares entitled to
vote for the election of directors or other person performing similar
functions.
.
1.2 "Application Specific Product" means products whose architecture are
optimized for use in particular applications and whose components may include
both hardware and software.
1
<PAGE>
1.3 "Customer Specific Product " means products made for a specific
customer or set of customers which may include both hardware and
software and intellectual property from various sources.
1.4 "Derivative Works" means a work based on one or more preexisting works,
such as a translation, arrangement, abridgement, condensation,
expansion, compilation, revision, or any other form in which a work may
be recast, transformed, or adapted, and as further defined by 17 U.S.C.
Sec. 101.
1.5 "DOCSIS MAC" means the Media Access Controller, whose specification is
defined under the DOCSIS standards committee including both hardware
and software, that is provided by PCOM to PHILIPS under this Agreement,
as further defined in Exhibit A and the Statement of Work herein. The
term DOCSIS MAC shall include the PCOM DOCSIS 1.0 MAC, the PCOM DOCSIS
1.1 MAC and, subject to the provisions of Article 4 herein, the PCOM
DOCSIS 1.2 MAC that are provided by PCOM to PHILIPS under this
Agreement.
1.6 "DOCSIS 1.0 MAC" means Media Access Controller whose specifications are
defined under the DOCSIS standards committee for the 1.0 MAC standard.
1.7 "DOCSIS 1.1 MAC" means Media Access Controller whose specifications are
defined under the DOCSIS standards committee for the 1.1 MAC standard.
1.8 "DOCSIS 1.2 MAC" means Media Access Controller whose specifications are
defined under the DOCSIS standards committee for the 1.2 MAC standard.
1.9 "Documentation" means User Documentation and Source Documentation.
"User Documentation" means user manuals and other written works that
are designed to explain for the end user the installation and use of
particular object code. "Source Documentation" means source code
comments and other works describing the internal structure and
operation of particular source code, including, but not limited to all
related specifications, schematics, logic manuals, flow charts, and
principals of operation, related build procedures, test harnesses, test
procedures, bug data base and design documentation, as available.
Documentation may be in tangible form or machine-readable text or
graphic files subject to display or printout.
1.10 "Licensed Rights" means any patents, copyrights, maskwork rights,
know-how and trade secrets or other legally protectable information
which read upon, are embodied in, or otherwise apply to the DOCSIS MAC.
1.11 "PCOM DOCSIS 1.0 MAC" means the DOCSIS 1.0 MAC that is provided by PCOM
to PHILIPS under this Agreement.
1.12 "PCOM DOCSIS 1.1 MAC" means the DOCSIS 1.1 MAC that is provided by PCOM
to PHILIPS under this Agreement.
2
<PAGE>
1.13 "Product" or "Products" means any integrated circuit product made by or
for PHILIPS and/or its Affiliates, including but not limited to DOCSIS
Customer Specific Products or Application Specific Products for cable
modem and cable set top box applications, provided however the terms
Product and Products shall not include any integrated circuit product
that uses the DOCSIS MAC for a Wireless Communications Application.
1.14 "Source Code" means all source files for both the generation of a
hardware block and for the generation of software used to run the
hardware block.
1.15 "Wireless Communications Application" means an application whose
primary data transfer is accomplished by using "Wireless" medium,
provided, however, the term Wireless Communications Application shall
not include any wireless applications where the primary communications
gateway is provided via cable. By way of example, the term "Wireless
Communication Application" shall not include applications where data is
distributed by wireless means in a local environment after transfer
across a cable.
2.0 DOCSIS MAC DELIVERY.
2.1 Upon the signing of this Agreement PCOM shall deliver to PHILIPS the
PCOM DOCSIS 1.0 MAC Deliverables, as set forth in Exhibit A.
2.2 PCOM agrees to deliver to PHILIPS the PCOM DOCSIS 1.1 MAC Deliverables
in accordance with the Specifications and schedule set forth in Exhibit
B.
3.0 ACCEPTANCE OF DELIVERABLES.
Acceptance of deliverables shall be defined as follows:
3.1 PHILIPS will examine and test each Deliverable upon delivery to
determine whether the Deliverable conforms to the Specifications for
such Deliverable. Within ten (10) business days after such delivery,
PHILIPS shall provide PCOM with written acceptance of such Deliverable
or a written statement of Errors. As used herein, "Errors" means: (i)
defects in the Deliverable which cause it not to operate in conformance
with the Specification: (ii) defects in the documentation which render
it inaccurate, erroneous, or otherwise unreadable; or (iii) any aspect
of any Deliverable which fails to conform to the Specification.
3.2 PCOM shall make all reasonable efforts to promptly correct the Errors
in any Deliverable set forth in the Statement of Errors, and redeliver
the Deliverable to PHILIPS within the specified time, which will be
mutually agreed to by the parties, provided that the dates specified
for items 1 and 6 in the chart under Section 5.2.1 are not exceeded.
3
<PAGE>
3.3 PHILIPS will within [***] after such redelivery provide PCOM with a
written acceptance or another Statement of Errors. This procedure
set forth in Sections 3.1 through 3.3 will be repeated until PHILIPS
accepts the deliverables or terminates pursuant to Section 3.4
herein.
3.4 Should PHILIPS determine, prior to acceptance, that any Deliverable
fails to meet the Specification, either (i) after the second redelivery
of that Deliverable pursuant to 3.1.2, or (ii) after any delivery or
redelivery which is late, PCOM will be deemed to be in material breach
and PHILIPS may reject that Deliverable and any subsequent Deliverables
and/or the Agreement.
3.5 If PHILIPS fails to provide PCOM with a written statement of Errors
within the applicable [***], PHILIPS shall be deemed to have
accepted the subject Deliverable.
[***] Denotes language for which Vyyo has requested confidential treatment
pursuant to the rules and regulations of the Securities Act of 1933, as
amended.
4.0 LICENSES
4.1 LICENSE FOR DOCSIS 1.0 MAC.
4.1.1 GRANT OF LICENSE. Subject to the terms and conditions of this
Agreement, PCOM grants to PHILIPS and its Affiliates a
non-exclusive, [***], worldwide, perpetual, non-transferable (except
to PHILIPS' Affiliates) right and license, under the License Rights,
to use, make, have made, reproduce, have reproduced, perform,
modify, and prepare Derivative Works of, the PCOM DOCSIS 1.0 MAC,
and the Derivative Works thereof, to design, develop, make, have
made Products incorporating or using the PCOM DOSIS 1.0 MAC and/or
Derivative Works thereof by or for PHILIPS and/or its Affiliates,
and to use, distribute, import, offer to sell, and sell such
Products, worldwide.
4.1.2 MODIFICATIONS. PHILIPS' right to modify pursuant to this Section 4.1.l
above, gives PHILIPS the unlimited right to modify or create Derivative
Works of the PCOM DOCSIS 1.0 MAC, including but not limited to
developing a DOCSIS 1.1 and/or DOCSIS 1.2 versions of DOCSIS MAC, for
incorporation or use in Products made by or for PHILIPS and/or its
Affiliates, as granted therein.
4.2 LICENSE FOR DOCSIS 1.1 MAC.
4.2.1 GRANT OF LICENSE. Subject to the terms and conditions of this
Agreement, PCOM grants to PHILIPS and its Affiliates a
non-exclusive, [***] (subject to Sections 5.3 and 5.5), worldwide,
perpetual, non-transferable (except to PHILIPS' Affiliates) right
and license under the License Rights to use, make, have made,
reproduce, have reproduced, perform, modify, and prepare Derivative
Works of, the PCOM DOCSIS 1.1 MAC, and the Derivative Works thereof,
to design, develop, make, have made Products incorporating or using
the PCOM DOSIS 1.1 MAC and/or Derivative Works thereof by
4
<PAGE>
or for PHILIPS and/or its Affiliates, and to use, distribute, import,
offer to sell, and sell such Products, worldwide.
4.2.2 MODIFICATIONS. PHILIPS' right to modify pursuant to this Section 4.2.l
above, gives PHILIPS the unlimited right to modify or create Derivative
Works of the PCOM DOCSIS 1.1 MAC, including but not limited to
developing a DOCSIS 1.2 versions of DOCSIS MAC, for incorporation or
use in Products made by or for PHILIPS and/or its Affiliates, as
granted therein.
[***] Denotes language for which Vyyo has requested confidential treatment
pursuant to the rules and regulations of the Securities Act of 1933, as
amended.
5.0 LICENSE FEES
5.1.1 License Fee for the PCOM DOCSIS 1.0 MAC
5.1.2 PHILIPS shall pay PCOM a [***]for the licensing of the PCOM DOCSIS
1.0 MAC.
5.2 License Fee for the PCOM DOCSIS 1.1 MAC.
5.2.1 PHILIPS will pay PCOM [***] for the licensing of the PCOM DOCSIS 1.1
MAC (subject to Section 5.2.2), payable in accordance with the
milestones in the following chart. The Deliverables are described
below for each milestone. The percentage figures listed in the chart
represents the percentage of the total fee of [***] that is to be
paid upon PHILIPS' acceptance of the respective Deliverable for the
milestone.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Item Date Deliverables and Milestones for delivery and acceptance
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
1 [***] [***] PS 1.1 MAC/Ethernet VHDL &Simulation Database
- ----------------------------------------------------------------------------------------------------------------
2 [***] PS 1.1 MAC/Ethernet Synthesis for P&R and QT
- ----------------------------------------------------------------------------------------------------------------
3 [***] FPGA Verified MAC/Ethernet w/3930
- ----------------------------------------------------------------------------------------------------------------
4 [***] [***] QT Verification
- ----------------------------------------------------------------------------------------------------------------
5 [***] Post P&R Timing Verification
- ----------------------------------------------------------------------------------------------------------------
6 [***] [***] Full SW
- ----------------------------------------------------------------------------------------------------------------
7 [***] Si Validation
- ----------------------------------------------------------------------------------------------------------------
8 [***] [***] Cable Labs Certification (1.0 or 1.1)
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
[***] Denotes language for which Vyyo has requested confidential treatment
pursuant to the rules and regulations of the Securities Act of 1933, as
amended.
5.2.2 With respect to each Deliverable set forth in Section 5.2.1, the
license granted for the PCOM DOCSIS 1.1 MAC under Section 4.2 shall
apply upon payment for that Deliverable. In the event PCOM fails to
deliver the PCOM DOCSIS 1.1 MAC deliverable for any milestone as set
forth in Section 5.2.1 and 5.6, PHILIPS shall not be required to pay
for any of the following deliverables and shall have full license
rights with respect to all PCOM DOCSIS 1.1 MAC Deliverables delivered
to PHILIPS,
5
<PAGE>
provided that PHILIPS has paid the respective milestone fees for such
Deliverables as set forth in Section 5.2.1, items 1-9..
5.2.3 The total fee associated with this Article 5 shall be [***], to be
paid out in accordance with Section 5.1 for the PCOM DOCSIS 1.0 MAC
(for the amount of [***], and Section 5.2 for the PCOM DOCSIS 1.1
MAC, in accordance with items 1 through 9 of the milestones for
delivery and acceptance matrix (for the amount of [***], referenced
therein.
5.3 Upon full production of a Product that incorporates the DOCSIS MAC
provided by PCOM herein, PHILIPS Semiconductors shall pay to PCOM a
royalty fee of [***] device for each unit sold (excluding any units
sold to PCOM), up to a limitation cap of [***], subject to Section
5.6 (the "Maximum Royalty Amount"). Philips shall not pay any
royalties on any Products sold to PCOM. The Maximum Royalty Amount
is the maximum amount of royalties to be paid under this Agreement,
which shall be [***], unless Section 5.6 applies, in which case the
Maximum Royalty Amount shall be [***]. At the time that the total,
combined royalties paid under this Agreement reaches the Maximum
Royalty Amount, PHILIPS shall have no further obligation or
liability to pay any further royalties on any Products that
incorporate the DOCSIS MAC, and all liability for such royalties
shall cease and the licenses granted under this Agreement shall
remain and continue in effect as royalty-free, fully paid-up
licenses. Should the Maximum Royalty Amount not be reached by
December 31, 2001, PHILIPS Semiconductors shall then pay PCOM the
difference between the sum of all royalties then paid to date and
the applicable Maximum Royalty Amount ([***], or [***] if Section
5.6 applies), and the Maximum Royalty Amount shall be deemed to
have been reached and paid in full. This final payment shall be
made to PCOM in one lump sum payment, due and payable by PHILIPS
net 30 days thereafter.
[***] Denotes language for which Vyyo has requested confidential treatment
pursuant to the rules and regulations of the Securities Act of 1933, as
amended.
5.4 The royalties due under Section 5.3 shall be paid on a [***].
Within [***] after the end of each calendar quarter, PHILIPS shall
deliver to PCOM a royalty statement showing (i) the net number of
units sold during that calendar quarter that are subject to royalty
payment and (ii) the total amount of royalty payments due for that
quarter, along with the payment for the total amount of royalties
due for that calendar quarter. The net number of units sold means
the total number of units sold less any returns.
5.5 For [***] after the end of the relevant reporting period, PHILIPS
shall keep accurate records containing all the data reasonably
required for the computation and verification of the amounts to be
paid for such period and information to be given in the quarterly
statements under Section 5.4. PHILIPS shall, during usual business
hours, permit a national independent certified public accounting
firm selected by PCOM, not more frequently than once per year, at
PCOM's expense and prior arrangement, to inspect the same for the
sole purpose of determining the royalty amounts payable pursuant to
Section 5.3. All such audits shall be conducted following
reasonable prior
6
<PAGE>
written notice and the auditors shall comply with PHILIPS' normal
safety and security procedures, and shall agree in writing to treat
all information furnished by PHILIPS in the course of such audit as
PHILIPS' Confidential Information. Such auditors shall disclose to
PCOM only the amount of any discrepancy and the basis thereof. In
the event of any underpayment, PHILIPS shall promptly remit to PCOM
all amounts due. In the event that the underpayment is more than
[***] for the period audited, PHILIPS shall remit to PCOM the
reasonable costs of the accounting firm's fee for such audit.
5.6 PCOM acknowledges that the delivery dates specified in the chart
under Section 5.2.1 are critical to the success of the PHILIPS
Products. Accordingly, if the Deliverable for Item 5 is not
delivered on or before [***], PHILIPS shall have the option, at its
sole discretion, to cancel the Agreement, including any further
payments and royalties. In the event Item 7 is not delivered on or
before [***], PHILIPS' sole financial obligation shall be reduced
to [***].
[***] Denotes language for which Vyyo has requested confidential treatment
pursuant to the rules and regulations of the Securities Act of 1933, as
amended.
6.0 OWNERSHIP
6.1 OWNERSHIP BY PCOM. PCOM shall retain ownership of all proprietary
rights, including patent, copyright, trade secret, trademark and other
proprietary rights, in and to the DOCSIS MAC provided by PCOM to
PHILIPS under this Agreement. This Agreement shall not be construed to
grant any ownership interest to any PCOM patent, copyright, trade
secret, trademark or other proprietary right to PHILIPS.
6.2 TRANSFERS BY PCOM. In the event PCOM and/or PHASECOM INC. ever assigns
or otherwise transfers ownership of any of its proprietary rights in
the DOCSIS MAC, PCOM and PHASECOM INC. shall insure that such third
party assumes the rights and obligations of PCOM and PHASECOM INC. as
set forth in this Agreement. Notwithstanding any transfer or assignment
of this Agreement, the grants of licenses set forth in Section 4 shall
remain in full force and effect.
6.3 OWNERSHIP BY PHILIPS. Subject to PCOM.'s ownership rights under Section
6.1 in the DOCSIS MAC provided by PCOM to PHILIPS, PHILIPS and its
Affiliates shall own all modifications and Derivative Works made to the
DOCSIS MAC by PHILIPS and its Affiliates.
7.0 CONFIDENTIAL INFORMATION
7.1 CONFIDENTIAL INFORMATION. As used herein, "Confidential Information"
means the proprietary or confidential information of either Party which
is disclosed by such Party ("Discloser") to the other Party
("Recipient") pursuant to this Agreement, including semiconductor
technology, computer or data processing programs, electronic and data
7
<PAGE>
processing applications, routines, subroutines, techniques or systems,
or information concerning the business or financial affairs and methods
of operation or proposed methods of operation, accounts, transaction,
proposed transactions or security procedures of either a Party or its
Affiliates, vendors, or customers. The DOCSIS MAC information shall be
considered PCOM Confidential Information. The PHILIPS Product
information shall be considered PHILIPS Confidential Information. All
Confidential Information that is disclosed in tangible form shall be
marked by the Discloser as confidential or proprietary prior to
disclosure. Confidential Information that is disclosed in non-tangible
form shall be identified by the Discloser at the time of disclosure as
being confidential or proprietary and shall be confirmed in writing
within ten (10) days from its disclosure.
7.2 Confidential Information shall not include information that:
(i) was rightfully in the Recipient's possession prior to receipt from
the Discloser.
(ii) is or becomes a matter of public knowledge through no fault or
breach of the Recipient;
(iii) the Recipient rightfully receives from a third party, who has the
right to so transfer or disclose it, without a duty of confidentiality
on the third party or breach of this Agreement; or
(iv) is independently developed by Recipient without use of the
Discloser's Confidential Information.
7.3 OBLIGATIONS OF CONFIDENTIALITY. Each Party agrees to maintain
Confidential Information received from the Discloser in confidence
and neither use for any purpose apart from this Agreement, nor
disclose Confidential Information to any third party, except
Affiliates, without the prior written approval of the Discloser, or
as is required to comply with any order of a court, or any
applicable rule, regulation or law of any jurisdiction. In the event
that Recipient is required by judicial or administrative process to
disclose Confidential Information of the Discloser, it shall
promptly notify the Discloser and allow the Disclosure a reasonable
time to oppose such process or seek a protective order. Within
PHILIPS and PCOM and their respective Affiliates, Confidential
Information shall be disclosed only on a needs to know basis. The
foregoing obligations for Confidential Information shall remain in
force during the term of the Agreement and [***] following the
expiration or termination of this Agreement.
[***] Denotes language for which Vyyo has requested confidential treatment
pursuant to the rules and regulations of the Securities Act of 1933, as
amended.
7.4 DEGREE OF CARE. Each Party shall protect Confidential Information by
using the same degree of care, but not less than a reasonable degree of
care, to prevent the unauthorized disclosure or use of Confidential
Information, as that Party uses to protect its own confidential and
proprietary information of like nature and similar importance.
7.5 CONSULTANTS AND CONTRACTORS. Confidential Information may be disclosed
by PHILIPS to its consultants and contractors performing work or
services for PHILIPS in accordance with the scope of this Agreement,
provided that such consultants and contractors are subject to a valid,
binding and enforceable agreement to maintain the obligations of
confidentiality no less restrictive than those set forth in this
Section 7.
8
<PAGE>
7.6 PHILIPS' CUSTOMERS. Confidential Information may be disclosed by
PHILIPS to its customers as reasonably necessary for the purposes of
designing or developing Products for the customers, provided that such
customers enter into PHILIPS' standard non-disclosure agreement for the
protection of the Confidential Information.
8.0 INDEMNITY
8.1 INDEMNIFICATION BY PCOM. PCOM shall indemnify, hold harmless and defend
PHILIPS from and against any and all liabilities, suits, claims,
losses, damages, judgments, and costs (including reasonable attorneys'
fees) (collectively "Claims") brought by a third party against PHILIPS
for infringement of any patent, copyright. trade secret, trademark or
other legally enforceable proprietary right of any third party to the
extent directly arising out of (i) the DOCSIS MAC, as delivered to
PHILIPS, or the use of the DOCSIS MAC in accordance with the license
rights granted herein; (ii) any services performed by PCOM pursuant to
this Agreement, or (iii) any materials furnished by PCOM hereunder.
8.2 The foregoing obligation is subject to the following conditions:
(i) PCOM shall have the sole right to defend and/or settle any such
Claim;
(ii) PHILIPS shall give PCOM immediate notice of any such asserted
Claim and reasonable assistance required by PCOM in defending or
settling such Claim; and
(iii) PCOM shall have no liability associated with any infringement or
alleged infringement arising out of the combination of the DOCSIS MAC
with other components if such infringement would have been avoided in
the absence of such combination, unless such combination was specified
by PCOM. The foregoing states PCOM's sole and exclusive liability for
intellectual property infringement.
8.3 INDEMNIFICATION BY PHILIPS. PHILIPS shall indemnify, hold harmless and
defend PCOM from and against any and all liabilities, suits, claims,
losses, damages, judgments, and costs (including reasonable attorneys'
fees) (collectively "Claims") brought by a third party against PCOM for
infringement of any patent, copyright. trade secret, trademark or other
legally enforceable proprietary right of any third party to the extent
directly arising out of (i) solely the Product(s) in which a DOCSIS MAC
is incorporated, exclusive of the incorporated DOCSIS MAC; and (ii) any
modifications made to the DOCSIS MAC by Philips and/or its Affiliates
if such infringement would not have occurred in the DOCSIS MAC without
such modification.
9
<PAGE>
8.4 The obligation set forth in 8.3 is subject to the following conditions:
(i) PHILIPS shall have the sole right to defend and/or settle any such
Claim;
(ii) PCOM shall give PHILIPS immediate notice of any such asserted
Claim and reasonable assistance required by PHILIPS in defending or
settling such Claim; and
(iii) PHILIPS shall have no liability associated with any infringement
or alleged infringement arising out of the DOCSIS MAC as provided by
PCOM to PHILIPS, or out of the combination of the DOCSIS MAC with other
components, except for the Product itself, if such infringement would
have been avoided in absence of such combination.
The foregoing states PHILIP's sole and exclusive liability for intellectual
property infringement.
9.0 WARRANTIES
9.1 OWNERSHIP. PCOM warrants that it is the owner of the DOCSIS MAC as
delivered to PHILIPS and the owner of all intellectual property rights
associated with and/or subsisting in the DOCSIS MAC as delivered to
PHILIPS.
9.2 OPERATION. PCOM warrants that the DOCSIS MAC delivered to PHILIPS shall
operate according to the specifications provided, and that there are no
known defects of which PCOM has not made PHILIPS aware. Notwithstanding
the foregoing, PCOM shall not be liable on account of any breach of
warranty claims asserted by customers or purchasers of PHILIPS. Except
for PCOM's indemnification obligations under Section 8, PHILIPS shall
be responsible for any commercial liabilities arising out of its sale
of its products to PHILIPS' customers.
10.0 LIMITATION OF LIABILITIES
10.1 Neither party shall be liable for any incidental, consequential.
special, or punitive damages arising out of this Agreement or the
breach thereof (including, but not limited to, lost profits), and any
such liabilities are expressly disclaimed.
11.0 SUPPORT SERVICES
11.1 At PHILIPS' request, PCOM shall provide reasonable assistance to
PHILIPS in implementing the DOCSIS MAC into PHILIPS Products. At
PHILIPS' request, PCOM shall use reasonable commercial efforts to
provide PHILIPS with the necessary knowledge and information for,
and otherwise assist PHILIPS in, manufacturing or having made a
PHILIPS Product incorporating the DOCSIS MAC. If PCOM's assistance
in providing engineering support for designs not agreed to in this
Agreement or cable modem reference design, PHILIPS agrees to
compensate PCOM at a rate of [***]. If PCOM's on-site presence is
requested which has not been agreed to in
[***] Denotes language for which Vyyo has requested confidential treatment
pursuant to the rules and regulations of the Securities Act of 1933, as
amended.
10
<PAGE>
this Agreement, PHILIPS agrees to compensate PCOM for all reasonable
travel and lodging expenses, subject to PHILIPS' prior approval.
12.0 TERM AND TERMINATION
12.1 TERM. This Agreement shall continue in effect unless terminated as set
forth herein.
12.2 TERMINATION FOR BREACH. Either party may terminate this Agreement if
the other party materially breaches the Agreement and breaching party
fails to cure such breach within thirty days from receipt of written
notice from the non-breaching party describing the breach.
12.3 TERMINATION FOR NON-PERFORMANCE. PHILIPS may terminate as provided
under Section 5.5, upon thirty (30) days prior written notice.
12.4 TERMINATION UPON BANKRUPTCY. A party may terminate this Agreement if
the other party (i) commences a voluntary case or other proceeding
seeking liquidation, reorganization or other relief with respect to
itself or its debts under any bankruptcy, insolvency or other similar
law now or hereafter in effect, or (ii) an involuntary bankruptcy
action or other such proceeding is commenced against it, and it is not
dismissed from such involuntary action or proceeding within ninety (90)
days from the commencement of such action or proceeding.
12.5 SURVIVAL AFTER TERMINATION. Except for termination of this Agreement
under Section 12.2 based on PHILIPS' material breach of the Agreement
and failure to cure as set forth in Section 12.2, the all licenses
granted under this Agreement shall survive the termination of this
Agreement.
12.6 MOST FAVORED PRICING. PHILIPS agrees to offer to PCOM the PHILIPS'
Product(s) that incorporate the DOCSIS MAC at PHILIPS' most favored
customer prices for such Product for the same or greater quantities
under similar terms and conditions, provided that PCOM does not offer
such products for resale as a standalone product.
12.7 RIGHT OF FIRST REFUSAL For a period of one year beginning on the
Effective Date of this Agreement, in the event that PHILIPS decides to
purchase from a third party (excluding PHILIPS' Affiliates) a DOCSIS
1.2 MAC for use in cable modem applications, PHILIPS shall provide
written notice to PCOM, and PCOM shall have a first right of refusal to
offer PHILIPS a PCOM DOCSIS 1.2 MAC on identical terms and conditions
offered by such third party. This provision shall not apply and
specifically excludes (i) any DOCSIS 1.2 MAC provided by a customer for
integration into a customer specific integrated circuit; (ii) any case
whereby a customer wishes to incorporate its own DOCSIS 1.2 MAC with
other PHILIPS intellectual property into an applications specific
standard product; and (iii) all other PHILIPS entities and Affiliates
who may wish to purchase a DOCSIS 1.2 MAC for a wireless application.
11
<PAGE>
13 GENERAL
13.1 ASSIGNMENT. Subject to Section 6.2 and the last sentence of this
Section 15.1, neither party may assign this Agreement nor any right or
obligation hereunder without the prior written consent of the other
party which consent will not be unreasonably withheld. PHILIPS may
assign this Agreement to any Affiliate or wholly-owned subsidiary of
PHILIPS, without the prior written consent of PCOM.
13.2 WAIVER. No delay in exercising, no course of dealing with respect to,
or no partial exercise of any right or remedy hereunder shall
constitute a waiver of any other right or remedy, or future exercise
thereof.
13.3 SEVERABILITY. If any term or provision of this Agreement should be
declared invalid by a court of competent jurisdiction, (i) the
remaining terms and provisions of this Agreement shall be unimpaired,
and (ii) the invalid term or provision shall be replaced by such valid
term or provision as comes closest to the intention underlying the
invalid term or provision. Where the invalid term or provision cannot
be replaced by a valid term or provision which comes closest to the
intention underlying the invalid term or provision, the invalid term or
provision shall be severed from the remaining terms, conditions and
provisions which shall continue to be valid to the fullest extent
permitted by law.
13.4 NOTICE. Written notice by either party to the other shall be deemed to
have been given when received via certified mail by the intended
recipient thereof at its address shown on the first page hereof, or to
such other address as such intended recipient may specify in a written
notice pursuant hereto.
13.5 GOVERNING LAW. This Agreement shall be governed in all respects by the
laws of the United States of America and the State of California,
excluding the application of its conflict of laws rules. This Agreement
shall be considered made and entered into in the State of California.
The parties agree that the United Nations Convention on Contracts for
the International Sale of Goods is specifically excluded from
application to this Agreement. Any lawsuits or other legal actions
brought to enforce this Agreement, or otherwise related to this
Agreement shall be brought exclusively in the federal and state courts
within the State of California.
13.6 ARBITRATION. Any unresolved disputes concerning this Agreement shall be
submitted to arbitration in accordance with the then prevailing rules
of the American Arbitration Association (i) before an arbitrator agreed
upon by the parties or (ii) if the parties cannot agree upon an
arbitrator within thirty (30) days, before three arbitrators selected
pursuant to the rules of the American Arbitration Association. The site
of the arbitration shall be San Francisco, CA. The arbitrator(s) may
award attorneys' fees and cost as part of the award. The award of the
arbitrator shall be binding and may be entered as a judgment in
13.7 any court of competent jurisdiction. Either Party may seek injunctive
relief from a court of competent jurisdiction if to protect the
legitimate interest of the Party seeking such relief.
12
<PAGE>
13.7 FORCE MAJEURE. Each party shall be excused for failures and delays in
performance caused by war, any laws, proclamations, ordinances, or
regulations, or strikes, lockouts, floods, fires, explosions, acts of
God, or other catastrophes beyond its reasonable control and without
the fault of such party. This prevision shall not, however, release
such party from using its reasonable best efforts to avoid or remove
all such causes, and such party shall continue performance hereunder
with the utmost dispatch whenever such causes are removed. Any party
claiming any such excuse for failure or delay in performance shall give
prompt written notice thereof to the other party, and neither party
shall be required to perform hereunder during the period of such
excused failure or delay in performance except as otherwise provided
herein.
13.8 SURVIVAL. Sections 1, 4, 5, 6, 7, 8, 9, 10, and 13 shall survive the
expiration or termination of the Agreement.
This Agreement together with the Exhibits hereto, constitutes the entire
Agreement between the parties with respect to the subject matter hereof and
supersedes in all respects all prior proposals, negotiations, conversations,
discussions and agreements between the parties. This Agreement may not be
modified or amended except by express written amendment signed by authorized
representatives of both parties
IN WITNESS WHEREOF, the parties hereto, through their duly authorized officers,
have executed this Agreement.
13
<PAGE>
ACCEPTED AND AGREED TO:
PHASECOM LTD. PHILIPS SEMICONDUCTORS INC,
/s/ Menashe Shahar /s/
- ----------------------------------------- --------------------------------
Signature Signature
Menashe Shahar
- ----------------------------------------- --------------------------------
Name Name
Vice President, Research & Development --------------------------------
Chief Technology Officer Title
- -----------------------------------------
Title
--------------------------------
November 14, 1993 Date
- -----------------------------------------
Date
PHASECOM INC.
/s/ Ilan Judkiewicz
- -----------------------------------------
Signature
Ilan Judkiewicz
- -----------------------------------------
Name
Chief Financial Officer
- -----------------------------------------
Title
December 14, 1999
- -----------------------------------------
Date
14
<PAGE>
EXHIBIT A
DOCSIS 1.0 MAC SOFTWARE
Upon the signing of the licensing agreement and delivery of DOCSIS MAC 1.0,
including:
a) 1.0 MAC specification excluding BPI with detailed design documentation
on each hardware block
b) VHDL source code
c) The test benches
d) All applications source code for 1.0 cable modem running under Windows
95
e) 1.0 MAC FPGA
f) PCOM cable modem 1.0 prototype
g) 1.0 software sources and 1.0 software documentation as described in
Appendix A.
h) Unit test software for 1.0 software.
i) Engineer visit (1 hardware engineer, 1 software engineers, for 2 weeks
in Sunnyvale)
j) Sign-off of MAC 1.1 feature list
k) Full Architecture Specifications for 1.1 MAC
l) Full software Architecture Specifications and requirements
specification for 1.1 MAC
15
<PAGE>
EXHIBIT B
SCOPE OF WORK
FOR
DOCSIS 1.1 MAC SOFTWARE
Delivery of PHILIPS DOCSIS MAC 1.1 firmware and VHDL sources, including:
a) Simulation test bench
b) Test vectors (Stimulus and simulation output files)
Delivery of PHILIPS DOCSIS MAC 1.1 Synthesis for P&R and QT
a) Synthesis scripts
b) Scripts for timing driven place and route
c) Gate-level simulated with timing Netlist for P&R
d) List of all critical paths
e) Test vectors for simulation of critical path
The foregoing activity will be performed by PHILIPS and the output files will be
checked by PCOM using PCOM's tools. PHILIPS is required to provide the output
VHDL model of the PHILIPS DOCSIS MAC1.1 (VITAL libraries with SDF).
QT Verification
a) Send an engineer to Sunnyvale for 4 weeks for QT simulation (10/18 to
11/15)
Post P&R and timing verification
a) PCOM will provide telephone support for this activity and will be
ready to send an engineer to Sunnyvale for two (2) weeks (11/15 to
12/1) if reasonably deemed necessary.
Full PHILIPS 1.1 MAC software
a) Test software
b) Full 1.1 MAC and applications source code
c) 1.1 MAC specification with detailed design documentation on each
hardware block
d) 1.1 Software: requirements spec, design spec, test spec, test results,
bug list,
e) Fully tested on PCOM evaluation board all PCOM cable modem application
software.
16
<PAGE>
Silicon validation
a) 6 weeks on call, at site if needed starting 2/15/00
Cable Labs certification
a) 4 weeks on call targeted for wave 2 (May 2000)
PCOM shall provide to PHILIPS technical support for bug fixes and maintenance
for a one year period after silicon validation
- - on-call support with 24-hour response time and guaranteed engineering
resource allocation , excluding weekends and holidays.
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
NAME OF SUBSIDIARY JURISDICTION
- --------------------- ------------
<S> <C>
Vyyo Ltd. Israel
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated January 28, 2000 in this Registration Statement
(Form S-1) and related Prospectus of Vyyo Inc.
/s/ ERNST & YOUNG LLP
San Jose, California
February 3, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> DEC-31-1999 DEC-31-1998
<CASH> 5,036 131
<SECURITIES> 0 0
<RECEIVABLES> 583 247
<ALLOWANCES> 176 187
<INVENTORY> 1,132 1,644
<CURRENT-ASSETS> 7,066 2,129
<PP&E> 1,095 1,010
<DEPRECIATION> 1,440 1,054
<TOTAL-ASSETS> 8,161 3,139
<CURRENT-LIABILITIES> 6,856 12,710
<BONDS> 0 0
0 0
15,369 10,335
<COMMON> 27,612 2,649
<OTHER-SE> (41,376) (22,555)
<TOTAL-LIABILITY-AND-EQUITY> 8,161 3,139
<SALES> 3,750 2,449
<TOTAL-REVENUES> 4,230 2,449
<CGS> 4,003 2,568
<TOTAL-COSTS> 4,316 2,568
<OTHER-EXPENSES> 11,398 7,028
<LOSS-PROVISION> 198 11
<INTEREST-EXPENSE> (753) (534)
<INCOME-PRETAX> (12,201) (7,671)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (12,201) (7,651)
<EPS-BASIC> (2.27) (8.15)
<EPS-DILUTED> (2.27) (8.15)
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