VYYO INC, S-1/A, 2000-03-22

VYYO INC
S-1/A, 2000-03-22
COMMUNICATIONS EQUIPMENT, NEC

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 22, 2000

REGISTRATION STATEMENT NO. 333-96129
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------

AMENDMENT NO. 3
TO
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, 8th 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, 8th 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 Shelley 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. / /
--------------------------

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.

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- --------------------------------------------------------------------------------
<PAGE>
Prospectus (not complete)

Issued March 22, 2000

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>
6,750,000 SHARES

[VYYO 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 $13
and $15 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 5.

---------------------

<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 1,012,500 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

WR HAMBRECHT + CO

---------------------

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.]

<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
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<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 5
Cautionary Note on Forward-Looking Statements............... 21
Use of Proceeds............................................. 22
Dividend Policy............................................. 22
Capitalization.............................................. 23
Dilution.................................................... 24
Selected Consolidated Financial Data........................ 25
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 26
Business.................................................... 33
Management.................................................. 49
Certain Relationships and Related Transactions.............. 65
Principal Stockholders...................................... 73
Description of Capital Stock................................ 76
Shares Eligible for Future Sale............................. 79
Underwriting................................................ 81
Legal Matters............................................... 85
Experts..................................................... 85
Available Information....................................... 85
Index to Consolidated Financial Statements.................. F-1
</TABLE>

------------------------

Our principal executive offices are located at 20400 Stevens Creek
Boulevard, 8th 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.
<PAGE>
PROSPECTUS SUMMARY

THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, INCLUDING THE RISK FACTORS AND
CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES APPEARING ELSEWHERE IN THIS
PROSPECTUS.

VYYO

We supply broadband wireless access systems used by communications service
providers to deliver wireless, high-speed data connections to business and
residential subscribers. Our systems enable data transmission between a service
provider's central location and multiple subscribers, based on the networking
standard used to deliver voice and data over the Internet. Our systems are
designed to allow service providers to rapidly and cost-effectively bridge the
segment of the network that connects the service providers' systems directly to
subscribers, commonly referred to as the last mile. Our first-generation
broadband wireless access system has been commercially deployed at 21 domestic
and international sites and the initial commercial deployment of our
second-generation system occurred in the first quarter of 2000.

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
broadband wire-based technologies that do not utilize airwaves for data
transport, but instead use copper wire, fiber optic cable or other physical
wires to transport voice and data to and from points on a network. These
wire-based technologies deliver high-speed connections at transmission rates
comparable to or, in the case of fiber optic cable, faster than those delivered
by most broadband wireless technologies, but performance, cost, time for
deployment or service availability may limit the use of these alternative
technologies to satisfy the needs of service providers and subscribers.
Broadband wireless technologies deliver high-speed connections and offer service
providers the ability to expand their current market coverage or to enter new
markets while avoiding the limitations of the existing wire-based
infrastructure.

Our systems are deployed for use at the frequencies licensed for two-way
broadband communication at transmission rates comparable to most wire-based
technologies. Our second-generation system, which is based on the cable
industry's Data Over Cable Service Integration Specification, or DOCSIS,
standard, consists of a wireless hub, network management system software and
wireless subscriber modems. Each hub transmits, receives and manages data
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, who provide network planning and integration services and
integrate our systems with other components to provide their customers with
end-to-end network solutions.

1
<PAGE>
As key elements of our strategy, we intend to:

- use existing commercially deployed systems to demonstrate our
capabilities;

- broaden our product offerings;

- improve cost-effectiveness and performance of our systems;

- leverage key strategic relationships; and

- participate in the development of industry standards.

We began commercial shipments of our first-generation broadband wireless
access systems in the first quarter of 1999. We have a very limited operating
history in the broadband wireless access market upon which to evaluate our
future prospects. We have incurred significant losses since our inception. We
incurred net losses of approximately $43.6 million in 1999. As of December 31,
1999, our accumulated deficit was approximately $66.2 million. We expect to
continue to incur net losses for the foreseeable future.

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.

2
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THE OFFERING

Common stock offered by Vyyo......... 6,750,000 shares

Common stock to be outstanding after
this offering...................... 33,697,286 shares

Use of proceeds...................... We expect to use the net proceeds of
this offering for working capital and
other general corporate purposes,
including research and development
activities. We may use a portion of
the net proceeds to acquire
complementary products, technologies
or businesses.

Proposed Nasdaq National Market
symbol............................. VYYO
</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:

- 3,771,195 shares of common stock issuable as of February 29, 2000 upon the
exercise of outstanding stock options issued under our option plans at a
weighted average exercise price of $0.83 per share;

- 801,958 shares of common stock issued from January 1, 2000 through
February 29, 2000 upon the exercise of stock options issued under our
option plans;

- 4,369,189 additional shares of common stock reserved as of February 29,
2000 for issuance under our stock option plans;

- 750,000 shares of common stock initially reserved for issuance under our
employee stock purchase plan; and

- 187,785 shares of common stock issuable as of December 31, 1999 upon the
exercise of outstanding warrants with a weighted average exercise price of
$1.26 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 3,944,553
SHARES OF COMMON STOCK;

- THE 1-FOR-5 REVERSE STOCK SPLIT EFFECTED ON JANUARY 3, 2000;

- THE 3-FOR-2 STOCK SPLIT EFFECTED ON MARCH 14, 2000; AND

- NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION.

3
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1998 1999
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<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............... -- -- 9,300
------- ------- --------
Total operating expenses.................................... 5,082 7,028 17,098
------- ------- --------
Operating loss.............................................. (5,101) (7,147) (17,184)
Charge for amended financing arrangements................. -- -- (25,700)
Interest and other income (expense), net.................. (244) (524) (717)
------- ------- --------
Net loss.................................................... $(5,345) $(7,671) $(43,601)
======= ======= ========
Net loss per share:
Basic and diluted......................................... $ (5.91) $ (5.43) $ (5.40)
======= ======= ========
Pro forma basic and diluted (unaudited)................... $ (4.30)
========
Shares used in per share computations:
Basic and diluted......................................... 905 1,412 8,078
======= ======= ========
Pro forma basic and diluted (unaudited)................... 10,137
========
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------
PRO FORMA
ACTUAL AS ADJUSTED
-------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $5,036 $91,321
Working capital............................................. 210 86,495
Total assets................................................ 8,363 94,648
Long-term obligations, net of current portion............... -- --
Total stockholders' equity.................................. 1,305 87,590
</TABLE>

This balance sheet data is presented on a pro forma as adjusted basis to
give effect to:

- the sale of the shares of common stock in this offering at the assumed
initial public offering price of $14 per share after deducting the
underwriting discounts and commissions and estimated offering expenses.

4
<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.

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 INCREASE THE RISK OF YOUR INVESTMENT.

The broadband wireless access market is only beginning to emerge. We began
commercial shipments of our first-generation broadband wireless access system in
the first quarter of 1999, and we began commercial shipments of our
second-generation, DOCSIS-based, wireless access system in the fourth quarter of
1999. All of our product revenues in 1997 and 1998, and a substantial portion of
our product revenues in 1999, relate to sales of cable modem products that we
are no longer developing. Virtually all of the remaining revenues in 1999 relate
to sales of our first-generation wireless modem products, which we phased out
with the launch of our second-generation, DOCSIS-based, wireless access system
in the fourth quarter of that year. Therefore, the success of our business will
be entirely dependent upon the success of our wireless products generally, and
our new DOCSIS-based wireless products in particular. 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 $43.6 million in 1999. As of December 31, 1999, our accumulated
deficit was approximately $66.2 million. We intend to significantly increase our
operating expenses, especially our marketing and selling expenses, and our
research and development expenses related to the local multipoint distribution
system, or LMDS,

5
<PAGE>

and the multichannel multipoint distribution system, or 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, 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

- changes in the prices or delays in deliveries of the components we
purchase or license.

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. We believe that
period-to-period comparisons of our results of operations are not meaningful and
should not be relied upon as indicators of future performance. If our operating
results fall below the expectations of investors in future periods, our share
price will likely 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.

6
<PAGE>

Service providers continually evaluate alternative technologies, including
digital subscriber line, fiber and cable. 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 generated approximately 20% of our 1999 revenues from sales 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.

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
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.

7
<PAGE>
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 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. 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. 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. 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 and cable. 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, WHICH WOULD RESULT IN DELAYS THAT COULD
SERIOUSLY HARM OUR RESULTS OF OPERATIONS.

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

8
<PAGE>
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 wireless 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.

The occurrence of any of these or similar events would harm our business.

DELAYS AND SHORTAGES IN THE SUPPLY OF COMPONENTS FROM OUR SUPPLIERS COULD REDUCE
OUR REVENUES OR INCREASE OUR COST OF REVENUE.

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.

9
<PAGE>
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

10
<PAGE>
maintain research and development facilities in 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.

IF OUR SENIOR MANAGEMENT TEAM IS UNABLE TO WORK TOGETHER EFFECTIVELY, OUR
BUSINESS MAY BE SERIOUSLY HARMED.

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 nine 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.

IF WE ARE UNABLE TO ATTRACT, TRAIN AND RETAIN QUALIFIED ENGINEERS, MARKETING,
SALES AND TECHNICAL SUPPORT PERSONNEL, WE MAY NOT BE ABLE TO DEVELOP OUR
BUSINESS.

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 for 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.

11
<PAGE>
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.

WE DEPEND ON OUR KEY PERSONNEL, IN PARTICULAR DAVIDI GILO, OUR CHAIRMAN AND
CHIEF EXECUTIVE OFFICER, AND MENASHE SHAHAR, OUR VICE PRESIDENT, ENGINEERING AND
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.

THIRD PARTIES MAY BRING INFRINGEMENT CLAIMS AGAINST US WHICH COULD HARM OUR
ABILITY TO SELL OUR PRODUCTS AND RESULT IN SUBSTANTIAL LIABILITIES.

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.

Third parties, including Hybrid, could assert, and it could be found, that
our technologies infringe their proprietary rights. We could incur substantial
costs to defend any litigation, and intellectual property litigation could force
us to do one or more of the following:

- obtain licenses to the infringing technology;

- pay substantial damages under applicable law;

- cease the manufacture, use and sale of infringing products; or

- expend significant resources to develop non-infringing technology.

Accordingly, any infringement claim or litigation against us could significantly
harm our business, operating results and financial condition.

12
<PAGE>
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. 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. 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.

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 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

13
<PAGE>
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.

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.

IF THE COMMUNICATIONS AND INTERNET INDUSTRIES DO NOT CONTINUE TO GROW AND EVOLVE
IN A MANNER FAVORABLE TO US OR OUR BUSINESS STRATEGY, OUR BUSINESS MAY BE
SERIOUSLY HARMED.

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 MAY NEED TO RAISE ADDITIONAL CAPITAL IN THE FUTURE, AND IF WE ARE UNABLE TO
SECURE ADEQUATE FUNDS ON TERMS ACCEPTABLE TO US, WE MAY NOT BE ABLE 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 may need to raise additional funds
for a number of uses, including:

- expanding research and development programs;

- hiring additional qualified personnel;

14
<PAGE>
- 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 to otherwise 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.

GOVERNMENT REGULATION AND INDUSTRY STANDARDS MAY INCREASE OUR COSTS OF DOING
BUSINESS, LIMIT OUR POTENTIAL MARKETS OR REQUIRE CHANGES TO OUR BUSINESS MODEL.

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 to incur substantial compliance costs. 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. Failure by the regulatory authorities to allocate suitable,
sufficient radio frequencies to potential customers in a timely manner could
result in the delay or loss of potential orders for our systems and 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.

15
<PAGE>
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 management and ADC Telecommunications
will collectively own approximately 63% 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

16
<PAGE>
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. 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.

17
<PAGE>
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 33,697,286 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......................... --
September 27, 2000........................................ 24,346,793
At various times thereafter upon expiration of applicable
holding periods......................................... 2,600,493
</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."

WE MAY HAVE CONTINGENT SECTION 5 LIABILITY ARISING IN CONNECTION WITH OUR PRESS
RELEASE.

We issued a press release that announced the initial filing with the
Securities and Exchange Commission of a registration statement relating to this
offering. This press release, which we believe was in customary form, also
contained limited information regarding Vyyo. If the press release were
determined to have constituted a prospectus that did not meet the requirements
of Section 5 of the Securities Act, then any purchasers in this offering who
viewed this press release could have the right, for a period of one year from
the date of their purchase, to bring an action for rescission or for damages
resulting from their purchase of our common stock. We do not believe that the
existence of this press release caused a violation of the Securities Act.
Accordingly, we do not believe that our exposure, if any, resulting from this
press release will be material to our results of operations or financial
condition.

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

18
<PAGE>
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 providing us with tax benefits. 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 benefits
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.

19
<PAGE>

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.
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. We believe that most of our current products are
not based on Chief Scientist funded technology and therefore are not subject to
this restriction.

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.

20
<PAGE>
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 and
developing new products;

- 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.

21
<PAGE>
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 $86.3 million, or $99.5 million
if the underwriters exercise their over-allotment option in full, based upon an
assumed offering price of $14 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, including
research and development. In particular, we expect to spend between $9 million
and $12 million on research and development activities in 2000. We may also use
a portion of the net proceeds to acquire complementary products, technologies,
or businesses; however, we currently have no commitments or agreements 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.

22
<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 $14 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, 23,002,733 shares issued
and outstanding, actual; 26,947,286 shares issued and
outstanding pro forma; 33,697,286 shares issued and
outstanding, pro forma as adjusted...................... 66,412 81,781 168,066
Note receivable from stockholder.......................... (920) (920) (920)
Deferred compensation..................................... (13,400) (13,400) (13,400)
Accumulated deficit....................................... (66,156) (66,156) (66,156)
-------- -------- --------
Total stockholders' equity.................................. 1,305 1,305 87,590
-------- -------- --------
Total capitalization........................................ $ 1,305 $ 1,305 $ 87,590
======== ======== ========
</TABLE>

The shares of common stock outstanding in the actual, pro forma and pro
forma as adjusted columns exclude:

- 801,958 shares of common stock issued from January 1, 2000 through
February 29, 2000 upon the exercise of stock options issued under our
option plans;

- 4,369,189 additional shares of common stock reserved as of February 29,
2000 for issuance under our stock option plans;

- 750,000 shares of common stock initially reserved for issuance under our
employee stock purchase plan; and

- 187,785 shares of common stock issuable as of December 31, 1999 upon the
exercise of outstanding warrants with a weighted average exercise price of
$1.26 per share.

23
<PAGE>
DILUTION

Our pro forma net tangible book value as of December 31, 1999 was
approximately $1.3 million, or $0.05 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 26,947,286, 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 $87.6
million, or $2.60 per share. This represents an immediate increase in net pro
forma tangible book value to existing stockholders of $2.55 per share and an
immediate dilution of $11.40 per share to new investors. The following table
illustrates the per share dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share:............ $14.00
------
Pro forma net tangible book value per share before this
offering as of December 31, 1999........................ $0.05
-----
Increase per share attributable to new investors.......... 2.55
-----
Pro forma net tangible book value per share after this
offering.................................................. 2.60
------
Dilution per share to new investors......................... $11.40
======
</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..................... 26,947,286 80.0% $ 33,381,000 26.1% $ 1.24
New investors............................. 6,750,000 20.0 94,500,000 73.9 14.00
---------- ----- ------------ -----
Total................................... 33,697,286 100.0% $127,881,000 100.0%
========== ===== ============ =====
</TABLE>

If the underwriters' over-allotment is exercised in full, the percentage of
shares of common stock held by existing stockholders will be reduced to 77.6% 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
7,762,500, or 22.4% 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. There were options outstanding to purchase
3,771,195 shares of common stock as of February 29, 2000 at a weighted average
exercise price of $0.83 per share, 801,958 shares of common stock issued from
January 1, 2000 through February 29, 2000 upon the exercise of stock options
issued under our option plans, 5,119,189 shares of common stock reserved for
issuance under our stock option and purchase plans, and warrants outstanding to
purchase 187,785 shares of common stock at a weighted average exercise price of
$1.26 per share. To the extent that any of these options or warrants are
exercised, there will be further dilution to the new investors.

24
<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........ -- -- -- -- 9,300
------- ------- ------- ------- --------
Total operating expenses....................... 2,030 3,553 5,082 7,028 17,098
------- ------- ------- ------- --------
Operating loss................................. (1,929) (3,971) (5,101) (7,147) (17,184)
Charge for amended financing arrangements.... -- -- -- -- (25,700)
Interest and other income (expense), net..... (750) (131) (244) (524) (717)
------- ------- ------- ------- --------
Net loss....................................... $(2,679) $(4,102) $(5,345) $(7,671) $(43,601)
======= ======= ======= ======= ========
Net loss per share:
Basic and diluted............................ $ (5.91) $ (5.43) $ (5.40)
======= ======= ========
Pro forma basic and diluted (unaudited)...... $ (4.30)
========
Shares used in per share computations:
Basic and diluted............................ 905 1,412 8,078
======= ======= ========
Pro forma basic and diluted (unaudited)...... 10,137
========
</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 3,380 8,363
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>

25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

We supply 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 $43.6 million
for the year ended December 31, 1999. As of December 31, 1999, our accumulated
deficit was approximately $66.2 million.

We were incorporated in 1996 in Delaware and succeeded to the business of
Vyyo Ltd., formerly PhaseCom Ltd., an Israeli company, under a reorganization.
As a result, Vyyo 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 local
multipoint distribution system, or LMDS, and the multichannel multipoint
distribution system, or MMDS, frequency bands. Our second-generation,
DOCSIS-based, broadband wireless access system was commercially deployed during
the first quarter of 2000 for the LMDS and MMDS frequency bands. Our
first-generation broadband wireless access system has been commercially deployed
at 21 domestic and international sites and our second-generation system has been
commercially deployed at one domestic site.

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.

26
<PAGE>
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 represented 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 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. We began commercial shipments of our first-generation
broadband wireless access system in the first quarter of 1999, and we began
commercial shipments of our second-generation DOCSIS-based wireless access
system in the fourth quarter of 1999. All of our product revenues in 1997 and
1998, and a substantial portion of our product revenues in 1999, relate to sales
of cable modem products that we are no longer developing. Virtually all of the
remaining revenues in 1999 relate to sales of our first-generation wireless
modem products, which we phased out with the launch of our second-generation,
DOCSIS-based, wireless access systems in the fourth quarter of that year.
Therefore, the success of our business will be entirely dependent upon the
success of our wireless products generally, and our new DOCSIS-based wireless
products in particular. We do not anticipate recognizing material amounts of
revenue from cable modem or first-generation wireless products in subsequent
periods. Technology development revenues were $480,000 in 1999. There were no
technology development revenues in either 1997 or 1998.

COST OF REVENUES. Cost of revenues consist of costs of product revenues and
in 1999 included $313,000 of costs of technology development revenues. There
were no costs of technology development revenues in either 1997 or 1998. Cost of
technology development revenues consist 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 consist 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
included the technology development activities. Gross margins were negative in
each year. Gross

27
<PAGE>
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 5% 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 intend to gradually decrease the
manufacture and sale of products developed within any of the projects funded by
the Office of the Chief Scientist in the Israeli Ministry of Industry and Trade
or by the Israel-United States Binational Industrial Research and Development
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. We expect to spend between $9 million and
$12 million on research and development activities in 2000. This includes
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.

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 to increase 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.

28
<PAGE>
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 and 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 $9.3 million in 1999. We currently expect to record amortization of
deferred stock compensation expense of approximately $8.1 million in 2000,
$3.3 million in 2001 and $2.0 million thereafter for options issued through
December 31, 1999, and to record additional expenses for options granted
subsequent to that date.

CHARGE FOR AMENDED FINANCING ARRANGEMENT. Charge for amended financing
arrangement represents the aggregate differences between the amended notes
payable conversion price per share or the related amended warrants exercise
price and the deemed fair market value of our common stock for accounting
purposes.

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 $41 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. We have
prepared the unaudited consolidated financial statements 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

29
<PAGE>
necessary for a fair presentation of such information. You should read this
information in conjunction with our consolidated financial statements and the
accompanying notes appearing elsewhere in this prospectus. Our limited operating
history makes the prediction of future operating results difficult or
impossible. We do not believe that period-to-period comparisons of our operating
results are meaningful or should 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........... -- 400 400 8,500
------ ------ ------ --------
Total operating expenses.......................... 1,592 2,059 2,413 11,034
------ ------ ------ --------
Operating loss.................................... (1,514) (2,182) (2,414) (11,074)
Charge for amended financing arrangements....... -- -- (5,200) (20,500)
Interest and other income (expense), net........ (198) (195) (163) (161)
------ ------ ------ --------
Net loss.......................................... (1,712) (2,377) (7,777) (31,735)
====== ====== ====== ========
</TABLE>

Cost of revenues in the third quarter of 1999 reflect approximately $200,000
in 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 $4.2 million in 1997, $6.8 million in 1998 and
$11.7 million in 1999 in convertible debt from stockholders 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,

30
<PAGE>

cash used in operations was $6.2 million comprised of our net loss of
$43.6 million, increase in accounts receivable of $336,000, partially offset by
non-cash charges of $35 million for deferred stock compensation and amended
financing agreements, 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.

We have a line of credit arrangement with a bank for an aggregate amount of
$2.5 million. 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. In particular, we expect to spend between
$9 million and $12 million on research and development activities in 2000. 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 may need to raise additional funds for
a number of uses. If we raise additional funds through the issuance of equity or
convertible debt securities, the price paid for such securities may be
substantially less than the price paid for the common stock sold in this
offering and, in any event, 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.

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

31
<PAGE>
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. Because of
these benefits, we will enjoy a tax exemption on income derived from this
investment program for a period of six years commencing in the first year in
which the Israeli subsidiary will have 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 four 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, which 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.

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.

32
<PAGE>
BUSINESS

OVERVIEW

We supply 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 systems are based on the Internet protocol, or
IP, which is the networking standard used to deliver voice and data over the
Internet. Networking standards are the special set of rules for communicating
that the end points in a telecommunication connection use when they send signals
back and forth. 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 that 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 where
subscribers watch video clips with sound over the Internet, voice over IP where
subscribers conduct voice calls over the Internet instead of their telephones,
and provide remote access to corporate networks where telecommuters can access
corporate networks from locations other than their offices. 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 do not utilize airwaves for data and voice
transport, but instead use copper wire, fiber optic cable, or other physical
wires to transport voice and data. These wire-based alternatives deliver
high-speed connections, but performance, cost, time for deployment or service
availability may 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 subscriber
base or to enter new markets while avoiding the limitations of the existing
wire-based infrastructure.

Our system consists of a wireless hub, which serves as a point of
convergence for data traffic in a network, network management system software
and wireless subscriber modems. Each wireless hub is located at a base station,
which houses the

33
<PAGE>

components in the network. Our system is designed to allow 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, which manages the traffic
over the network, optimizes how quickly and efficiently the system operates by
allocating bandwidth, or the amount of data which can travel over the wireless
signal. These system characteristics allow service providers to maximize the
number of simultaneous subscribers on their networks. 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 more wireless hubs and subscriber wireless modems as the number of
subscribers grows.

We sell our systems directly to service providers and system integrators,
who provide network planning and integration services and integrate our systems
with other components in the network and provide their customers with end-to-end
network solutions. 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 first-generation system had been commercially deployed at
21 domestic and international sites and our second-generation system had been
commercially deployed at one domestic site. Our second-generation systems use
our enhanced version of the cable industry's Data Over Cable Service Integration
Specification, or DOCSIS, standard.

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.

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
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.

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

34
<PAGE>
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.

- CABLE MODEMS. Cable modems are designed to provide broadband Internet
access and are targeted primarily at the residential market.

- 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.

- POINT-TO-POINT WIRELESS TECHNOLOGY. Point-to-point wireless technology
enables data transmission using a dedicated radio link between two
locations.

- BROADBAND POINT-TO-MULTIPOINT WIRELESS TECHNOLOGY. Broadband
point-to-multipoint wireless networks consist of a wireless hub that
communicates over radio frequencies to transmit and receive network
traffic to and from wireless modems installed at multiple subscriber
locations.

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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 companies holding 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

Our systems are designed to provide the following benefits:

COST-EFFECTIVENESS. Service providers worldwide are beginning to use
wireless access technologies as a cost-effective alternative to wire-based
communications, such as cable modems and digital subscriber lines. Our wireless
system avoids many of the high 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 are easy to operate and less expensive to install and maintain. Our
second-generation systems use our enhanced version of the DOCSIS standard, which
also contributes to cost-effectiveness.

DOCSIS-BASED SYSTEMS. We use our enhanced version of the DOCSIS standard,
which we call DOCSIS(+), in our second-generation wireless access systems.
Because different manufacturers may use different protocols or rules for
communicating and sending signals back and forth in their products, these
products are often unable to communicate with one another or with products from
other manufacturers. By designing systems with communication rules based on the
DOCSIS standard, our systems can be more easily adapted to new standards and
rules and make them easier to integrate with other manufacturers' equipment.
Widely-available key components make our DOCSIS-based systems less expensive to
use than most other currently available systems.

COMMERCIAL DEPLOYMENTS. Our product is one of the first commercially
available wireless hub and modem systems for the multichannel multipoint
distribution system, or MMDS, and local multipoint distribution system, or LMDS,
frequency bands. Our first-generation system has been commercially deployed at
21 domestic and international sites and our second-generation, DOCSIS-based,
system has been commercially deployed at one domestic site.

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FLEXIBLE PLATFORM. Our systems are highly scalable which allows additional
users and hubs to be added quickly and easily, so our customers can establish a
wireless broadband access network with a relatively low initial investment and
later expand the geographic coverage area of the network and increase the number
of users who can be served on the network as subscriber demand increases. Our
integrated network management system is designed to allow new system features
and benefits to be added without costly replacements of existing hardware.
Service providers also use the integrated network management system to manage
the traffic over the network and optimize the how quickly and efficiently the
system operates by efficiently allocating bandwidth, or the amount of data which
can travel over the wireless signal. These system characteristics allow service
providers 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 a leading worldwide supplier to service providers and
system integrators of broadband wireless access systems used in
point-to-multipoint applications. Our strategy to accomplish this objective is
to:

- USE EXISTING COMMERCIALLY DEPLOYED SYSTEMS TO DEMONSTRATE OUR
CAPABILITIES. 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 products with
additional features and benefits and new systems for use in additional
wireless frequency bands worldwide as these frequencies become available.
We expect to make relatively minor modifications in our transmission
components to enable our systems to operate in different frequency bands.
We do not expect 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 software
code, which is intended to enhance the functions of the system and
allocate frequencies more efficiently.

- 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.

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<PAGE>
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:

[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. 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, will send 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.

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

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<PAGE>
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
allows us to easily replace the circuit boards in the hub as more sophisticated
technology becomes available. Our wireless hub is designed to support a variety
of channel capacities by using any combination of six upstream receivers and
four downstream transmitters. 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 to transmit 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 may be accessed for modification or transmitter or receiver
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. 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 operations. The system features graphical
views of all parts of the network, 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 automatically to
more efficiently utilize available bandwidth. This utilization can translate
into increased potential revenue for service providers as compared to other
currently available wireless products.

WIRELESS MODEM. Our wireless subscriber modem is suitable for residential,
home office or small office deployment. It supports up to 15 individual users
simultaneously through a separate Ethernet hub or switch.

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. Currently, the primary frequency
bands for broadband

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<PAGE>
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--Multichannel Multipoint Distribution Service--2.150 to 2.680 GHz;
and

- LMDS--Local Multipoint Distribution Service--24 to 40 GHz.

We began commercial shipments of our first-generation broadband wireless
access system in the first quarter of 1999, and we began commercial shipment of
our second-generation, DOCSIS-based, wireless access system in the fourth
quarter of 1999. All of our product revenues in 1997 and 1998, and a substantial
portion of our product revenues in 1999, relate to sales of cable modem products
that we are no longer developing. Virtually all of the remaining revenues in
1999 relate to sales of our first-generation wireless modem products, which we
phased out with the launch of our second-generation, DOCSIS-based, wireless
access systems in the fourth quarter of that year. Therefore, the success of our
business will be entirely dependent upon the success of our wireless products
generally, and our new DOCSIS-based wireless products in particular.

TECHNOLOGY

Our experience in designing shared bandwidth communications systems using
time division multiple access technology is the foundation of our expertise in
the point-to-multipoint broadband wireless access market. "Time division
multiple access" is a wireless technology that allows multiple users to share
available bandwidth. We believe that we have extensive expertise in system
design, as well as modem and broadband radio frequency technology. We have
developed media access controller, or MAC, layer algorithms, or software code,
that maximize the number of subscribers that can share a single upstream
channel.

INTERNET PROTOCOL EXPERTISE. Our system architecture supports Internet
Protocol communications traffic, and our primary systems component, the media
access controller, is optimized for Internet Protocol communications traffic. We
have designed our systems to support variable-length Internet Protocol packets,
which carry the data being transmitted, including the most common packet size of
64 bytes.

DOCSIS(+) STANDARD. Our second-generation systems are based on the cable
industry's DOCSIS standard that we have adapted and enhanced for use in the
wireless environment. Our DOCSIS(+) standard provides for comprehensive support
of all Internet Protocol-based services. We believe that we are the first
company to modify the DOCSIS standard to suit the wireless environment. We have
developed media access controller layer algorithms, or software code, based on
DOCSIS(+) for our

40
<PAGE>

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 media access controller layer
software code, combined with select physical layer software code, 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 technology that is designed to correct transmission errors and
prevent unauthorized access to the data being transmitted. We believe that our
ability to rapidly develop and integrate such modules into our systems provides
us with a competitive advantage.

SCHEDULING ALGORITHMS. We develop scheduling software code for time
division multiple access-based point-to-multipoint systems. Our network
management system is designed to predict user behavior and automatically adjust
allocation of frequencies to more efficiently utilize bandwidth. 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
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.

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

41
<PAGE>
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 about a 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.

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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.

COMPETITION

The market for broadband wireless 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.

The primary competing alternative technologies for broadband access include:

DIGITAL SUBSCRIBER LINE. Digital subscriber line, or DSL, technology today
transmits data approximately 50 times faster than a conventional dial-up modem
using the existing copper wire network. DSL transmission rates are limited,
however, by the length and quality of the available copper wires. Various
implementations of DSL are being developed and deployed. Service providers
deploying DSL technology include incumbent local exchange carriers, such as SBC
Communications, Inc. and Bell Atlantic Corporation, as well as numerous
competitive local exchange carriers.

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. Several cable companies are
currently offering broadband access services across two-way cable, including
Excite@Home and Time Warner. In addition, we believe that as a result of AT&T's
recent acquisition of Tele-Communications, Inc. and the proposed merger of
America Online, Inc. and Time Warner, cable TV networks will be used
increasingly for voice and high-speed data services.

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. Fiber optic cables use pulses of light to transmit digital
information. Because

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fiber optic cables support thousands of high-speed, local digital connections
onto a single higher-speed connection to the central office or the central side
of the cable TV network where all the video signals emanate, they offer
virtually unlimited bandwidth capacity. Due to their high capacity, fiber optic
cables are increasingly being used in the access network in both
telecommunications and cable TV applications. However, these solutions are
costly to deploy for small business and residential subscribers.

DSL and cable modem technologies offer data transmission speeds comparable
to our broadband wireless technology at comparable modem costs. Fiber optic
cable provides faster transmission rates than our broadband wireless technology,
though at significantly higher costs.

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 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 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.

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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. Under
Israeli Law, means of encryption and encryption equipment are controlled
commodities within the meaning of the Control of Commodities and Services Law,
5718-1957, and are therefore subject to the prohibitions, restraints,
supervision and control governing it by virtue of such law and regulations and
orders thereunder. Such law and regulation prohibit the engagement in means of
encryption otherwise than pursuant to a license from the authorized person
appointed by the Minister of Defense. Vyyo Ltd.'s license to engage in
encryption expires on February 28, 2001. We may not be able to renew these
licenses as necessary from time to time. 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 is 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

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<PAGE>
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, with the advice of counsel, 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.

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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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MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth information regarding the executive officers
and directors of Vyyo as of January 31, 2000:

<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.

49
<PAGE>
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.

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 as Chief Engineer for the Data Communications Department of
Tadiran Telecommunications Group, where he spent five years in the development
of products in the area of packet switching, frame relay and ISDN. Prior to
joining Tadiran, Mr. Shahar served for eight years as a design engineer in the
Israeli Defense Force, where he was involved in designing modems and other data
communications products.

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
December 1999. 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

50
<PAGE>
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,
Chen & 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. which has holdings in a group of Israeli tourism
and aviation companies. 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 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

51
<PAGE>
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 15,000
shares of our common stock to each of Messrs. Broad and Brownstein and an option
to purchase 75,000 shares of our common stock to Mr. Fischer, in each case at an
exercise price of $0.83 per share.

In June 1999, the board of directors granted an option to purchase 75,000
shares of our common stock to Mr. Zimmerman and an option to purchase 66,000
shares of our common stock to Mr. Fischer, in each case at an exercise price of
$0.50 per share.

In February 2000, the board of directors granted options to purchase 22,500
shares of our common stock to each of Messrs. Broad, Brownstein, Fischer,
Griffin, Kaplan and Zimmerman, in each case at an exercise price of $1.87 per
share.

52
<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) -- -- 975,000 --
Chairman of the Board and
Chief Executive Officer
Stephen P. Pezzola.............. 140,000(2) -- -- 193,500 --
General Counsel
Menashe Shahar.................. 122,370 $20,420 $17,739(3) 255,000 $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.

53
<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 AT POTENTIAL REALIZABLE VALUE AT
NUMBER OF PERCENT OF ASSUMED ASSUMED ANNUAL RATES OF
SECURITIES TOTAL OPTIONS INITIAL STOCK APPRECIATION FOR
UNDERLYING GRANTED DURING PUBLIC OPTION TERM(3)
OPTIONS FISCAL EXERCISE EXPIRATION OFFERING -----------------------------
NAME GRANTED(1) 1999(2) PRICE DATE PRICE OF $14 5% 10%
- ---- ---------- -------------- -------- ---------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Davidi Gilo............ 585,000 12.38% $0.50 06/01/04 $7,897,500 $10,160,246 $12,897,577
390,000 8.25 0.83 11/23/04 5,136,300 6,644,797 8,469,685
Stephen P. Pezzola..... 193,500 4.10 0.50 06/01/04 2,612,250 3,360,697 4,266,122
Menashe Shahar......... 255,000 5.40 0.50 06/01/04 3,442,500 4,428,825 5,622,021
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 4,726,050 options granted to employees, officers,
directors and consultants in fiscal 1999.

(3) All options were granted at an exercise price that was equal to or greater
than the fair market value of our common stock, as determined by the board
of directors on the date of grant. The assumed 5% and 10% rates of stock
appreciation are based on an assumed initial public offering price of $14
per share. 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.

54
<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.......... 585,000 195,000 -- -- -- --

390,000 -- -- -- -- --

Stephen P. Pezzola... 120,000 40,000 73,500 -- 24,500 --

46,500 23,250 -- -- -- --

Menashe Shahar....... -- -- 30,563 269,438 15,281 92,219

Shaul Berger......... 123,899 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 $0.83 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. The 2000 Plan 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 4,050,000 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
4,050,000 shares to 7,500,000 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) 1,350,000 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.

55
<PAGE>
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 75,000 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 22,500 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
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 Internal Revenue 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 performance 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

56
<PAGE>
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. The
1999 Plan provides for the issuance of stock-based incentive awards, including
stock options, restricted stock and stock bonuses. An aggregate of 2,400,000
shares of common stock has been reserved for issuance under the 1999 Plan. As of
December 31, 1999, options to purchase an aggregate of 1,281,000 shares of
common stock were outstanding under the 1999 Plan with a weighted-average
exercise price of $0.50. We do not intend to grant 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 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. The 1996 Plan provides for the issuance of
stock-based

57
<PAGE>
incentive awards, including stock options, restricted stock and stock bonuses.
An aggregate of 330,000 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
330,000 to 480,000 shares. As of December 31, 1999, options to purchase an
aggregate of 229,151 shares of common stock with a weighted-average exercise
price of $0.33 were outstanding under the 1996 Plan. We do not intend to grant
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 750,000 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) 300,000 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. The 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 twenty-four
months later; provided,

58
<PAGE>
however, that the first offering period under the Purchase Plan will commence
upon the completion of the offering and end on the last trading day 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 15,000
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, Shahar, Pezzola, Pilovsky and Kohavi. Each of the agreements with
Messrs. Gilo, Corwin, Shahar and Pezzola became effective as of January 1, 2000,
and provide for three-year terms that will automatically renew for consecutive
one-year extensions,

59
<PAGE>

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, 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) 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. If after the initial three-year term Mr.
Gilo's employment is not renewed, he will be entitled to severance payments
equal to 18 months of his then current base salary in exchange for a release of
any claims he may have against us. 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.

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<PAGE>
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. Shahar's agreement, he is entitled to receive a monthly salary
equal to 50,000 NIS, or approximately $12,500, and an annual bonus, payable
according to the following schedule:

- if we meet 80% of our annual business plan, Mr. Shahar's bonus payment
will be equal to 15% of his annual base salary;

- if we meet 100% of our annual business plan, Mr. Shahar'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. Shahar's bonus payment will be equal to
90% of his annual base salary.

In addition, Mr. Shahar will also be entitled to a discretionary bonus, as
determined by our board of directors or the compensation committee.

We also contribute to a "Manager's Insurance" policy on behalf of
Mr. Shahar in an amount equal to 15.83% of his salary and to a continuing
education fund in an amount equal to 7.5% of his salary. If Mr. Shahar's
employment is terminated by us without cause, he is entitled to the amounts
accumulated in his Manager's Insurance policy and education fund. In addition,
if Mr. Shahar's employment is terminated by us without cause, or if after the
initial three year term, Mr. Shahar's employment is not renewed, he will be
entitled to a prior notice 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. Shahar's employment is
terminated by us with cause, in exchange for a release as to any and all claims
Mr. Shahar may have against us, he will be entitled to a prior notice payment
equal to three months of his then-current base salary. If Mr. Shahar terminates
his employment with us, he will not be entitled to any prior notice payment.
Mr. Shahar will remain as a consultant during any period he is receiving prior
notice pay.

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<PAGE>
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 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, with the bonus prorated if the plan is met
between 80% and 100% or between 100% and 120%.

In addition, Mr. Pilovsky will also be entitled to a discretionary bonus, as
determined by our board of directors or the compensation committee.

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<PAGE>
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. 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

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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.

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 that 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 and our 3-for-2 stock split effected on March
14, 2000. Preferred share amounts have not been adjusted for stock splits
because all outstanding shares of preferred stock will be automatically
converted upon the closing of this offering on the basis of 0.6 of a share of
common stock for each share of Series A preferred stock and 0.3 of a share of
common stock for each share of Series B and Series C preferred stock.

SALES OF STOCK

In December 1999, we sold 60,000 shares of common stock at a purchase price
of $0.83 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 30,000 shares of common stock at $0.50 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 8,929,656 shares of common stock, at a purchase
price of $0.50 per share, to the Gilo Family Partnership, of which 2,929,656
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 6,000,000 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.

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<PAGE>
On May 31, 1999, we sold 50,001 shares of common stock, at a purchase price
of $0.50 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
Adi, Elad and Yael Gilo DSP Tel Trusts.... 150,000
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.

On September 28, 1998, we sold common stock, at a purchase price of $0.67
per share in cash, to the following investors, among others:

<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
- ---- -----------------
<S> <C>
Pezzola-Foster Trust...................... 11,250
Alan Zimmerman............................ 30,000
</TABLE>

On September 28, 1998, we sold 1,517,741 shares of common stock, at a
purchase price of $0.67 per share, to the Gilo Family Partnership. All of this
common stock was purchased in exchange for cancellation of promissory notes
issued by us to the partnership.

In March and April 1997, we sold shares of common stock at a price of $1.63
per share in cash, and Series A preferred stock at a price of $8.97 in cash, to
the following persons.

<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
NAME COMMON SHARES PREFERRED SHARES
- ---- --------------- ----------------
<S> <C> <C>
The Davidi and Shamaya Gilo
Trust.................... 1,556 2,593
Pezzola-Foster Trust....... 1,500 2,500
PhaseCom Investor Group
Limited Partnership
No. 2.................... 79,749 132,913
Avraham Fischer............ 2,250 3,750
</TABLE>

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<PAGE>
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 $5.00 if the note
converted before September 15, 1998, or if converted after September 15, 1998,
the greater of $5.00 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 August 1999, we amended these notes so that they became
convertible into common stock at $0.83 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 $5.00 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 $1.87 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............. $2,875,556 201,290
Samuel Kaplan/Ralph Strangis
Investment Partnership............ $ 34,201 2,394
Alan Zimmerman...................... $ 26,052 1,824
Michael Corwin...................... $ 36,772 2,574
Pezzola-Foster Trust................ $ 15,000 1,050
Avraham Fischer..................... $ 21,723 1,521
</TABLE>

In November 1999, all of these notes were converted into an aggregate of
3,611,162 shares of common stock at a conversion rate of $0.83 per share. In
December 1999, all of these warrants were exercised for a total of 210,651
shares of common stock at an exercise price of $1.87 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 $9.50 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 that they were convertible into shares of common stock at a
conversion rate of $0.83 per share. In December 1999, these warrants were
amended to have an exercise price of $1.87 per share.

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<PAGE>

<TABLE>
<CAPTION>
NAME PRINCIPAL AMOUNT OF NOTE WARRANT SHARES
- ---- ------------------------ --------------
<S> <C> <C>
Gilo Family Partnership............. $417,600 64,800
Adi, Elad and Yael Gilo DSP Tel
Trusts............................ $ 83,520 12,960
Samuel Kaplan/Ralph Strangis
Investment Partnership............ $ 27,840 4,320
Alan Zimmerman...................... $ 27,840 4,320
Michael Corwin...................... $ 27,840 4,320
Neill Brownstein.................... $ 55,680 8,640
Pezzola-Foster Trust................ $ 9,280 1,440
</TABLE>

In November 1999, all of these notes were converted into an aggregate of
779,520 shares of common stock at a conversion rate of $0.83 per share. In
December 1999, all of these warrants were exercised for a total of 100,800
shares of common stock at an exercise price of $1.87 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 $9.50 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
$0.83 per share. In December 1999, these warrants were amended to have an
exercise price of $1.87 per share.

<TABLE>
<CAPTION>
NAME PRINCIPAL AMOUNT OF NOTE WARRANT SHARES
- ---- ------------------------ --------------
<S> <C> <C>
Gilo Family Partnership............. $129,920 20,160
Adi, Elad and Yael Gilo DSP Tel
Trusts............................ $ 27,840 4,320
Samuel Kaplan/Ralph Strangis
Investment Partnership............ $ 9,280 1,440
Alan Zimmerman...................... $ 9,280 1,440
Michael Corwin...................... $ 9,280 1,440
Neill Brownstein.................... $ 37,120 5,760
Pezzola-Foster Trust................ $ 9,280 1,440
</TABLE>

In November 1999, all of these notes were converted into an aggregate of
278,400 shares of common stock at a conversion rate of $0.83 per share. In
December 1999, all of these warrants were exercised for a total of 36,000 shares
of common stock at an exercise price of $1.87 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 $9.50 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

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<PAGE>
were convertible into shares of common stock at a conversion rate of $0.83 per
share. In December 1999, these warrants were amended to have an exercise price
of $1.87 per share.

<TABLE>
<CAPTION>
NAME PRINCIPAL AMOUNT OF NOTE WARRANT SHARES
- ---- ------------------------ --------------
<S> <C> <C>
Gilo Family Partnership............. $148,480 23,040
Adi, Elad and Yael Gilo DSP Tel
Trusts............................ $ 27,840 4,320
Samuel Kaplan/Ralph Strangis
Investment Partnership............ $ 9,280 1,440
Alan Zimmerman...................... $ 9,280 1,440
Michael Corwin...................... $ 9,280 1,440
Avraham Fischer..................... $ 9,280 1,440
</TABLE>

In November 1999, all of these notes were converted into an aggregate of
256,128 shares of common stock at a conversion rate of $0.83 per share. In
December 1999, all of these warrants were exercised for a total of 33,120 shares
of common stock at an exercise price of $1.87 per share.

On April 9, 1997, we issued a warrant to purchase 30,750 shares of common
stock, at an exercise price of $1.63 per share, to the Gilo Family Partnership.

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............... 240,000 $0.50 06/99
120,000 $0.83 11/99
Menashe Shahar............... 12,000 $2.09* 11/97
30,000 $0.33 12/98
3,000 $1.63* 07/97
Eran Pilovsky................ 300,000 $0.83 01/00
Arnon Kohavi................. 240,000 $0.83 11/99
Stephen Pezzola.............. 22,500 $0.33 10/98
24,000 $1.00* 02/97
Avraham Fischer.............. 24,000 $1.00* 02/97
</TABLE>

- ---------------------

* In October 1998, these options were repriced to have an exercise price of
$0.33 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.

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<PAGE>

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 9% 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 158,400 shares of our Common Stock at an exercise price of $7.92 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 $1.87 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.

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 758,871 shares of our common stock at a price of $0.67 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 758,871 shares of our common stock at a price of $0.67 per share.

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<PAGE>
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, 1999, 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.

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<PAGE>
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 2,929,656 shares of our common stock at a price of $0.50 per
share.

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.

72
<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 26,947,286 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.

73
<PAGE>

<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).................. 16,525,347 61.3% 49.1%
ADC Telecommunications, Inc..... 2,751,603 10.2 8.2
P. O. Box 1101
Minneapolis, MN 55440
Stephen P. Pezzola(2)........... 245,205 * *
Lewis S. Broad(3)............... 98,541 * *
Neill H. Brownstein(4).......... 223,260 * *
Avraham Fischer(5).............. 369,588 1.4 1.1
John Griffin(6)................. 2,834,103 10.5 8.4
Samuel Kaplan(7)................ 241,496 * *
Alan Zimmerman(8)............... 287,586 1.1 *
Shaul Berger(9)................. 136,523 * *
Menashe Shahar(10).............. 34,986 * *
All directors and executive
officers
As a group
(12 persons)(11)............ 21,373,257 77.5% 62.5%
</TABLE>

- ---------------------

* Less than 1% of the outstanding shares of common stock.

(1) Includes (a) 14,491,176 shares held by The Gilo Family Trust, of which
Davidi Gilo is a trustee, (b) 829,248 shares held by the PhaseCom Investor
Group Limited Partnership, of which Harmony Management, Inc. is the general
partner, (c) 7,314 shares of common stock issuable pursuant to warrants held
by the PhaseCom Investor Group Limited Partnership, (d) 159,497 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) 3,113 shares held in the Davidi and
Shamaya Gilo Trust, of which Davidi and Shamaya Gilo are the trustees.
Excludes 237,998 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 47,207 shares held in the Pezzola-Foster Trust, of which Stephen
Pezzola and Twila Foster are the trustees. Also includes 73,500 shares of
common stock issuable pursuant to stock options exercisable within 60 days
of March 1, 2000. Excludes 42,000 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 3,128 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.

74
<PAGE>
(3) Includes 37,500 shares of common stock issuable pursuant to stock options
exercisable within 60 days of March 1, 2000. Excludes 25,008 shares held by
the PhaseCom Investor Group Limited Partnership and 5,157 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 37,500 shares of common stock issuable pursuant to stock options
exercisable within 60 days of March 1, 2000. Excludes 3,386 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 247,500 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 22,500 shares of common stock issuable pursuant to stock options
exercisable within 60 days of March 1, 2000. Also includes 2,751,603 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 22,500 shares of common stock issuable pursuant to stock options
exercisable within 60 days of March 1, 2000. Also includes 158,606 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 9,378 shares held by the
PhaseCom Investor Group Limited Partnership and 3,872 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 97,500 shares of common stock issuable pursuant to stock options
exercisable within 60 days of March 1, 2000. Excludes 12,504 shares held by
the PhaseCom Investor Group Limited Partnership and 2,574 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 392 shares of common stock issuable pursuant to warrants.

(10) Includes 34,187 shares of common stock issuable pursuant to stock options
exercisable within 60 days of March 1, 2000.

(11) Includes 497,687 shares of common stock issuable pursuant to stock options
exercisable within 60 days of March 1, 2000.

75
<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.

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 of any outstanding shares 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.

PREFERRED STOCK

Upon the closing of this offering, all outstanding shares of preferred stock
will be automatically converted into shares of common stock. See note 8 to our
financial statements for a description of the preferred stock.

76
<PAGE>
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

- delaying or preventing a change in control of us without further action by
the stockholders.

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 6,707,433 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:

- prior to the date of the business combination, the transaction is approved
by the board of directors of the corporation;

77
<PAGE>
- 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

- 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."

78
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE

<TABLE>
<CAPTION>
NUMBER OF
DATE OF AVAILABILITY FOR SALE SHARES
- ----------------------------- ----------------
<S> <C>
As of the date of the prospectus........................... --
September 27, 2000......................................... 24,346,793
At various times afterwards upon expiration of applicable
holding periods.......................................... 2,600,493
</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 336,973 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

79
<PAGE>
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.

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 February 29, 2000, options to purchase a total of 4,161,195
shares were outstanding under our stock option plans of which 390,000 are issued
shares that are subject to a right of repurchase held by Vyyo. 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.

80
<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., Dain Rauscher Incorporated and W.R. Hambrecht + Co., LLC 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.......................
W.R. Hambrecht + Co., LLC........................

---------
Total........................................ 6,750,000
=========
</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 1,012,500
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.

The expenses of the offering that are payable by us are estimated to be
$1,600,000.

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<PAGE>
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."

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.

82
<PAGE>
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 337,500 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 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 300 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.

A limited number of shares allocated to W.R. Hambrecht + Co., LLC will be
distributed in this offering through the use of the Internet. W.R. Hambrecht +
Co., LLC will post on its Web site (www.wrhambrecht.com) a brief description of
the offering. Visitors to this Web site will have access to the preliminary
prospectus by links on the Web site. W.R. Hambrecht + Co., LLC will accept
conditional offers to purchase shares from account holders that are determined
eligible to participate. In the event that the demand for shares exceeds the
amount of shares allocated to it,

83
<PAGE>

W.R. Hambrecht + Co., LLC will allocate shares to individual and institutional
account holders, considering the following criteria: trading history of the
account with respect to initial public offerings, post-offering activity in
previous offerings and tenure of the account.

W.R. Hambrecht + Co., LLC is an investment banking firm formed as a limited
liability company in February 1998. In addition to this offering,
W.R. Hambrecht + Co., LLC has engaged in the business of public and private
equity investing and financial advisory services since its inception. The
chairman and chief executive officer of W.R. Hambrecht + Co., LLC, William R.
Hambrecht, has 40 years of experience in the securities industry.

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.

84
<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. A
partner at Skadden, Arps beneficially owns 65,342 shares of common stock.
Certain other legal matters in connection with this offering will be passed upon
for us by Bay Venture Counsel, LLP. Three partners and one of counsel at Bay
Venture Counsel beneficially own an aggregate of 206,828 shares of common stock.
Certain matters of Israeli law will be passed upon for us by Fischer, Behar,
Chen & Co., Tel Aviv, Israel. Avraham Fischer, a partner at Fischer, Behar, Chen
and a director of Vyyo, beneficially owns 394,740 shares of common stock.
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. 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.

85
<PAGE>
VYYO INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<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 (including a related party customer
balance of $237 in 1999), net of allowance for doubtful
accounts of $187 and $176 in 1998 and 1999,
respectively........................................... 247 583
Inventory................................................ 1,644 1,132
Other.................................................... 348 517
-------- --------
Total current assets..................................... 2,370 7,268
Property and equipment, net.............................. 1,010 1,095
-------- --------
$ 3,380 $ 8,363
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
Current liabilities:
Bank line of credit...................................... $ 1,970 $ 2,280
Accounts payable......................................... 1,219 895
Accrued liabilities...................................... 2,313 3,153
Notes payable to stockholders............................ 6,882 --
Deferred income.......................................... 140 639
Equipment financing obligations.......................... 427 91
-------- --------
Total current liabilities................................ 12,951 7,058

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 3,944,553 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; 2,718,903 and 23,002,733 shares issued and
outstanding at December 31, 1998 and 1999,
respectively; 26,947,286 shares issued and outstanding
pro forma.............................................. 2,649 66,412 81,781
Note receivable from stockholder......................... -- (920) (920)
Deferred stock compensation.............................. -- (13,400) (13,400)
Accumulated deficit...................................... (22,555) (66,156) (66,156)
-------- -------- --------
Total stockholders' equity (net capital deficiency)...... (9,571) 1,305 $ 1,305
-------- -------- ========
$ 3,380 $ 8,363
======== ========
</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)............................................. $ 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)............................... 2,398 3,252 3,678
Sales and marketing(3).................................... 1,484 2,413 1,972
General and administrative(4)............................. 1,200 1,363 2,148
Amortization of deferred stock compensation............... -- -- 9,300
-------- -------- --------
Total operating expenses.................................... 5,082 7,028 17,098
-------- -------- --------
Operating loss.............................................. (5,101) (7,147) (17,184)
Charge for amended financing arrangements................... -- -- (25,700)
Interest income............................................. 41 10 36
Interest expense and other.................................. (285) (534) (753)
-------- -------- --------
Net loss.................................................... $ (5,345) $ (7,671) $(43,601)
======== ======== ========
Net loss per share:
Basic and diluted......................................... $ (5.91) $ (5.43) $ (5.40)
======== ======== ========
Number of shares used in per share computation:
Basic and diluted......................................... 905 1,412 8,078
======== ======== ========
</TABLE>

- ------------------------

(1) Includes $654 of 1999 revenues from a related party customer. See Note 1.

(2) Excludes $100 in amortization of deferred stock compensation in 1999.

(3) Excludes $300 in amortization of deferred stock compensation in 1999.

(4) Excludes $8,900 in amortization of deferred stock compensation in 1999.

See accompanying notes.

F-4
<PAGE>
VYYO INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(NET CAPITAL DEFICIENCY)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

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 $ 7,996 828,510 $ 983 -- -- $ (9,539)
Exchange of stock for
subsidiary............... 1,092 -- 656 -- -- -- --
Issuance of preferred and
common shares for cash,
net of issuance costs.... 202,167 1,736 121,300 193 -- -- --
Issuance of warrants to
purchase common stock.... -- -- -- 165 -- -- --
Net loss................... -- -- -- -- -- -- (5,345)
---------- ------- ---------- ------- -------- -------- ----------
Balance at December 31,
1997..................... 1,584,110 9,732 950,466 1,341 -- -- (14,884)
Issuance of common stock
net of issuance costs.... -- -- 263,292 171 -- -- --
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............. -- -- 1,517,741 1,012 -- -- --
Repurchase of preferred
stock and common stock... (20,992) (15) (12,596) (5) -- -- --
Issuance of warrants to
purchase common stock.... -- -- -- 130 -- -- --
Net loss................... -- -- -- -- -- -- (7,671)
---------- ------- ---------- ------- -------- -------- ----------
Balance at December 31,
1998..................... 2,213,688 10,335 2,718,903 2,649 -- -- (22,555)
Issuance of common stock,
net of issuance costs.... -- -- 6,626,000 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.................... -- -- 1,091,921 1,947 -- -- --
Conversion of notes payable
to shareholders into
common stock............. -- -- 11,128,254 9,090 -- -- --
Issuance of common stock
upon exercise of
options.................. -- -- 1,437,655 845 -- -- --
Deferred stock
compensation............. -- -- -- 22,700 -- (22,700) --
Amortization of deferred
stock compensation....... -- -- -- -- -- 9,300 --
Charge for amended
financing arrangements... -- -- -- 25,700 -- -- --
Net loss................... -- -- -- -- -- -- (43,601)
---------- ------- ---------- ------- -------- -------- ----------
Balance at December 31,
1999..................... 11,564,269 $15,369 23,002,733 $66,412 $ (920) $(13,400) $ (66,156)
========== ======= ========== ======= ======== ======== ==========

<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....... 9,300
Charge for amended
financing arrangements... 25,700
Net loss................... (43,601)
----------
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) $(43,601)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and other.................................... 343 368 454
Amortization of deferred stock compensation............... -- -- 9,300
Charge for amended financing arrangements................. -- -- 25,700
Changes in assets and liabilities:
Accounts receivable..................................... (132) (8) (336)
Prepaid expenses and other current assets............... 17 34 (169)
Inventory............................................... (639) (638) 512
Other assets............................................ 4 7 --
Accounts payable........................................ 287 636 (246)
Accrued liabilities..................................... 813 455 1,663
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.

F-7
<PAGE>
VYYO INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999

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.

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.

F-8
<PAGE>
VYYO INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999

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 for nominal
consideration prior to the anticipated effective date of the Company's initial
public offering (the "Offering", see Note 12) 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 and March 14, 2000, the Company effected a 1-for-5
reverse stock split and a 3-for-2 stock split of its common stock, respectively.
Common share, per common share data, and the preferred stock conversion rates
retroactively reflect the stock splits. As a result of the stock split, the
preferred stock is convertible to

F-9
<PAGE>
VYYO INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999

common stock at the following ratios: Series A at 1 for 0.6, Series B at 1 for
0.3, and Series C at 1 for 0.3.

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
1 for 0.6, Series B at 1 for 0.3, and Series C at 1 for 0.3. 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
graded vesting 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 "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

F-10
<PAGE>
VYYO INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999

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 is stated at the lower of weighted-average actual cost or market.
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-11
<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................................... $ 749 $1,192
Warranty.................................................... 250 475
Withholding tax............................................. 78 370
Other....................................................... 1,236 1,116
------ ------
$2,313 $3,153
====== ======
</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 1,517,741 and
11,128,254 shares of the Company's common stock in 1998 and 1999, respectively.
Financing conversion charge recorded in 1999, represents the aggregate
differences between the amended notes payable conversion price per share or the
related amended warrants exercise price and the deemed fair market value of the
common stock at the date of the amendment.

F-12
<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 expires in 2003. As of December 31, 1999, future minimum
lease payments under 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.

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 accrued severance
pay liability included in accrued compensation and benefits and the amount
funded included in other current assets is as follows:

<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>

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

F-13
<PAGE>
VYYO INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999

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, with the advice of counsel,
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 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.

F-14
<PAGE>
VYYO INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999

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 1,584,241 950,546 950,546
Series B............... 15,000,000 40,000,000 629,447 629,447 188,833 188,833
Series C............... -- 40,000,000 -- 9,350,581 -- 2,805,174
Undesignated........... 14,000,000 14,000,000 -- -- -- --
---------- ----------- --------- ---------- --------- ---------
35,000,000 100,000,000 2,213,688 11,564,269 1,139,379 3,944,553
========== =========== ========= ========== ========= =========
</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.

Each share of Series A, B, and C preferred stock is convertible, at the
holders' option or automatically as set forth below, into 0.6 share, 0.3 share
and 0.3 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
either (i) the closing of an underwritten public offering of the Company's
common stock resulting in aggregate gross proceeds in excess of $12,500,000 with
a common stock per share purchase price of at least $3.33, or (ii) in a business
combination in which the common stock equivalent value of the Company's stock as
a result of such event is $3.33 or more 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, Series C
preferred stock and

F-15
<PAGE>
VYYO INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999

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
preference price, the holders of Series C preferred stock are entitled to
receive $0.54 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 preference price and the Series C
liquidation preference 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 1,746,447 shares of common stock to investors in connection with equity and
convertible note financing transactions. As of December 31, 1999, 187,785
warrants remained outstanding with an average exercise price of $1.26 per share.
These warrants are exercisable through March 2002.

COMMON STOCK

As of December 31, 1999, the Company has reserved approximately 4,133,000
shares of common stock for issuance on the conversion of the Series A, B and C
convertible preferred stock and the warrants and 5,492,000 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.

F-16
<PAGE>
VYYO INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999

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.

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
$0.33. The program resulted in a total of approximately 295,800 options with
exercise price ranging from $1.00 to $2.10 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.......... 285 44 $1.00
Granted............................. (280) 280 $1.63
------- ------ -----
Balance at December 31, 1997.......... 5 324 $1.57 0.35
------- ------ -----
Authorized.......................... 149 -- --
Granted............................. (512) 512 $0.33
Canceled............................ 299 (299) $1.43
------- ------ -----
Balance at December 31, 1998.......... (59) 537 $0.53 0.05
Authorized.......................... 6,451 -- --
Granted............................. (4,727) 4,727 $0.70
Exercised........................... -- (1,437) $0.60
Canceled............................ 153 (153) $1.03
------- ------ -----
Balance at December 31, 1999 1,818 3,674 $0.69 0.09 727 $0.55
======= ====== ===== ===== ===== =====
</TABLE>

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,
2.79 and 2.46 years.

F-17
<PAGE>
VYYO INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999

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.

The Company pro forma information follows:

<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Net loss
As reported............................................... $ (5,345) $ (7,671) $(43,601)
Pro forma................................................. $ (5,369) $ (7,731) $(43,691)
Basic and diluted loss per share
As reported............................................... $ (5.91) $ (5.43) $ (5.40)
Pro forma................................................. $ (5.93) $ (5.48) $ (5.41)
</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.................................................... $ (43,601)
==========

Shares used in computing basic and diluted net loss per
share..................................................... 8,078
==========

Basic and diluted net loss per share........................ $ (5.40)
==========

Pro forma
Shares used above......................................... 8,078
Pro forma adjustment to reflect weighted effect of assumed
conversion of convertible preferred stock (unaudited)... 2,059
----------
Shares used in computing pro forma basic and diluted net
loss per share (unaudited).............................. 10,137
----------
Pro forma basic and diluted net loss per share
(unaudited)............................................. $ (4.30)
==========
</TABLE>

F-18
<PAGE>
VYYO INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999

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 2,381,466,
2,776,391, and 7,806,387 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 $19 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.

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 six 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

F-19
<PAGE>
VYYO INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999

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 $ 15,500

Valuation allowance......................................... (2,000) (15,500)
------- --------
Net deferred tax assets..................................... $ -- $ --
======= ========
</TABLE>

The valuation allowance increased by $13.5 million for the year ended
December 31, 1999.

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-20
<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
3,450,000 shares; (2) an automatic annual increase to the shares reserved under
the plan equal to the lesser of 1,350,000 shares or 5% of the outstanding
shares; (3) the adoption of the 2000 Employee Stock Purchase Plan, under which
750,000 shares have been reserved.

On February 2, 2000, the note from shareholders in the amount of $920,000
has been repaid.

F-21
<PAGE>
- ------------------------------------------------------------
- ------------------------------------------------------------

6,750,000 SHARES

[VYYO LOGO]

---------------------

Prospectus
, 2000

---------------------

BANC OF AMERICA SECURITIES LLC
CIBC WORLD MARKETS
DAIN RAUSCHER WESSELS
WR HAMBRECHT + CO

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............................................. 12,144
Nasdaq National Market listing fee.......................... 95,000
Accounting fees and expenses................................ 450,000
Legal fees and expenses..................................... 700,000
Printing and engraving expenses............................. 175,000
Transfer agent fees and expenses............................ 10,000
Blue sky fees and expenses.................................. 3,000
Miscellaneous fees and expenses............................. 124,496
----------
Total..................................................... $1,600,000
==========
</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, (2) the one-for-five reverse stock split of the outstanding
common stock effected on January 3, 2000, and (3) the three-for-two stock split
of the outstanding common stock effected on March 14, 2000:

(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 282,216 shares of common stock, at a weighted
average exercise price of $1.64 per share. On October 27, 1998, the
Registrant amended these options to have an exercise price of $0.33 per
share. Since October 27, 1998, the Registrant granted stock options under
the Registrant's 1996 Equity Incentive Plan to a total of 38 officers,

II-2
<PAGE>
employees, directors and consultants of the Registrant, to purchase an
aggregate of 218,209 shares of common stock, at a weighted average exercise
price of $0.33 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 2,079,000 shares of common stock, at a weighted
average exercise price of $0.50 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 116 officers, employees, directors and consultants of the Registrant, to
purchase an aggregate of 3,531,899 shares of common stock, at a weighted
average exercise price of $1.01 per share.

(4) At various times from March 31, 1997 through July 17, 1997, the Registrant
sold and issued 85,395 shares of common stock at $1.63 per share for an
aggregate cash consideration of $139,478.50, and 142,325 shares of
Series A Convertible Preferred Stock at $8.79 per share for an aggregate
cash consideration of $1,251,036.75, to the PhaseCom Investor Group Limited
Partnership No. 2, the Davidi and Shamaya Gilo Trust, the Pezzola-Foster
Trust and Shaul Berger.

(5) At various times from April 1, 1997 through August 28, 1997, the Registrant
sold and issued 35,904 shares of common stock at $1.63 per share for an
aggregate cash consideration of $58,645.16, and 59,842 shares of Series A
Convertible Preferred Stock at $8.79 per share for an aggregate cash
consideration of $526,011.18, to the following persons: Galran
Properties (1993) Ltd., Tom Holdings and Properties (1993) Ltd., Eichut
Capital Markets & Investments Ltd., Itzhak and Esther Hoffi,
Chim-Nir Ltd., Harel-Hamishmar Investments Ltd., Reuven and Naomi
Ashkenazy, Al-Ben Ltd., Miri Lent, Ilan Selah, Aryeh and Yval Ezyoni,
Mordechai Gazit and Avraham Fischer.

(6) From April 9, 1997 through April 16, 1997, the Registrant sold and issued
warrants to purchase an aggregate of 61,500 shares of common stock (the
"1997 Warrants") to the Davidi and Shamaya Gilo Trust and Suzon
Financial, S.A. at an exercise price of $1.63 with an aggregate exercise
price of $100,450.

(7) On June 17, 1997, the Registrant sold and issued 510 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.

(8) From September 30, 1997 through November 10, 1997, the Registrant sold and
issued warrants to purchase an aggregate of 367,346 shares of common stock
(the "1997 Warrants") to the Gilo Family Partnership, David Fox, Misha
Renclair, Eichut Capital Markets and Investments (1993) Ltd., Galran
Properties (1993) Ltd. and Tom Holdings and Properties (1993) Ltd. at an
exercise price of $7.92 with an aggregate exercise price of $2,908,154.25

(9) On November 18, 1997, the Registrant sold and issued an aggregate of 146
shares of common stock and 242 shares of Series A Convertible Preferred
Stock to for Y.Atai Investments Ltd., Galran Properties (1993) Ltd., Tom
Holdings and Properties (1993) Ltd. and Eichut Capital Markets and
Investments (1993) Ltd. in exchange for all of their ordinary shares in
Vyyo Ltd.

(10) On December 29, 1997, the Registrant sold and issued 1997 Series A-2
Promissory Notes (the "Registrant 1997 Series A-2 Notes") 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, to the following persons: Maurice Filister 1996 Trust for the
benefit of Darlene Stillpass, Maurice Filister 1996 Trust for the benefit
of Harvey Filister, Samuel Kaplan/Ralph Strangis Investment Partnership,
Alan Zimmerman, David Fox, ARC Investors, Yael Gilo DSP Tel

II-3
<PAGE>
Trust, Adi Gilo DSP Tel Trust, Elad Gilo DSP Tel Trust, M.S.I.
Investments Ltd., Robert Melamed, Michael Corwin and Gilo Family
Partnership.

(11) On December 29, 1997, Vyyo Ltd sold and issued 1997 Series A-2 Promissory
Notes (the "Ltd 1997 Series A-2 Notes" to Chim-Nir Ltd., Eichut Capital
Markets and Investments (1993) Ltd., Galran Properties (1993) Ltd.,
Harel-Hamishar Investments Ltd., Reshifa Management Holdings, Ltd. and Tom
Holdings and Properties (1993) Ltd. 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.

(12) 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
72,000 shares of Common stock to the purchasers of the 1997 Series A-2
Notes at an exercise price of $9.50 with an aggregate exercise price of
$684,000.

(13) On February 3, 1998, the Registrant sold and issued 1998 Series A-1
Promissory Notes (the "Registrant 1998 Series A-1 Notes") 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, to the following persons: Maurice Filister 1996 Trust for the
benefit of Darlene Stillpass, Maurice Filister 1996 Trust for the benefit
of Harvey Filister, Samuel Kaplan/Ralph Strangis Investment Partnership,
Eli David, Alan Zimmerman, ARC Investors, Yael Gilo DSP Tel Trust, Adi Gilo
DSP Tel Trust, Elad Gilo DSP Tel Trust, Robert Melamed, Michael Corwin,
Gilo Family Partnership and Neill & Linda Brownstein.

(14) On February 3, 1998, Vyyo Ltd sold and issued 1998 Series A-1 Promissory
Notes (the "Ltd 1998 Series A-1 Notes") to Chim-Nir Ltd., Eichut Capital
Markets and Investments (1993) Ltd., Galran Properties (1993) Ltd.,
Marel-Hamishar Investments Ltd., Reshifa Management Holdings, Ltd. and Tom
Holdings and Properties (1993) Ltd. 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.

(15) 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
64,800 shares of Common stock to the purchasers of the 1998 Series A-1
Notes at an exercise price of $9.50 with an aggregate exercise price of
$615,600.

(16) On February 6, 1998, pursuant to a settlement agreement, the Registrant
sold and issued 12,447 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.

(17) On February 26, 1998, the Registrant sold and issued 1998 Series A-2
Promissory Notes (the "Registrant 1998 Series A-2 Notes") 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, to the following persons: Maurice Filister 1996 Trust for the
benefit of Darlene Stillpass, Maurice Filister 1996 Trust for the benefit
of Harvey Filister, Samuel Kaplan/Ralph Strangis Investment Partnership,
Eli David, Alan Zimmerman, ARC Investors, Yael Gilo DSP Tel Trust, Adi Gilo
DSP Tel Trust, Elad Gilo DSP Tel Trust, Michael Corwin, Gilo Family
Partnership, Neill & Linda Brownstein, Pezzola-Foster Trust U/T/D 4/3/87,
Donald C. Reinke and Dean Witter Reynolds, Custodian for Bruce A. Mann
Rollover IRA.

(18) On February 26, 1998, Vyyo Ltd sold and issued 1998 Series A-2 Promissory
Notes (the "Ltd 1998 Series A-2 Notes") to Chim-Nir Ltd., Eichut Capital
Markets and Investments (1993) Ltd., Galran Properties (1993) Ltd.,
Marel-Hamishar Investments Ltd., Reshifa Management Holdings, Ltd. and Tom
Holdings and Properties (1993) Ltd. in the aggregate principal amount of
$473,280,

II-4
<PAGE>
which were convertible into 31,552 shares of Registrant's Series A
Convertible Preferred Stock at a conversion price of $15.00 per share.

(19) 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
192,240 shares of Common stock to the purchasers of the 1998 Series A-2
Notes at an exercise price of $9.50 with an aggregate exercise price of
$1,826,280.

(20) On June 30, 1998, the Registrant sold and issued 1998 Series B-1 Promissory
Notes (the "Registrant 1998 Series B-1 Notes") in the aggregate principal
amount of $3,679,329.09, to the following persons: Maiss Family
Partnership, Alan Zimmerman, Andrew Schonzeit, ARC Investors, Darlene
Stillpass, David Fox, David Jaroslawicz, Dean Witter Reynolds, Custodian
for Bruce A. Mann Rollover IRA, Donald C. Reinke, Gilo Family Partnership,
Hargrave Houston Holdings Limited, Harvey Filister, Herbert Drower, Hindy
Taub, Irwin Zalcberg, M.S.I. Investments Ltd., Maurice Filister, Maurice
Filister 1996 Trust for the benefit of Darlene Stillpass, Maurice Filister
1996 Trust for the benefit of Harvey Filister, Michael & Merlyn Corwin,
Misha Renclair, Pezzola-Foster Trust, Pezzola & Foster, Trustees, Samuel
Kaplan/Ralph Strangis Investment Partnership, Selawi Business S.A., Shaul
Berger, Shoham Investments Ltd. and Victor Halpert. These notes were
convertible into shares of Common stock at a conversion price equal to
$5.00 if the notes convert before September 15, 1998, or after
September 15, 1998 the greater of $5.00 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 entity.

(21) On June 30, 1998, Vyyo Ltd. sold and issued 1998 Series B-1 Promissory
Notes (the "Ltd 1998 Series B-1 Notes") to Avraham Fischer, Ilan Selah,
Aryeh and Yuval Ezyoni, Chim-Nir Ltd. Eichut Capital Markets and
Investments (1993) Ltd., Galran Properties (1993) Ltd. and Tom Holdings and
Investments (1993) Ltd. 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 $5.00 if the notes convert before September 15,
1998, or after September 15, 1998 the greater of $5.00 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.

(22) On June 30, 1998, the Registrant sold and issued 1998 Series B-1 Warrants
(the "1998 Series B-1 Warrants") to the purchasers of the 1998 Series B-1
Notes 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.

(23) On September 28, 1998, the Registrant sold and issued 1,798,359 shares of
common stock at $0.67 per share to Mark Gross, the Bruce Mann IRA, the
Maiss Family Partnership, L.P., Andrew Schonzeit, Selawi Business, S.A.,
the Yost Family Trust, Gilo Family Partnership, the Pezzola Foster Trust
and Alan Zimmerman for an aggregate cash consideration of $1,198,906.

(24) On November 11, 1998, the Registrant sold and issued 228 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.

(25) On December 1, 1998, the Registrant sold and issued 629,447 shares of
Series B Convertible Preferred Stock at $1.00 per share for an aggregate
cash consideration of $629,447, to the following persons: ARC Investors,
Shaul Berger, Michael and Merlyn Corwin, Dean Witter Reynolds, Custodian
for Bruce Mann Rollover IRA, Harvey Filister, Maurice Filister 1996 Trust
for the benefit of Harvey Filister, Maurice Filister, Gilo Family
Partnership, The Adi Gilo DSP Tel Trust, The Elad Gilo DSP Tel Trust, The
Yael Gilo DSP Tel Trust, Mark Gross, David Jaroslawicz, Kaplan/Strangis
Investment Partnership, Maiss Family Partnership, Robert L. Melamed, M.S.I.

II-5
<PAGE>

Investments Ltd., Pezzola-Foster Trust U/T/D 4/3/87, Andrew W. Schonzeit,
Shoham Investments Ltd., Darlene Stillpass, Maurice Filister 1996 Trust for
the benefit of Darlene Stillpass, Hindy Taub, Yost Family Trust and Alan
Zimmerman.

(26) On December 1, 1998, the Registrant sold and issued 1998 Series B-3
Warrants (the "1998 Series B-3 Warrants") to the purchasers of the
Series B Convertible Preferred Stock 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.

(27) On December 1, 1998, the 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 $4,477,369.77 held by 23 of the purchasers of
the Series B Convertible Preferred Stock such that these notes became
convertible into an aggregate of 4,477,369 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").

(28) On May 31, 1999, the Registrant sold and issued 8,979,656 shares of common
stock at $0.50 per share to the Gilo Family Partnership and the Sam
Kaplan/Ralph Strangis Investment Partnership for an aggregate cash
consideration of $4,489,828.05.

(29) On June 2, 1999, the Registrant sold and issued a warrant to purchase an
aggregate of 127,500 shares of common stock to Biblica Investment Limited
at an exercise price of $0.50 per share with an aggregate exercise price of
$63,750.

(30) On June 25, 1999, the Registrant sold and issued 96,000 shares of common
stock at $0.83 per share to Pezzola & Reinke, APC for the cancellation of
debt in the aggregate amount of $80,000.

(31) 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.

(32) On November 19, 1999, the Registrant amended the 1998 Amended Notes such
that they became convertible into an aggregate of 5,372,843 shares of
common stock at a conversion price of $0.83 per share at the election of
the holders of the notes.

(33) On December 6, 1999 the Registrant amended the exercise price of 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 $1.87 per share.

(34) At various times from December 28, 1999 through January 31, 2000, the
Registrant sold and issued 1,100,049 shares of common stock to 58 warrant
holders of the Registrant upon exercise of warrants at a weighted average
exercise price of $1.79 per share.

(35) On December 28, 1999, the Registrant sold and issued 8,187,461 shares of
common stock to 42 note holders of the Registrant upon conversion of an
aggregate principal amount of $6,822,884.29 of promissory notes at a
conversion price of $0.83 per share.

(36) 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.

(37) On December 28, 1999, the Registrant sold and issued a total of 480,000
shares of common stock at $0.83 per share to John Fredericks and each of
the seven directors of the Registrant for an aggregate cash consideration
of $400,000.

II-6
<PAGE>
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 27, 1999, by and between the Registrant and Arnon
Kohavi

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
</TABLE>

II-7
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- ------------------------------------------------------------
<C> <S>
10.12 Amendment to Registration Rights and Lock-Up Agreement,
dated as of August 13, 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

10.21 Secured Promissory Note, dated January 16, 2000, of Eran
Pilovsky for the benefit of 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

27.1** Financial Data Schedule
</TABLE>

- ------------------------

* Documents to be filed by amendment.

** Previously filed.

+ 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-8
<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-9
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 3 to the registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Cupertino, State of California, on March 21, 2000.

<TABLE>
<S> <C> <C>
VYYO INC.

BY: /S/ DAVIDI GILO
-----------------------------------------
Davidi Gilo
Chief Executive Officer
and Chairman of the Board
</TABLE>

Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to the 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 March 21, 2000
Davidi Gilo (Principal Executive Officer)

Vice President, Finance and
/s/ ERAN PILOVSKY* Chief Financial Officer
------------------------------------ (Principal Financial and March 21, 2000
Eran Pilovsky Accounting Officer)

/s/ LEWIS S. BROAD* Director
------------------------------------ March 21, 2000
Lewis S. Broad

/s/ NEILL H. BROWNSTEIN* Director
------------------------------------ March 21, 2000
Neill H. Brownstein

/s/ JOHN P. GRIFFIN* Director
------------------------------------ March 21, 2000
John P. Griffin

/s/ AVRAHAM FISCHER* Director
------------------------------------ March 21, 2000
Avraham Fischer

/s/ SAMUEL L. KAPLAN* Director
------------------------------------ March 21, 2000
Samuel L. Kaplan
</TABLE>

II-10
<PAGE>

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ALAN L. ZIMMERMAN* Director
------------------------------------ March 21, 2000
Alan L. Zimmerman
</TABLE>

<TABLE>
<S> <C> <C> <C>
*By: /s/ DAVIDI GILO
--------------------------------------
Davidi Gilo
(ATTORNEY-IN-FACT)
</TABLE>

II-11
<PAGE>
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- ------------------------------------------------------------
<C> <S>
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 27, 1999, by and between the Registrant and Arnon
Kohavi

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 13, 1999, by and among the Registrant and
certain holders of the Series A Preferred Stock and
Series C Preferred Stock

10.18 Unprotected Lease Agreement, dated as of March 7, 1999
between Vyyo Ltd. and Ayalot Investments in Properties (Har
Hotzvim) 1994 Ltd.

10.21 Secured Promissory Note, dated January 16, 2000, of Eran
Pilovsky for the benefit of the Registrant

23.1 Consent of Ernst & Young LLP, Independent Auditors
</TABLE>

<PAGE>

EXHIBIT 10.9

PHASECOM, INC.
SERIES C PREFERRED STOCK PURCHASE AGREEMENT

THIS SERIES C PREFERRED STOCK PURCHASE AGREEMENT (this "Agreement") is
entered into as of August 13, 1999, by and between PHASECOM, INC., a Delaware
corporation (hereinafter the "Corporation"), and ADC TELECOMMUNICATIONS, INC., a
Minnesota corporation (hereinafter the "Investor").

RECITALS

A. The Corporation desires to raise money by the sale of Series C
Convertible Preferred Stock to the Investor.

B. The Investor desires to purchase from the Corporation, and the
Corporation desires to sell to the Investor, that number of shares of Series C
Convertible Preferred Stock as set forth in Section 1.a. herein, 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. AUTHORIZATION AND SALE OF PREFERRED STOCK.

a. AUTHORIZATION. The Corporation will authorize on or before the
Closing (see, Section 2.1 (below)) the sale and issuance of its Series C
Convertible Preferred Stock (hereinafter the "Series C Preferred Stock")
constituting ten percent (10%) of the issued and outstanding equity of the
Corporation (the "Purchased Shares"), taking into account as of Closing (as
defined below)(i) the issued and outstanding Common Stock, Series A Convertible
Preferred Stock, Series B Convertible Preferred Stock, debt convertible into
equity of the Corporation, options and warrants of the Corporation; and (ii)
issuance of Series C Preferred Stock as contemplated by this Agreement, which
Series C Preferred Stock shall have the rights, privileges and preferences as
set forth in the Amended and Restated Certificate of Incorporation, attached
hereto as Exhibit A (hereinafter, the "Certificate of Incorporation").

b. SALE OF SERIES C PREFERRED STOCK. Subject to the terms and
conditions hereof, the Corporation will issue and sell to the Investor, and the
Investor will purchase from the Corporation the Purchased Shares, for an
aggregate price of Four

<PAGE>

Million Nine Hundred Fifty Thousand Dollars ($4,950,000)(the "Purchase
Price").

2. ISSUANCE AND PAYMENT.

a. CLOSING. Subject to the terms and conditions hereof, the
closing of the purchase and sale of the Purchased Shares (hereinafter the
"Closing") shall be held (via facsimile transmittal and wire transfers or
delivery of a cashier's check of a California domiciled bank) at the offices of
the Corporation's counsel, Bay Venture Counsel, LLP, located at 1999 Harrison
Street, Suite 1300, Oakland, California, on, or about, August 31, 1999, at 10:00
a.m., local time, or at such other time and place upon which the Corporation and
the Investor shall agree (the date of the Closing is hereinafter referred to as
the "Closing Date").

b. DELIVERY. At Closing, the Corporation and Investor shall
deliver to each other an executed copy of (i) this Agreement; and (ii) the
Registration Rights Agreement, substantially in the form of Exhibit B attached
hereto (the "Registration Rights Agreement"). At Closing, Investor shall deliver
to the Corporation the Purchase Price by cashier's check payable to the
Corporation, or by wire transfer pursuant to the Corporation's instructions. At
Closing, the Corporation will deliver to the Investor a copy of a certificate
representing the Purchased Shares, registered in the name of Investor, or its
nominee (the "Certificate"), against payment of the Purchase Price therefor, and
as within five (5) days after Closing, the Corporation shall deliver to Investor
the original Certificate.

c. CONDITIONS TO CLOSING. Notwithstanding anything to the
contrary contained in this Agreement, the Corporation's obligation to consummate
the transaction contemplated herein shall be contingent upon (i) the acceptance
by Investor of the Disclosure Schedule as defined in Section 3 herein; and (ii)
the Collaboration Agreement between the parties signed on an even date herewith
(the "Collaboration Agreement") being in effect, with no material default by
Investor thereunder, on the Closing Date. The Investor's obligation to
consummate the transaction contemplated herein shall be contingent upon (i) the
approval by Investor of the contents set forth in the Disclosure Schedule; (ii)
the execution of the Voting Agreement in the form attached hereto as Exhibit E;
and (iii) in the event that the Closing does not occur by August 31, 1999,
receipt of a representation by the Corporation certified by an officer of the
Corporation that since the August 31, 1999, there has been no material adverse
effect or change in the prospects, properties, financial condition, operations,
results of operations or business of the Corporation ("Material Adverse
Effect").

2
<PAGE>

3. CORPORATION'S WARRANTIES. The Corporation hereby represents and
warrants effective as of the Closing, subject to such exceptions as are
specifically disclosed in the disclosure schedules supplied by the Corporation
to Investor and dated as of the Closing Date (collectively, the "Disclosure
Schedule"), as follows:

a. CORPORATE ORGANIZATION AND STANDING. The Corporation is a
corporation duly organized, existing and in good standing under the laws of the
State of Delaware. The Corporation has the requisite corporate power to carry on
its business as presently conducted, and as proposed or contemplated to be
conducted in the future, and to enter into and carry out the provisions of the
Transaction Documents and the transactions contemplated thereby. The Corporation
is presently qualified to do business as a foreign corporation in each
jurisdiction where the failure to be so qualified would materially and adversely
affect the Corporation's business. The Corporation has one (1) wholly-owned
subsidiary: PhaseCom, Ltd. ("Subsidiary"). Subsidiary is an entity that is duly
organized, existing and in good standing under the laws of Israel. Subsidiary
has the requisite power to carry on its business as presently conducted, and as
proposed or contemplated to be conducted in the future. Subsidiary is presently
qualified to do business in each jurisdiction where the failure to be so
qualified would materially and adversely affect its business.

b. CORPORATE CAPITALIZATION.

i. Immediately prior to, or simultaneously with, the
Closing, the Corporation's authorized capital stock shall include only two (2)
authorized classes of capital stock consisting of 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 one hundred million (100,000,000) shares of Common Stock. The Corporation's
stockholders have approved an amendment to the Corporation's Amended and
Restated Certificate of Incorporation to authorize the issuance of Series C
Preferred Stock at least equal to the number of Purchased Shares, with the
rights, designations, powers, preferences, rights, qualifications, limitations
and restrictions as set forth in the Certificate of Incorporation. Except as set
forth in Schedule 3.b.i. attached hereto, (i) no person owns of record or is
known to the Corporation to own beneficially any share of Common Stock, Series A
Convertible Preferred Stock, Series B Convertible Preferred Stock or Series C
Preferred Stock; (ii) no subscription, warrant, option, convertible security, or
other

3
<PAGE>

right (contingent or otherwise) to purchase or otherwise acquire equity
securities of the Corporation is authorized or outstanding; and (iii) there
is no commitment by the Corporation to issue shares, subscriptions, warrants,
options, convertible securities, or other such rights or to distribute to
holders of any of its equity securities any evidence of indebtedness or
asset. Except as provided for in Schedule 3.b.i., the Corporation has no
obligation (contingent or other) to purchase, redeem or otherwise acquire any
of its equity securities or any interest therein or to pay any dividend or
make any other distribution in respect thereof. All of the outstanding
securities of the Corporation were issued in compliance with all applicable
Federal and state securities laws. As of the Closing, each Share of Series A
Convertible Preferred Stock is convertible into two (2) Shares of Common
Stock, and each share of Series B Convertible Preferred Stock is convertible
into one (1) share of Common Stock. As of the Closing, the Certificate of
Incorporation attached hereto as Exhibit A will be in force and effect,
without further modification or amendments, except for the necessary
information noted therein in brackets.

ii. As of Closing, the Corporation does not have any
declared and unpaid dividends (whether payable in cash, securities or other
consideration).

iii. As of Closing, Investor shall receive that number of
Series C Stock equal to ten percent (10%) of the issued and outstanding equity
of the Corporation, taking into account as of Closing the issued and outstanding
Common Stock, Series A Convertible Preferred Stock, Series B Convertible
Preferred Stock, debt convertible into equity of the Corporation, options and
warrants of the Corporation and after giving effect to the recapitalization
described in Section 4.i., below.

c. AUTHORIZATION. All corporate action on the part of the
Corporation, its directors and shareholders necessary for the authorization,
execution, delivery and performance of the Transaction Documents by the
Corporation, the authorization, sale, issuance and delivery of the Series C
Preferred Stock and the performance of all of the Corporation's obligations
thereunder has been taken or will be taken prior to the Closing, and none of
such actions will violate any provision of law, any order of any court or other
agency of government, the Certificate of Incorporation, or the Bylaws of the
Corporation or any provision of any indenture, agreement or other instrument to
which the Corporation or Subsidiary or any of their respective properties or
assets is bound. The Transaction Documents, when executed and delivered by the
Corporation, shall constitute the valid and binding obligations of the
Corporation,

4
<PAGE>

enforceable in accordance with their respective 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 Purchased 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 Certificate of Incorporation. The issuance, sale and delivery of the
Purchased Shares (and any shares of Common Stock issuable pursuant to the
conversion of the Purchased Shares) is not subject to any preemptive right of
stockholders of the Corporation or to any right of first refusal or other
right in favor of any person, other that such rights which have been duly,
validly and irrevocably waived in writing. As of the Closing, the corporation
shall have authorized a sufficient number of shares of Common Stock available
for issuance upon conversion of the Purchased Shares. 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 Series
C Preferred Stock, the Corporation shall request the shareholders to take
such action as may, in the opinion of its counsel, be necessary to increase
its authorized but unissued shares of Common Stock to such a number of shares
as shall be sufficient for such purpose. The Purchased Shares and such Common
Stock will be free of any liens or encumbrances, assuming the Investor takes
the Purchased Shares with no notice thereof, other than any liens or
encumbrances created by or imposed upon the Purchased Shares hereunder;
PROVIDED, HOWEVER, that the Purchased Shares (and the Common Stock issuable
upon conversion thereof) may be subject to restrictions on transfer under
state and/or federal securities laws.

d. LITIGATION. There are no actions, proceedings or, to the
Corporation's best knowledge, investigations pending, or any threat thereof,
against or affecting the Corporation which, either individually or in the
aggregate, might result in any Material Adverse Effect or change in the
business, prospects, condition, affairs or operations of the Corporation or in
any of its properties or assets, or in any material impairment of the right or
ability of the Corporation to carry on its business as proposed to be conducted,
and none which questions the validity of any Transaction Document or any action
taken or to be taken in connection therewith, and there is no known basis for
any of the foregoing. The Corporation is not in default with respect to any
order, writ, injunction or decree known to or served upon the Corporation of any
court or of any Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign. There
is no

5
<PAGE>

action or suit by the Corporation pending or threatened against others that
would have a material adverse effect ("Material Adverse Effect") upon the
Corporation. To the best knowledge of the Corporation, the Corporation has
complied in all material respects with all laws, rules, regulations and
orders applicable to its business, operations, properties, assets, products
and services.

e. GOVERNMENTAL CONSENTS; LAWS. 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. There is no existing law, rule, regulation or order, and
the Corporation is not aware of any proposed law, rule, regulation or order,
whether Federal or state, which would prohibit or materially restrict the
Corporation from, or otherwise materially adversely affect the Corporation in,
conducting its business or pursuing its business plan in any jurisdiction in
which it is now conducting business or in which it currently proposes to conduct
business.

f. FINANCIAL STATEMENTS. Attached hereto as Exhibit D is a copy
of the Corporation's audited Consolidated Financial Statements for the fiscal
years ended December 31, 1997 and 1996, the preliminary and unaudited Eight
Quarters Ended December 31, 1998 Consolidated Balance Sheet and the preliminary
and unaudited Consolidated Income Statement for the quarter ended March 31 1999.
(collectively, the "Financial Statements"). The Financial Statements have been
prepared in accordance with generally accepted accounting principles,
consistently applied, and fairly present the financial position of the
Corporation as of each such date and the results of operations for each such
period then ended.

g. PROPRIETARY INFORMATION OF THIRD PARTIES. To the best of the
Corporation's knowledge, no third party has claimed or has reason to claim that
any employee of the Corporation has (a) violated or may be violating any of the
terms or conditions of his employment, non-competition or non-disclosure
agreement with such third party, (b) disclosed or may be disclosing or utilized
or may be utilizing any trade secret or proprietary information or documentation
of such third party or (c) interfered or may be interfering in the employment
relationship between such third party and any of its present or former
employees. No third party has requested information from the Corporation in a
manner such that the Corporation would reasonably expect that such a claim might
be contemplated. To the best of the Corporation's knowledge, no employee of the
Corporation has employed or

6
<PAGE>

proposes to employ any trade secret or any information or documentation
proprietary to any former employer, and to the best of the Corporation's
knowledge, no employee of the Corporation has violated any confidential
relationship which such person may have had with any third party, in
connection with the development, manufacture or sale of any product or
proposed product or the development or sale of any service or proposed
service of the Corporation, and the Corporation does not believe there will
be any such employment or violation. To the best of the Corporation's
knowledge, none of the execution or delivery or performance of this
Agreement, or the carrying on of the business of the Corporation as officers,
employees or agents by any officer or director of the Corporation, or the
conduct or proposed conduct of the business of the Corporation, will conflict
with or result in a breach of the terms, conditions or provisions of or
constitute a default under any contract, covenant or instrument under which
any such person is obligated.

h. TAXES. The Corporation has filed all tax returns, Federal,
state, county and local, required to be filed by it, and the Corporation has
paid all taxes shown to be due by such returns as well as all other taxes,
assessments and governmental charges which have become due or payable, including
without limitation all taxes which the Corporation is obligated to withhold from
amounts owing to employees, consultants, creditors and third parties. All such
taxes with respect to which the Corporation has become obligated pursuant to
elections made by the Corporation in accordance with generally accepted practice
have been paid and adequate reserves have been established for all taxes accrued
but not yet payable. The Federal income tax returns of the Corporation have
never been audited by the Internal Revenue Service or any state revenue or tax
agency. No deficiency or assessment with respect to or proposed adjustment of
the Corporation's Federal, state, county or local taxes is pending or, to the
best of the Corporation's knowledge, threatened. There is no tax lien, whether
imposed by any Federal, state, county or local taxing authority, outstanding
against the assets, properties or business of the Corporation. Neither the
Corporation nor any of its stockholders has ever filed (a) an election pursuant
to Section 1362 of the Internal Revenue Code of 1986, as amended (the "Code"),
that the Corporation be taxed as an S Corporation or (b) consent pursuant to
Section 341(f) of the Code, relating to collapsible corporations.

i. CHANGES, DIVIDENDS, ETC. Except for the transactions
contemplated by this Agreement, and except as set forth on Schedule 3.i. hereto,
since the date of the Financial Statements the Corporation has not: (a) incurred
any debts, obligations or

7
<PAGE>

liabilities, absolute, accrued or contingent and whether due or to become
due, except current liabilities incurred in the ordinary course of business,
which (individually or in the aggregate) will not materially and adversely
affect the business, properties or prospects of the Corporation; (b) paid any
obligation or liability other than, or discharged or satisfied any liens or
encumbrances other than those securing current liabilities, in each case in
the ordinary course of business; (c) declared or made any payment or
distribution to its stockholders as such, or purchased or redeemed any of its
shares of capital stock or other securities, or obligated itself to do so;
(d) mortgaged, pledged or subjected to lien, charge, security interest or
other encumbrance any of its assets, tangible or intangible, except in the
ordinary course of business; (e) sold, transferred or leased any of its
assets except in the ordinary course of business; (f) canceled or compromised
any debt owed to the Corporation, or claim, or waived or released any right
of material value; (g) suffered any physical damage, destruction or loss
(whether or not covered by insurance) materially and adversely affecting the
properties, business or prospects of the Corporation; (h) entered into any
transaction other than in the ordinary course of business; (i) encountered
any labor difficulties or labor union organizing activities; (j) issued or
sold any shares of capital stock or other securities or granted any options,
warrants or other purchase rights with respect thereto other than as
contemplated by or disclosed pursuant to this Agreement; (k) made any
acquisition or disposition of any material assets or become involved in any
other material transaction, other than for fair value in the ordinary course
of business; (l) increased the compensation payable, or to become payable, to
any of its directors or employees, or made any bonus payment or similar
arrangement with any directors or employees or increased the scope or nature
of any fringe benefits provided for its employees or directors; or (m) agreed
to do any of the foregoing other than pursuant hereto. There has been no
Material Adverse Effect since the date of the Financial Statements.

j. TITLE TO PROPERTIES AND ENCUMBRANCES. The Corporation has good
and marketable title to all of its owned properties and assets used in the
conduct of its business, except for property disposed of in the ordinary course
of business since the date of the Financial Statements, and a valid leasehold
interest in all of its leased properties and assets, none of which properties
and assets are subject to any mortgage, pledge, lease, lien, charge, security
interest, encumbrance or restriction, except (a) those which are shown and
described in Schedule 3.j. hereto or the notes thereto, and (b) Permitted Liens
(as hereinafter defined). For purposes of this Section 3,j. "Permitted Liens"
shall mean liens for taxes or other governmental charges not yet due

8
<PAGE>

and owing, and those being contested in good faith by appropriate proceedings
and as to which adequate reserves have been made on the books of the
Corporation; (ii) mechanics', materialmans', carriers', landlords', and other
similar liens arising in the ordinary course of business for sums not yet due
and owing, and those being contested in good faith by appropriate
proceedings; and (iii) deposits or pledges to secure the performance of bids,
tenders, contracts (other than for borrowed money), leases, statutory
obligations, surety, fidelity, and appeal bonds, or other deposits or pledges
for purposes of a general nature incurred in the ordinary course of business.

k. GOOD CONDITION OF REAL ESTATE. The plant, offices and
equipment owned, leased or used by the Corporation have been kept in good
condition and repair in the ordinary course of business.

l. SCHEDULE OF ASSETS AND CONTRACTS. Attached hereto as Schedule
3.k. is a schedule containing:

i. Annex i: a listing of all real properties owned by
the Corporation;

ii. Annex ii: a listing of each indenture, lease,
sublease, license or other instrument under which the Corporation
claims or holds a leasehold interest in real property;

iii. Annex iii: a listing of all written and oral
contracts, agreements, subcontracts, purchase orders, commitments and
arrangements involving payments remaining to or from the Corporation in
excess of Fifty Thousand Dollars ($50,000) and other agreements
material to the Corporation's business to which the Corporation is a
party or by which it is bound, under which full performance (including
payment) has not been rendered by any party thereto;

iv. Annex iv: a listing of all collective bargaining
agreements, employment agreements, consulting agreements,
noncompetition agreements, nondisclosure agreements, executive
compensation plans, profit sharing plans, bonus plans, deferred
compensation agreements, employee pension retirement plans and employee
benefit stock option or stock purchase plans and other employee benefit
plans, entered into or adopted by the Corporation;

v. Annex v: a listing of all deeds of trust, mortgages,
security agreements, pledge agreements and other agreements or
arrangements whereby any of the material assets or properties of the

9
<PAGE>

Corporation are subject to any lien, encumbrance, security interest or
charge;

vi. Annex vi: a listing of all leases of personal
property involving payment remaining to or from the Corporation in
excess of Fifty Thousand Dollars ($50,000);

vii. Annex vii: the name of each employee of the
Corporation whose annual compensation is in excess of Fifty Thousand
Dollars ($50,000) and the remuneration currently payable to each such
employee; and

viii. Annex viii: a listing of all patents (including
applications therefor), royalty and license agreements, trademarks,
trade names, service marks and copyrights relating to Corporation
products.

Prior to the Closing Date, the Corporation shall make available to the Investor
or its representative a true and complete copy of each document referred to
above which the Investor requests to examine.

m. CONTRACTUAL RELATIONSHIPS. Except as set forth on Schedule
3.m. hereto, the Corporation has substantially performed all obligations
required to be performed by it to date and is not in default in any material
respect under any of the contracts, agreements, leases, documents, commitments
or other arrangements to which it is a party or by which it is otherwise bound
involving payment terms, to or from the Corporation in excess of Fifty Thousand
Dollars ($50,000) ("Material Contracts"). All Material Contracts are in effect
and enforceable according to their respective terms (except as the
enforceability thereof may be limited by bankruptcy, insolvency, moratorium,
reorganization or similar laws affecting the enforcement of creditors' rights
generally, and except for judicial limitations on the enforcement of the remedy
of specific performance and other equitable remedies), and to the best of the
Corporation's knowledge, there is not under any of such Material Contracts any
existing material default or event of default resulting in a Material Adverse
Effect, or event which, with notice or lapse of time or both, would constitute
an event of default thereunder. All plans or arrangements listed pursuant to
Section 3.k.iv. (above) are fully funded to the extent that such funding is
required by generally accepted accounting principles.

n. CONFLICTS OF INTEREST. To the best of the Corporation's
knowledge, except as set forth on Schedule 3.m.

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<PAGE>

hereto, no officer, director or stockholder of the Corporation or any
affiliate (as such term is defined in Rule 405 under the Securities Act) of
any such person has any direct or indirect interest (a) in any entity which
does business with the Corporation, or (b) in any property, asset or right
which is used by the Corporation in the conduct of its business, or (c) in
any contractual relationship with the Corporation other than as an employee.
For the purpose of this Section 3.m., there shall be disregarded any interest
which arises solely from the ownership of less than a one percent (1%) equity
interest in a corporation whose stock is regularly traded on any national
securities exchange or in the over-the-counter market.

o. REGISTRATION RIGHTS. Other than as contemplated by this
Agreement and as set forth on Schedule 3.n. hereto, the Corporation has not
agreed to register any of its authorized or outstanding securities under the
Securities Act.

p. DISCLOSURE. The Corporation has not knowingly withheld from
the Investor any material facts relating to the assets, business, operations or
financial condition of the Corporation. Neither this Agreement nor any
certificate, schedule, statement or other document furnished or to be furnished
to the Investor pursuant hereto or in connection with the transactions
contemplated hereby contains or will contain any untrue statement of a material
fact or omits or will omit to state any material fact required to be stated
herein or therein or necessary to make the statements herein or therein not
misleading.

4. INVESTOR REPRESENTATIONS AND WARRANTIES. The Investor represents and
warrants to the Corporation that:

a. ACCREDITED INVESTOR. Investor is an "accredited investor" (as
defined in Regulation D, which definition is set out in Exhibit C attached
hereto).

b. INVESTMENT. The Investor is acquiring the Purchased Shares and
any shares of Common Stock issuable pursuant to conversion of the Shares
(hereinafter collectively the "Securities") for investment for its own account,
and not with a view to, or resale in connection with, any distribution thereof,
and it has no present intention of selling or distributing any such Securities.
It understands that the Securities have not been registered under the 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.

11
<PAGE>

c. RULE 144. The Investor acknowledges that because the
Securities have not been registered under the Securities Act, the Securities
must be held indefinitely unless subsequently registered under the Securities
Act or an exemption from such registration is available. It is aware of the
provisions of Rule 144 promulgated under the Securities Act which permits
limited resale of shares purchased in a private placement under certain
circumstances.

d. 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.

e. 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 it necessary or appropriate
for deciding whether or not to purchase the Securities. 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.

f. PREVIOUS INVESTMENTS. The Investor is an investor in
securities of companies in the development stage and acknowledges that it is
able to fend for itself, can bear the economic risk of its investment and has
such knowledge and experience in financial or business matters that it 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. GOVERNMENTAL CONSENTS. To the Investor's knowledge, no
consent, approval, order, authorization or registration, qualifications,
designation, license, declarations or filings with any governmental authority is
required on the part of the Investor in connection with the consummation of the
transactions contemplated herein.

i. RESTRICTIVE LEGENDS. Each certificate or other written
documentation representing any of the Securities 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 in the opinion of the counsel for the

12
<PAGE>

Corporation) shall be stamped or otherwise imprinted with legends
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
REASONABLY 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
stock books with respect to the Securities.

The parties hereto hereby acknowledge and agree that (i) the Corporation will be
undergoing a recapitalization of the Series B Convertible Preferred Stock issued
by the Corporation on May 31, 1999 and a restructuring of its remaining issued
and outstanding convertible debt, each into the issuance of Common Stock at a
per share price of $0.25 per share (collectively referred to herein as the
"Recapitalization"); and (ii) the calculation of the number of Purchased Shares
to be purchased hereunder shall take into account the Recapitalization. The
Corporation will provide to Investor, on or before the Closing, a final schedule
of equity after giving effect to the Recapitalization.

5. AFFIRMATIVE COVENANTS. For so long as Investor owns more than seven and
5/10ths percent (7.5%) of the issued and outstanding equity of the Corporation
calculated on a fully diluted basis, and the Collaboration Agreement is in
effect, the Corporation covenants and agrees that:

a. CORPORATE EXISTENCE. The Corporation will maintain and cause
each Subsidiary (as hereinafter defined) to maintain its corporate existence in
good standing and comply with all applicable laws and regulations of the United
States or of any state or states thereof or of any political subdivision thereof
and of any governmental authority where failure to so comply would have a
material adverse impact on the Corporation or its business, properties,
prospects or operations.

b. BOOKS OF ACCOUNT AND RESERVES. The Corporation will, and will
cause each of its Subsidiaries to, keep books of record

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<PAGE>

and account in which full, true and correct entries are made of all of its
and their respective dealings, business and affairs, in accordance with
generally accepted accounting principles. The Corporation will employ
certified public accountants selected by the Board of Directors of the
Corporation who are "independent" within the meaning of applicable the
accounting regulations and who are one of the so-called "Big Five" accounting
firms, and have annual audits made by such independent public accountants in
the course of which such accountants shall make such examinations, in
accordance with generally accepted auditing standards, as will enable them to
give such reports or opinions with respect to the financial statements of the
Corporation and its Subsidiaries as will satisfy the applicable requirements
in effect at such time with respect to certificates and opinions of
accountants.

c. FURNISHING OF FINANCIAL STATEMENTS AND INFORMATION.

i. The Corporation will deliver to Investor as soon as
practicable, but in any event within one hundred twenty (120) days
after the end of each fiscal year, a consolidated balance sheet of the
Corporation and its Subsidiaries, as of the end of such fiscal year,
together with the related consolidated statements of operations,
stockholders' equity and cash flow for such fiscal year, setting forth
in comparative form figures for the previous fiscal year, all in
reasonable detail and duly certified by the Corporation's independent
public accountants, which accountants shall have given the Corporation
an opinion, unqualified as to the scope of the audit, regarding such
statements.

ii. The Corporation will also deliver to the Investor:

(a) as soon as practicable, but in any event
within forty-five (45) days after the close of each calendar quarter (except for
the last month of the Corporation's fiscal year), unaudited consolidated balance
sheets of the Corporation and its Subsidiaries as of the end of such calendar
quarter, together with the related consolidated statements of operations and
cash flow for such calendar quarter, setting forth in comparative form figures
for the corresponding calendar quarter of the previous fiscal year, all in
reasonable detail and certified by an authorized accounting officer of the
Corporation, subject to year-end adjustments;

(b) within ninety (90) days after the end of
each fiscal year, and if there has been an adjustment to the Conversion Price
(as defined in the

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<PAGE>

Certificate of Incorporation) since the date of the last such notice, written
notice of the current Conversion Price for the Series C Preferred Stock,
including a brief statement indicating any adjustments reasonably anticipated;

(c) promptly upon transmission thereof, copies
of all reports, proxy statements, registration statements and notifications
filed by it with the Commission pursuant to any act administered by the
Commission or furnished to stockholders of the Corporation or to any national
securities exchange.

d. PATENTS AND OTHER INTANGIBLE RIGHTS. The Corporation will
apply for, or obtain assignments of, or licenses to use, all patents,
trademarks, trademark rights, trade names, trade name rights and copyrights
which in the opinion of the Corporation's Board of Directors are desirable or
necessary for the conduct and protection of the business of the Corporation.

e. VESTING OF STOCK AWARDS. Unless otherwise determined by the
Board of Directors of the Corporation, all stock and stock equivalents issued to
employees, directors and consultants of the Corporation on or after the date of
this Agreement shall be subject to vesting as follows: twenty-five percent (25%)
to vest at the end of the first year following the earlier of the date of such
issuance or employment, with the remaining seventy-five percent (75%) to vest
monthly over the next three (3) years.

f. INDEMNIFICATION. The Company shall maintain as part of its
Certificate of Incorporation or Bylaws a provision for the indemnification of
its directors to the full extent permitted by law.

g. APPLICATION OF PROCEEDS. The proceeds from the issuance and
sale of the Purchased Shares pursuant to this Agreement shall be used to fund
marketing efforts, product development and other working capital requirements.

h. NEGATIVE COVENANTS. For so long as Investor is the record
holder of fifty percent (50%) of the Purchased Shares (on a fully converted
basis), the Corporation will not, without the prior approval of the Investor,
which approval shall not be unreasonably withheld, agree with the holders of any
securities issued or to be issued by the Corporation to register such securities
under the Securities Act nor will it grant any incidental registration rights
unless, in either case, such agreement or incidental registration rights is
equal or subordinated to and will not interfere in any manner with the

<PAGE>

rights granted to the Investor pursuant to the Registration Rights Agreement.

i. EVENTS OF DEFAULT. Each of the following events shall be an
event of default (an "Event of Default") for purposes of this Agreement:

i. if the Corporation or any Subsidiary becomes
insolvent or bankrupt, or admits in writing its inability to pay its debts as
they mature, or makes an assignment for the benefit of creditors, or ceases
doing business as a going concern, or the Corporation or any Subsidiary applies
for or consents to the appointment of a trustee or receiver for the Corporation
or any Subsidiary, or for the major part of the property of either; or

ii. if a trustee or receiver is appointed for the
Corporation or any Subsidiary or for the major part of the property of either
and the order of such appointment is not discharged, vacated or stayed within
thirty (30) days after such appointment; or

iii. if any judgment, writ or warrant of attachment or of
any similar process in an amount in excess of Twenty-five Thousand Dollars
($25,000) shall be entered or filed against the Corporation or any Subsidiary or
against any of the property or assets of either and remains unpaid, unvacated,
unbonded or unstayed for a period of 30 days; or

iv. if an order for relief shall be entered in any
Federal bankruptcy proceeding in which the Corporation or any Subsidiary is the
debtor; or if bankruptcy, reorganization, arrangement, insolvency, or
liquidation proceedings, or other proceedings for relief under any bankruptcy or
similar law or laws for the relief of debtors, are instituted by or against the
Corporation or any Subsidiary and, if instituted against the Corporation or any
Subsidiary, are consented to or, if contested by the Corporation or the
Subsidiary, are not dismissed by the adverse parties or by an order, decree or
judgment within thirty (30) days after such institution; or

v. if the Corporation or any Subsidiary shall default in
any material respect in the due and punctual performance of any covenant or
agreement in any note, bond, indenture, loan agreement, note agreement,
mortgage, security agreement or other instrument evidencing or related to
Indebtedness for Borrowed Money, and such default shall continue for more than
the period of notice and/or grace, if any, therein specified and shall not have
been waived or the lender shall not have otherwise agreed to forebear any
exercise of any remedies available to such lender; or

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<PAGE>

vi. if any of the following apply:

(A) if any representation or warranty made by or
on behalf of the Corporation in this Agreement or in any certificate, report or
other instrument delivered under or pursuant to any term hereof or thereof shall
prove to have been untrue or incorrect in any material respect as of the date of
this Agreement or as of the Closing Date (PROVIDED, HOWEVER, that any Event of
Default based on a breach of any such representation or warranty must be
asserted on or before the date which is eighteen (18) months after the Closing
Date and, if not so asserted by such date, a breach or alleged breach of any
such representation or warranty shall not thereafter be the basis for an Event
of Default), or (ii) if any report, certificate, financial statement or
financial schedule or other instrument prepared or purported to be prepared by
the Corporation or any officer of the Corporation furnished or delivered under
or pursuant to this Agreement after the Closing Date shall prove to be knowingly
untrue or incorrect in any material respect as of the date it was made,
furnished or delivered; or(H) if default shall be made in the due and punctual
performance or observance of any other term contained in this Agreement, and
such default shall have continued for a period of thirty (30) days after written
notice thereof to the Corporation by the holder of any Purchased Shares.

k. NOTICE OF DEFAULTS. When, to its knowledge, any Event of
Default has occurred or exists, the Corporation agrees to give written notice
within five (5) business days of such Event of Default to the holders of all
outstanding Purchased Shares. If the holder of any Purchased Shares shall give
any notice or take any other actions in respect of a claimed Event of Default,
the Corporation will forthwith give written notice thereof to all other holders
of Purchased Shares at the time outstanding, describing such notice or action
and the nature of the claimed Event of Default.

l. SUITS FOR ENFORCEMENT. In case any one or more Events of
Default shall have occurred and be continuing, the holders of a majority of the
Purchased Shares may proceed to protect and enforce their rights under this
Section by suit in equity for specific performance. It is agreed that in the
event of such action such holders of Purchased Shares shall, if such action is
successful, be entitled to receive all reasonable fees, costs and expenses
incurred, including without limitation such reasonable fees and expenses of
attorneys and reasonable fees, costs and expenses of appeals. No right, power or
remedy conferred upon any holder of Purchased Shares shall be exclusive, and
each such right, power or remedy shall be

<PAGE>

cumulative and in addition to every other right, power or remedy, whether
conferred hereby or by any such security or now or hereafter available at law
or in equity or by statute or otherwise.

m. REMEDIES NOT WAIVED. No course of dealing between the
Corporation and any Investor or the holder of any Purchased Shares, and no delay
in exercising any right, power or remedy conferred hereby or by any such
security or now or hereafter existing at law or in equity or by statute or
otherwise, shall operate as a waiver of or otherwise prejudice any such right,
power or remedy; PROVIDED, HOWEVER, that this Section shall not be construed or
applied so as to negate the provisions and intent of any statute which is
otherwise applicable.

6. PREEMPTIVE RIGHT. Pursuant to the terms and conditions set forth
herein, the Corporation hereby grants to Investor the right of first refusal to
purchase that portion of all new securities issued by the Corporation (the "New
Securities" as defined below) as the number of shares (on an "as-converted"
basis) held by Investor on the date that it receives the "Offer" (as defined
below) bears to the total number of shares of the Corporation issued and
outstanding on the date of the Offer on the following terms and conditions:

a. DEFINITION. "New Securities" shall mean any capital stock of
the Corporation issued after the Closing Date, whether now authorized or not,
and rights, options, or warrants to purchase said capital stock, and securities
of any type whatsoever that are, or may become, convertible into said common
stock or preferred stock issued after the Closing Date; provided, however, that
"New Securities" do not include (i) the issuance of any common stock shares or
options or warrants to purchase common stock shares to the Corporation's or the
Subsidiary's employees, consultants or Directors, and the issuance of common
stock upon exercise of the foregoing, as applicable; (ii) shares of the
Corporation's common stock issued in connection with any stock split, stock
dividend, or recapitalization of the Corporation; (iii) any shares issued by the
Corporation in connection with an initial public offering with a per share
purchase price of at least 75/100ths Dollars ($0.75) and aggregate gross
proceeds to the Corporation are in excess of Twelve Million Five Hundred
Thousand Dollars ($12,500,000), which is declared effective by the Securities
and Exchange Commission (the "IPO"); (iv) the issuance of common stock upon
conversion of the current issued and outstanding Series A Convertible Preferred
Stock, Series B Convertible Preferred Stock, warrants or convertible debt; (v)
the issuance of common stock upon exercise of any options or warrants issued

18
<PAGE>

to the Corporation's or the Subsidiary's employees, consultants or Directors;
(vi) the issuance of Common Stock in connection with the Recapitalization;
and (vii) any common stock shares, preferred stock shares or options or
warrants to purchase any capital stock of the Corporation, each issued for
purposes of technology alliances, acquisition of technology or other
strategic alliance ventures, obtaining commercial credit, equipment financing
or similar arrangements or transactions, each at fair market value, as
determined by the Corporation's Board of Directors. Notwithstanding the
foregoing, if the Corporation shall issue shares in the manner set forth in
(vii), above, and if the Investor owns, on a fully diluted basis, more than
seven and 5/10ths percent (7.5%) of the Corporation's stock, then the
Investor shall have the right of first refusal to purchase that number of
shares that will allow the Investor to maintain an ownership interest in the
Corporation of no less than seven and 5/10ths percent (7.5%).

b. EXERCISE OF RIGHT. If the Corporation intends to issue New
Securities after the date hereof, it shall give Investor written notice of its
intention, describing the type of New Securities, the aggregate price of the
offering, the price per share or unit, the intended Investor(s) and all of the
other terms upon which the Corporation proposes to issue the same (the "Offer").
Investor shall have ten (10) days from the effective date of such notice as
specified herein to agree to purchase its portion of the New Securities for the
price and upon the general terms specified in the Offer by giving written notice
to the Corporation and stating therein the quantity of New Securities to be
purchased. Investor shall have the right to condition its purchase on the sale
of a minimum number of New Securities by the Corporation (not to exceed the
aggregate size of the Offer), and shall pay the purchase price simultaneously
with the closing of the sale of such minimum number of New Securities.

c. FAILURE TO EXERCISE. In the event Investor fails to notify the
Corporation during such ten (10) day notice period of its election to exercise
its right of first refusal, its right to participate in such Offer will
terminate. If the Corporation fails to sell the New Securities on the terms set
forth in the Offer within ninety (90) days after the lapse of such ten (10) day
notice period, it must once again comply with the right of first refusal set
above.

d. TERMINATION OF THE RIGHT OF FIRST REFUSAL. Notwithstanding the
foregoing, the provisions of this Section 6 shall not apply to, and the Right of
First Refusal shall terminate upon, the sale of any of the Corporation's
securities to the public pursuant to the IPO or the automatic conversion of the

19
<PAGE>

Corporation's Series C Preferred Stock pursuant to the Corporation's Articles.

e. LEGENDS. The Corporation may place a legend or legends
referencing the preemptive right on the certificate(s) representing the
Purchased Shares.

7. MISCELLANEOUS.

a. WAIVERS AND AMENDMENTS. The obligations of the Corporation and
the rights of the holders of the Purchased Shares under this Agreement may be
waived (either generally or in a particular instance, whether retroactively or
prospectively and either for a specified period of time or indefinitely), or
otherwise modified with the written agreement of the record or beneficial
holders of more than fifty percent (50%) of the Corporation's outstanding Series
C Preferred Stock shares as a group, and with the same agreement of the
Corporation as authorized by the Corporation's Board of Directors. No such
agreement, however, shall reduce the percentage ownership of Investor at the
time of such agreement. Any change, discharge of obligation or termination under
this agreement must be in writing. If this Agreement is modified in accordance
with this section, and if the Investor has not previously consented to the
modification in writing, the Corporation shall give prompt written notice of
such modification to the Investor.

b. 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.

c. 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.

d. 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 as any addressee shall have theretofore furnished to the other parties
by 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

<PAGE>

transmission of such notice by facsimile if the recipient has the capability
to receive a facsimile at its address. If sent by other methods, notice shall
be deemed received upon confirmation of receipt.

e. 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.

f. 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.

g. 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.

h. 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.

i. 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

21
<PAGE>

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>

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year hereinabove first written.

CORPORATION:

PHASECOM, INC.,
a Delaware corporation

By: /s/ Davidi Gilo
----------------
Davidi Gilo,
Chief Executive Officer

INVESTOR:

ADC TELECOMMUNICATIONS, INC.,
a Minnesota corporation

By: /s/ John P. Griffin
--------------------
John P. Griffin
General Manager/President

<PAGE>

INDEX OF EXHIBITS

Exhibit A Certificate of Incorporation

Exhibit B Registration Rights Agreement

Exhibit C Definition of Accredited Investor

Exhibit D Consolidated Financial Statements

Exhibit E Voting Agreement

24
<PAGE>

EXHIBIT A
TO
PURCHASE AGREEMENT

CERTIFICATE OF INCORPORATION

The Certificate of Incorporation the Corporation is set forth on the
following pages.

<PAGE>

SECOND 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; that a Certificate of Amendment of Certificate of
Incorporation of PhaseCom, Inc. was filed on September 15, 1998; and that an
Amended and Restated Certificate of Incorporation of PhaseCom, Inc. was filed on
November 30, 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 Certificate 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, Series A Preferred Stock and Series B Preferred Stock entitled to
vote with respect to this amendment and restatement was forty two million three
hundred ninety six thousand one hundred eighty two (42,396,182) shares, one
million five hundred eighty three thousand six hundred forty six (1,583,646)
shares, and four million four hundred thousand three hundred (4,400,300) 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,
and Series B 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:

The name of this corporation is PHASECOM, INC. (this "Corporation").

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 1600,
Wilmington, Delaware, 19801. The name of its registered agent at that address is
PHS Corporate Services, Inc.

<PAGE>

III

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.

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 two hundred million
(200,000,000) shares of Common Stock with a par value of $0.0001 per share and
one hundred million (100,000,000) 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 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, 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:

1. The number of shares constituting that series and the
distinctive designation of that series;

2. 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;

3. 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;

4. 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;

<PAGE>

5. 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;

6. 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;

7. 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

8. Any other relative rights, preferences and
limitations of that series.

C. AUTHORIZED SHARES - SERIES A PREFERRED STOCK AND SERIES B
PREFERRED STOCK AND SERIES C PREFERRED STOCK. The initial three series of
Preferred Stock shall be comprised of an aggregate total of eighty-six million
(86,000,000) 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"), forty million (40,000,000) shares shall
be designated "Series B Convertible Preferred Stock" (also referred to herein as
"Series B Preferred Stock" or "Series B Stock") and forty million
(40,000,000)shares shall be designated "Series C Convertible Preferred Stock"
(also referred to herein as "Series C Preferred Stock" or "Series C Stock").

D. ATTRIBUTES OF SERIES A STOCK, SERIES B STOCK AND SERIES C
STOCK. The rights, preferences, privileges and restrictions of the Series A
Stock, Series B Stock and Series C 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 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 and Series C
Stock first receiving the Series B Preferential Dividend and Series C
Preferential Dividend, respectively (each 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

<PAGE>

preference to any declaration or payment (payable other than in Common Stock)
to the Common Stock, Series A Stock and Series C Stock.

c. SERIES C STOCK RIGHT TO DIVIDENDS. Each
holder of outstanding shares of Series C 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 four percent (4%) of 54/100ths Dollars ($0.54) per share of Series C
Preferred Stock per annum (the "Series C 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 (but not without the holders of Series B Stock also receiving
the Series B Preferential Dividend.

d. PARTIAL CASH PAYMENT. If the Board of
Directors shall declare a dividend on the Series A Stock, Series B Stock or
Series C 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 and/or
Series C Stock, then the amount available for such dividend payments shall be
distributed ratably first among the holders of shares of Series B Stock and the
holders of shares of Series C Stock according to (i) the respective dividend
preference amounts to which all such holders of outstanding shares of Series B
Stock and Series C Stock would otherwise be entitled, and (ii) the number of
outstanding shares of each such series until each holder of outstanding shares
of Series B Stock has received its Series B Preferential Dividend and each
holder of outstanding shares of Series C Stock has received it Series C
Preferential Dividend, as applicable, in full. For example, assume that: (1)
there are 300 shares of Series B Stock issued and outstanding, and the Series B
Preferential Dividend is $.10 per share; and (2) there are 300 shares of Series
C Stock issued and outstanding, and the Series C Preferential Dividend is $.20
per share; and (3) there is not enough money available for payment in full of
the preferential dividends to the holders of the outstanding shares of Series B
Stock and Series C Stock. In such event, the Series B Stock shareholders would
collectively be entitled to one-third (1/3) of the dividend to be paid; and the
Series C Stock shareholders would collectively be entitled to two-thirds (2/3)
of the dividend to be paid. Or, for example, assume that: (1) there are 200
shares of Series B Stock issued and outstanding, and the Series B Preferential
Dividend is $.10 per share; and (2) there are 400 shares of Series C Stock
issued and outstanding, and the Series C Preferential Dividend is $.20 per
share; and (3) there is not enough money available for payment in full of the
preferential dividends to the holders of the outstanding shares of Series B
Stock and Series C Stock. In such event, the Series B Stock shareholders would
collectively be entitled to one-fifth (1/5) of the dividend to be paid; and the
Series C Stock shareholders would collectively be entitled to four-fifths (4/5)
of the dividend to be paid. Thereafter, 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.

e. DIVIDENDS AFTER PAYMENT OF PREFERENTIAL
DIVIDENDS. After the holders of record of the Series A Stock, Series B Stock and
Series C Stock have been paid their Preferential Dividends in full, then, if the
Board of Directors shall declare a dividend on the

<PAGE>

Common Stock, the holders of record of Series A Stock, Series B Stock, Series
C 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, Series B
Stock and Series C Stock were converted to Common Stock)up to the payment in
full of the amount so declared.

f. DIVIDEND ADJUSTMENT. The Series A
Preferential Dividend, Series B Preferential Dividend and Series C Preferential
Dividend amounts shall be appropriately adjusted for any combination(s) stock
split(s),stock distribution(s) or dividend(s), as applicable.

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), and after payment of the
"Series C 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 or Series C 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, Series C 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 C STOCK PREFERENCE PRICE. Before
payment of any portion of the Series A Liquidation Price or the Series B to
Common Stock Liquidation Price and after payment of the Series B Liquidation
Payment, in the event of a Liquidation Event, the holders of the outstanding
shares of Series C 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 C Stock, in an amount
equal to (i) 54/100ths Dollars ($0.54) per share together with an amount equal
to the greater of (A) four percent (4%) of such 54/100ths Dollars ($0.54)
compounded annually at the rate of 4% for each year (or fraction thereof) August
31, 1999, (the "Series C Stock Issuance Date") less the amount, if any, of any
dividends actually paid to the Series C Stock through the date of the

<PAGE>

Liquidation Event, or (B) any declared and unpaid dividends thereon (the "Series
C Liquidation Preference Price").

d. SERIES B TO COMMON STOCK LIQUIDATION PRICE.
Before payment of any portion of the Series A Liquidation Preference Price, and
after payment of the Series B Liquidation Price and Series C 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, and all Series C
Stock had been converted into Common Stock as of the date of the Liquidation
Event.

e. 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 outstanding shares of Series A Stock, the
holders of the outstanding shares of Series B Stock, the holders of the
outstanding shares of Series C 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 distributed
ratably: first, among the holders of the outstanding shares of Series B Stock
based upon the Series B Liquidation Price until payment in full of the Series B
Liquidation Price on all Series B Stock; next, ratably to the holders of the
outstanding shares of Series C Stock based upon the Series C Liquidation Price
until payment in full of the Series C Liquidation Price on all Series C 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.

f. AFTER PAYMENT OF PREFERRED LIQUIDATION
PRICES. After the holders of record of the Series A Stock, Series B Stock,
Series C Stock and Common Stock have been paid their Series A Liquidation Price,
Series B to Common Stock Liquidation Price, Series B Liquidation Price, and
Series C Liquidation Price, as applicable, in full, then the remaining assets of
this Corporation shall be distributed to the holders of shares of Common Stock,
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock
in an equal amount per share as if all Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock had been converted into Common
Stock as of the date of the Liquidation Event.

g. LIQUIDATION ADJUSTMENT. Notwithstanding the
foregoing, the amount to be paid for each share of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock and Common Stock upon a
Liquidation Event shall be appropriately adjusted for any combination(s), stock
split(s), stock distribution(s) or dividend(s) with respect to such shares.

<PAGE>

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, Series C 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, all Series B Stock and all Series C Stock had converted to
Common Stock, is One Dollar ($1.00), or more, per share (adjusted for stock
split(s), combination(s), reclassification(s), and the like).

4. CONSENT TO CERTAIN DISTRIBUTIONS. Each holder of
outstanding shares of Series A Stock, Series B Stock and Series C 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 of Common Stock owned by such
stockholder. The holders of the outstanding shares of Series A Preferred Stock,
Series B Preferred Stock and Series C 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, Series B Preferred Stock and
Series C 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. The holders of the outstanding shares of Series C Stock, voting as a
single class, shall be entitled to elect one (1) Director to the Board of
Directors.

F. CONVERSION. The holders of the outstanding shares of Series A
Stock, Series B Stock and Series C 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

<PAGE>

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).

3. SERIES C STOCK CONVERSION RIGHTS. Each share of
Series C 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 C 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 54/100ths Dollars ($0.54) by
(B) the Series C Conversion Price, immediately prior to the time of such
conversion. The "Series C Conversion Price" shall initially be 54/100ths Dollars
($0.54) (as adjusted from time to time as hereinafter provided).

4. AUTOMATIC CONVERSION.

a. PREFERRED STOCK. Each outstanding share of
Series A Stock, Series B Stock and Series C 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 or Series C 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 Twelve
Million Five Hundred Thousand Dollars ($12,500,000) with a Common Stock per
share purchase price of at least One Dollar ($1.00), 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, all Series B Stock and all Series C Stock had converted to Common Stock,
is One Dollar ($1.00), 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.4.a (above), the outstanding
shares of Series A Stock, Series B Stock and Series C 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

<PAGE>

automatic conversion of the outstanding shares of Series A Stock, Series B
Stock and Series C Stock, the holders of the outstanding shares of Series A
Stock, Series B Stock and Series C 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, Series C 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,
Series B Stock and Series C Stock of such holder were convertible 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, Series B Stock and Series C Stock so converted.

5. 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 conversion 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 or Series C 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 or Series C Stock shall not be deemed to
have converted such Series A Stock or Series B Stock or Series C Stock until
immediately prior to the closing of such sale of securities.

6. ADJUSTMENTS TO SERIES A, SERIES B AND SERIES C
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 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, the Series B
Conversion Price and the Series C

<PAGE>

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, the
Series B Conversion Price and Series C Conversion Price shall be
proportionately increased. Any adjustment under this Section F.6.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, the Series B Conversion Price and the Series C 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, the Series B Conversion Price and the
Series C 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, the Series B
Conversion Price, and the Series C 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, the Series B Conversion Price and the Series C Conversion Price shall be
decreased pursuant to this Section F.6.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, the holders of the outstanding shares
of Series B Stock and the holders of the outstanding shares of Series C 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,
Series B Stock and Series C 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, the holders of the outstanding shares of
Series B Stock and the holders of the outstanding shares of Series C 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

<PAGE>

issuable upon conversion of the shares of Series A Stock, Series B Stock and
Series C 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, each holder of outstanding shares of
Series B Stock and each holder of the outstanding shares of Series C Stock
shall have the right thereafter to convert such shares of Series A Stock,
Series B Stock and Series C 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, Series B Stock and Series C Stock could have been
converted immediately prior to such recapitalization, reclassification 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, reclassification 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,
the holders of the outstanding shares of Series B Stock and the holders of the
outstanding shares of Series C 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, Series B Stock and Series C 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, Series B
Stock and Series C 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, Series B Conversion
Price, and Series C Conversion Price and the number of shares into which the
shares of Series A Stock, Series B Stock and Series C 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. SALE OF SHARES BELOW CONVERSION PRICE.

(i) If, at any time or from time to
time after the Filing Date, this Corporation issues or sells, or is deemed by
the express provisions of this Section f. to have issued or sold, Additional
Shares of Common Stock (as hereinafter defined) for an Effective Price (as
hereinafter defined) less than the then current Series C Conversion Price, other
than (A) as a dividend or other distribution on any class of stock as provided
in Section F.6.b. above or (B) upon a division or combination of shares of
Common Stock as provided in Section F.6.a. above, then, in any such event, the
Series C Conversion Price shall be reduced, as of the close of business on the

<PAGE>

date of such issuance or sale, to an amount determined by multiplying the Series
C Conversion Price by a fraction (A) the numerator of which shall be (x) the
number of shares of Common Stock outstanding at the close of business on the day
immediately preceding the date of such issuance or sale, plus (y) the number of
shares of Common Stock which the aggregate consideration received (or by the
express provisions hereof deemed to have been received) by this Corporation for
the total number of Additional Shares of Common Stock so issued or sold would
purchase at such Series C Conversion Price and (B) the denominator of which
shall be the number of shares of Common Stock outstanding at the close of
business on the date of such issuance or sale after giving effect to such
issuance or sale of Additional Shares of Common Stock. For the purpose of the
calculation described in this Section f., the number of shares of Common Stock
outstanding shall include, in addition to the number of shares of Common Stock
actually outstanding, (A) the number of shares of Common Stock into which the
then outstanding shares of Series A Stock, Series B Stock and Series C Stock
could be converted if fully converted on the day immediately preceding the
issuance or sale or deemed issuance or sale of Additional Shares of Common
Stock; and (B) the number of shares of Common Stock which would be obtained
through the exercise or conversion of all rights, options and Convertible
Securities (as hereinafter defined) outstanding on the day immediately preceding
the issuance or sale or deemed issuance or sale of Additional Shares of Common
Stock.

(ii) For the purpose of making any
adjustment required under this Section f., the consideration received by this
Corporation for any issuance or sale of securities shall (A) to the extent it
consists of property other than cash, be the fair value of that property as
reasonably determined in good faith by a disinterested majority of the Board of
Directors; and (B) if Additional Shares of Common Stock, Convertible Securities
(as hereinafter defined) or rights or options to purchase either Additional
Shares of Common Stock or Convertible Securities are issued or sold together
with other stock or securities or other assets of this Corporation for a
consideration which covers both, be the portion of the consideration so received
reasonably determined in good faith by a disinterested majority of the Board of
Directors to be allocable to such Additional Shares of Common Stock, Convertible
Securities or rights or options.

(iii) For the purpose of the adjustment
required under this Section f., if this Corporation issues or sells any rights
or options for the purchase of, or stock or other securities convertible into,
Additional Shares of Common Stock (such convertible stock or securities being
hereinafter referred to as "Convertible Securities") and if the Effective Price
(as defined in Clause (v) below) of such Additional Shares of Common Stock is
less than the then current Series C Conversion Price, this Corporation shall be
deemed to have issued, at the time of the issuance of such rights, options or
Convertible Securities the maximum number of Additional Shares of Common Stock
issuable upon exercise or conversion thereof and to have received as
consideration therefor an amount equal to (A) the total amount of the
consideration, if any, received by this Corporation for the issuance of such
rights or options or Convertible Securities plus (B) in the case of such rights
or options, the minimum amount of consideration, if any, payable to this
Corporation upon the exercise of such rights or options or, in the case of
Convertible Securities, the minimum amount of consideration, if any, payable to
this Corporation upon the conversion thereof. Thereafter, no further adjustment
of the Series C Conversion Price shall be made as a result of the actual
issuance of Additional Shares of Common Stock on the exercise of any such rights
or options

37
<PAGE>

or the conversion of any such Convertible Securities. If any such rights or
options or the conversion privilege represented by any such Convertible
Securities shall expire or otherwise terminate without having been exercised,
the Series C Conversion Price shall thereafter be the Series C Conversion
Price which would have been in effect had an adjustment been made on the
basis that the only Additional Shares of Common Stock so issued were the
Additional Shares of Common Stock, if any, actually issued or sold on the
exercise of such rights or options or rights of conversion of such
Convertible Securities, and were issued or sold for the consideration
actually received by this Corporation upon such exercise plus (A) the
consideration, if any, actually received for the granting of all such rights
or options, whether or not exercised, (B) the consideration, if any, actually
received by issuing or selling the Convertible Securities actually converted
and (C) the consideration, if any, actually received on the conversion of
such Convertible Securities. However, if any such rights or options or
Convertible Securities by their terms provide, with the passage of time or
otherwise, for any increase in the consideration payable to the Corporation,
upon the exercise, conversion or exchange thereof, the Conversion Price for
the Series C Stock, and any subsequent adjustments based thereon, shall upon
any such increase or decrease becoming effective be recomputed to reflect
such increase or decrease insofar as it affects such rights, options or the
rights of conversion or exchange under such Convertible Securities.

(iv) For the purpose of any adjustment
required under this Section F.6.f., if (a) this Corporation issues or sells any
rights or options for the purchase of Convertible Securities and (b) if the
Effective Price of the Additional Shares of Common Stock underlying such
Convertible Securities is less than the Series C Conversion Price, then in each
such event this Corporation shall be deemed to have issued at the time of the
issuance of such rights or options the maximum number of Additional Shares of
Common Stock issuable upon conversion of the total number of Convertible
Securities covered by such rights or options (as set forth in the legal
instruments setting forth the terms of such Convertible Securities) and to have
received as consideration for the issuance of such Additional Shares of Common
Stock an amount equal to the amount of consideration, if any, received for the
issuance of such rights or options plus (A) the minimum amount of consideration,
if any, payable upon the exercise of such rights or options and (B) the minimum
amount of consideration, if any, payable upon the conversion of such Convertible
Securities. No further adjustment of the Series C Conversion Price shall be made
as a result of the actual issuance of the Convertible Securities upon the
exercise of such rights or options or upon the actual issuance of Additional
Shares of Common Stock upon the conversion of such Convertible Securities. The
provisions of Section F.6.f.(iii) for the adjustment of the Series C Conversion
Price upon the expiration of rights or options or the rights of conversion of
Convertible Securities shall apply mutatis mutandis upon the expiration of the
rights, options and Convertible Securities referred to in this Clause F.6.f(iv).

(v) "Additional Shares of Common Stock"
shall mean all shares of Common Stock issued or deemed to be issued under this
Section D.8 after the Filing Date, other than (A) shares of Common Stock issued
upon conversion of the shares of Series A, or Series B or Series C Stock; (B)
any shares of Common Stock (or options, warrants or rights therefor) granted or
issued at the then fair market value as determined by the Board of Directors
hereafter to employees, officers, directors, contractors, consultants or
advisers to, the Corporation or any subsidiary pursuant

<PAGE>

to incentive agreements, stock purchase or stock option plans, stock bonuses
or awards, warrants, contracts or other arrangements that are approved by the
Board of Directors; (C) securities issued by the Corporation in connection
with any credit agreements or similar instruments with equipment lessors or
commercial lenders; (D) securities issued in connection with or pursuant to
the acquisition of all or any portion of another company by the Company
whether by merger or any other reorganization or by the purchase of all or
any portion of the assets of another company, pursuant to a plan, agreement
or other arrangement approved by the Board of Directors; (E) shares of Common
Stock or Preferred Stock issued or issuable upon the exercise of any
warrants, options or other rights that are outstanding as of the Filing Date
(or issued or issuable after the reissuance of any such expired or terminated
options, warrants or rights and net of any such issued shares repurchased by
the Corporation); (F) the reissuance or assignment by the Corporation of any
shares of Common Stock outstanding as of the Filing Date to a different
person from the holder of such shares and (G) shares of Common Stock issued
by way of dividend or other distribution on shares of Common Stock excluded
from the definition of Additional Shares of Common Stock by the foregoing
clauses (A), (B), (C), (D), (E), (F) and this clause (G). The "Effective
Price" of Additional Shares of Common Stock shall mean the quotient obtained
by dividing the total number of Additional Shares of Common Stock issued or
sold, or deemed to have been issued or sold, under this Section f. into the
aggregate consideration received, or deemed to have been received for such
Additional Shares of Common Stock.

g. CERTIFICATE OF ADJUSTMENT. Upon the
occurrence of each adjustment or readjustment of the Series A Conversion Price
or Series B Conversion Price or Series C 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 or Series C 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 or Series C 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
or Series C Stock, as the case may be.

h. 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, Series B
Stock and Series C 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, transfer, consolidation,

<PAGE>

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.

i. FRACTIONAL SHARES. No fractional shares of
Common Stock shall be issued upon conversion of the shares of Series A Stock or
Series B Stock or Series C 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.

j. 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, Series B Stock and
Series C 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, Series B Stock and Series C 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 or the Series C 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.

k. 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 or Series C 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 six hundred eighty thousand (680,000) shares of Series
A Stock remain outstanding (adjusted for stock split(s),combination(s),
reclassification(s), dividend(s) and the like), 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;

<PAGE>

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. CORPORATE ACTION. Except as otherwise required by
law, so long as at least three hundred fourteen thousand seven hundred twenty
four (314,724)shares of Series B Stock remain outstanding (adjusted for stock
split(s), combination(s), reclassification(s), dividend(s) and the like), this
Corporation shall not, without the vote or written consent of the holders of a
majority of the shares of Series B Stock, voting as a separate class:

a. Increase the authorized number of shares of
Series B Stock;

b. Increase the authorized number of Preferred
Stock;

c. Create any new class or series of shares
having preference over the Series B Stock;

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.

3. CORPORATE ACTION. Except as otherwise required by
law, so long as at least seventy five percent (75%) of any Series C Stock
purchased by ADC TELECOMMUNICATIONS, INC. remains outstanding (adjusted for
stock split(s),combination(s), reclassification(s), dividend(s) and the like),
this Corporation shall not, without the vote or written consent of the holders
of a majority of the shares of Series C Stock, voting as a separate class:

a. Increase or decrease the authorized number
of shares of Series C Stock or effect a stock split or reverse stock split of
the Series C Stock;

b. Increase the authorized number of Preferred
Stock;

<PAGE>

c. Create any new class or series of shares
having preference over the Series C Stock or otherwise amend the Certificate of
Incorporation so as to materially and adversely affect the Series C Stock;

d. Merge, consolidate, reorganize, or sell all,
or substantially all, of its assets unless in any such reorganization the price
per share value is equal to or in excess of the Series C Liquidation Price;

e. Purchase, redeem or otherwise acquire any
Common Stock shares except in connection with contractual repurchases from
employees and consultants; or,

f. Voluntarily elect to wind up and dissolve
the Corporation.

4. DIVIDENDS. This Corporation shall not, without the
vote or written consent of the holders of a majority of the shares of Series A
Stock, Series B Stock or Series C Stock, take any action that would constitute
the declaring of a dividend for holders of Series A Stock, Series B Stock or
Series C 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
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.

<PAGE>

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.

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

<PAGE>

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 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 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.

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.

<PAGE>

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.

VII

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 registered public
offering of this Corporation's Common Stock causing an automatic conversion of
this Corporation's Series A Stock, Series B Stock and Series C Stock, whereby
this Corporation is no longer subject to Section 2115 of the California
Corporation's Code (a "Qualified Public Offering"):

1. 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.

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

<PAGE>

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 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. Effective upon the closing of a Qualified Public
Offering, 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. Effective upon the closing of a Qualified Public
Offering, 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. Effective upon the closing of a Qualified Public Offering, the
Stockholders shall not take any action by written consent. Until the closing of
a Qualified Public Offering, shareholder actions shall be governed by this
Certificate of Incorporation and this Corporation's Bylaws.

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, upon the
closing of a Qualified Public Offering, 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 VII.

<PAGE>

VIII

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 DAVIDI GILO,
its Chief Executive Officer, and STEPHEN P. PEZZOLA, its Secretary, as of August
24, 1999.

PHASECOM, INC.

BY:_____________________________,

DAVIDI GILO,
Chief Executive Officer
ATTEST:_________________________,

STEPHEN P. PEZZOLA,
Secretary

<PAGE>

EXHIBIT B
TO
PURCHASE AGREEMENT

REGISTRATION RIGHTS AGREEMENT

The form of the Registration Rights Agreement is set forth on the
following pages.

<PAGE>

PHASECOM, INC.
AMENDMENT TO REGISTRATION RIGHTS
AND LOCK-UP AGREEMENT

THIS AMENDMENT TO REGISTRATION RIGHTS AND LOCK-UP AGREEMENT made as of
this ______ day of August, 1999 by and among PHASECOM INVESTOR GROUP LIMITED
PARTNERSHIP, a Delaware limited partnership ("PhaseCom LP"), PHASECOM, INC., a
Delaware Corporation ("PhaseCom Del."), GALRAN PROPERTIES (1993) LTD.
("Galran"), EICHOT CAPITAL MARKETS AND INVESTMENTS (1993) LTD. ("Eichot"), TOM
HOLDINGS AND PROPERTIES (1993) LTD. ("Tom"), Y. ATAI INVESTMENTS LTD. ("Atai"),
ADC TELECOMMUNICATIONS, INC., a Minnesota Corporation ("ADC") and the additional
holders of PhaseCom Del's Series A Convertible Preferred Stock identified on the
signature page to this Agreement (collectively, the "Additional Series A
Stockholders").

W I T N E S S E T H :

WHEREAS, PhaseCom LP, PhaseCom Del., Galran, Eichot, Tom and Atai are
parties to that Registration Rights and Lock-Up Agreement dated as of April 21,
1996 (the "Registration Rights Agreement"); and

WHEREAS, in connection with the acquisition of shares in PhaseCom Del
by ADC, the parties hereto desire to amend the Registration Rights Agreement as
set forth herein and to add ADC and the Additional Series A Stockholders as a
party thereto.

NOW, THEREFORE, for and in consideration of the mutual agreements,
covenants, representations and warranties contained in this Agreement, the
parties hereto agree as follows:

1. DEFINITIONS. Except as otherwise expressly provided herein,
the definitions set forth in Article 1 of the Registration Rights Agreement
shall have the same meaning in this Agreement as if fully set forth herein.

2. ADDITIONAL PARTIES TO AGREEMENT. Effective upon the Closing
(as defined in the Series C Preferred Stock Purchase Agreement, dated as of even
date herewith, by and between PhaseCom Del and ADC), ADC and each Additional
Series A Stockholder shall be deemed a "Holder" and an "Initial Holder" for all
purposes under the Registration Rights Agreement, as amended by this Amendment
and shall, for all purposes under said Registration Rights Agreement be deemed a
party thereto.

3. AMENDMENT TO ARTICLE 2, m.Sections 2 m (i), 2 m (ii) and 2 m
(iii) of the Registration Rights Agreement, entitled "Standoff Agreement," shall
be deleted and in their place, the following new Articles 2 m (i) and 2 m (ii),
shall be inserted:

<PAGE>

that certificate may not be transferred by any means whatsoever, without the
agreement of PhaseCom Del for a period commencing as of the commencement of the
Offering and ending on the one hundred eightieth (180th) day following the
commencement of the Offering. Each Holder agrees to be bound by the legend
restrictions set forth above.

(ii) Until the lock-up period expires, the
standoff holder agrees unless released in writing by PhaseCom Del and the
underwriters managing the Offering, not to sell, make any short sale of, loan,
grant any option for the purchase of, or otherwise dispose of any Registrable
Securities (other than those included in the Offering). PhaseCom Del, as
applicable, may impose stop transfer instructions with respect to the shares
subject to the foregoing restrictions, until the end of the lock-up period.

4. FULL FORCE AND EFFECT. The parties hereto hereby modify and
amend the Registration Rights Agreement in accordance with the provisions of
this Amendment and except as hereby and herein modified and amended, the
Registration Rights Agreement shall remain in full force and effect and binding
upon the parties.

IN WITNESS WHEREOF, the parties have duly executed and delivered this
Agreement as of the date first above written.

PHASECOM INVESTOR GROUP
LIMITED PARTNERSHIP

By:
--------------------------------------
Davidi Gilo, President
Harmony Management, Inc., General Partner

PHASECOM, INC.
a Delaware Corporation
20400 Stevens Creek Blvd.
8th Floor
Cupertino, CA 95014

By:
--------------------------------------
Davidi Gilo, Chief Executive Officer

GALRAN PROPERTIES (1993) LTD.

- --------------------------------------
(signature)

- --------------------------------------

<PAGE>

(print name)

EICHOT CAPITAL MARKETS AND
INVESTMENTS (1993) LTD.

- --------------------------------------
(signature)

- --------------------------------------
(print name)

TOM HOLDINGS AND PROPERTIES (1993) LTD.

- --------------------------------------
(signature)

- --------------------------------------
(print name)

Y. ATAI INVESTMENTS (1993) LTD.

- --------------------------------------
(signature)

- --------------------------------------
(print name)

ADC TELECOMMUNICATIONS, INC.
a Minnesota Corporation
P.O. Box 1101
Minneapolis, MINN 55440

By:
--------------------------------------
(signature)

- -----------------------------------------
(print name & title)

PHASECOM INVESTOR GROUP
LIMITED PARTNERSHIP NO. 2

By:
--------------------------------------
Davidi Gilo, President
Harmony Management, Inc., General Partner

<PAGE>

DAVIDI and SHAMAYA GILO TRUST U/T/D
1/18/91

By:
--------------------------------------
Davidi Gilo, Trustee

PEZZOLA-FOSTER TRUST U/T/D
4/3/87

By:
--------------------------------------
Stephen P. Pezzola, Trustee

JOSEPH GORODNICK

- --------------------------------------
(signature)

ITHZAK and ESTHER HOFFI

- --------------------------------------
(signature)

CHIM-NIR LTD

By:
--------------------------------------
(signature)

- -----------------------------------------
(print name & title)

HAREL-HAMISHMAR INVESTMENTS LTD.

By:
--------------------------------------
(signature)

- -----------------------------------------
(print name & title)

<PAGE>

AL-BEN LTD.

By:
--------------------------------------
(signature)

- -----------------------------------------
(print name & title)

ILAN SELAH

- -----------------------------------------
(signature)

ARYEH and YUVAL EZYONI

- -----------------------------------------
(signature)

MORDECHAI GAZIT

- -----------------------------------------
(signature)

SHAUL BERGER

- -----------------------------------------
(signature)

REUVEN and NAOMI ASHKENAZY

- -----------------------------------------
(signature)

AVRAHAM FISCHER

- -----------------------------------------
(signature)

<PAGE>

MIRI LENT

- -----------------------------------------
(signature)

Fischer, Behar & CO. (successor in interest to
I. FISCHER & CO) as Trustee U/A dtd 11/10/97
FBO: The parties identified on Schedule A hereto

By:
--------------------------------------
(signature)

- -----------------------------------------
(print name & title)

VICTOR HALPERT

- -----------------------------------------
(signature)

YOTAM FINANCING TECHNOLOGICAL
VENTURES LTD.

By:
--------------------------------------
(signature)

- -----------------------------------------
(print name & title)

SCHLOMO RACHIV

- -----------------------------------------
(signature)

<PAGE>

SCHEDULE A

I. Fischer & Co. as Trsutee U/A dtd 11/10/97

FBO: Y. Atai Investments Ltd.
FBO: Galran Properties (1993) Ltd.
FBO: Tom Holdings and Properties (1993) Ltd.
FBO: Eichut Capital Markets and Investments (1993) Ltd.
FBO: Arie Zimmerman
FBO: Itzhak and Esther Hoffi
FBO: Chim-Nir Ltd.
FBO: MMD Technology Israel Ltd.
FBO: Reger Investment Company Ltd.
FBO: Cham Foods (Israel) Ltd.
FBO: Harel Hamishmar Investments Ltd.
FBO: Reuven and Naomi Ashkenazy
FBO: Al-Ben Ltd.
FBO: Miri Lent
FBO: Ilan Selan
FBO: Yotam Financing and Technology Ventures Ltd.
FBO: Hananyah and Tamar Amishav
FBO: Phelix Lachman
FBO: Mordechai Gazit
FBO: Michael Barzily, or Successor, as Trustee on behalf of Meir Leiberman
FBO: Michael Barzily, or Successor, as Trustee on behalf of Dudi Gidron
FBO: Michael Barzily, or Successor, as Trustee on behalf of Menashe Shachar

<PAGE>

EXHIBIT C

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;

56
<PAGE>

(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 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

FINANCIAL STATEMENTS

The Financial Statements of the Corporation are set forth on the
following pages.

[Exhibit D is not attached to this Agreement.]

<PAGE>

EXHIBIT E
TO
PURCHASE AGREEMENT

VOTING AGREEMENT

The Voting Agreement is set forth on the following pages.

<PAGE>

VOTING AGREEMENT

This Voting Agreement (the "Agreement") is made as of the _____ day of
August, 1999 by and among Phasecom, Inc., a Delaware corporation (the
"COMPANY"), ADC Telecommunications, Inc. ("ADC"), Gilo Family Partnership, a
California limited partnership and Davidi Gilo (the Gilo Family Partnership and
Davidi Gilo are referred to as the "MAJORITY HOLDERS").

RECITALS:

WHEREAS, the Company has agreed to sell, and ADC has agreed to
purchase, certain shares of the Company's Series C Convertible Preferred Stock
(the "Series C Preferred"); and

WHEREAS, the Majority Holders currently own of record a majority of the
voting power of the Company's issued and outstanding shares of capital stock;
and

WHEREAS, the closing of such sale and purchase of the Series C
Preferred shares is conditioned upon, among other things, the parties hereto
executing this Voting Agreement.

NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the parties hereto agree as follows:

1. DEFINITIONS. As used in this Agreement, the following terms
shall have the following respective meanings:

"BOARD" shall mean the Company's Board of Directors.

"ADC DIRECTOR" shall mean the individual appointed by ADC to
serve on the Board and who is elected by a majority of the
issued and outstanding shares of capital stock of the Company.

"RESTRICTED SECURITIES" shall mean all shares of capital stock
of the Company, regardless of class or series, now or
hereafter held by the Majority Holders.

"DISCRETIONARY SHARES" shall mean any shares of capital stock
of the Company, regardless of class or series, with respect to
which the Majority Holders or any entity controlled by Davidi
Gilo has the power to vote, whether through direct or indirect
ownership, the appointment of a proxy, a voting agreement, a
voting trust or otherwise.

<PAGE>

2. VOTING FOR THE ADC DIRECTOR.

2.1 FRAMEWORK OF THIS VOTING AGREEMENT. The Company's
Second Amended and Restated Certificate of Incorporation, together with the
Bylaws of the Company, currently provides that the Company's Directors are
elected by the holders of a majority of the voting power of the Company's
capital stock without regard to class or series.

2.2 SHARES SUBJECT TO AGREEMENT. The Majority Holders
agree to hold their Restricted Securities subject to, and to vote such shares in
accordance with, the provisions of this Agreement.

2.3 ELECTION OF ONE ADC DIRECTOR. Each time there is a
meeting, or act by written consent in lieu of a meeting, for the purpose of
electing Directors, the Majority Holders agree to nominate a candidate for
Director specified by ADC, and the Majority Holders agree to vote so many of
their shares of Restricted Securities and Discretionary Shares as may be
necessary to elect the Director nominee that is specified by ADC.
Notwithstanding the foregoing, the Majority Holders shall not be required to act
in the foregoing manner unless ADC owns less than fifty percent (50%) of the
issued and outstanding Series C Preferred.

2.4 FILLING VACANCIES. In the event of a vacancy on the
Board resulting from the removal, resignation or death of the ADC Director whose
nomination was specified by ADC pursuant to Section 2.3, the Majority Holders
agree to vote so many of their shares of Restricted Securities and Discretionary
Shares as may be necessary to fill the vacancy pursuant to the terms of Section
2.3 hereof.

2.5 LEGENDS. Each certificate representing any of the
Restricted Securities shall be marked by the Company with a legend reading as
follows:

"THE SHARES EVIDENCED HEREBY ARE SUBJECT TO A VOTING AGREEMENT
(A COPY OF WHICH MAY BE OBTAINED FROM THE ISSUER), AND MAY NOT
BE TRANSFERRED BY THE HOLDER HEREOF UNLESS THE TRANSFEREE
AGREES TO BE BOUND BY ALL OF THE TERMS THEREOF."

2.6 FUTURE SHARE ISSUANCES. The Company covenants and
agrees that commencing on the date immediately prior to any issuance of capital
stock, warrant or convertible security, or the grant of any option to acquire
any capital stock or convertible security, which would result in the Majority
Holders owing less than fifty percent (50%) of the Company's issued and
outstanding voting stock immediately after giving effect to such issuance,
exercise or conversion, the Company will require, as a condition to any future
stock issuance, the grant or issuance of any option or warrant to acquire
capital stock of the

<PAGE>

Company or any security convertible into capital stock of the Company, or the
issuance of any security convertible into capital stock of the Company, which
would result upon the issuance, exercise or conversion thereof in any holder
either singly or together with any affiliates of such holder in owning more
that 1% of the issued and outstanding capital stock of the Company, to
execute a counterpart to this Agreement and acknowledge that such holder is
bound by all the terms hereof to the same extent as the Majority Holders.

3. SUCCESSORS IN INTEREST. The provisions of this Agreement shall
be binding upon the successors in interest of the Majority Holders to any of the
Restricted Securities. The Majority Holders agree not to transfer any of the
Restricted Securities, and the Company shall not permit the transfer of any
Restricted Securities on its books or issue a new certificate representing any
Restricted Securities, unless and until the person to whom such security is to
be transferred shall have executed a written agreement pursuant to which such
person becomes a party to this Agreement and agrees to be bound by all the
provisions hereof as if such person was a party hereunder.

4. ENTIRE AGREEMENT. This Agreement constitutes the full and
entire understanding and agreement between the parties regarding the subject
matter hereof. 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.

5. NOTICES, ETC. All notices, requests, demands and other
communications under this Agreement or in connection herewith shall be given to
or made upon the Majority Holders at c/o Robert Graifman, 100 Why Worry Lane,
Woodside, California 94062 and ADC at 12501 Whitewater Drive, Minnetonka,
Minnesota 55343 Attention: General Counsel, and, if to the Company, at:
Phasecom, Inc., 20400 Stevens Creek Blvd., 8th Fl., Cupertino, CA 95014.

6. SEVERABILITY. In case any provision or portion of any
provision of the Agreement shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions or portion of
such provision shall not in any way be affected or impaired.

7. GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the State of Delaware (without regard to principles
of conflict of law).

8. TERMINATION. All parties' rights under this Agreement will
terminate upon the earliest to occur of:

(i) the closing of the Company's initial public offering
pursuant to a registration statement filed under the
Securities Act of 1933, as

<PAGE>

amended which results in the automatic
conversion of the Series C Convertible Preferred
Stock into common stock as provided by Section F
of Article IV of the Company's Second Amended and
Restated Certificate of Incorporation;

(ii) At such time as ADC does owns less that 7.5% of the
issued and outstanding capital stock of the Company; or

(iii) upon mutual agreement of the Majority Holders and ADC
(and any successors in interest thereto).

9. MODIFICATION, WAIVER AND AMENDMENT. This Agreement, in whole
or in part, may be modified, waived or amended only upon the written consent of
each party hereto.

10. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.

[This space left intentionally blank]

<PAGE>

The foregoing Agreement is hereby executed as of the date first above
written.

COMPANY:

PHASECOM, INC.

By:
------------------------------

Name:
----------------------------

Title:
---------------------------

GILO FAMILY PARTNERSHIP

By:
------------------------------

Name:
----------------------------

Title:
---------------------------

---------------------------------
Davidi Gilo

ADC TELECOMMUNICATIONS, INC.

By:
------------------------------

Name:
----------------------------

Title:
---------------------------

<PAGE>

EXHIBIT 10.10

STOCK PURCHASE AGREEMENT

THIS STOCK PURCHASE AGREEMENT (this Agreement) is effective as of
December 27, 1999, by and between PHASECOM, INC., a Delaware corporation
(hereinafter the "Corporation"), and ARNON KOHAVI (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
from the Corporation, ONE HUNDRED SEVENTY-EIGHT THOUSAND FIVE HUNDRED
SEVENTY-ONE (178,571) shares of the Corporation's Series C Preferred Stock (the
"Shares") at a per-share purchase price of Fifty Six Hundredths U.S. Dollars
($0.56) for a total purchase price of One Hundred Thousand Dollars ($100,000)
(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 as 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

<PAGE>

consummation of the transactions contemplated herein, except for security law
filings and any IITSSA filings.

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.

<PAGE>

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 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
stock 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

<PAGE>

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.

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 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.

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: /s/ Andrew Fradkin /s/ Arnon Kohavi
---------------------------- -----------------------------
ARNON KOHAVI
ANDREW FRADKIN, Associate General Counsel
- -----------------------------------------
(Print Name and Title)

<PAGE>

EXHIBIT A
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:

(2) Any private business development company as defined in section
202(a)(22) of the Investment Advisers Act of 1940;

(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;

(8) Any entity in which all of the equity owners are accredited
investors.

<PAGE>

EXHHIBIT 10.11

PHASECOM, INC.
REGISTRATION RIGHTS AND LOCK-UP AGREEMENT

THIS REGISTRATION RIGHTS AND LOCK-UP AGREEMENT (this "Agreement") is
entered into as of April 21, 1996, by and among PHASECOM INVESTOR GROUP LIMITED
PARTNERSHIP, a Delaware limited partnership ("PhaseCom LP"), PHASECOM, INC., a
Delaware corporation ("PhaseCom Del"), GALRAN PROPERTIES (1993) LTD. ("Galran"),
EICHOT CAPITAL MARKETS AND INVESTMENTS (1993) LTD. ("Eichot"), TOM HOLDINGS AND
PROPERTIES (1993) LTD. ("Tom"), and Y. ATAI INVESTMENTS LTD. ("Atai"). Galran,
Eichot, Tom and Atai, may be referred to hereinafter individually as an
"Individual Holder" or collectively as "Individual Holders"; the Individual
Holders and the PhaseCom LP shall be collectively referred to as the "Initial
Holders".

AGREEMENT

NOW, THEREFORE, in consideration of the mutual agreements, covenants,
representations and warranties contained in this Agreement, the parties hereto
hereby agree as follows:

1. DEFINITIONS.

a. "COMMISSION" means the United States Securities and
Exchange Commission or any other United States federal agency at the time
administering the Securities Act.

b. "EXCHANGE ACT" means the Securities Exchange Act of
1934, as amended.

c. "HOLDER" means any Person owning of record
Registrable Securities that have not been sold to the public pursuant to Rule
144 promulgated under the Securities Act or any assignee of record of such
Registrable Securities to whom rights under this Agreement have been duly
assigned in accordance with this Agreement.

d. "INITIATING HOLDERS" means any holder or holders of
no less than thirty-five percent (35%) of the Registrable Securities.

e. "OFFERING" means the closing of an underwritten
public offering pursuant to an effective registration statement under the
Securities Act covering the offering and sale of shares of Common Stock for the
account of PhaseCom Del (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 Preferred Stock cannot be included pursuant to Commission
rules of practices) resulting in aggregate proceeds to PhaseCom Del (before the
payment of underwriting

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<PAGE>

discounts and commission and the expense of the offering) in excess of U.S.
Twelve Million Dollars (U.S. $12,000,000).

f. "PERSON" means any individual, corporation, trust,
partnership, association, or other entity.

g. "REGISTRABLE SECURITIES" shall mean any shares of
Common Stock of PhaseCom Del owned by the Initial Holders or issued or issuable
upon exercise pursuant to options or warrants, or issued or issuable upon the
conversion of Series A Preferred Stock or any other security of PhaseCom Del
held by the Initial Holders.

h. "SECURITIES ACT" means the Securities Act of 1933,
as amended, or any similar United States federal statute and the rules and
regulations of the Commission thereunder, all as the same shall be in effect
at the time.

2. REGISTRATION RIGHTS.

a. DEMAND REGISTRATION. Upon the written request from
any Initiating Holders ("Requesting Initiating Holders") that PhaseCom Del
effect any registration with respect to all or any portion of the Registrable
Securities (other than a registration on Form S-3 or any related form of
Registration Statement), PhaseCom Del will:

(i) give written notice of the proposed
registration to all other Holders no later than ten (10) business days after
receipt of such written request; and

(ii) as soon as practicable, use its diligent
best efforts to effect such registration (including, without limitation, the
execution of an undertaking to file post-effective amendments, appropriate
qualifications under blue sky or other state securities laws and appropriate
compliance with applicable regulations issued under the Securities Act), as may
be so requested and as would permit or facilitate the sale and distribution of
all or such portion of such Registrable Securities as are specified in such
request, together with all or such portion of the Registrable Securities of any
Holder or Holders joining in such request as are specified in a written request
given within ten (10) days after receipt of such written notice from PhaseCom
Del; PROVIDED, HOWEVER, that PhaseCom Del shall not be obligated to take any
action to effect any such registration, qualification or compliance pursuant to
this Section 2.a:

(1) In any particular jurisdiction in
which PhaseCom Del would be required to execute a general consent to service of
process in effecting such registration, qualification or compliance unless
PhaseCom Del is already subject to service in such jurisdiction and except as
may be required by the Securities Act;

(2) Prior to the earlier of (1) May 1,
2000, or (2) eighteen (18) months after the effective date of PhaseCom Del's
first registered underwritten offering to the general public of its securities
for its own account;

(3) If the Initiating Holders propose
to sell a number of shares of Registrable Securities at an aggregate proposed
offering price (after deduction for under-

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<PAGE>

writer commissions and expenses) to the public of less than Seven Million,
Five Hundred Thousand Dollars ($7,500,000);

(4) After PhaseCom Del has effected two
(2) such registrations pursuant to this Section 2.a, and such registrations have
been declared or ordered effective; or

(5) If PhaseCom Del shall have received
an opinion of counsel to the effect that each such Requesting Initiating Holder
may sell up to seventy-five percent (75%) of the Registrable Securities then
held by each such Requesting Initiating Holder within the three (3) month period
immediately following such request without registration under the Securities
Act.

Subject to the foregoing clauses 1) through 5), and to Section 2.a.v
(below), PhaseCom Del shall file a registration statement covering the
Registrable Securities so requested to be registered as soon as practicable
after receipt of the request from the Requesting Initiating Holders.

(iii) UNDERWRITING. If the Requesting Initiating
Holders intend to distribute the Registrable Securities covered by their request
by means of an underwriting, they shall so advise PhaseCom Del as part of their
request made pursuant to Section 2.a and PhaseCom Del shall include such
information in the written notice referred to in Section 2.a.i. The right of any
Holder to registration pursuant to Section 2.a shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such
Registrable Securities in the underwriting to the extent requested (unless
otherwise mutually agreed by a majority in interest of the Requesting Initiating
Holders and such Holder to the extent provided herein).

(iv) CUTBACKS/WITHDRAWALS. PhaseCom Del shall
(together with all Holders proposing to distribute their securities through such
underwriting) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting by PhaseCom Del,
subject to the consent, which consent will not be unreasonably withheld, of a
majority in interest of the Registrable Securities held by those Holders
participating in such registration ("Participating Holders"). Notwithstanding
any other provision of this Section 2.a, if the underwriter(s) determine that
marketing factors require a limitation of the number of shares to be
underwritten and so advises the Requesting Initiating Holders in writing, then
the Requesting Initiating Holders shall so advise all Participating Holders, and
the number of shares of Registrable Securities that may be included in the
registration and underwriting shall be allocated among all such Participating
Holders in proportion, as nearly as practicable, to the respective amounts of
Registrable Securities held by such Participating Holders at the time of filing
the registration statement. No Registrable Securities excluded from the
underwriting by reason of the underwriter's marketing limitation shall be
included in such registration.

If any Holder disapproves of the terms of the underwriting, such Holder
may elect to withdraw therefrom by written notice to PhaseCom Del, the
underwriter and the Requesting Initiating Holders. The Registrable Securities
and/or other securities so withdrawn from such underwriting shall also be
withdrawn from such registration; PROVIDED, HOWEVER,

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<PAGE>

that, if by the withdrawal of such Registrable Securities a greater number of
Registrable Securities held by other Holders may be included in such
registration (up to the maximum of any limitation imposed by the
underwriters), then PhaseCom Del shall offer to all Participating Holders the
right to include additional Registrable Securities in the same proportion
used in determining the underwriter limitation in this Section.

(v) RIGHT TO DELAY A DEMAND REGISTRATION. If at
the time of any request to register Registrable Securities pursuant to this
Section, which is not summarily rejected because of Section 2.a.(ii)(1)-(5),
inclusive, PhaseCom Del is preparing a registration statement for a public
offering (other than a registration effected solely to implement an employee
benefit plan or a transaction to which Rule 145 of the Commission is applicable)
which in fact is filed and becomes effective within one hundred five (105) days
after the request, then PhaseCom Del may at its option direct that such request
be delayed for a period not in excess of one hundred thirty-five (135) days from
the effective date of such registration, such right to delay a request to be
exercised by PhaseCom Del not more than once in any twelve (12) month period.

b. PIGGYBACK REGISTRATION.

(i) PHASECOM DEL'S OBLIGATION TO REGISTER. If
PhaseCom Del at any time proposes to initiate a registration of its securities
under the Securities Act on its own or upon request of Holders other than
Initiating Holders and thereafter registers any of its securities under the
Securities Act (other than a registration effected solely to implement an
employee benefit plan, a transaction to which Rule 145 of the Commission is
applicable or any other form or type of registration in which Registrable
Securities cannot be included pursuant to Commission rule or practice), it will
give written notice to all Holders of the outstanding Registrable Securities of
its intention to do so at least twenty (20) days prior to the filing of any such
registration (stating the intended method and terms of disposition of such
securities, including a list of the jurisdictions in which PhaseCom Del intends
to qualify such securities). Upon the written request from any Holder within
fifteen (15) days after receipt of PhaseCom Del's notice to the Holders, subject
to the limits contained in this Section, PhaseCom shall afford each such Holder
an opportunity to include in such registration all or any part of the
Registrable Securities then held by such Holder, all to the extent requisite to
permit such sale or other disposition by such Holders of the Registrable
Securities so registered and to the extent permissible under applicable
securities laws; provided, however, that PhaseCom Del shall be required to use
such best efforts to register said Registrable Securities under this Section (b)
no more than two (2) times.

(ii) CUTBACKS. Notwithstanding any other
provision of this Section, if the underwriter managing such registration
notifies the Holders in writing that market or economic conditions limit the
amount of securities which may reasonably be expected to be sold, the Holders of
such Registrable Securities will be allowed to register their Registrable
Securities pro rata based on the number of shares of Registrable Securities held
by such Holders, respectively. On the Offering, said underwriter may exclude all
Registrable Securities from PhaseCom Del's registration statement, but on all
subsequent registrations initiated by PhaseCom Del, such underwriter may not
limit the amount of the Registrable Securities to be registered to less than
twenty percent (20%) of the aggregate number of securities to be

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<PAGE>

registered so long as any other shares of PhaseCom Del are to be registered
as well. Likewise, PhaseCom Del shall require that the executive officers of
PhaseCom Del limit their registration of PhaseCom Del's securities in
substantially similar proportions in any registered public offering to which
this Section applies upon the recommendation of the managing underwriter
involved in such registration.

c. FORM S-3.

(i) OBLIGATION TO REGISTER. After the Offering,
PhaseCom Del shall use its best efforts to qualify for registration on Form S-3.
After PhaseCom Del has qualified for the use of Form S-3, the Holders of
Registrable Securities shall have the right to request registrations on Form S-3
thereafter, as the case may be (but not more than once in any eighteen (18)
month period and no more than two (2) times in the aggregate) under this Section
(such requests shall be in writing and shall state the number of shares of
Registrable Securities to be disposed of and the intended method of disposition
of such shares by such Holder or Holders), provided that PhaseCom Del shall not
be required to effect a registration pursuant to this Section unless (A) the
Holder or Holders requesting registration propose to dispose of shares of
Registrable Securities which they reasonably anticipate will have an aggregate
offering price (before deduction of underwriting discounts and expenses of sale)
of at least Seven Hundred Fifty Thousand Dollars ($750,000), or (B) PhaseCom Del
has initiated a proposed registration as described in Section 2.a.

(ii) NOTICE. PhaseCom Del shall give written notice
to all Holders of Registrable Securities of the receipt of a request for
registration pursuant to this Section 2.c and shall permit such other holders to
participate in the registration upon their request thereto given within fifteen
(15) days after receipt of such notice. Subject to the foregoing, PhaseCom Del
will use its best efforts to effect promptly the registration of all shares of
Registrable Securities on Form S-3, to the extent requested by the holders
thereof for purposes of disposition. PhaseCom Del need not register shares on
Form S-3 (or comparable form) in any state in which PhaseCom Del does not
qualify to do business. PhaseCom Del need not register shares on Form S-3 (or
comparable form) if PhaseCom Del is preparing a registration statement for a
public offering (other than a registration effected solely to implement an
employee benefit plan or a transaction to which Rule 145 of the Commission is
applicable) which, in fact, is filed and becomes effective within one hundred
twenty (120) days after the request, then PhaseCom Del may, at its option,
direct that such request be delayed for a period not in excess of one hundred
fifty (150) days from the effective date of such registration. Such right to
delay a request may not be exercised by PhaseCom Del more than once in any
twelve (12) month period.

d. REGISTRATION PROCEDURES. If and whenever PhaseCom Del
is required by the provisions of this Section to use its best efforts to effect
the registration of any of its securities under the Securities Act, PhaseCom Del
will, as expeditiously as possible:

(i) prepare and file with the Commission a
registration statement with respect to such securities and use its best efforts
to cause such registration statement to become and remain effective for the
period provided in this Section;

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<PAGE>

(ii) prepare and file with the Commission such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities Act with
respect to the sale or other disposition of all securities covered by such
registration statement whenever the seller or sellers of such securities shall
desire to sell or otherwise dispose of the same, but only to the extent provided
in this Section (the term "seller" or "sellers" as used herein refers to a
Holder or Holders of the Registrable Securities selling such shares);

(iii) furnish to each seller such number of copies
of a prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents, as such seller may
reasonably request in order to facilitate the public sale or other disposition
of the securities owned by such seller; and,

(iv) use every reasonable effort to register or
qualify the securities covered by such registration statement under such other
securities or state blue sky laws of such jurisdictions as each seller shall
reasonably request, and do any and all other acts and things which may be
necessary under such securities or blue sky laws to enable such seller to
consummate the public sale or other disposition in such jurisdictions of the
securities owned by such seller, except that PhaseCom Del shall not for any such
purpose be required to qualify to do business as a foreign corporation in any
jurisdiction wherein it is not so qualified or intends to be so qualified prior
to the effective date of the applicable registration statement.

e. REGISTRATION EXPENSES. As used herein, "Registration
Expenses" shall mean all expenses incurred by PhaseCom Del in complying with
Sections 2.a, 2.b, 2.c and 2.d hereof, including, without limitation, all
registration and filing fees; printing expenses; fees and disbursements of
counsel for PhaseCom Del; fees and disbursements of one counsel for all the
selling shareholders of the Registrable Securities; blue sky fees and expenses;
and the expense of any special audits incident to or required by any such
registration (but excluding the compensation of regular employees of PhaseCom
Del which shall be paid in any event by PhaseCom Del); and "Selling Expenses"
shall mean all underwriting discounts and selling commissions applicable to the
sales thereunder. PhaseCom Del will pay all Registration Expenses in connection
with (A) only two (2) registrations pursuant to Section 2.b; and (B) only two
(2) registrations pursuant to Section 2.c; regardless of which Initiating
Holders have requested registration. All Selling Expenses in connection with
each registration pursuant to Sections 2.b and 2.c shall be borne by PhaseCom
Del and the selling Holders pro rata in proportion to the securities covered
thereby being sold by them. The selling Holders shall pay all Registration
Expenses and Selling Expenses in connection with each registration pursuant to
Section 2.a, PROVIDED, HOWEVER, that if at least two-thirds (2/3 or 66.66%) of
the Holders of Registrable Securities demand a registration pursuant to Section
2.a. above, then PhaseCom Del shall pay all Registration Expenses of one
registration pursuant to Section 2.a., and shall together with the selling
Holders bear Selling Expenses of such registration each in proportion to the
securities covered thereby and sold by them.

f. INDEMNIFICATION.

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<PAGE>

(i) INDEMNIFICATION BY PHASECOM DEL. In the
event of any registration of any Registrable Securities under the Securities Act
pursuant to this Section, PhaseCom Del shall indemnify and hold harmless each of
the following parties: (A) the Holder selling such securities; (B) each
underwriter (as defined in the Securities Act); (C) each other Holder who is an
officer, director or partner of such selling Holder or who participates in the
offering of such securities; and (D) each other Holder, if any, who controls
(within the meaning of the Securities Act) such selling Holder, underwriter or
Participating Holder against any losses, claims, damages or liabilities, as
incurred (collectively the "liability"), joint or several, to which such seller,
underwriter, Participating Holder or controlling Holder may become subject under
the Securities Act or any other statute or at common law, insofar as such
liability (or action in respect thereof) arises out of or is based upon (A) any
statement of any material fact contained in any registration statement under
which such securities were registered under the Securities Act, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereto; (B) any alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading, or
(C) any violation by PhaseCom Del of the Securities Act or any rule or
regulation promulgated thereunder applicable to PhaseCom Del in connection with
any such registration, qualification or compliance, but only to the extent,
however, that such violation was not directly or indirectly, caused by any
Holder entitled to be indemnified hereunder. Except as otherwise provided in
subparagraph 2.f.iv (below), PhaseCom Del shall be obligated to reimburse each
such selling Holder, underwriter, Participating Holder or such controlling
Holder for any legal or other expenses in connection with investigating or
defending any such liability, as such expenses are incurred; PROVIDED, HOWEVER,
that PhaseCom Del shall not be liable to any selling Holder, underwriters,
Participating Holders, or controlling Holders in any such case to the extent
that any such liability arises out of or is based upon any statement or alleged
omission made in such registration statement, preliminary or final prospectus,
or amendment or supplement thereto in reliance upon and in conformity with
written information furnished to PhaseCom Del by such Holder to be specifically
stated for use therein; PhaseCom Del shall not be required to indemnify any
Holder against any liability arising from any untrue or misleading statement or
omission contained in any preliminary prospectus if such deficiency is corrected
in the final prospectus or for any liability which arises out of the failure of
any Holder to deliver a prospectus as required by the Securities Act. The
indemnity provided for in this Section shall remain in full force and effect
regardless of any investigation made by or on behalf of such selling Holder,
underwriter, Participating Holder or controlling Holder and shall survive
transfer of such securities by such selling Holder. In order to provide for just
and equitable contribution to joint liability under the Securities Act, in any
case in which either (W) any Holder exercising rights under this Agreement, or
any controlling person of any such Holder, makes a claim for indemnification
pursuant to this Section 2.f. but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right to appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 2.f. provides for indemnification in such case; or (X) contribution
under the Securities Act may be required on the part of any such selling Holder
or any such controlling person in circumstances for which indemnification is
provided under this Section 2.f; then, and in each such case, PhaseCom Del and
such Holder will contribute to the Holder seeking indemnification under this
Section 2.f.i the aggregate liability to which they may be subject (after
contribution from others) in such proportion so

-7-

<PAGE>

that such Holder shall have paid the portion of the liability represented by
the percentage that the public offering price of its Registrable Securities
offered by and sold under the registration statement bears to the public
offering price of all securities offered by and sold under such registration
statement, and PhaseCom Del and other selling Holders are responsible for the
remaining portion, PROVIDED, HOWEVER, that, in any such case (Y) no such
Holder will be required to contribute any amount in excess of the public
offering price of all such Registrable Securities offered and sold by such
Holder pursuant to such registration statement; and (Z) no person or entity
guilty of fraudulent misrepresentation (within the meaning of Section 11(f)
of the Securities Act) will be entitled to contribution from any person or
entity who was not guilty of such fraudulent misrepresentations.

(ii) INDEMNIFICATION BY HOLDERS OF REGISTRABLE
SECURITIES. Each Holder shall, by acceptance thereof, indemnify and hold
harmless each other Holder, its officers, directors or partners, PhaseCom Del,
its directors and officers, each underwriter and each other Holder, if any, who
controls PhaseCom Del or such underwriter, against any liability, joint or
several, as incurred, to which any such other holder, PhaseCom Del, underwriter
or any such director or officer of any such Holder may become subject under the
Securities Act or any other statute or at common law, in so far as such
liability (or actions in respect thereof) arises out of or is based upon (A) the
disposition by such Holder in violation of the provisions of this Section; (B)
any statement of any material fact contained in any registration statement under
which securities were registered under the Securities Act at the request of such
Holder, any preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereto; or (C) any alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading. Notwithstanding the above in this Section 2.f.ii, the
indemnification set forth in this Section 2.f.ii shall be given in the case of
clauses (B) and (C) to the extent, but only to the extent, that such statement
or alleged omission was made in such registration statement, preliminary or
final prospectus, amendment or supplement thereto in reliance upon and in
conformity with written information furnished to PhaseCom Del by such Holder and
expressly stated for use therein. Such Holder shall reimburse PhaseCom Del, such
underwriter or such director, officer, other Holder or for any legal fees
incurred in investigating or defending any such liability, as incurred;
PROVIDED, HOWEVER, that no Holder shall be required to indemnify any Holder
against any liability arising from any untrue or misleading statement or
omission contained in any preliminary prospectus if such deficiency is corrected
in the final prospectus or for any liability which arises out of the failure of
any Holder to deliver a prospectus as required by the Securities Act; and
provided further, that the obligations of such Holder for the indemnity
hereunder shall not extend to any settlement of claims related thereto without
the express written consent of such Holder.

(iii) FURTHER INDEMNITY. Indemnification similar
to that specified in Sections 2.f.i and 2.f.ii shall be given by PhaseCom Del
and each Holder of any Registrable Securities (with such modifications as may be
appropriate) with respect to any required registration or other qualification of
the Common Stock or Series A Preferred Stock under any federal or state law or
regulation of governmental authority other than the Securities Act.

(iv) PROCEDURES; RIGHTS TO SEPARATE COUNSEL. Each
party entitled to indemnification under this Section 2.f (the "Indemnified
Party") shall give notice to the party required to provide indemnification (the
"Indemnifying Party") promptly after such Indemnified

-8-

<PAGE>

Party has received written notice of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom, unless there shall be a
conflict of interest, provided that counsel for the Indemnifying Party, who
shall conduct the defense of such claim or litigation, shall be approved by
the Indemnified Party (whose approval shall not unreasonably be withheld),
and the Indemnified Party may participate in such defense at such party's
expense, and provided further that the failure of any Indemnified Party to
give notice as provided herein shall not relieve the Indemnifying Party of
its obligations under this Section 2.f unless such failure to give notice
shall materially adversely affect the Indemnifying Party in the defense of
any such claim or any such litigation. The Indemnified Party shall also have
the right to employ separate counsel in any such action and to participate in
the defense thereof but the fees and expenses of such counsel shall not be at
the expense of the Indemnifying Party, unless the Indemnifying Party fails to
promptly defend, in which case the fees and expenses of such separate counsel
shall be borne by the Indemnifying Party. No Indemnifying Party, in the
defense of any such claim or litigation, shall, except with the consent of
each Indemnified Party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving
by the claimant or plaintiff to such Indemnified Party a release from all
liability in respect to such claim or litigation.

g. TERMINATION OF REGISTRATION RIGHTS. Notwithstanding
the foregoing provisions of this Section, the rights to registration and the
designation of Series A Preferred Stock as Registrable Securities shall
terminate as to any particular securities when such securities shall have been
lawfully sold by the Holder thereof to the public pursuant to a registration
statement.

h. COMPLIANCE WITH RULE 144. If PhaseCom Del: (i)
registers a class of securities under Section 12 of the Exchange Act, or (ii)
shall commence to file reports under Section 13 or 15(d) of the Exchange Act,
thereafter, at the request of any Holder of the Registrable Securities who
proposes to sell the Registrable Securities in compliance with Rule 144 of the
Commission, PhaseCom Del shall forthwith furnish to such holder or holders a
written statement of compliance with the filing requirements of the Commission
as set forth in such Rule (at any time from and after ninety (90) days following
the effective date of the Offering), as such Rule may be amended from time to
time, and make available to the public and such Holders such information as will
enable the Holders to make sales of Registrable Securities pursuant to Rule 144.

i. CONSENT TO BE BOUND. Each subsequent Holder must
consent in writing to be bound by the terms and conditions of this Section 2 in
order to acquire the rights granted pursuant to Section 2.

j. ASSIGNABILITY OF REGISTRATION RIGHTS. Subject to
Section 2.i hereof, the registration rights set forth in this Section 2 are
assignable to each assignee of at least twenty thousand (20,000) shares of
Registrable Securities conveyed in accordance herewith (appropriately adjusted
for recapitalizations) who agrees in writing to be bound by the terms and
conditions of this Agreement within fifteen (15) days of such assignment.

-9-

<PAGE>

k. RIGHTS WHICH MAY NOT BE GRANTED TO SUBSEQUENT
INVESTORS. PhaseCom Del shall not grant registration rights or enter into any
registration rights agreement or similar agreement with any Person after the
date hereof which are superior to the rights granted hereunder, but may grant
such rights to such other Person which will be PARI PASSU with the Holders and
shall cause such Persons to be a Holder as if they had executed this Agreement
as of the date first written above.

l. INFORMATION BY HOLDER. The Holder or Holders of
Registrable Securities included in any registration shall furnish to PhaseCom
Del such information regarding such Holder or Holders, the Registrable
Securities held by them, and the distribution proposed by such Holder or
Holders, as PhaseCom Del may reasonably request in writing and as shall be
required in connection with any registration, qualification or compliance
referred to in this Section.

m. STANDOFF AGREEMENT.

(i) In connection with the Offering, each of the
Holders agrees to have his, her or its PhaseCom Del share interests divided into
three (3) certificates, with PhaseCom Del rounding the shares covered by each
certificate to whole numbers in its sole discretion. One (1) certificate
representing twenty percent (20%) of the share interests of the Holder, shall
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 PhaseCom Del for a period commencing
as of the commencement of the Offering and ending on the one hundred eightieth
(180th) day following the commencement of the Offering. A second certificate
representing forty percent (40%) of the share interests of the Holder, shall
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 PhaseCom Del, for a period commencing
as of the commencement of the Offering and ending the two hundred seventieth
(270th) day following commencement of the Offering. A third certificate
representing forty percent (40%) of the share interests of the Holder, shall
bear, in addition to any other applicable securities legends, a legend stating
that the shares represented by that certificate may not transferred by any means
whatsoever, without the agreement of PhaseCom Del, for a period commencing as of
the commencement of the Offering and ending the three hundred ninety-fifth
(395th) day following the commencement of the Offering. Each Holder agrees to be
bound by the legend restrictions set forth above.

(ii) Until the applicable lock-up period expires,
the standoff holder agrees unless released in writing by PhaseCom Del and the
underwriters managing the Offering, not to sell, make any short sale of, loan,
grant any option for the purchase of, or otherwise dispose of any Registrable
Securities (other than those included in the Offering). PhaseCom Del as
applicable, may impose stop transfer instructions with respect to the shares
subject to the foregoing restrictions, until the end of the applicable lock-up
period.

(iii) Notwithstanding anything in the foregoing to
the contrary, should PhaseCom Del's Common Stock, at anytime after one hundred
eighty (180) days after effectiveness of the Offering be listed on NASDAQ at the
close of trading for three (3) consecutive

-10-

<PAGE>

business days (the last such date in the first three (3) such consecutive
days to occur being the "Double Price Date") at a price more than twice the
price of such shares in the Offering, then the lock-up restrictions set forth
above shall be released by PhaseCom Del, except for the fifteen (15) business
days after the first Double Price Date during which the lead underwriter in
the Offering shall be given the opportunity to arrange a block trade ("Block
Trade") of PhaseCom Del Common Stock. The Holders shall not be obligated to
participate in the Block Trade. During that fifteen (15) business day period,
no sales, transfers, or exchanges of any Registrable Securities that would
otherwise still be subject to a lock-up restriction except for this Section
2.m.iii, can be made by a Holder except through the Block Trade.

3. MISCELLANEOUS.

a. CONSENT TO AMENDMENTS. Except as otherwise expressly
provided herein, the provisions of this Agreement may be amended and PhaseCom
Del may take any action herein prohibited, or omit to perform any act herein
required to be performed by them, only if it has obtained the written consent of
Holders holding a majority of the then Registrable Securities. No course of
dealing between PhaseCom Del and any Holder, or any delay in exercising any
rights hereunder will operate as a waiver of any rights of any such Holders.

b. SUCCESSORS AND ASSIGNS. Except as otherwise expressly
provided herein, all covenants and agreements contained in this Agreement by or
on behalf of any of the parties hereto shall bind and inure to the benefit of
the respective successors and assigns of the parties hereto whether so expressed
or not.

c. SEVERABILITY. Each provision of this Agreement shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be prohibited by or invalid
under applicable law, such provision shall be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of this
Agreement.

d. COUNTERPARTS. This Agreement may be executed in two
or more counterparts, any one of which need not contain the signatures of more
than one party, but all such counterparts when taken together shall constitute
one and the same Agreement.

e. DESCRIPTIVE HEADINGS. The descriptive headings of
this Agreement are inserted for convenience only and do not constitute a part of
this Agreement.

f. NOTICES. All notices, demands, consents or other
communications required or permitted to be given hereunder shall be in writing
and shall be given by letter personally delivered by hand or by Express Mail,
Federal Express or similar service, or sent by first class, prepaid, certified
mail, return receipt requested (express airmail if overseas), or by facsimile,
addressed as follows:

IF TO HOLDERS: To the Addresses and/or facsimile numbers
as contained on PhaseCom Del's Shareholders
List.

-11-

<PAGE>

IF TO PHASECOM LP: PHASECOM INVESTOR GROUP LIMITED PARTNERSHIP
100 Why Worry Lane
Woodside, CA 94062
Facsimile No. (415) 851-9036

IF TO PHASECOM DEL: PHASECOM, INC.
20300 Stevens Creek Blvd, 4th Floor
Cupertino, CA 95014
Facsimile No. (408) 777-2760

WITH A COPY TO: Stephen P. Pezzola, Esq.
PEZZOLA & REINKE, APC
1999 Harrison, Suite 1300
Oakland, CA 94612 USA
Facsimile No. (510) 834-7440

and any such notices, demands, consents or other communications as
above-mentioned shall be deemed to have been received:

(i) in the case of personal delivery by hand or
by Express Mail, Federal Express or similar
service, when delivered; or,

(ii) in the case of having been sent by first
class, prepaid, certified mail, return
receipt requested, on the third business day
following the day of posting, or (if sent
express airmail from overseas on the
fifteenth business day following the day of
posting); or,

(iii) in the case of having been sent by
facsimile, on confirmation registered by the
sender's facsimile that such facsimile was
received by such sender where such
confirmation occurs before 1700 hours local
time of the addressee on the day of
confirmation and, in any other case, on the
day following the day of confirmation.

Any notice, demand, consent or other communication not
received on a business day or received after 1700 hours local time of the
addressee on any business day in the place of receipt shall be deemed to have
been received on the next following business day.

The term "business day" as contained in this subsection,
shall, for the purpose of this subsection, mean any day of the week other than a
Saturday, Sunday, Public Holiday, Jewish Holy Day, and any other day on which
commercial banks are not open for the conduct of business in the place of
receipt.

g. GOVERNING LAW. The validity, meaning and effect of
this Agreement shall be determined in accordance with the laws of California,
applicable to contracts made and to be performed entirely within the State of
California.

-12-

<PAGE>

h. LITIGATION COSTS. If any legal action or other
proceeding is brought for the enforcement of this Agreement, or because of a
dispute, breach, default, or misrepresentation in connection with any of the
provisions of this Agreement, the successful or prevailing party or parties
shall be entitled to recover reasonable attorneys' fees and other costs incurred
in that action or proceeding, in addition to any other relief to which it or
they may be entitled.

i. SPECIFIC PERFORMANCE. Each party's obligation under
this Agreement is unique. If any party should default in its obligations under
this Agreement, the parties each acknowledge that it would be extremely
impracticable to measure the resulting damages; accordingly, the nondefaulting
party, in addition to any other available rights or remedies, may sue in equity
for specific performance and the parties each expressly waive the defense that a
remedy in damages will be adequate.

j. FINAL AGREEMENT. This Agreement constitutes the
entire agreement between the parties pertaining to registration rights and
lock-up provisions and supersedes and terminates all prior and contemporaneous
agreements, understandings, negotiations and discussions, whether oral or
written, specifically including the Exchange Agreement on even date herewith, on
the issues of registration rights and lock-up provisions. There are no
warranties, representations or other agreements between the parties in
connection with registration rights and lock-up provisions except as
specifically set forth herein.

k. VENUE. Any action or proceeding arising directly or
indirectly from this Agreement shall be litigated in an appropriate state or
federal court in the County of Santa Clara, State of California.

l. WAIVER OF CONFLICT. PHASECOM LP ACKNOWLEDGES THAT THE
LAW FIRM OF PEZZOLA & REINKE, A PROFESSIONAL CORPORATION ("P&R"), WHICH ALSO
GENERALLY REPRESENTS PHASECOM, LP, REPRESENTED PHASECOM DEL IN THE PREPARATION
OF THIS DOCUMENT. PHASECOM LP HEREBY ACKNOWLEDGES THAT P&R, DID NOT ADVISE
PHASECOM LP AS TO THIS AGREEMENT, AND ADVISED PHASECOM LP TO SEEK THE ADVICE OF
OTHER COUNSEL. PHASECOM LP ACKNOWLEDGES THAT IT HAD THE OPPORTUNITY TO CONSULT
WITH AN ATTORNEY WITH RESPECT TO THIS DOCUMENT. PHASECOM LP HEREBY ACKNOWLEDGES,
AND HEREBY WAIVES, ANY CONFLICT THAT MAY EXIST IN CONNECTION WITH THE
PREPARATION OF THIS DOCUMENT AND REPRESENTATION OF PHASECOM DEL BY P&R.

(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.)

-13-

<PAGE>

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.

PHASECOM INVESTOR GROUP LIMITED PARTNERSHIP,
a Delaware limited partnership
100 Why Worry Lane
Woodside, CA 94062

By: /s/ Davidi Gilo
-----------------------------------------------
Davidi Gilo, President
of Harmony Management, Inc.,
General Partner

PHASECOM, INC.
a Delaware corporation
20300 Stevens Creek Blvd,
4th Floor
Cupertino, CA 95014

By: /s/ Davidi Gilo
-----------------------------------------------
Davidi Gilo, Chairman of the Board

GALRAN PROPERTIES (1993) LTD.

/s/ Boaz Adini
- --------------------------------------------------

BOAZ ADINI
- --------------------------------------------------
(print name)

-14-

<PAGE>

EICHOT CAPITAL MARKETS AND INVESTMENTS (1993) LTD.

/s/ Boaz Adini
- --------------------------------------------------

BOAZ ADINI
- --------------------------------------------------
(print name)

TOM HOLDINGS AND PROPERTIES (1993) LTD.

/s/ Boaz Adini
- --------------------------------------------------

BOAZ ADINI
- --------------------------------------------------
(print name)

Y. ATAI INVESTMENTS LTD.

/s/ Yehuda Atai
- --------------------------------------------------

YEHUDA ATAI
- --------------------------------------------------
(print name)

-15-

<PAGE>

EXHIBIT 10.12

PHASECOM, INC.
AMENDMENT TO REGISTRATION RIGHTS
AND LOCK-UP AGREEMENT

THIS AMENDMENT TO REGISTRATION RIGHTS AND LOCK-UP AGREEMENT made as of
this 13th day of August, 1999 by and among PHASECOM INVESTOR GROUP LIMITED
PARTNERSHIP, a Delaware limited partnership ("PhaseCom LP"), PHASECOM, INC., a
Delaware Corporation ("PhaseCom Del."), GALRAN PROPERTIES (1993) LTD.
("Galran"), EICHOT CAPITAL MARKETS AND INVESTMENTS (1993) LTD. ("Eichot"), TOM
HOLDINGS AND PROPERTIES (1993) LTD. ("Tom"), Y. ATAI INVESTMENTS LTD. ("Atai"),
ADC TELECOMMUNICATIONS, INC., a Minnesota Corporation ("ADC") and the additional
holders of PhaseCom Del's Series A Convertible Preferred Stock identified on the
signature page to this Agreement (collectively, the "Additional Series A
Stockholders").

W I T N E S S E T H :

WHEREAS, PhaseCom LP, PhaseCom Del., Galran, Eichot, Tom and Atai are
parties to that Registration Rights and Lock-Up Agreement dated as of April 21,
1996 (the "Registration Rights Agreement"); and

NOW, THEREFORE, for and in consideration of the mutual agreements,
covenants, representations and warranties contained in this Agreement, the
parties hereto agree as follows:

3. AMENDMENT TO ARTICLE 2, M.Sections 2 m (i), 2 m (ii) and 2 m
(iii) of the Registration Rights Agreement, entitled "Standoff Agreement," shall
be deleted and in their place, the following new Articles 2 m (i) and 2 m (ii),
shall be inserted:

<PAGE>

m. (i) In connection with the Offering, each of the
Holders agrees to have placed on his, her or its certificate(s) representing
his, her or its PhaseCom Del share interests, 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 PhaseCom Del for a period commencing as of the commencement of the
Offering and ending on the one hundred eightieth (180th) day following the
commencement of the Offering. Each Holder agrees to be bound by the legend
restrictions set forth above.

IN WITNESS WHEREOF, the parties have duly executed and delivered this
Agreement as of the date first above written.

PHASECOM INVESTOR GROUP
LIMITED PARTNERSHIP

By: /s/ Davidi Gilo
-----------------------------------------
Davidi Gilo, President
Harmony Management, Inc., General Partner

PHASECOM, INC.
a Delaware Corporation
20400 Stevens Creek Blvd.
8th Floor
Cupertino, CA 95014

By: /s/ Davidi Gilo
-----------------------------------------
Davidi Gilo, Chief Executive Officer

GALRAN PROPERTIES (1993) LTD.

/s/ Boaz Adini
- --------------------------------------------------

<PAGE>

BOAZ ADINI
- --------------------------------------------------
(print name)

EICHOT CAPITAL MARKETS AND
INVESTMENTS (1993) LTD.

/s/ Zvi Biran and /s/ Boaz Adini
- --------------------------------------------------

ZVI BIRAN and BOAZ ADINI
- --------------------------------------------------
(print name)

TOM HOLDINGS AND PROPERTIES (1993) LTD.

/s/ Zvi Biran
- --------------------------------------------------

ZVI BIRAN
- --------------------------------------------------
(print name)

Y. ATAI INVESTMENTS (1993) LTD.

/s/ Yehuda Atai
- --------------------------------------------------

YEHUDA ATAI
- --------------------------------------------------
(print name)

ADC TELECOMMUNICATIONS, INC.
a Minnesota Corporation
P.O. Box 1101
Minneapolis, MINN 55440

By: /s/ Jeffrey D. Pflaum
-----------------------------------------------

JEFFREY D. PFLAUM, VICE-PRESIDENT
- --------------------------------------------------
(print name & title)

PHASECOM INVESTOR GROUP
LIMITED PARTNERSHIP NO. 2

By: /s/ Davidi Gilo
- --------------------------------------------------
Davidi Gilo, President
Harmony Management, Inc., General Partner

DAVIDI and SHAMAYA GILO TRUST U/T/D

<PAGE>

1/18/91

By: /s/ Davidi Gilo
-----------------------------------------------
Davidi Gilo, Trustee

PEZZOLA-FOSTER TRUST U/T/D
4/3/87

By: /s/ Stephen Pezzola
-----------------------------------------------
Stephen P. Pezzola, Trustee

JOSEPH GORODNICK

/s/ Joseph Gorodnick
- --------------------------------------------------

ITHZAK and ESTHER HOFFI

/s/ Ithzak Hoffi
- --------------------------------------------------

/s/ Esther Hoffi
- --------------------------------------------------

CHIM-NIR LTD

By: /s/ Arie Etzioni and /s/ Ilan Sela
-----------------------------------------------

ARIE ETZIONI and ILAN SELA
- --------------------------------------------------
(print name & title)

HAREL-INSURANCE INVESTMENTS LTD.

By: /s/ Moti Rosen and /s/ Y. Rothschild
-----------------------------------------------

MOTI ROSEN and Y. ROTHSCHILD
- --------------------------------------------------
(print name & title)

AL-BEN LTD.

By: /s/ Josepf L. Paluch
-----------------------------------------------

JOSEPF L. PALUCH, General Manager
- --------------------------------------------------
(print name & title)

<PAGE>

ILAN SELAH

/s/ Ilan Selah
- --------------------------------------------------

ARYEH and YUVAL EZYONI

/s/ Aryeh Ezyoni
- --------------------------------------------------

/s/ Yuval Ezyoni
- --------------------------------------------------

MORDECHAI GAZIT

/s/ Mordechai Gazit
- --------------------------------------------------

SHAUL BERGER

- --------------------------------------------------

REUVEN and NAOMI ASHKENAZY

/s/ Reuven Ashkenaz
- --------------------------------------------------

- --------------------------------------------------

AVRAHAM FISCHER

/s/ Avraham Fischer
- --------------------------------------------------

MIRI LENT

- --------------------------------------------------

I. FISCHER & CO as Trustee U/A dtd 11/10/97
FBO: The parties identified on Schedule A hereto

By: /s/ I. Fischer & Co. Trustees Ltd.

- --------------------------------------------------
(print name & title)

VICTOR HALPERT

<PAGE>

- --------------------------------------------------

YOTAM FINANCING TECHNOLOGICAL
VENTURES LTD.

By: /s/ Arie Hinkis
- --------------------------------------------------

ARIE HINKIS, CEO
- --------------------------------------------------
(print name & title)

SCHLOMO RACHIV

- --------------------------------------------------
(signature)

<PAGE>

SCHEDULE A

I. Fischer & Co. as Trsutee U/A dtd 11/10/97

<TABLE>
<S> <C>
FBO: Y. Atai Investments Ltd.
FBO: Galran Properties (1993) Ltd.
FBO: Tom Holdings and Properties (1993) Ltd.
FBO: Eichut Capital Markets and Investments (1993) Ltd.
FBO: Arie Zimmerman
FBO: Itzhak and Esther Hoffi
FBO: Chim-Nir Ltd.
FBO: MMD Technology Israel Ltd.
FBO: Reger Investment Company Ltd.
FBO: Cham Foods (Israel) Ltd.
FBO: Harel Hamishmar Investments Ltd.
FBO: Reuven and Naomi Ashkenazy
FBO: Al-Ben Ltd.
FBO: Miri Lent
FBO: Ilan Selan
FBO: Yotam Financing and Technology Ventures Ltd.
FBO: Hananyah and Tamar Amishav
FBO: Phelix Lachman
FBO: Mordechai Gazit
FBO: Michael Barzily, or Successor, as Trustee on behalf of Meir Leiberman
FBO: Michael Barzily, or Successor, as Trustee on behalf of Dudi Gidron
FBO: Michael Barzily, or Successor, as Trustee on behalf of Menashe Shachar
</TABLE>

<PAGE>

EXHIBIT 10.18

PHASECOM - HAR HOTZVIM

UNPROTECTED LEASE AGREEMENT

ENTERED INTO AND SIGNED IN TEL AVIV ON MARCH 7, 1999

BETWEEN

Ayalot Investments in Properties (Har Hotzvim) 1994 Ltd.
P.C. # 51-197739-9
of 8, Shaul Hamelech Blvd., Tel Aviv
(hereinafter: the "Lessor")

OF THE FIRST PART;

AND

Phasecom (Israel) Ltd.
P.C. # 51-086689-0
whose address shall be at the Leased Premises
from the date of entry of the Lessee into the Leased Premises
(hereinafter: the "Lessee")

OF THE SECOND PART

Whereas the Lessor owns the leasing rights to the property located on
Har Hotzvim in Jerusalem and known as parcel 116 of block
30241 (hereinafter: the "Building"); the extract of
registration for the plot is attached to this agreement as
APPENDIX A and forms an integral part hereof; and

Whereas the Lessee is interested in leasing from the Lessor, and the
Lessor agrees to lease to the Lessee, part of the Building on
a gross area of 2,415 m2 (including an agreed portion of the
public areas) on the third and fourth office floors and a
warehouse on a gross area of 100 m2 on level -3.35 and parking
spaces as set forth in clause 11 (hereinafter: the "Leased
Premises"); the (net) Leased Premises are marked in red on the
drawings attached to this agreement as APPENDICES B-1 - B-4
and forming an integral part hereof; and

Whereas the Leased Premises are part of the Building being
constructed, and according to the pace of progress of the
construction, the Lessor anticipates that the Leased Premises
will be ready on the date of commencement of the lease, vacant
of any person or object and in the exclusive possession of the
Lessor; and

<PAGE>

Whereas the Lessor has confirmed that the construction of the Building
is performed lawfully and in accordance with a lawfully issued
building permit and in accordance with the zoning plans, and
that there is no lawful or other impediment to using the
Leased Premises in accordance with the purpose of the lease;
and

Whereas a lease agreement dated July 28, 1994 exists between the
parties (hereinafter: the "Original Lease Agreement"), in
connection with a property located near the Leased Premises
(hereinafter: "Premises A"); and

Whereas the term of the lease under the Original Lease Agreement ends
on November 5, 1998 (hereinafter: the "End of the Original
Lease Period"); and

Whereas the Lessee has expressed its wish to lease the Leased Premises
from the Lessor as a replacement for Premises A, after the End
of the Original Lease Period, by unprotected tenancy and
without it acquiring any rights to the Leased Premises under
the Tenants Protection Law (Consolidated Version) 5732-1972
and all regulations enacted and/or to be enacted thereunder
(hereinafter: the "Law") and/or any other law replacing and/or
supplementing it, the subject-matter of which is tenants'
protection,

THEREFORE, IT WAS BEEN DECLARED, AGREED AND STIPULATED
BY AND BETWEEN THE PARTIES AS FOLLOWS:

1. INTERPRETATION

a. The preamble to this agreement and all the provisions thereof
and the appendices attached hereto constitute an integral part
hereof.

b. The headings of the clauses shall not be used for the
interpretation of the agreement.

2. THE ENGAGEMENT AND THE DURATION THEREOF

a. The Lessor hereby leases the Leased Premises to the Lessee and
the Lessee hereby leases the Leased Premises from the Lessor
for a period commencing on March 1, 1999 and ending on
December 31, 2003 (hereinafter: the "Term of the Lease").

The Lessee shall have the option to extend the Term of the
Lease under this agreement for an additional five year period,
provided that it shall give written notice thereof to the
Lessor no later than 150 days prior to

<PAGE>

the expiration of the Term of the Lease (hereinafter: the
"Extended Lease"). The Lessor shall inform the Lessee 180-210
days prior to the end of the Term of the Lease of its need to
notify of its exercise or non-exercise of the option, and the
Lessee shall reply thereto no later than 150 days prior to the
expiration of the Term of the Lease.

In the event that the Lessee shall not give notice as
aforesaid, the lease shall end on December 31, 2003. In the
event that the Lessee shall have notified of its exercise of
the option, the Term of the Lease shall be extended by five
years under the terms of the agreement, MUTATIS MUTANDIS, and
the Lessee shall not be entitled to terminate or cease the
lease prior to expiration of the term of the Extended Lease,
as aforesaid.

Notwithstanding the aforesaid, it is hereby agreed that for
the duration of the Extended Lease, the rent charged shall be
7.5% higher than that charged during the Term of the Lease.

b. It is hereby clarified that a delay in surrendering the Leased
Premises due to force majeure and/or due to reasons
uncontrolled by the Lessor, including due to any third party,
the contractor constructing the Building, Bezeq, the
electricity company etc., shall constitute no breach of the
Lessor's undertakings herein and shall entitle the Lessee to
no remedy, provided that the Lessor shall have taken
reasonable measures to prevent the delay.

It is hereby agreed that so long as actual possession shall
not have been surrendered to the Lessee due to circumstances
not under the Lessee's responsibility and/or so long as this
agreement shall not yet be in effect, the lease for Premises A
shall continue pursuant to the Original Lease Agreement and
the terms specified therein, with the modifications agreed
upon by the parties in writing.

c. Without derogating from the provisions of sub-clause (b)
above, it is hereby agreed by the parties that the Lessor
shall reserve the right to notify the Lessee of a postponement
in the commencement of the lease, provided that the
postponement shall not exceed ninety days and that the Lessee
shall be notified thereof twenty one days prior to the date of
commencement of the lease. A delay in surrendering the Leased
Premises, not exceeding ninety days, shall constitute no
breach of the Lessor's undertakings herein, and shall entitle
the Lessee to no remedy.

It is hereby agreed that in the event of postponement of the
commencement of the lease by the Lessor, as aforesaid, the
Lessee shall be entitled to further postpone the date of
acceptance of possession of the Leased Premises by no more
than two more weeks, by written notice to the Lessor.

3
<PAGE>

d. In the event that the date of commencement of the lease shall
have been postponed or brought forward as set out in
sub-clauses (b) and (c) above, the postponed date shall be
deemed as the date of commencement of the lease, but the date
of termination of the lease shall remain unchanged, and it
shall end on December 31, 2003.

It is agreed by the parties that in no case will the Leased
Premises be turned over to the Lessee between March 28, 1999
and April 16, 1999.

e. The parties agree that the date determined in the Lessor's
notice as the date of commencement of the lease shall be
deemed as such even if the Lessee shall not have come to take
possession of the Leased Premises, provided that the date of
commencement of the lease shall conform with the provisions
hereof.

f. The duration of the Term of the Lease is a fundamental
provision hereof, and neither party shall be entitled to
shorten the same (in the absence of mutual consent and subject
to the provisions hereof), in light of the parties'
expectations and intent at the time they had entered into this
agreement.

Notwithstanding the provisions of this clause, the Lessee
shall be entitled to transfer its right to the Leased Premises
prior to the end of the Term of the Lease to an alternative
lessee (hereinafter: the "Alternative Lessee"), the identity
of whom shall be approved in writing by the Lessor and subject
to that the Alternative Lessee shall provide the Lessor with a
bank guarantee in the amount of six months of rent and
adjusted management fees and additional securities in
accordance with the Lessor's policy and the Alternative
Lessee's financial stability at the time being.

For the removal of doubt, the Lessor shall only be entitled to
object to the Alternative Lessee on reasonable grounds.

g. The Lessee shall be liable for the payment of the full amount
of the rent and the management fees under the management
agreement (if any), for the entire Term of the Lease, also if
it shall not have actually used the Leased Premises, and also
if possession thereof shall have returned to the Lessor prior
to the end of the term without the Lessor's consent.

h. The Lessee shall have a right of first refusal to rent the
area marked in blue on APPENDIX B-1, under the following
conditions:

The right of first refusal shall be for a period of six months
from the date of signing of this contract. The Lessor shall
notify the Lessee in writing of any lease in which it intends
to engage for the said area during the said period. The Lessee
shall be entitled to give written

<PAGE>

notice within 7 days from the date of receipt of the Lessor's
notice that it shall lease the said area under the terms
hereof.

<PAGE>

3. SURRENDER OF THE LEASED PREMISES TO THE LESSEE

a. The parties agree that when the Leased Premises shall be
turned over to the Lessee, they will be constructed in
accordance with the internal division plans as marked on
Appendices B-1 and B-2 and in accordance with the technical
specification attached to this agreement as APPENDIX C and
constituting an integral part hereof, and subject to the
lessee's plans, as defined hereunder, as approved by the
Lessor.

The Lessor (sic) shall pay the fees of the architect and the
consultants, to the extent that their engagement shall have
been approved by the Lessor, for their work in preparing the
internal division plans (excluding work, modifications and
additions to be required by the Lessee after approval of the
plans by the Lessor).

b. The Lessee has submitted to the Lessor a set of layout plans
for the Leased Premises, as marked on Appendices B-1 and B-2.

c. The Lessor shall examine the Lessee's plans, in accordance
with the limitations imposed by the building permit and/or the
frame and/or the existing infrastructure and subject to the
approval of the Lessor's architect.

The Lessor shall notify the Lessee of its agreement or
disagreement to the Lessee's plans within 15 days from the
date of receipt thereof. The Lessor shall not decline its
agreement, but on reasonable grounds. The Lessor's failure to
approve the plans within 15 days as aforesaid shall be deemed
as the approval thereof by the Lessor. The layout plans shall
be transferred to the architect for the preparation of work
plans.

d. The Lessee shall approve the architect's work plans within 14
business days from the date submitted thereto by the Lessor.

e. The Lessor shall perform the division of the Leased Premises
and all the work involved therein in accordance with the
Lessee's plans, as approved by the Lessor, and in accordance
with a schedule to be determined by the Lessor.

f. The Lessee shall bear the cost of any change and/or addition
to be made by the Lessor in accordance with the Lessee's plans
beyond the technical specification, according to the "Dekel"
price list (in addition to V.A.T.) plus 8% and, with respect
to work or material not appearing in the "Dekel" price list,
as shall be determined by the Lessor's engineers (provided
that they shall not exceed reasonable market prices) plus 8%.

The cost of the changes shall be paid by the Lessee to the
Lessor within 30 days from the following schedule:

<PAGE>

25% from the date of receipt of the modification account
from the Lessor.

50% from the date of completion of construction of the
internal partitions in the Leased Premises.

25% from the date of surrender of possession of the
Leased Premises, subject to clause 2(f) above.

g. In the event that after approval of the Lessee's plans, the
Lessee shall wish to perform other changes and additions other
than in accordance with the Lessee's plans as submitted to the
Lessor, and the performance thereof shall be approved by the
Lessor, the cost thereof shall be paid in accordance with the
aforesaid, immediately upon receipt of the Lessor's demand.

The Lessee shall further pay for the architectural planning
and for the fees of the various consultants with respect to
the aforementioned work.

A request/s by the Lessee for modifications and additions,
after approval of the plans by the Lessor, resulting in a
delay in the completion of construction, shall not postpone
the date of commencement of the payment of rent as set forth
in clause 5 hereunder, for longer than 7 business days.

In the event that the delay shall exceed 7 days, the Lessee
shall be liable for the payment of rent from the eighth day
forth. For the removal of doubt, the overall delay shall mean
the delay resulting from any request submitted by the Lessee
for modifications and additions.

The cost of the changes shall be subject to indexation
differences, as defined herein, between the index known on the
date of preparation of the modification account by the Lessor
and the index known on the date of actual payment.

h. Notwithstanding the aforesaid, the Lessee shall be entitled,
at the discretion thereof, to pay for the modifications by way
of increasing the Rent by US $1.2 plus V.A.T. per m(2) for
each US $100 invested by the Lessor in each m(2), for the
entire Term of the Lease.

The parties agree that in the event that the Lessee shall
vacate the property prior to 10 full years of lease, i.e.,
prior to expiration of the term of the Extended Lease, the
Lessee shall repay the Lessor a proportionate part of the cost
of the modifications, including indexation differences as
aforesaid, for the period from the actual termination of the
lease until January 20, 2009.

<PAGE>

The Lessee may notify the Lessor, no later than 15 days from
the date of approval of any plan by the Lessor, of its waiver
of the performance of parts of the technical specification for
such plan.

In the event that such waiver is made by the Lessee, the
Lessee shall be entitled to a refund in accordance with the
"Dekel price list". The settlement of accounts shall be
performed by the parties' supervisors.

Plans submitted or to be submitted by the Lessee constitute a
notice on the part of the Lessee of a waiver or modification
of the technical specification, as aforesaid, to the extent
that they contain a waiver or modification.

i. The parties agree that in the event that delays shall occur in
the completion of the Leased Premises, for reasons under the
Lessee's control, including a delay in submitting the Lessee's
plans and/or amending the same, requests by the Lessee to
perform modifications of and/or additions to the Leased
Premises and/or of or to the Lessee's plans, in whole or in
part, after commencement of the internal division and so
forth, and in the event that the Lessee shall procrastinate
paying for the cost of the changes, the Lessee shall have to
pay rent to the Lessor and fulfill all the Lessee's
undertakings herein, from the date on which possession of the
Leased Premises could have been turned over to the Lessee but
for such delays and/or procrastination, although the surrender
of the Leased Premises shall be postponed until completion
thereof. For the removal of doubt, it is emphasized that the
Lessee shall not be entitled to postpone payment due to
changes in such case. The aforesaid shall not derogate from
the provisions of the latter part of sub-clause (g) above.

j. It is hereby agreed that no later than 14 days prior to the
date of surrender of the Leased Premises and after the main
systems (frame, air-conditioning, plumbing and electricity)
shall be operable and the lobby of the Building shall be fit
for use, the representatives of the parties shall inspect the
Leased Premises and prepare a protocol containing all defects
which may be discovered after reasonable examination.

Defects preventing reasonable use of the Leased Premises shall
be rectified prior to the date of surrender of possession. In
the event that such defects shall not have been fixed, the
date of surrender of possession shall be deferred pending the
repair thereof. Defects not preventing reasonable use of the
Leased Premises shall be fixed within 14 days from the date of
preparation of the protocol and the date of surrender of
possession shall not be deferred as a result thereof.

k. The delivery of the key to the Leased Premises to the Lessee
shall constitute confirmation on the part of the Lessee that
it had examined

<PAGE>

the Leased Premises and found them to be suitable to the needs
thereof and in accordance with the provisions of the
agreement, and that it entertains no claims with respect to
the Leased Premises, save for claims concerning concealed
defects and malfunctions and/or defects not preventing
reasonable use of the Leased Premises as set forth in the
protocol to be drawn by the parties, as set out above.

The protocol of surrender of possession shall not exempt the
Lessor from the obligations thereof under this agreement and
any law.

l. In the event that the Lessor shall have notified the Lessee
that the Leased Premises are completed and may be made
available to the Lessee, and the latter shall have failed to
arrive in order to take possession thereof, such designated
day shall be deemed as the date of commencement of the lease.

In the event that the Lessor shall have notified the Lessee
that the latter should arrive in order to take possession of
the Leased Premises and shall have retracted such notification
thereafter, the Lessor shall pay for the Lessee's direct
damages as follows: cancellation of the engagement of the
carrier, packing expenses and loss of work days.

4. PURPOSE OF THE LEASE, NATURE OF THE LEASED PREMISES AND THE SCOPE
THEREOF

a. The lease herein is entered into for the purposes of operating
the Lessee's business, i.e., a high-tech company in the field
of communications, and therefore, in the absence of the
Lessor's consent in advance and in writing, the Lessee shall
not be entitled to use the Leased Premises or any part thereof
for any purpose other than the aforesaid purpose.

The Lessee further undertakes not to transfer and/or endorse
and/or pledge any of its rights hereunder and not to sub-lease
the Leased Premises and/or part thereof and not to give a
right of use or any other right to the Leased Premises or any
part thereof to any third party, whether for or without
consideration, without the Lessor's consent in advance and in
writing. Any change in the composition or rate of holdings of
the shareholders exceeding 50%, whether at once or in stages,
shall be deemed as a transfer of rights as aforesaid,
requiring the Lessor's consent in advance and in writing, save
for public offerings. The Lessor shall decline its consent
only on reasonable grounds.

Notwithstanding the aforesaid, the Lessee shall be entitled to
transfer the rights thereof to the Leased Premises to an
affiliated company, provided that the Lessee shall remain
liable to the Lessor with the transferee, jointly and
severally, for the fulfillment of all undertakings herein.

<PAGE>

It is hereby agreed that the Lessor undertakes to endeavor to
market the Building to entities, the activity of whom shall
conform to the nature of the Building and to the terms of the
building permit.

b. Subject to the foregoing provisions hereof, the Lessee
confirms that it has seen and examined the Building and the
Leased Premises, the construction and development plans and
the specification, and that it has examined the designation of
the Leased Premises and the uses thereof permitted by the
zoning plans and the law, and has found them to be suitable to
the needs thereof, and that it neither has nor shall have any
claim of non-conformity or of choice or of defects in the
Leased Premises and other such claims against the Lessor, in
light of the aforesaid and of the other stipulations herein,
save for claims with respect to concealed defects and/or
non-conformity.

c. Subject to the foregoing provisions herein, the Lessee
undertakes that it shall obtain, at the expense and under the
responsibility thereof, all the licenses, permits and
approvals (hereinafter: the "Licenses") required and to be
required by any authority or under the law in order to conduct
the business thereof at the Leased Premises, and the Lessee
further undertakes to conduct the business thereof at the
Leased Premises in accordance with the Licenses, any law and
the requirements of the competent authorities, and, in the
event that the Lessee shall obtain the Lessor's consent to
perform changes in the Leased Premises, in accordance with
clause 8(d) hereunder, the Lessee undertakes to perform the
same only after receipt of the permits as set out in the law
and subject thereto.

For the removal of doubt, it is emphasized that the Lessor is
not responsible for obtaining and/or maintaining the Licenses.

Should the Lessor suffer any damage due to the non-fulfillment
of any undertaking by the Lessee pursuant to this sub-clause,
the Lessee shall compensate and indemnify the Lessor for any
such damage.

d. The Lessee's failure to obtain the Licenses and/or the
permits, and/or the revocation thereof at any time shall not
derogate from any of the Lessee's undertakings herein,
including the payment of Rent.

e. The Lessee confirms that it is aware that various work might
be performed at the Leased Premises, the Building and the
surroundings thereof, including further construction,
development, renovations and any other modifications, and that
it shall entertain no claim against the Lessor with respect
thereto. The Lessee undertakes not to disrupt or object to
such work, provided that the reasonable use of the Leased
Premises, for the purpose of the lease, is not compromised.

<PAGE>

Notwithstanding the provisions of clause 4.6 of the Management
Agreement, work performed at the Leased Premises, after
surrender thereof to the Lessee, shall be made on weekdays
after 17:00 and on Fridays, except for emergencies.

f. The Lessor undertakes to allocate an area in the Building,
including the basement, free of rent, for a dining hall for
the Lessee's caterer, in the event that no restaurant, capable
of catering for the Lessee's employees for prices acceptable
at Har Hotzvim for catering services for high-tech workers,
shall be operated in the Building (hereinafter: the "Temporary
Area"). The area shall be air-conditioned, floored, lit and
will contain sinks for washing dishes and hands and furnished
as shall be determined by the management company. It is hereby
clarified that the Lessee's status in the Temporary Area shall
be that of licensee only and that it shall be responsible for
preventing nuisances and damage to the Leased Premises, the
Building, the tenants, and the guests and visitors to the
Building.

It is hereby clarified that the Lessee shall be responsible
for arranging for insurance, in connection with the Temporary
Area, as set forth in clause 10 hereunder.

The Temporary Area shall have a capacity of 50 people.

The Lessee undertakes that the Temporary Area shall be
returned to the Lessor upon commencement of operation of a
restaurant in the Building and/or upon termination of the
lease under this contract, whichever is earlier.

The Lessee is liable to the Lessor for vacation of the caterer
and surrender of the Temporary Area to the Lessor, in a proper
and usable condition, free and vacant of any person and object
installed at such place by the Lessee.

The Temporary Area shall only be used in order to operate a
catering service for the Lessee's employees and guests. The
Lessee is responsible for any negligent act or omission and
for any damage caused to the Lessor and/or to a third party as
a result of the caterer's actions.

5. RENT, THE RATE AND DATES OF PAYMENT THEREOF

In consideration for the rights of lease which are the subject of this
agreement, the Lessee undertakes to pay the Lessor, during the Term of
the Lease, rent (hereinafter: "Rent") as follows:

a. The Lessee shall pay the Lessor monthly Rent in NIS in the
amount of NIS 126,448 in addition to V.A.T. at the lawful rate
thereof on the date

<PAGE>

of payment, linked to the consumer price index; the base index
is the index of October 1998, published on November 15, 1998,
i.e., 164.1 points.

b. On the date of commencement of the lease, the Lessee shall pay
Rent for the first 3 months of the lease.

The Rent shall be paid on a quarterly basis, for each quarter
in advance, on the first business day of the months of
January, April, July and October of each year.

For the removal of doubt, it is clarified that if the Term of
the Lease shall commence on a date other than one of the
aforementioned dates, an adjustment shall be made prior to the
beginning of the second quarter of the Term of the Lease so
that the Rent shall be paid at the beginning of each quarter
in advance, as aforesaid.

c. Until notified otherwise by the Lessor, and without derogating
from the Lessor's right to demand payment of the Rent in
another way, the Rent shall be paid directly into the Lessor's
account # 265219 at Bank Hapoalim Ltd., Hameasfim branch in
Tel Aviv, branch # 510. A tax invoice shall be duly issued
immediately after payment shall be made.

6. LINKAGE OF THE RENT TO THE CONSUMER PRICE INDEX

The Rent set forth in clause 5 above shall be calculated and paid
subject to indexation as follows:

a. In the event that the publication of the index shall indicate
that the new index is higher than the base index, the nominal
rate of each Rent payment made by the Lessee shall be
increased at a rate equal to the increase of the new index
proportionately to the base index.

However, should it transpire that the new index is equal to or
lower than the base index, the Lessee shall make the payment
at the nominal value thereof in the previous quarter.

b. For the purposes of such indexation, the following terms shall
be defined as set forth beside them:

The index - the consumer price index, including
fruit and vegetables, published by the
Central Bureau of Statistics and Economic
Research, or any other official index
replacing it, if published by any other
governmental institution, whether or note
based on the same data on which the current
index is based.

<PAGE>

In the event that another index shall be
introduced as aforesaid and the said Bureau
shall not determine the ratio between it and
the index replaced thereby, within six
months from the date of replacement, the
said ratio shall be determined in accordance
with the ratio named for index-linked loans
at Bank Hapoalim Ltd.

The base index - the index, as defined above, decided upon by
the parties and determined in clause 5(a)
herein.

The new index - the latest index published prior to the date
of actual payment.

7. ADDITIONAL PAYMENTS IMPOSED ON THE LESSEE

a. Throughout the Term of the Lease, the Lessee shall pay all
taxes, municipal taxes, levies, fees and other obligatory
payments of any kind, payable to the local authority and/or to
any governmental authority in connection with the Leased
Premises, the maintenance and use thereof, save for property
tax and/or other obligatory payments to be lawfully imposed on
property owners, which shall be paid by the Lessor.

The Lessee shall further pay, throughout the Term of the
Lease, all the payments and expenses involved in the
maintenance, care and operation of the Leased Premises in good
and proper condition, including payments to the co-op board
and/or to the management company, if any, including, but not
only, for the maintenance of gardens, yards and parking lots
included in the Leased Premises and the joint property etc.
The Lessee shall further pay for the consumption of water,
electricity and telephone. The Lessee shall also pay for the
air-conditioning system and for water consumption according to
the proportion between the area of the Leased Premises and the
leased areas of the Building, as set forth in the Management
Agreement attached hereto, and in accordance with the
provisions of clause 9 hereunder.

For the removal of doubt, it is emphasized that the Lessee
shall bear all such payments and expenses also for the period
in which the Lessee shall occupy the Leased Premises in the
event of failure to vacate the same.

b. The Lessee undertakes to sign contracts with the electricity
company and with the municipality of Jerusalem for the supply
of electricity and water to the Leased Premises. The Lessor
shall act in order to perform the aforesaid and the Lessee
shall assist the Lessor as required in order

<PAGE>

to perform the undertaking as aforesaid. Payment for the
electricity meter shall be borne by the Lessor.

The Lessor and/or the management company, as the case may be,
shall be responsible for placing the Leased Premises at the
Lessor's disposal with the Building and frame systems in
proper working order.

c. The Lessee shall timely pay all bills for the payments and
expenses imposed thereon as aforesaid, and in the event of
failure to do so, the Lessee shall further pay any additional
payment imposed due to such arrears. The Lessee shall provide
the Lessor with receipts for payments made thereby, pursuant
to the Lessor's demand.

In the event that the Lessor shall pay any amount on account
of expenses and payments imposed on the Lessee as set forth
herein, the Lessee undertakes to repay such amounts
immediately upon the Lessor's demand and in addition to
interest as set out in clause 16 hereunder.

d. In addition to Rent, indexation differences and payments under
this agreement, the Lessee shall pay value added tax one day
prior to the date of payment thereof to the authorities, at
the current rate from time to time on the date of making any
payment pursuant to the terms hereof. After the payment, the
Lessor shall provide the Lessee with a lawful tax invoice.

8. USE OF THE LEASED PREMISES AND THE MAINTENANCE THEREOF

a. The Lessee undertakes to leave no movables outside the Leased
Premises and to make no use of any part of the Building other
than the Leased Premises, including the public areas of the
Building, for any purpose, save for access to the Leased
Premises. The Lessee further undertakes to use the Leased
Premises so as to produce no nuisance, as defined under any
law, noise, odor, poisonous substance, smoke, shock or
inconvenience to others in the Building.

b. The Lessee undertakes to use the Leased Premises and the
surroundings thereof in a cautious manner, to maintain and
preserve the same in proper order and to immediately repair,
at its expense, any damage and/or breakage caused to the
Leased Premises, save for damage and/or breakage caused to the
Leased Premises due to construction defects and reasonable
wear and tear. For the purpose of performing the repairs, the
Lessee shall contact the management company, and if the latter
shall refuse to perform the repairs, the Lessee may resort to
other service providers.

It is hereby agreed that the Lessee's undertaking to use the
services of the management company for repairs in the Leased
Premises is subject

<PAGE>

to reasonable demands for payment on behalf of the management
company.

The Lessee may perform repairs unrelated to the systems of the
Building through the employees thereof, provided that they are
experts therefor.

The provisions of this clause shall override those of clause
4.1 of the Management Agreement.

c. Whenever the Lessee shall fail to perform the undertakings
thereof under this clause, the Lessor shall be entitled, but
not obliged, to perform the same and to charge the Lessee with
the payment of the expenses, provided that it shall have given
the Lessee a 10 day prior notice in writing of its intention
to do so, unless the repair is required as a matter of
emergency.

The Lessor may demand and receive from the Lessee the cost of
repairs performed thereby, or the estimated cost of repairing
damages, in the event that the Lessee shall have left the
Leased Premises, regardless of whether or not the Lessor shall
have actually performed the repair. The aforesaid shall not
derogate from any other remedy to which the Lessor is entitled
under this agreement and/or any law.

d. The Lessee undertakes to perform no constructional changes in
the Leased Premises involving systems, without the prior
written consent of the Lessor to the Lessee's modification
request, to which detailed plans shall be attached.

The Lessor shall not deny its consent to the modifications but
on reasonable grounds.

The Lessor's failure to reply in writing within 15 days from
the date of the Lessee's request for modifications shall be
deemed and regarded as the Lessor's consent thereto.

In no case will the Lessee be entitled to make changes in the
frame and/or the internal and/or external systems of the
Building, without the Lessor's consent as aforesaid and
subject to fulfillment of the provisions of any law.

For the removal of doubt, it is emphasized that if the Lessor
shall condition its consent, INTER ALIA, on the receipt of
approvals from

<PAGE>

various consultants, such consultants' fees and expenses shall
be borne by the Lessee.

Shortly prior to the end of the Term of the Lease under this
agreement, the Lessee shall reinstate the former condition of
the Leased Premises, as at the beginning of the Term of the
Lease, at its expense and under its responsibility, in
accordance with modifications performed by the Lessee from
time to time subject to the Lessor's approval, and shall
dismantle any modification, addition and facility installed
thereby while preserving the frame and systems of the
Building. The Lessee shall further repair, at its expense, any
damage caused to the Leased Premises as a result of such
actions.

e. The Lessee undertakes to allow the Lessor and/or the
management company and/or their representatives to enter the
Leased Premises at any reasonable time, and, to the extent
possible, after prior coordination (except for urgent cases in
which prior coordination will not be possible) in order to
examine the condition of the Leased Premises and/or perform
repairs in the Leased Premises or of other parts of the
Building, and in order to show the Leased Premises to others.

For the removal of doubt, it is emphasized that nothing in
this clause shall impose any obligation on the Lessor.

f. The Lessee undertakes to post no signs on the external walls
of the Leased Premises or signposts exceeding the boundaries
of the Leased Premises or signposts located within the Leased
Premises but facing outwards, without the written approval of
the Lessor and/or of the management company and after receipt
of any permit required by law.

It is agreed that the Lessor may determine the location, shape
and character of signposts of any kind, at the sole discretion
thereof, in order to maintain a uniform appearance of the
Building. The signposts in the Building shall be similar to
the signposts of the other tenants in the Building.

The Lessor shall be entitled to oblige the Lessee to install
internal signposts according to the former's determination, at
the latter's expense.

For the removal of doubt, all rights to post signs on the
external walls of the Building belong to the Lessor.

g. In times of emergency, the other tenants shall be entitled to
pass through and to use the sheltered areas.

9. THE MANAGEMENT COMPANY

<PAGE>

a. The Lessee confirms that it has been informed that the Lessor
may, at the sole discretion thereof, turn the rendering of
management and maintenance services over to a management
company.

The Lessor shall be entitled to replace the management company
with another, or to decide not to turn the rendering of the
services over to a management company, or to perform them
itself all in accordance with the sole discretion thereof.

b. The terms of the management agreement between the Lessee and
the management company - if any shall be as set forth in the
management agreement attached to this agreement as APPENDIX D
and forming an integral part hereof (hereinafter: the
"Management Agreement"). The Lessee's signing of this
agreement shall be tantamount to signing the Management
Agreement.

The Lessee undertakes to fulfill the provisions of the
Management Agreement and it is agreed that the Lessee's breach
of the Management Agreement shall constitute a breach of this
agreement too, and a breach of this agreement shall also
constitute a breach of the Management Agreement.

c. Notwithstanding the provisions of clause 5 of the Management
Agreement, the management expenses and fees imposed on the
Lessee, including the air-conditioning expenses and an
insurance premium shall in no case exceed NIS 10 per m2 gross
plus V.A.T. in the first two years of the Term of the Lease,
and in the remaining Term of the Lease, the management
expenses and fees imposed on the Lessee, including
air-conditioning expenses and an insurance premium, shall not
exceed NIS 11 per m2 gross plus V.A.T. The said amounts shall
be linked to the base index set out in clause 5(a) above.

For the removal of doubt, the aforesaid does not refer to
special additional services to be required by the Lessee from
the management company as set forth in the latter part of
clause 3.2 of the Management Agreement.

10. LIABILITY AND INSURANCE

a. The Lessor and/or the management company shall insure the
building (without content) in an extended fire insurance at
the Lessee's expense, for the duration of the Term of the
Lease, against fire hazards, explosions, damage caused by
water, flooding, storms and tempests, earthquakes, loss of
Rent and any other hazard as the Lessor shall deem fit.

It is hereby agreed that the issuance of the said insurance
shall not exempt the Lessee from liability under this
agreement and/or any law.

<PAGE>

The said insurance shall contain a clause waiving the right of
subrogation against the Lessee on the part of the insurer,
except for damages caused to the building by the Lessee
intentionally. The amounts of the insurance and of the
co-payment shall be determined by the Lessor and/or the
management company and the Lessee agrees to such amounts and
shall pay them immediately upon demand.

The Lessor and/or the management company shall be entitled,
from time to time, to change and/or cancel and/or replace the
policies and/or to issue additional insurance, all at the sole
discretion thereof.

b. The Lessee shall be liable to the Lessor for any damage or
loss caused to the Leased Premises as a result of an act or
omission on the part of the Lessee, the invitees, licensees,
customers and suppliers thereof, which are not covered or
should not have been covered had the Lessor or the management
company issued the building insurance in accordance with
clause 10(a) above, and had the Lessor or the management
company fulfilled all the undertakings thereof in accordance
with such insurance, including its undertaking to pay the
premium. The Lessee shall be liable to the Lessor for any
damage or loss caused to the person or property of any third
party on the Leased Premises or within the boundaries thereof.

Without derogating from the Lessee's liability under this
agreement and/or any law, and in addition thereto, the Lessee
undertakes to take out the following insurance, with a
lawfully authorized and reputable insurance company, at its
expense, from the date of commencement of the lease until the
end of the Term of the Lease:

1. The Lessee undertakes to insure the content of the
Leased Premises, including the furniture, equipment,
facilities and stock thereof, and any modification,
improvement, renovation and addition of any kind
performed and/or to be performed at or to the Leased
Premises, and to update the amount of the insurance
from time to time, so as to always reflect the full
value of the insured property.

2. The Lessee undertakes to insure its use of the Leased
Premises and any activity thereof at the Leased
Premises and in the Temporary Area, in employers'
liability insurance with a limit of liability no less
than that acceptable in the insurance market at the
time of issuance of the policy, and in insurance
against liability to third parties, including the
Lessor, the management company and any third party,
for an amount no less than $750,000 per incident and
$1,500,000 per period. The policy shall include a
"cross liability" clause.

<PAGE>

c. The Lessee undertakes to arrange for the content insurance to
be extended so as to include a clause of waiver of subrogation
against the Lessor, the management company and others on their
behalf, except for damage caused maliciously. With respect to
the employers' liability policy, it shall be extended so as to
cover the lawful liability of the Lessor and of the management
company in the event that they shall be deemed as employers of
the Lessee's employees. With respect to the third party
liability insurance, it shall be extended so as to cover the
liability of the Lessor and of the management company due to
an act or omission on the part of the Lessee.

d. The Lessee shall present the insurance policy to the Lessor
upon commencement of the lease and upon any renewal or
amendment of the policy at the Lessor's demand and shall
provide an insurance confirmation from the insurance company,
in the form attached hereto and constituting an integral part
hereof.

The Lessee undertakes to add to and/or update and/or amend the
insurance policies to the Lessor's satisfaction. The Lessor's
failure to demand the policies shall not be deemed as a waiver
of the Lessee's undertakings.

e. Insurance payments received shall be applied first and
foremost to repairing the damage.

f. The Lessee undertakes that the policies to be issued thereby
shall contain an explicit condition whereby the insurer
explicitly waives any right of subrogation against the Lessor
and/or anyone on its behalf, including the co-op board and/or
the management company.

g. In the event that the Lessee shall fail to fulfill the
undertaking thereof to issue insurance as set out in this
clause, the Lessor and/or the management company shall be
entitled to issue such insurance at the Lessee's expense, and
the Lessee shall be obliged to repay the Lessor, immediately
upon the demand thereof, any amount expended by the Lessor
and/or by the management company for this purpose, but the
aforesaid in this clause shall impose no obligation on the
Lessor and/or the management company to act as aforesaid.

h. During the Term of the Lease, no insurance policy shall be
revoked, for whatever cause or reason, without notice to the
Lessor at least 30 days in advance. The Lessee undertakes to
provide the Lessor with confirmations of the renewal of the
policies, 30 days prior to the date of renewal thereof, by way
of a temporary confirmation from the insurer, and after
renewal the Lessee shall provide copies of the policies.

All such insurance policies shall be valid throughout the Term
of the Lease.

<PAGE>

i. The Lessee undertakes to notify the insurance company and the
Lessor of any damage caused to the Leased Premises and/or to a
person and/or his property. Notice under this clause shall be
made by registered post and shall contain the details of the
incident and the estimated amount of the damage.

The Lessee shall further notify the Lessor of any damage which
may affect the Lessor's rights, decrease the value of the
Leased Premises or expose the Lessor to any claim.

j. The Lessee undertakes to indemnify the Lessor and/or
compensate the latter for any damage caused thereto and/or
imposed thereon due to the breach by the Lessee of the
provisions of this clause including all sub-clauses thereof
and/or due to the breach of the terms of the policies.

For the purposes of this clause, the word "damage" shall also
mean the insurance payments which the Lessor could have
received but for the circumstances causing such payments not
to be made, and any liability imposed on the Lessor including
principal, interest and indexation differences, expenses and
legal fees due to the claim of any injured party, and if the
Lessor shall have paid such liability, the Lessee undertakes
to repay the Lessor any amount paid immediately upon the
Lessor's first demand, provided that the Lessor shall have
notified the Lessee of the claim and the Lessee shall have
been given the opportunity to defend itself against it.

k. For the removal of doubt, it is clarified that the Lessee
shall bear the amounts of the co-payment.

l. The Lessee undertakes to provide to the Lessor, prior to the
commencement of the lease, the insurance annex attached to
this agreement as APPENDIX D and constituting an integral part
hereof, signed by the insurance company.

The Lessee undertakes to fill all conditions precedent to the
coverage under the insurance policies issued thereby.

11. RIGHT OF USE OF PARKING SPACES

a. Throughout the entire Term of the Lease, the Lessee shall be
entitled to use 6 fixed and marked parking spaces in the
parking lot of the Building (hereinafter: "Right of Use").

b. The Lessee shall pay a fee to the Lessor and/or the operator
of the parking lot and/or whomever shall be directed by the
Lessor for the Right of Use of such parking spaces, in the
amount of NIS 2,160 plus

<PAGE>

V.A.T. at the lawful rate thereof on the date of payment, per
month (hereinafter: the "Fee").

The Fee shall be linked to the consumer price index and shall
be paid together with the Rent under this agreement, and the
provisions of this agreement referring to the lease of the
Leased Premises and to the payment of Rent (including the base
index) shall be applicable thereto, MUTATIS MUTANDIS and
subject to the following provisions.

c. The Lessee confirms that it has been informed that the parking
lot will be operated by either the Lessor or another entity
who can operate the parking lot, INTER ALIA, as a commercial
parking lot, according to arrangements to be determined by the
Lessor at the sole discretion thereof, provided that the
Lessor's right to use the parking lot under this agreement
shall not be compromised.

The Lessee undertakes to comply with all provisions and
directives, as being from time to time, with respect to the
parking lot, in all matters concerning entry, parking, exit,
security, operation, order in the parking lot, hours of
operation etc.

d. For the removal of doubt, it is emphasized that the aforesaid
shall be regarded as the rendering of permission to park only,
and that no safekeeping relationship and/or contract either
exists or shall exist between the Lessor and/or the operator
of the parking lot and the Lessee with respect to the
rendering of the parking permission, and in no case will the
Lessor and/or the operator of the parking lot be deemed, for
this matter, as a "guard" under the Guards Law.

12. ASSIGNMENT OF THE LESSOR'S RIGHTS

The Lessor may at any time assign its rights and undertakings with
respect to the Leased Premises, in whole or in part, or its rights
under this agreement - in whole or in part - to whomever it shall deem
fit, provided that the assignee shall undertake to assume the Lessor's
undertakings to the Lessee under this agreement.

13. NON-APPLICABILITY OF TENANT PROTECTION LAWS

The Lessee declares that it is aware that no protection by the Tenant
Protection Law (Consolidated Version), 5732-1972 and the regulations
thereunder shall apply to the lease under this agreement, and that the
lease under this agreement is not protected under the said law. The
Lessee further declares that it has paid no key money, nor undertaken
to pay key money, and that no limitations on lease payments and/or Rent
shall apply to the lease under this agreement, and that this agreement
is unprotected under the law.

<PAGE>

For the removal of doubt it is emphasized that all investments to be
made by the Lessee in the Leased Premises, if any, shall be made for
the needs thereof only, and shall constitute no payment of key money or
payment under Article 82 of the Tenant Protection Law (Consolidated
Version), 5732-1972.

14. OBSERVANCE OF THE PROVISIONS OF LAWS AND AGREEMENTS

a. The Lessee shall abide by any provision in effect from time to
time, in any law or legislation, including municipal
regulations, orders and regulations, to the extent applicable
to the Leased Premises and to the business conducted thereon.

The Lessee shall refrain from any act or omission which may
violate the said provisions or constitute an offense
thereunder, and from any act or omission, the result of which
may compromise the Lessor, the reputation thereof or the
engagement under this agreement or the Lessor's engagement
with other lessees in the Building.

b. The Lessee shall ensure that the said provisions are observed
by any other user of the Leased Premises in accordance with
the terms of this agreement.

c. The Lessee undertakes to indemnify the Lessor for any damage
caused thereto and/or imposed thereon and for any liability
and/or payment it shall undertake including principal,
interest and indexation differences, and including any
liability pursuant to a judgment, expenses and legal fees due
to the breach of the provisions of this clause by the Lessee
and any user of the Leased Premises, whether the Lessor is
sued alone and/or jointly with others, within 7 days from the
day it shall be required by the Lessor to do so.

Notice of damage as set out in this clause shall be given by
the Lessor to the Lessee upon learning thereof.

15. SURRENDER AND RETURN OF POSSESSION

a. Upon expiration of the Term of the Lease under this agreement
and/or upon lawful shortening or revocation thereof by the
Lessor, the Lessee undertakes to vacate the Leased Premises
forthwith and to surrender possession thereof to the Lessor,
as per clause 8(d) above, the Leased Premises being vacant of
any person and object and in good and proper condition as
received thereby.

At the time of surrender of possession of the Leased Premises
to the Lessor, the representatives of the Lessor and of the
Lessee shall prepare a protocol recording the repairs
necessary in order to bring the Leased Premises to the
condition in which the Lessee needs to return the same to the
Lessor.

<PAGE>

The Lessee undertakes to perform all the repairs recorded in
the protocol, at its expense, within 30 days from the date of
preparation thereof.

In the event that the Lessee shall have failed to perform the
said repairs, in whole or in part, the Lessee shall be
required to pay to the Lessor the cost and/or the estimated
cost of the repairs, regardless of whether or not the Lessor
shall have actually performed the repairs.

In the event that performance of the said repairs shall extend
no later than 30 additional days beyond the Term of the Lease,
it shall not be deemed as a delay in the vacation of the
Leased Premises and such period shall be subject to the
provisions of this agreement. In the event that the
performance of the repairs shall extend beyond the said 30 day
period, it shall be deemed as a delay in vacation of the
Leased Premises and the provisions of sub-clause (b) hereunder
shall apply, MUTATIS MUTANDIS.

The aforesaid shall not derogate from any other remedy to
which the Lessor shall be entitled under this agreement and/or
any law.

b. In the event that the Lessee shall fail to vacate the Leased
Premises upon expiration of the Term of the Lease and/or upon
the lawful shortening and/or revocation of this agreement, as
aforesaid, then in addition to all remedies available to the
Lessor by law and/or under this agreement, the Lessee shall
pay the Lessor liquidated damages for each day of delay in
vacating the Leased Premises, at a rate equal to three times
the proportionate Rent due for the Leased Premises for the
period of delay, in addition to indexation differences.

The liquidated damages shall be paid to the Lessor on the
dates to be determined thereby.

16. PAYMENT IN ARREARS

Any payment or pecuniary obligation imposed on a party under this
agreement, not paid on the due date, and any payment which the Lessor
shall pay, the duty of payment of which is imposed on the Lessee, who
shall have failed to pay the same, shall be returned and repaid in
full, and until actual repayment thereof shall bear interest at the
rate of debit interest charged from time to time by Bank Hapoalim Ltd.
on the date of actual payment with respect to irregular interest
charged in debit accounts.

<PAGE>

17. SECURITIES

In order to secure all the Lessee's undertakings and various
obligations under this agreement and the Management Agreement, the
Lessee shall provide the Lessor with the following securities:

a. An autonomous, unconditioned bank guarantee by an Israeli
bank, linked to the index, in the amount of NIS 386,000 and
valid for twelve months. The guarantee shall be renewed prior
to the expiration thereof, year by year, and shall remain in
effect throughout the Term of the Lease and for 3 months after
expiration thereof (hereinafter: the "Guarantee").

The Guarantee shall be split up and delivered to the Lessor as
follows:

1. On the date of signing of this contract, the Lessee
shall provide a bank guarantee in the amount of NIS
200,000.

2. Immediately prior to the day of receipt of possession
of the Leased Premises, the Lessee shall submit the
remaining bank guarantee in the amount of NIS 186,000.

b. At the time of signing of this agreement, the Lessee shall
further provide a guarantee by the parent company, Phasecom
Inc., which shall sign on the margins of this agreement and
the form of guarantee attached to this agreement as APPENDIX F
and constituting an integral part hereof, as guarantor for all
the Lessee's undertakings herein.

c. The provision of the bank guarantee and the guarantor's
signature as aforesaid shall constitute a condition precedent
for the commencement of the lease on the date of commencement
thereof and/or for the continuation of the Term of the Lease.

The Guarantee shall be returned to the Lessee after expiration
of the Term of the Lease and after the Lessee shall have
provided the Lessor with receipts indicating its fulfillment
of all the undertakings thereof under the agreement.

18. STAMPING EXPENSES

Stamp duty due on this agreement shall be paid by the Lessee.

19. BREACHES AND REMEDIES

a. In the event that the Lessee shall breach or shall fail to
fulfill a material provision or condition listed hereunder or
shall do so through any other user - the Lessor shall be
entitled, in addition to any other remedy, to demand that the
Lessee vacate the Leased Premises forthwith and the

<PAGE>

Lessee shall be obliged to vacate the same as early as
possible, and no later than 30 (thirty) days after the date
of receipt of the demand.

b. The provisions of clauses 2, 5, 7, 10, 15 and 17 are
fundamental conditions of this agreement, as are the dates
stated therein.

c. The provisions of this clause shall not derogate from any
remedy or relief set out in other clauses of this agreement.

d. All remedies available to the Lessor under the terms of this
agreement are separate and independent and/or supplementary
and do not derogate from any remedy and/or relief, whether
lawful or contractual.

e. In addition to, and without derogating from the provisions of
this agreement, each of the following events shall also be
deemed as a fundamental breach of this agreement:

1. The passing of a resolution of voluntary dissolution
by the Lessee and/or the filing of an application for
dissolution, whether by the Lessee or by a creditor
and/or the appointment of a temporary liquidator for
the Lessee and/or the filing of an application for
receivership and/or an application to declare the
Lessee bankrupt, as the case may be.

2. The attachment of a material asset of the Lessee's by
a court or an execution office, which is not revoked
within 30 days from the date of placement thereof.

3. The foreclosure of a material asset of the Lessee's
and/or the institution of proceedings for the
foreclosure of an asset as aforesaid, by a creditor of
the Lessee's.

4. A change in the composition or rate of holdings of the
Lessee's shareholders exceeding 50%, whether at once
or in stages, save for public offerings.

The Lessee hereby undertakes to inform the Lessor immediately
upon any demand and/or application and/or upon the occurrence
of any of the events listed in clauses 1-4 above.

Notwithstanding the provisions of sub-clauses 1-4 above, the
Lessor shall take no action for 180 days from the date of
occurrence of any event under these clauses if it shall
receive a declaration from a lawyer or CPA of the Lessee
whereby the event shall not compromise the Lessee's ability to
fulfill the undertakings thereof under this agreement.

The declaration of the lawyer or the CPA shall be given, in
this case, within 7 days from the date of the Lessor's demand
from the Lessee.

<PAGE>

f. The Lessee hereby waives his right to setoff under any law.

20. The parties hereby determine that the court in Tel Aviv Jaffa shall be
the only venue in all matters relating to this agreement or resulting
therefrom.

21. ADDRESSES

The parties' addresses for the purposes of this agreement shall be as
stated in the preamble to the agreement and, from the date of
commencement of the Term of the Lease, the Lessee's address shall be at
the Leased Premises. Any notice sent by registered post to either party
at the address thereof shall be deemed to have been received 3 days
after dispatch thereof at a postal branch, and if delivered in person,
at the time of delivery thereof, and if transmitted by fax, at the time
of transmission thereof.

IN WITNESS WHEREOF, THE PARTIES HAVE HERETO SET THEIR HANDS,

/s/ /s/
- ------------------------- ---------------------------
The Lessor The Lessee

CONFIRMATION

I, the undersigned, ______________, Adv., of _______________, hereby confirm
that on ____________, appeared before me the managers of Phasecom (Israel) Ltd.
and signed this agreement in my presence, that the signature was duly made in
accordance with the company's by-laws and with the resolutions thereof and that
the signature of the said managers binds the company.

- ----------------------

<PAGE>

EXHIBIT 10.21

SECURED PROMISSORY NOTE

$249,980 Cupertino, California January 16, 2000

FOR VALUE RECEIVED, the undersigned, ERAN PILOVSKY (hereinafter the
"MAKER"), hereby promises to pay to PHASECOM, INC. (hereinafter the "PAYEE"), or
order, in Cupertino, California, or at such other place as PAYEE may from time
to time designate, in United States of America currency, the sum of Two Hundred
Forty-Nine Thousand Nine Hundred Eighty Dollars ($249,980), with interest on the
unpaid principal balance. Interest shall accrue from the date of this Note at
the rate of six percent (6.0%) per annum.

The principal amount under this Note and any accrued and unpaid
interest thereon shall be due and payable in full on the earlier to occur of (i)
January 16, 2003, or (ii) the date on which MAKER ceases to be an employee of or
consultant to the PAYEE; provided, however, that in the event that from time to
time MAKER sells, assigns, makes any short sale of, gives or otherwise transfers
any of the 200,000 shares of PAYEE's common stock securing this Note, then MAKER
shall at such time repay to PAYEE a percentage of the original principal amount
under this Note, and interest accrued on such principal, equal to the percentage
that the number of shares transferred by MAKER represents of the total of
200,000 shares securing this Note: for example, if MAKER transfers 10%, or
20,000, of the 200,000 shares, then MAKER shall repay to PAYEE 10% of the
principal under this Note, or $24,998, plus interest accrued thereon.

The MAKER shall have the right to prepay all or any part of the unpaid
principal of this Note from time to time without any penalty or premium,
provided that any such prepayments shall be applied first against any accrued
interest, and then against principal.

In the event of default in the payment of any installment of principal
or interest for more than thirty (30) days after such comes due, the entire
outstanding balance of principal and interest shall become immediately due and
payable at the option of the holder of this Note.

If a party breaches this Note, the breaching party shall pay all costs
and attorneys' fees incurred by the other party in connection with such breach,
whether or not any litigation is commenced.

All principal and interest hereunder shall be secured by Two Hundred
Thousand (200,000) shares of PAYEE=s common stock owned by MAKER pursuant to the
terms and conditions of a Pledge Agreement entered into on even date herewith by
and between MAKER and PAYEE.

Consent by the PAYEE to waive one default shall not be deemed to be a
waiver of the right to require consent to waive future or successive defaults.

This Note shall be governed as to its construction, interpretation and
enforcement and in all other respects by the laws of the State of California
without regard to the conflicts of laws provisions thereof.

This Note shall not be modified, amended or canceled except in writing
by the MAKER and PAYEE or other assignee of this Note.

<PAGE>

The MAKER waives demand, presentment, protest, notice of nonpayment,
notice of protest and any and all lack of diligence or delays which may occur in
the collection of this Note.

IN WITNESS WHEREOF, the MAKER has caused this Note to be duly executed
in Cupertino, California.

/S/ ERAN PILOVSKY
-------------------------------
ERAN PILOVSKY

<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 Amendment No. 3 to the
Registration Statement (Form S-1) and related Prospectus of Vyyo Inc.

/s/ ERNST & YOUNG LLP

San Jose, California
March 21, 2000