<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 7, 2000
REGISTRATION STATEMENT NO. 333-96129
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
VYYO INC.
(Exact name of Registrant as specified in its charter)
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<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 Shelly E. Wharton, Esq.
525 University Avenue, Suite 220 1999 Harrison Street, Suite 1300 Brobeck, Phleger & Harrison, LLP
Palo Alto, California 94301 Oakland, California 94612 One Market, Spear Street Tower,
(650) 470-4500 (510) 273-8750 San Francisco, California 94105
(415) 442-0900
</TABLE>
--------------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 of the Securities Act of
1933, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
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>
The information in this prospectus is not complete and may be changed without
notice. We may not sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This prospectus is not
an offer to sell these securities and we are not soliciting offers to buy these
securities in any state where the offer or sale is not permitted.
<PAGE>
Prospectus (not complete)
Issued March 7, 2000
4,250,000 SHARES
VYYO INC.
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 $18
and $20 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.
---------------------
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<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 637,500 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.]
- Point-to-multipoint wireless hubs are located in base stations and send
and receive data traffic to and from up to 8,000 wireless subscriber
modems at very high speeds.
- Network management system software manages the traffic transmitted over
our broadband wireless system.
- Wireless modems connected to PCs or LANs are located in residences,
small/home offices and medium-sized businesses and send and receive data
traffic and provide access to the Internet.
- Our wireless hub interfaces with a router located in the base station that
sends data traffic to the Internet and, in the future, will send voice
traffic to the gateway which connects with the public telephone network.
- System integrators or service providers combine our systems with
additional network equipment, such as an antennae to transmit wireless
radio frequency signals, and complete the network infrastructure.
<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTION WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK.
TABLE OF CONTENTS
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<CAPTION>
PAGE
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<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 5
Cautionary Note on Forward-Looking Statements............... 21
Use of Proceeds............................................. 23
Dividend Policy............................................. 23
Capitalization.............................................. 24
Dilution.................................................... 25
Selected Consolidated Financial Data........................ 26
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 27
Business.................................................... 34
Management.................................................. 50
Certain Relationships and Related Transactions.............. 66
Principal Stockholders...................................... 74
Description of Capital Stock................................ 77
Shares Eligible for Future Sale............................. 80
Underwriting................................................ 82
Legal Matters............................................... 86
Experts..................................................... 86
Available Information....................................... 86
Index to 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 telecommunications
service providers to deliver wireless, high-speed data connections to business
and residential subscribers. 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 systems utilize point-to-multipoint architecture, which
refers to the ability of a wireless hub to transmit and receive network traffic
to and from multiple subscriber modems. 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 our second-generation system has been commercially deployed at one
domestic site.
Internet and data network traffic growth has created demand for
cost-effective, high-speed communications, as subscribers increasingly rely on
content-rich applications and remote access to data networks. In the United
States and abroad, the communications industry is in varying stages of
deregulation, which has created the opportunity for new competitors to offer
multiple communications services directly to subscribers. There are a number of
wire-based technologies that 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, 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 current
market coverage or to enter new markets while avoiding the limitations of the
existing wire-based infrastructure.
Our system is deployed in point-to-multipoint applications at radio
frequencies commonly referred to as the local multipoint distribution system, or
LMDS, and the multichannel multipoint distribution system, or MMDS, for two-way
broadband communication. Our system, which is based on the cable industry's Data
Over Cable Service Integration Specification, or DOCSIS standard, consists of a
wireless hub, which serves as a point of convergence for data traffic in a
network, and subscriber
1
<PAGE>
wireless modems. Each wireless hub is located at a base station, which houses
the components in the network. Each hub transmits, receives and manages network
traffic to and from our wireless modems, which are installed at multiple
subscriber locations. We sell our systems directly to service providers and
system integrators, who provide network planning and integration services and
integrate our systems with other components to provide their customers with
end-to-end network solutions.
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 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 $36.2 million in 1999. As of December 31, 1999, our accumulated
deficit was approximately $58.7 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
<PAGE>
THE OFFERING
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<S> <C>
Common stock offered by Vyyo......... 4,250,000 shares
Common stock to be outstanding after
this offering...................... 22,214,857 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:
- 2,631,829 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 $1.31 per share;
- 409,639 shares of common stock issued from January 1, 2000 through
February 29, 2000 upon the exercise of stock options issued under our
option plans;
- 2,920,096 additional shares of common stock reserved as of February 29,
2000 for issuance under our stock option plans;
- 500,000 shares of common stock initially reserved for issuance under our
employee stock purchase plan; and
- 125,190 shares of common stock issuable as of December 31, 1999 upon the
exercise of outstanding warrants with a weighted average exercise price of
$1.89 per share.
---------------------
EXCEPT AS OTHERWISE INDICATED, INFORMATION IN THIS PROSPECTUS ASSUMES THE
FOLLOWING:
- THE AMENDMENT AND RESTATEMENT OF OUR CERTIFICATE OF INCORPORATION;
- THE CONVERSION OF ALL OUTSTANDING SHARES OF PREFERRED STOCK INTO 2,629,702
SHARES OF COMMON STOCK;
- THE 1-FOR-5 REVERSE STOCK SPLIT EFFECTED ON JANUARY 3, 2000; AND
- NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION.
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............... -- -- 7,700
------- ------- --------
Total operating expenses.................................... 5,082 7,028 15,498
------- ------- --------
Operating loss.............................................. (5,101) (7,147) (15,584)
Charge for amended financing arrangements................. -- -- (19,861)
Interest and other income (expense), net.................. (244) (524) (717)
------- ------- --------
Net loss.................................................... $(5,345) $(7,671) $(36,162)
======= ======= ========
Net loss per share:
Basic and diluted......................................... $ (8.86) $ (8.15) $ (6.72)
======= ======= ========
Pro forma basic and diluted (unaudited)................... $ (5.35)
========
Shares used in per share computations:
Basic and diluted......................................... 603 941 5,385
======= ======= ========
Pro forma basic and diluted (unaudited)................... 6,758
========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------
PRO FORMA
ACTUAL AS ADJUSTED
-------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $5,036 78,534
Working capital............................................. 210 73,708
Total assets................................................ 8,363 81,861
Long-term obligations, net of current portion............... -- --
Total stockholders' equity.................................. 1,305 74,803
</TABLE>
This balance sheet data is presented on a pro forma as adjusted basis to
give effect to:
- the conversion of all outstanding shares of preferred stock into shares of
common stock upon the closing of this offering; and
- the sale of the shares of common stock in this offering at the assumed
initial public offering price of $19 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 broadband point-to-multipoint wireless access
systems in the first quarter of 1999. Product revenues recognized in 1999 relate
to sales of both cable and wireless modem products. All of our product revenues
in 1998 and 1997 relate to sales of cable modem products that we are no longer
developing. Therefore, the success of our business will be entirely dependent
upon the success of our wireless products. We have a very limited operating
history in the broadband point-to-multipoint wireless access market upon which
to evaluate our future prospects, and the revenue and income potential of our
business and market are unproven. Our limited operating history in this market
may limit your ability to evaluate our prospects due to:
- our limited historical financial data from our wireless products;
- our unproven potential to generate profits; and
- our limited experience in addressing emerging trends that may affect our
business.
As a young company, we face risks and uncertainties relating to our ability
to implement our business plan successfully. You should consider our prospects
in light of the risks, expenses and difficulties we may encounter.
WE HAVE A HISTORY OF LOSSES, EXPECT FUTURE LOSSES AND MAY NEVER ACHIEVE OR
SUSTAIN PROFITABILITY.
We have incurred significant losses since our inception, and we expect to
continue to incur net losses for the foreseeable future. We incurred net losses
of approximately $36.2 million in 1999. As of December 31, 1999, our accumulated
deficit was approximately $58.7 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, 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.
5
<PAGE>
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. Because of the variations which
we have experienced in our quarterly operating results, we do not believe that
period-to-period comparisons of our results of operations are meaningful or
should be relied upon as indicators of future performance. In addition, our
operating results may be below the expectations of investors in future periods.
Our failure to meet these expectations will likely cause our share price to
decline.
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 of the components we purchase or license.
Our operating results will also fluctuate based upon our ability to obtain
new and retain existing customers that adopt and implement our systems. More
specifically, our results will vary based upon:
- the size, timing and shipment of orders for our systems, especially large
orders from some of our customers;
- our customers' ability to forecast their needs and manage their inventory
positions accurately; and
- delays in delivery by the subcontractors, many of whom are overseas, that
manufacture our system components.
In addition, a delay in the recognition of revenue, even from one customer, may
have a significant negative impact on our results of operations for a given
period. We have experienced such delays in the past, and our results of
operations for those periods were negatively impacted. Also, because only a
small portion of our expenses vary with our revenues, if revenue levels for a
quarter fall below our expectations, we will not be able to timely adjust
expenses accordingly, which would harm our operating results in that period.
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
6
<PAGE>
market segments will develop or expand. We have recently invested and expect to
continue to invest significant time and resources in the development of new
products for this market. In the event that service providers adopt technologies
other than the high-speed access and other wireless technologies that we offer,
we will not be able to sustain or expand our business.
Service providers continually evaluate alternative technologies, including
digital subscriber line, fiber, cable, satellite and point-to-point wireless.
The failure of service providers to accept our products would seriously harm our
business.
WE DEPEND ON ONE SYSTEM INTEGRATOR FOR A SIGNIFICANT PORTION OF OUR REVENUES AND
IF THIS SYSTEM INTEGRATOR DOES NOT PROMOTE OR PURCHASE OUR PRODUCTS, OUR
BUSINESS WILL BE SERIOUSLY HARMED.
We 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
7
<PAGE>
that we are no longer developing. Accordingly, we do not anticipate recognizing
material amounts of revenue from these products in the future. Revenues
attributable to Philips Semiconductor relate to a joint technology development
arrangement that we expect to complete in 2000 and no similar arrangements are
contemplated.
We expect that we will continue to depend on a relatively limited number of
customers for a substantial portion of our revenues in future periods. The loss
of a major customer or the reduction, delay or cancellation of orders from one
or more of our customers could seriously harm our ability to sustain revenue
levels, which would seriously harm our operating results.
COMPETITION MAY DECREASE OUR MARKET SHARE, NET REVENUES AND GROSS MARGINS, WHICH
MAY CAUSE OUR STOCK PRICE TO DECLINE.
The market for broadband access systems is intensely competitive, rapidly
evolving and subject to rapid technological change. The principal competitive
factors in this market include:
- product performance and features;
- price of competitive products;
- reliability and stability of operation;
- ability to develop and implement new services and technologies;
- ability to support newly allocated frequencies; and
- sales capability, technical support and service.
Many of our competitors and potential competitors have substantially greater
financial, technical, distribution, marketing and other resources than we have
and, therefore, may be able to respond more quickly to new or changing
opportunities, technologies and other developments. In addition, many of our
competitors have longer operating histories, greater name recognition and
established relationships with system integrators and service providers. These
competitors may also be able to undertake more extensive marketing campaigns,
adopt more aggressive pricing policies and devote substantially more resources
to developing new products. Our primary competitor is Hybrid Networks, Inc. In
addition, well-capitalized companies such as Cisco Systems, Lucent Technologies,
Nortel Networks, Newbridge Networks and other vendors have announced plans to
enter, or are potential entrants into, the broadband wireless market. These
vendors have been attracted by recent investments by MCI WorldCom, Sprint and
other service providers in wireless operations. Most of these competitors have
existing relationships with one or more of our prospective customers.
We also face competition from technologies such as digital subscriber line,
fiber, cable, satellite and point-to-point wireless. We may not be able to
compete
8
<PAGE>
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 systems in required volumes, we would have to
identify qualified alternative manufacturers, which would result in delays that
could cause our results of operations to suffer. Our limited experience with
these manufacturers does not provide us with a reliable basis on which to
project their ability to meet delivery schedules, yield targets or costs. If we
are required to find alternative manufacturing sources, we may not be able to
satisfy our production requirements at acceptable prices and on a timely basis,
if at all. Any significant interruption in supply would affect the allocation of
systems to customers, which in turn could seriously harm our business.
WE OBTAIN SOME OF THE COMPONENTS INCLUDED IN OUR SYSTEMS FROM A SINGLE SOURCE OR
A LIMITED GROUP OF SUPPLIERS, AND THE LOSS OF ANY OF THESE SUPPLIERS COULD CAUSE
PRODUCTION DELAYS AND A SUBSTANTIAL LOSS OF REVENUE.
We currently obtain key components from a limited number of suppliers. Some
of these components, such as semiconductor components for our hubs, are obtained
from a single source supplier. We generally do not have long-term supply
contracts with our suppliers. These factors present us with the following risks:
- delays in delivery or shortages in components could interrupt and delay
manufacturing and result in cancellation of orders for our systems;
- suppliers could increase component prices significantly and with immediate
effect;
9
<PAGE>
- 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.
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.
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To manage growth effectively, we must, among other things:
- improve and expand our information and financial systems, and managerial
procedures and controls;
- hire, train, manage and retain qualified employees; and
- effectively manage relationships with our customers, suppliers and other
third parties.
We may not have made adequate allowances for the costs and risks associated
with this expansion, our systems, procedures or controls may not be adequate to
support our operations, and our management may be unable to offer and expand our
product categories successfully. Any delay in implementing, or transitioning to,
new or enhanced systems, procedures or controls may seriously harm our ability
to record and report financial and management information on a timely and
accurate basis or otherwise manage our expanding operations. If we are unable to
do so effectively, our business may be seriously harmed.
BECAUSE WE OPERATE IN INTERNATIONAL MARKETS, WE ARE EXPOSED TO ADDITIONAL RISKS
WHICH COULD CAUSE OUR INTERNATIONAL SALES TO DECLINE AND OUR FOREIGN OPERATIONS
TO SUFFER.
Sales outside of North America accounted for approximately 39% of our
revenues in 1999 and 55% of our revenues in 1998. We expect that international
sales will continue to account for a significant portion of our revenues. In
addition, we maintain research and development facilities in 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
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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 six months. As a result, our senior management team has had a limited
time to work together. If they are unable to work together effectively to manage
our organization as a public company, our business may be seriously harmed.
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.
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.
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THIRD PARTIES MAY BRING INFRINGEMENT CLAIMS AGAINST US WHICH COULD HARM OUR
ABILITY TO SELL OUR PRODUCTS AND RESULT IN SUBSTANTIAL LIABILITIES.
From time to time, third parties, including our competitors, may assert
patent, copyright and other intellectual property rights to technologies that
are important to us. We expect that we will increasingly be subject to license
offers and infringement claims as the number of products and competitors in our
market grows and the functionality of products overlaps. In this regard, in
early 1999, we received a written notice from Hybrid Networks in which Hybrid
claimed to have patent rights in certain technology. Hybrid requested that we
review our products in light of six of Hybrid's issued patents.
We are investigating Hybrid's claims and we currently believe the patents
are invalid or are not infringed by our products. However, others patents,
including Hybrid's, may be determined to be valid, or some or all of our
products may ultimately be determined to infringe the Hybrid patents or those of
other companies. Hybrid or other companies may pursue litigation with respect to
these or other 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, cease the manufacture, use and sale of
infringing products or expend significant resources to develop non-infringing
technology. Licenses may not be available from third parties, including Hybrid,
either on commercially reasonable terms or at all. In addition, litigation
frequently involves substantial expenditures and can require significant
management attention, even if we ultimately prevail. Accordingly, any
infringement claim or litigation against us could significantly harm our
business, operating results and financial condition.
IF WE FAIL TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY, WE MAY NOT BE ABLE
TO COMPETE.
Our success depends in part on our ability to protect our proprietary
technologies. We rely on a combination of patent, copyright and trademark laws,
trade secrets and confidentiality and other contractual provisions to establish
and protect our proprietary rights. 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.
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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 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
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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;
- 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.
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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 incur substantial compliance costs and seriously harm
our business. Our systems must conform to a variety of domestic, foreign and
international regulatory requirements established to, among other things, avoid
interference among users of radio frequencies and permit interconnection of
equipment. Regulatory bodies worldwide have adopted and are adopting or revising
standards for wireless communications products.
Radio frequencies are subject to extensive regulation under the laws of the
United States, foreign laws and international treaties. Each country has
different regulations and regulatory processes for wireless communications
equipment and uses of radio frequencies. The regulatory environment in which we
operate is subject to significant change, the results and timing of which are
uncertain. 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.
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 and enhancements, or more stringent
export control requirements could seriously harm our business.
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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.
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 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;
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- changes in financial estimates or recommendations by securities analysts;
- changes in the market valuations of our competitors;
- announcements by us or our competitors of significant acquisitions or
partnerships; and
- sales of our common stock.
Many of these factors are beyond our control and may negatively impact the
market price of our common stock, regardless of our performance. In addition,
the stock market in general, and the market for technology companies in
particular, has been highly volatile. Our common stock may not trade at the same
levels of shares as that of other technology companies and shares of technology
companies, in general, may not sustain their current market prices. In the past,
securities class action litigation has often been brought against a company
following periods of volatility in the market price of its securities. We may be
the target of similar litigation in the future. Securities litigation could
result in substantial costs and divert management's attention and resources,
which could seriously harm our business and operating results.
OUR MANAGEMENT HAS BROAD DISCRETION IN USING THE PROCEEDS FROM THIS OFFERING,
WHICH MIGHT NOT BE USED IN WAYS THAT IMPROVE OUR OPERATING RESULTS OR INCREASE
OUR MARKET VALUE.
Our management will have broad discretion as to how the net proceeds of this
offering will be used, including uses which may not improve our operating
results or increase our market value. 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;
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- super-majority voting will be required to amend key provisions of our
certificate of incorporation and by-laws;
- there will be limitations on who can call special meetings of
stockholders;
- stockholders will not be able take action by written consent; and
- advance notice will be required for nominations of directors and for
stockholder proposals.
In addition, provisions of Delaware law and our stock option plans may also
discourage, delay or prevent a change of control or unsolicited acquisition
proposals.
FUTURE SALES OF OUR COMMON STOCK COULD DEPRESS OUR STOCK PRICE.
We cannot predict if future sales of our common stock, or the availability
of our common stock for sale, will depress the market price for our common stock
or our ability to raise capital by offering equity securities. Sales of
substantial amounts of common stock, or the perception that these sales could
occur, may depress prevailing market prices for the common stock.
After this offering, approximately 22,214,857 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........................................ 16,231,195
At various times thereafter upon expiration of applicable
holding periods......................................... 1,733,662
</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."
RISKS RELATING TO OUR LOCATION IN ISRAEL
CONDITIONS IN ISRAEL AFFECT OUR OPERATIONS AND MAY LIMIT OUR ABILITY TO PRODUCE
AND SELL OUR SYSTEMS.
Our final testing and assembly and research and development facilities are
located in Israel. Political, economic and military conditions in Israel
directly affect our operations. Since the establishment of the State of Israel
in 1948, a number of armed conflicts have taken place between Israel and its
Arab neighbors and a state of hostility, varying in degree and intensity, has
led to security and economic problems for Israel. We could be adversely affected
by any major hostilities involving Israel, the
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interruption or curtailment of trade between Israel and its trading partners, a
significant increase in inflation, or a significant downturn in the economic or
financial condition of Israel. Despite the progress towards peace between Israel
and its Arab neighbors, the future of these peace efforts is uncertain.
Moreover, several countries still restrict business with Israel and with Israeli
companies. We could be adversely affected by restrictive laws or policies
directed towards Israel or Israeli businesses.
Some of our directors, officers and employees are currently obligated to
perform annual reserve duty and are subject to being called to active duty at
any time under emergency circumstances. Our business cannot assess the full
impact of these requirements on our workforce or business if conditions should
change and we cannot predict the effect on us of any expansion or reduction of
these obligations.
BECAUSE SUBSTANTIALLY ALL OF OUR REVENUES ARE GENERATED IN U.S. DOLLARS WHILE A
PORTION OF OUR EXPENSES ARE INCURRED IN NEW ISRAELI SHEKELS, OUR RESULTS OF
OPERATIONS MAY BE SERIOUSLY HARMED IF THE RATE OF INFLATION IN ISRAEL EXCEEDS
THE RATE OF DEVALUATION OF THE NEW ISRAELI SHEKEL AGAINST THE U.S. DOLLAR.
We generate substantially all of our revenues in U.S. dollars, but we incur
a substantial portion of our expenses, principally salaries and related
personnel expenses related to research and development, in New Israeli shekels,
or NIS. As a result, we are exposed to the risk that the rate of inflation in
Israel will exceed the rate of devaluation of the NIS in relation to the dollar
or that the timing of this devaluation lags behind inflation in Israel. If the
dollar costs of our operations in Israel increase, our dollar-measured results
of operations will be seriously harmed.
THE GOVERNMENT PROGRAMS AND BENEFITS WE RECEIVE REQUIRE US TO SATISFY PRESCRIBED
CONDITIONS. THESE PROGRAMS AND BENEFITS MAY BE TERMINATED OR REDUCED IN THE
FUTURE, WHICH WOULD INCREASE OUR COSTS AND TAXES AND COULD SERIOUSLY HARM OUR
BUSINESS.
Several of our capital investments have been granted "approved enterprise"
status under Israeli law. The portion of our income derived from our approved
enterprise program will be exempt from tax for a period of four years commencing
in the first year in which we have taxable income, and we will be subject to a
reduced tax rate for the remaining term of the programs. The benefits available
to an approved enterprise are conditioned upon the fulfillment of conditions
stipulated in applicable law and in the specific certificate of approval. If we
fail to comply with these conditions, in whole or in part, we may be required to
pay additional taxes for the period in which we benefitted from the tax
exemption or reduced tax rates and would likely be denied these benefits in the
future. From time to time, the Government of Israel has discussed reducing or
eliminating the benefits available under the approved enterprise program. These
tax benefits may not be continued in the future at their current levels or at
all. This termination or reduction of these benefits would increase our taxes
and could seriously harm our business.
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In the past, we received grants from the government of Israel for the
financing of a portion of our research and development expenditures in Israel.
One of the conditions to the receipt of these grants is that we pay royalties to
the government on revenues derived from the sale of products and services
resulting from the research and development funded by these grants. If we fail
to comply with these conditions, we could be required to refund any payments
previously received together with interest and penalties. In addition, the
regulations under which we received these grants restrict our ability to
manufacture products or transfer technology outside of Israel for products
developed with this technology. If the Office of the Chief Scientist of the
Ministry of Industry and Trade of the Government of Israel consents to the
manufacture of products outside of Israel, we may be required to pay increased
royalties, ranging from 120% to 300% of the amount of the Chief Scientist grant,
depending on the percentage of foreign manufacture. We believe that most of our
current products are not based on Chief Scientist funded technology and
therefore are not subject to this restriction. Some of the manufacturing of our
current products is performed by subcontractors outside of Israel. If the
government of Israel were to determine that the products which are currently
manufactured outside of Israel must be manufactured in Israel, our business
would be harmed.
IT MAY BE DIFFICULT TO ENFORCE A U.S. JUDGMENT AGAINST US AND OUR NONRESIDENT
OFFICERS, DIRECTORS AND EXPERTS.
Our Chief Technology Officer, one of our directors and some of the experts
named in this prospectus are nonresidents of the United States, and a
substantial portion of our assets and the assets of these persons are located
outside the United States. Therefore, it may be difficult to enforce a judgment
obtained in the United States based upon the civil liabilities provisions of the
United States federal securities laws against us or any of those persons or to
effect service of process upon these persons in the United States.
CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS
Some of the matters discussed under the captions "Prospectus Summary," "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business" and elsewhere in this prospectus include
forward-looking statements. We have based these forward-looking statements on
our current expectations and projections about future events, including, among
other things:
- implementing our business strategy;
- attracting and retaining customers and employees;
- obtaining and expanding market acceptance of the products we offer 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
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- 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.
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USE OF PROCEEDS
We estimate that we will receive net proceeds from the sale of shares of our
common stock in this offering of approximately $73.5 million, or $84.8 million
if the underwriters exercise their over-allotment option in full, based upon an
assumed offering price of $19 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.
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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 $19 per share after deducting the underwriting
discounts and commissions and estimated offering expenses.
This information should be read in conjunction with our consolidated
financial statements and the related notes and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" appearing elsewhere
in this prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Bank line of credit......................................... $ 2,280 $ 2,280 $ 2,280
======== ======== ========
Stockholders' equity:
Convertible preferred stock, $0.001 par value at amounts
paid in; 100,000,000 shares authorized, 11,564,269
shares issued and outstanding, actual; no shares issued
and outstanding pro forma; 5,000,000 shares authorized,
no shares issued and outstanding pro forma as
adjusted................................................ $ 15,369 $ -- $ --
Common stock, $0.0001 par value at amounts paid in;
200,000,000 shares authorized, 15,335,155 shares issued
and outstanding, actual; 17,964,857 shares issued and
outstanding pro forma; 22,214,857 shares issued and
outstanding, pro forma as adjusted...................... 55,873 71,242 144,740
Note receivable from stockholder.......................... (920) (920) (920)
Deferred compensation..................................... (10,300) (10,300) (10,300)
Accumulated deficit....................................... (58,717) (58,717) (58,717)
-------- -------- --------
Total stockholders' equity.................................. 1,305 1,305 74,803
-------- -------- --------
Total capitalization........................................ $ 1,305 $ 1,305 $ 74,803
======== ======== ========
</TABLE>
The shares of common stock outstanding in the actual, pro forma and pro
forma as adjusted columns exclude:
- 2,631,829 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 $1.31 per share;
- 409,639 shares of common stock issued from January 1, 2000 through
February 29, 2000 upon the exercise of stock options issued under our
option plans;
- 2,920,096 additional shares of common stock reserved as of February 29,
2000 for issuance under our stock option plans;
- 500,000 shares of common stock initially reserved for issuance under our
employee stock purchase plan; and
- 125,190 shares of common stock issuable as of December 31, 1999 upon the
exercise of outstanding warrants with a weighted average exercise price of
$1.89 per share.
24
<PAGE>
DILUTION
Our pro forma net tangible book value as of December 31, 1999 was
approximately $1.3 million, or $0.07 per share of common stock. Pro forma net
tangible book value per share represents the amount of total tangible assets
less total liabilities, divided by 17,964,857, the number of shares of common
stock treated as outstanding on a pro forma basis after giving effect to the
conversion of the preferred stock. After giving effect to the sale of the shares
of common stock offered in this offering at the assumed public offering price,
our pro forma net tangible book value at December 31, 1999 would have been $74.8
million, or $3.37 per share. This represents an immediate increase in net pro
forma tangible book value to existing stockholders of $3.30 per share and an
immediate dilution of $15.63 per share to new investors. The following table
illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share:............ $ 19
------
Pro forma net tangible book value per share before this
offering as of December 31, 1999........................ $0.07
-----
Increase per share attributable to new investors.......... 3.30
-----
Pro forma net tangible book value per share after this
offering.................................................. 3.37
------
Dilution per share to new investors......................... $15.63
======
</TABLE>
The following table summarizes on a pro forma basis, after giving effect to
the conversion of the preferred stock, the total number of shares of common
stock purchased from us, the total consideration paid to us and the average
price per share paid by existing stockholders and by new investors, in each case
based upon the number of shares of common stock outstanding as of December 31,
1999.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ----------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- -------- ------------ -------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders..................... 17,964,857 80.9% $ 33,381,000 29.2% $1.86
New investors............................. 4,250,000 19.1 80,750,000 70.8 19.00
---------- ----- ------------ -----
Total................................... 22,214,857 100.0% $114,131,000 100.0% $5.14
========== ===== ============ =====
</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 78.6% 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
4,887,500, or 21.4% 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
2,631,829 shares of common stock as of February 29, 2000 at a weighted average
exercise price of $1.31 per share, 409,639 shares of common stock issued from
January 1, 2000 through February 29, 2000 upon the exercise of stock options
issued under our option plans, and warrants outstanding to purchase
125,190 shares of common stock at a weighted average exercise price of
$1.89 per share. To the extent that any of these options or warrants are
exercised, there will be further dilution to the new investors.
25
<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........ -- -- -- -- 7,700
------- ------- ------- ------- --------
Total operating expenses....................... 2,030 3,553 5,082 7,028 15,498
------- ------- ------- ------- --------
Operating loss................................. (1,929) (3,971) (5,101) (7,147) (15,584)
Charge for amended financing arrangements.... -- -- -- -- (19,861)
Interest and other income (expense), net..... (750) (131) (244) (524) (717)
------- ------- ------- ------- --------
Net loss....................................... $(2,679) $(4,102) $(5,345) $(7,671) $(36,162)
======= ======= ======= ======= ========
Net loss per share:
Basic and diluted............................ $ (8.86) $ (8.15) $ (6.72)
======= ======= ========
Pro forma basic and diluted (unaudited)...... $ (5.35)
========
Shares used in per share computations:
Basic and diluted............................ 603 941 5,385
======= ======= ========
Pro forma basic and diluted (unaudited)...... 6,758
========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.......................... $ 695 $1,459 $ 510 $ 131 $5,036
Working capital (deficiency)....................... (658) 785 (4,497) (10,581) 210
Total assets....................................... 2,309 3,074 2,976 3,380 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>
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
We are a leading global provider of broadband wireless access systems used
by telecommunications service providers to deliver wireless, high-speed data
connections to business and residential subscribers. We sell our systems
directly to service providers, as well as to system integrators that deploy our
systems as part of their end-to-end network solutions for service providers. We
have incurred significant losses since our inception, and we expect to continue
to incur net losses for the foreseeable future. We incurred net losses of
approximately $36.2 million for the year ended December 31, 1999. As of
December 31, 1999, our accumulated deficit was approximately $58.7 million.
We were incorporated in 1996 in Delaware and succeeded to the business of
PhaseCom Ltd., an Israeli company, under a reorganization. As a result,
PhaseCom Ltd. became our wholly-owned subsidiary. Prior to our introduction of
broadband wireless access systems, we developed and marketed cable broadband
communication systems. Our first-generation broadband wireless system was
commercially deployed during the first quarter of 1999 for the local multipoint
distribution system, or LMDS, and the multichannel multipoint distribution
system, or MMDS, frequency bands. Our second-generation broadband wireless
access system was commercially deployed during the first quarter of 2000 for the
LMDS and MMDS frequency bands. Our 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.
27
<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. Product revenues recognized in 1999 relate to sales of cable
and wireless products. All of the product revenues in 1998 and 1997 relate to
sales of cable products that we are no longer developing. Accordingly, the
success of our business will be entirely dependent upon the success of our
wireless products. We do not anticipate recognizing material amounts of revenue
from cable products in subsequent periods. Technology development revenues were
$480,000 in 1999. There were of 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 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.
28
<PAGE>
Prior to 1997, we participated in several Israeli government research and
development incentive programs under which we received research and development
participation of approximately $3.7 million. We are obligated to pay royalties
at rates that generally range from 2.5% to 3% of revenues resulting from the
funded projects up to maximum amounts of 100% or 150% of the funded amount. As
of December 31, 1999, we had repaid or provided for the repayment of grants
amounting to $651,000. As we currently 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.
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
29
<PAGE>
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 $7.7 million in 1999. We currently expect to record amortization of
deferred stock compensation expense of approximately $6.3 million in 2000, $2.5
million in 2001 and $1.5 million thereafter for options issued through
December 31, 1999, and to record additional expenses for options granted
subsequent to that date.
CHARGE FOR AMENDMENT FINANCING ARRANGEMENT. Charge for amendment financing
arrangement represents the aggregate differences between the amended note
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 $6 million of United States federal
and state net operating loss carryforwards. The Israeli net operating loss
carryforwards have no expiration date. The United States net operating loss
carryforwards expire in various amounts between the years 2004 and 2019. We have
provided a full valuation allowance against our net deferred tax assets as the
future realization of the tax benefit is not sufficiently assured.
QUARTERLY RESULTS OF OPERATIONS
The table below sets forth statement of operations data for each of the four
consecutive quarters for the year ended December 31, 1999. This information has
been derived from our unaudited consolidated financial statements. 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 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
30
<PAGE>
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........... -- 400 200 7,100
------ ------ ------ --------
Total operating expenses.......................... 1,592 2,059 2,213 9,634
------ ------ ------ --------
Operating loss.................................... (1,514) (2,182) (2,214) (9,674)
Charge for amended financing arrangements....... -- -- (5,179) (14,682)
Interest and other income (expense), net........ (198) (195) (163) (161)
------ ------ ------ --------
Net loss.......................................... (1,712) (2,377) (7,556) (24,517)
====== ====== ====== ========
</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 and equity. As of December 31, 1999,
we had cash and cash equivalents of approximately $5.0 million.
Cash used by operations include expenditures associated with development
activities and marketing efforts related to commercialization of our products.
In 1999, cash used in operations was $6.2 million comprised of our net loss of
$36.2 million, increase in accounts receivable of $336,000, partially offset by
a decrease in inventories of $512,000 and increase in accounts payable and
accrued liabilities of $1.5 million. In 1998, cash used in operations was
$6.7 million comprised of our net
31
<PAGE>
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 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 commencing in the first year in which the
Israeli subsidiary will have taxable income,
32
<PAGE>
provided that we do not distribute such income as a dividend, and a reduced tax
rate of 10 to 15% for up to six subsequent years. All of these tax benefits are
subject to various conditions and restrictions. There can be no assurance that
we will obtain approval for additional Approved Enterprises Programs or that the
provisions of the law will not change. Since we have incurred tax losses through
December 31, 1999, we have not yet used the tax benefits for which we are
eligible.
YEAR 2000 ISSUES
We currently are not aware of any Year 2000 problem in any of our critical
systems and products. However, the success to date of our Year 2000 efforts
cannot guarantee that a Year 2000 problem affecting third parties upon which we
rely will not become apparent in the future, 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.
33
<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, and subscriber wireless modems. Each
wireless hub is located at a base station, which houses the components in the
network. Our system is
34
<PAGE>
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 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
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 systems had been commercially deployed at
21 domestic and international sites and our second-generation systems had been
commercially deployed at one domestic site.
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 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
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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.
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,
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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
systems use our enhanced version of the cable industry's Data Over Cable Service
Integration Specification, or DOCSIS, standard, which also contributes to the
cost-effectiveness of our systems and is explained in more detail in the point
below.
DOCSIS-BASED SYSTEMS. We use our enhanced version of the DOCSIS standard,
which we call DOCSIS(+), in our 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 systems have been commercially deployed at
21 domestic and international sites and our second-generation has been
commercially deployed at one domestic site.
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
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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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PRODUCTS
Our systems are deployed in point-to-multipoint applications at the
frequencies licensed for these applications. Our system is comprised of wireless
hubs and wireless subscriber modems.
The following diagram depicts our broadband wireless access system:
[GRAPHIC]
- Point-to-multipoint wireless hubs are located in base stations and send
and receive data traffic to and from up to 8,000 wireless subscriber
modems at very high speeds. Our network management system manages and
controls the traffic transmitted over our broadband wireless system.
- Our wireless modems connected to PCs or LANs are located in residences,
small/home offices, and medium-sized businesses. These modems send and
receive data traffic and provide access to the Internet.
- Our wireless hub interfaces with a router located in the base station that
sends data traffic to the Internet and, in the future, 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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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 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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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.
Product revenues recognized in 1999 relate to sales of cable and wireless
modem products. All of our product revenues in 1998 and 1997 relate to sales of
cable modem products that we are no longer developing. We do not expect to
recognize material amounts of revenue from cable modem products in subsequent
periods. Accordingly, the success of our business will be entirely dependent
upon the success of our wireless products described above.
TECHNOLOGY
Our experience in designing shared bandwidth communications systems using
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 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
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.
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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.
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. Sales in 1999 to
Aster City Cable and Shanghai Bell relate to cable products that we are no
longer developing, and we do not expect sales to Philips to continue beyond
2000.
COLLABORATION AGREEMENT. In August 1999, we entered into a collaboration
agreement with ADC Telecommunications, under which we agreed to sell our hubs
and modems to ADC for resale and distribution to ADC's customers at a market
price to be established by good faith negotiation between ADC and us. Under this
agreement, ADC has the exclusive right to market, sell and distribute our
products to MCI WorldCom, Sprint, BellSouth, Wireless One and Irish Multi
Channel. We also agreed to grant to ADC a non-exclusive license to use specified
software embedded in or provided with our products.
In connection with the collaboration agreement, ADC made 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."
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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.
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.
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MANUFACTURING
We outsource manufacturing to contract manufacturers that have the expertise
and ability to reduce costs associated with volume manufacturing and to respond
quickly to customer orders while maintaining high quality standards. We
outsource printed circuit board assembly and manufacturing of our wireless hubs
to contract manufacturers located in Israel. We outsource manufacturing of our
wireless modems to a contract manufacturer located in Taiwan. Any inability of
these manufacturers to provide the necessary capacity or output could result in
significant production delays which could harm our business. Our wireless hubs
and modems are currently purchased on a purchase order basis. We have no
guaranteed supply or long-term contractual agreements with any of our suppliers.
In addition, some of the components included in our systems are obtained from a
single source or limited group of suppliers. The partial or complete loss of
such suppliers could increase our costs, delay shipments or require redesigns of
our products.
We assemble our wireless hubs and perform final tests on our systems at our
facility located in Jerusalem, Israel. Our facility is ISO 9002-certified. ISO
9002 is a set of international quality assurance standards for companies
involved in the design, development, manufacturing, installation and servicing
of products or services. These standards are set by the International
Organization for Standardization, or ISO, an international federation of
national standards bodies. To be recommended for ISO 9002 certification, a
company must be audited by an ISO-accredited auditing company and must meet or
surpass ISO standards.
RESEARCH AND DEVELOPMENT
The goal of our research and development activities is to continue the
development and introduction of next-generation products for our customers. Our
efforts are also focused on reducing the cost and increasing the functionality
of our systems, while adapting them to the frequency and interface
specifications required for new markets. Our ongoing new product development
program assesses service providers' needs and technological changes in the
communications market. We are pursuing new generations of many of our products,
including our second-generation system for MMDS frequencies, our
second-generation system for LMDS frequencies and high-capacity,
third-generation wireless hubs for LMDS frequencies.
We believe that our extensive experience designing and implementing high
quality network and radio components and system software allows us to develop
high-value integrated systems solutions. As a result of these development
efforts, we believe that we have created an industry-leading platform for
cost-effective broadband wireless voice and data delivery with dynamic bandwidth
allocation.
Our future success depends on our continued investment in research and
development in radio, networking and software technologies, and we expect to
continue to invest a significant portion of revenues in this area. Our research
and development expenditures were $2.4 million for 1997, $3.3 million for 1998
and
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$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 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 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
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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.
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.
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
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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 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
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proprietary rights. Any such litigation, regardless of outcome, could be
expensive and time-consuming, and adverse determinations in any such litigation
could seriously harm our business.
We also rely on unpatented trade secrets and know-how and proprietary
technological innovation and expertise which are protected in part by
confidentiality and invention assignment agreements with our employees, advisors
and consultants and non-disclosure agreements with certain of our suppliers and
distributors. These agreements may be breached, we may not have adequate
remedies for any breach or our unpatented proprietary intellectual property may
otherwise become known or independently discovered by competitors. Further, the
laws of certain foreign countries may not protect our products or intellectual
property rights to the same extent as do the laws of the United States.
From time to time, third parties, including our competitors, may assert
patent, copyright and other intellectual property rights to technologies that
are important to us. We expect that we will increasingly be subject to license
offers and infringement claims as the number of products and competitors in our
market grows and the functionality of products overlaps. In this regard, in
early 1999, we received a written notice from Hybrid Networks in which Hybrid
claimed to have patent rights in certain technology. Hybrid requested that we
review our products in light of six of Hybrid's issued patents.
We are investigating Hybrid's claims and we currently believe the patents
are invalid or are not infringed by our products. However, others' patents,
including Hybrid's, may be determined to be valid, or some or all of our
products may ultimately be determined to infringe the Hybrid patents or those of
other companies. Hybrid or other companies may pursue litigation with respect to
these or other claims. The results of any litigation are inherently uncertain.
In the event of an adverse result in any litigation with respect to intellectual
property rights relevant to our products that could arise in the future, we
could be required to obtain licenses to the infringing technology, pay
substantial damages under applicable law, to cease the manufacture, use and sale
of infringing products or to expend significant resources to develop non-
infringing technology. Licenses may not be available from third parties,
including Hybrid, either on commercially reasonable terms or at all. In
addition, litigation frequently involves substantial expenditures and can
require significant management attention, even if we ultimately prevail.
Accordingly, any infringement claim or litigation against us could significantly
harm our business, operating results and financial condition.
EMPLOYEES
As of December 31, 1999, we had 98 full-time employees, of whom 15 were
employed in the United States and 83 were employed in Israel. Of these full-time
employees, 53 were principally dedicated to research and development, 11 were
dedicated to sales, marketing and customer support and 24 were involved in
manufacturing and operations. None of our U.S. employees is represented by a
union.
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<PAGE>
Our Israeli subsidiary is subject to Israeli labor laws and regulations with
respect to our Israeli employees. These laws principally concern matters such as
paid annual vacation, paid sick days length of work day and work week, minimum
wages, pay for overtime, insurance for work related accidents, severance pay and
other conditions of employment.
Our Israeli subsidiary and our Israeli employees are subject to provisions
of the collective bargaining agreements between the Histadrut, the General
Federation of Labor in Israel, and the Coordination Bureau of Economic
Organizations, including the Industrialists Associations, by order of the
Israeli Ministry of Labor and Welfare. These provisions principally concern cost
of living expenses, recreation pay and other conditions of employment. Our
Israeli subsidiary provides our Israeli employees with benefits and working
conditions above the required minimums. Our employees are not represented by a
labor union. We have not experienced any work stoppages.
FACILITIES
We are headquartered in Cupertino, California, where we lease approximately
9,000 square feet of commercial space under a month-to-month sublease. These
facilities are used for executive office space, including sales and marketing
and finance and administration. We also lease approximately 27,000 square feet
of commercial space in Jerusalem, Israel under a term lease that expires on
December 31, 2003, subject to one five-year extension at our option. These
facilities are used for research and development activities and for product
assembly and testing.
LEGAL PROCEEDINGS
We may from time to time become a party to various legal proceedings arising
in the ordinary course of our business. However, we are not currently a party to
any material legal proceedings.
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<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information regarding the executive officers
and directors of Vyyo as of 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.
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<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 for three years as Chief Engineer for the Data Communications
Department of the Tadiran Network Division of Tadiran Telecommunications Group.
The Tadiran Data Communication Department was a supplier and integrator of
packet switched, frame relay and data multiplexer equipment and systems. Tadiran
was a distributor of Sprint International and Newbridge Networks equipment in
Israel.
STEPHEN P. PEZZOLA joined Vyyo in September 1996 as General Counsel and
Secretary. From September 1996 until November 1999, Mr. Pezzola also served as
General Counsel and Corporate Secretary of DSP Communications. Since
September 1996, Mr. Pezzola has also been a member of Gilo Group. Since
September 1996, he has also served as General Counsel and Secretary of Zen
Research, N.V., until January 2000, when he became Chairman of the Board. From
May 1986 until September 1996, Mr. Pezzola was a founding shareholder and
president of the law firm of Pezzola & Reinke, APC, of Oakland, California.
LEWIS S. BROAD has been a member of the board of directors since
November 1999. Mr. Broad is a private investor. He is also a member of the board
of directors of Carrier Services, Inc., a company specializing in payment
processing and fraud prevention for telephone and Internet transactions. From
November 1994 until November 1999, Mr. Broad also served as a director of DSP
Communications.
NEILL H. BROWNSTEIN was appointed as a member of the board of directors in
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 until November 1999, Mr. Brownstein also served as a director
of DSP Communications.
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<PAGE>
AVRAHAM FISCHER has been a member of the board of directors since April
1996. Mr. Fischer is a managing partner in the law firm of Fischer, Behar & Co.,
of Tel Aviv, Israel, where he has served since 1982. Since January 1998, Mr.
Fischer has served as co-chairman of the Board of Isra-air Aviation and Tourism,
and, since January 1997, he has been co-chairman of the board of Ganden
Investment Ltd., an Israeli tourism company. From 1996 until November 1999,
Mr. Fischer also served as a director of DSP Communications.
JOHN P. GRIFFIN has been a member of the board of directors since
November 1999. From September 1996 through April 1998, Mr. Griffin served as
Vice President of Marketing for the Network Services Division of ADC
Telecommunications. In April 1998, Mr. Griffin was appointed as General Manager
of the Loop Transport Division of ADC Telecommunications. In May 1999, he was
appointed President of the Broadband Wireless Group of ADC Telecommunications.
From March 1995 through September 1996, Mr. Griffin served as Vice President of
Marketing of RSI Systems, a manufacturer of desktop video conferencing
equipment. Prior to that, he served for 9 years with ADC Telecommunications, the
first year as Manager of Technical Support and the remaining 8 years in various
marketing positions.
SAMUEL L. KAPLAN has been a member of the board of directors since July
1999. Mr. Kaplan has been a partner in the law firm of Kaplan, Strangis and
Kaplan, P.A. of Minneapolis, Minnesota, since October 1978. Mr. Kaplan also
serves as a director of USP Real Estate Investment Trust, a real estate
investment trust. From 1991 until June 1999, Mr. Kaplan also served as a
director of DSP Group.
ALAN L. ZIMMERMAN has been a member of the board of directors since July
1999. Since November 1994, Mr. Zimmerman has served as President of Law Finance
Group, Inc., a provider of financing in connection with anticipated awards in
legal proceedings. From 1992 through December 1999, he was Vice President of
Inheritance Funding Company, LLC, a provider of financing to heirs in connection
with anticipated inheritance payments.
BOARD OF DIRECTORS
Upon completion of this offering, our certificate of incorporation will
provide for a classified board of directors consisting of three classes of
directors, each serving staggered three-year terms. As a result, a portion of
our board of directors will be elected each year. Class I directors' terms will
expire at the annual meeting of stockholders to be held in 2001, Class II
directors' terms will expire at the annual meeting of stockholders to be held in
2002 and Class III directors' terms will expire at the annual meeting of
stockholders to be held in 2003. Messrs. Fischer, Gilo and Griffin have been
designated Class I directors, Messrs. Broad and Brownstein have been designated
Class II directors, and Messrs. Kaplan and Zimmerman have been designated
Class III directors. There are no family relationships among any of our
directors, officers or key employees.
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<PAGE>
BOARD COMMITTEES
We have established an audit committee and a compensation committee. The
audit committee reviews our internal accounting procedures and considers and
reports to the board of directors with respect to other auditing and accounting
matters, including the selection of our independent auditors, the scope of
annual audits, fees to be paid to our independent auditors and the performance
of our independent auditors. The audit committee currently consists of
Messrs. Broad, Brownstein and Kaplan. The compensation committee reviews and
recommends to the board of directors the salaries, benefits and stock option
grants for all employees, consultants, directors and other individuals
compensated by us. The compensation committee also administers our stock option
and other employee benefit plans. The compensation committee currently consists
of Messrs. Broad and Zimmerman.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to establishing the compensation committee, the board of directors as
a whole performed the functions delegated to the compensation committee. No
member of the board of directors or the compensation committee serves as a
member of the board of directors or compensation committee of any entity that
has one or more executive officers serving as a member of our board of directors
or compensation committee.
DIRECTOR COMPENSATION
Directors serving on the board of directors do not currently receive any
compensation for serving on the board. Directors are reimbursed for their
out-of-pocket expenses incurred in attending board and committee meetings. In
addition, all directors are eligible to participate in our 2000 Employee and
Consultant Equity Incentive Plan.
In December 1999, the board of directors granted options to purchase 10,000
shares of our common stock to each of Messrs. Broad and Brownstein and an option
to purchase 50,000 shares of our common stock to Mr. Fischer, in each case at an
exercise price of $1.25 per share.
In June 1999, the board of directors granted an option to purchase 50,000
shares of our common stock to Mr. Zimmerman and an option to purchase 44,000
shares of our common stock to Mr. Fischer, in each case at an exercise price of
$0.75 per share.
In February 2000, the board of directors granted options to purchase 15,000
shares of our common stock to each of Messrs. Broad, Brownstein, Fischer,
Griffin, Kaplan and Zimmerman, in each case at an exercise price of $2.80 per
share.
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,
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<PAGE>
by our Chief Executive Officer, our former Chief Executive Officer and our two
next most highly compensated executive officers who earned more than $100,000 in
salary and bonus during the fiscal year ended December 31, 1999. These
executives are referred to collectively as the named executive officers
elsewhere in this prospectus.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
----------------------------------------- ------------------------------
ALL OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY ($) BONUS ($) COMPENSATION ($) OPTIONS (#) COMPENSATION ($)
- -------------------------------- ---------- --------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Davidi Gilo..................... $175,000(1) -- -- 650,000 --
Chairman of the Board and
Chief Executive Officer
Stephen P. Pezzola.............. 140,000(2) -- -- 129,000 --
General Counsel
Menashe Shahar.................. 122,370 $20,420 $17,739(3) 170,000 $28,043(4)
Vice President, Engineering
and Chief Technical Officer
Shaul Berger(5)................. 96,200 -- -- -- --
Former Chief Executive Officer
</TABLE>
- ---------------------
(1) Mr. Gilo's salary for services performed in 1999 has been accrued, and is
expected to be paid to Mr. Gilo in 2000.
(2) $52,500 of this amount was paid to Mr. Pezzola in 1999, and $87,500 has been
accrued by Vyyo and is expected to be paid to Mr. Pezzola in 2000.
(3) Includes (i) $4,761 reimbursed to Mr. Shahar for taxes on a company
automobile, (ii) $9,978 paid to Mr. Shahar for accrued but unused vacation
time and (iii) $3,000 paid to Mr. Shahar for travel expenses incurred by
Mr. Shahar's wife.
(4) Includes a total of $28,043 paid on behalf of Mr. Shahar to a severance
fund, a pension fund and a risk/disability fund. The amounts held in such
funds on Mr. Shahar's behalf are, generally, payable to him upon the
termination of his employment with Vyyo.
(5) Mr. Berger resigned as Chief Executive Officer in April 1999.
54
<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>
NUMBER OF PERCENT OF POTENTIAL REALIZABLE VALUE AT ASSUMED
SECURITIES TOTAL OPTIONS ANNUAL RATES OF STOCK APPRECIATION FOR
UNDERLYING GRANTED DURING OPTION TERM(3)
OPTIONS FISCAL EXERCISE EXPIRATION --------------------------------------
NAME GRANTED(1) 1999(2) PRICE DATE 0% 5% 10%
- ---- ---------- -------------- -------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Davidi Gilo............ 390,000 12.38% $0.75 06/01/04 $7,117,500 $ 9,164,747 $11,641,380
260,000 8.25 1.25 11/23/04 4,615,000 5,979,831 7,630,920
Stephen P. Pezzola..... 129,000 4.10 0.75 06/01/04 2,354,250 3,031,417 3,850,611
Menashe Shahar......... 170,000 5.40 0.75 06/01/04 3,102,500 3,994,890 5,074,448
Shaul Berger........... -- -- -- -- -- -- --
</TABLE>
- ---------------------
(1) All options were granted pursuant to the 1999 Employee and Consultant Equity
Incentive Plan or the 2000 Employee and Consultant Equity Incentive Plan.
(2) Based on an aggregate of 3,150,700 options granted to employees, officers,
directors and consultants in fiscal 1999.
(3) 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 $19
per share. Amounts represent hypothetical gains that could be achieved for
the options if exercised at the end of the term. The assumed 5% and 10%
rates of stock price appreciation are provided in accordance with the rules
of the Securities and Exchange Commission and do not represent our estimate
or projection of the future stock price. Actual gains, if any, are
contingent upon the continued employment of the named executive officer
through the expiration date, as well as being dependent upon the general
performance of the common stock. The potential realizable values have not
taken into account amounts required to be paid for federal income taxes.
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<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
The following table describes for the named executive officers the number
and amount of stock options exercised during fiscal 1999 and securities
underlying unexercised options held at December 31, 1999.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 1999 DECEMBER 31, 1999
ACQUIRED ON VALUE ----------------------------------- -----------------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE (#) UNEXERCISABLE (#) EXERCISABLE ($) UNEXERCISABLE ($)
- ---- ------------ ------------ --------------- ----------------- --------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Davidi Gilo.......... 390,000 195,000 -- -- -- --
260,000 --
Stephen P. Pezzola... 80,000 40,000 49,000 -- 24,500 --
31,000 23,250
Menashe Shahar....... -- -- 20,375 179,625 15,281 92,219
Shaul Berger......... 82,599 61,949 -- -- -- --
</TABLE>
The value realized on exercised options and the value of unexercised
in-the-money options at December 31, 1999 is based on a value of $1.25 per
share, the fair market value of our common stock at December 31, 1999, as
determined by our board of directors, minus the per share exercise price,
multiplied by the number of shares underlying the options.
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<PAGE>
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 2,700,000 shares of common
stock was initially reserved for issuance under the 2000 Plan. On February 2,
2000 our board of directors approved an amendment to the 2000 Plan to increase
the total number of shares reserved for issuance under the plan from
2,700,000 shares to 5,000,000 shares, plus an annual increase to be added
automatically on the first day of each fiscal year, commencing in 2001, equal to
the lesser of (1) 900,000 shares or (2) 5% of the number of outstanding shares
on the last day of the immediately preceding fiscal year. This amendment was
approved by our stockholders on February 2, 2000.
Each of our non-employee directors elected to the board of directors for the
first time after February 2, 2000 will receive, upon such election, an initial
grant of options to purchase 50,000 shares of common stock at fair market value
on the date of grant. These options will have a 10-year term and will vest over
a four-year period. In addition, each of our non-employee directors will receive
an annual grant of options to purchase 15,000 shares for each year during such
director's term. These options will have a 10-year term and will vest
immediately upon the date of grant. The foregoing award of options will be
granted automatically under the 2000 Plan.
The 2000 Plan will initially be administered by our board of directors,
although it may be administered by either our board of directors or any
committee of our board of directors. The board or committee is sometimes
referred to in this prospectus as the plan administrator. The plan administrator
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.
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<PAGE>
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 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 1,600,000
shares of common stock has been reserved for issuance under the 1999 Plan. As of
December 31, 1999, options to purchase an aggregate of 854,000 shares of common
stock were outstanding under the 1999 Plan with a weighted-average exercise
price of $0.75. We will not be granting
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<PAGE>
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 incentive awards, including stock options, restricted stock and
stock bonuses. An aggregate of 220,000 shares of common stock was initially
reserved for issuance under the 1996 Plan. On May 13, 1998, our board of
directors adopted, and on June 23, 1998 our stockholders approved, an amendment
to the 1996 Plan to increase the total number of shares reserved for issuance
under the plan from 220,000 to 320,000 shares. As of December 31, 1999, options
to purchase an aggregate of 152,767 shares of common stock with a
weighted-average exercise price of $0.50 were outstanding under the 1996 Plan.
We will not be granting options pursuant to the 1996 Plan following the
offering. The 1996 Plan will automatically terminate in 2006.
The 1996 Plan may be administered by our board of directors or a committee
of the board. The board of directors or committee of the board may interpret the
1996 Plan and may prescribe, amend and rescind rules and make all other
determinations necessary or desirable for the administration of the 1996 Plan,
except that some amendments require stockholder approval. In addition, the board
of directors or committee of the board may not take any action which would harm
the rights previously granted under the 1996 Plan without the holders' consent.
If we merge or consolidate with another entity or if we dissolve, liquidate
or sell substantially all of our assets, outstanding awards under the 1996 Plan
may be assumed or replaced by the successor corporation or its parent. If the
successor corporation or its parent does not assume outstanding awards or
substitute equivalent awards, the awards will terminate.
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<PAGE>
2000 EMPLOYEE STOCK PURCHASE PLAN
On February 2, 2000, the board of directors adopted and our stockholders
approved our 2000 Employee Stock Purchase Plan, or Purchase Plan, which allows
eligible employees to purchase our common stock at a discount from fair market
value. A total of 500,000 shares of our common stock, plus an annual increase to
be added automatically on the first day of our fiscal year, commencing in 2001,
equal to the lesser of (a) 200,000 shares or (b) 1% of the number of outstanding
shares on the last trading day of the immediately preceding fiscal year has been
reserved for issuance under the Purchase Plan.
The Purchase Plan will be administered by our board of directors, or a
specifically designated committee of the board of directors. 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, 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 10,000
shares.
Amounts deducted and accumulated by the employee are used to purchase shares
of common stock at the end of each purchase period. The price of the common
stock offered under the Purchase Plan is an amount equal to 85% of the lower of
the fair market value of the common stock at the beginning of each offering
period or at the end of each purchase period. In the event the fair market value
at the end of a purchase period is less than the fair market value at the
beginning of the corresponding offering period, the participants of the affected
offering period will be withdrawn from such offering period following exercise
of their options and
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<PAGE>
automatically re-enrolled in a new offering period. Employees may end their
participation in the Purchase Plan at any time during an offering period, in
which event, any amounts withheld through payroll deductions and not otherwise
used to purchase shares will be returned to them. Participation ends
automatically upon termination of employment with us.
Rights granted under the Purchase Plan are not transferable by an employee
other than by will or the laws of descent and distribution. The Purchase Plan
provides that, in the event of a merger, consolidation, reorganization,
recapitalization, stock dividend or other change in corporate structure
affecting the number of issued shares of our common stock, the plan
administrator will conclusively determine the appropriate equitable adjustments.
The Purchase Plan will terminate in 2010. Our board of directors has the
authority to amend or terminate the Purchase Plan, except that no amendment or
termination may adversely affect any outstanding rights under the Purchase Plan.
EMPLOYMENT AGREEMENTS
We have entered into employment agreements with each of Messrs. Gilo,
Corwin, Pezzola, Pilovsky and Kohavi. Each of the agreements with Messrs. Gilo,
Corwin and Pezzola became effective on January 1, 2000, and provide for
three-year terms that will automatically renew for consecutive one-year
extensions, unless terminated by either party upon written notice. Mr.
Pilovsky's agreement became effective on January 16, 2000 and provides for a
three-year term that will automatically renew for consecutive one-year
extensions, unless terminated by either party upon written notice.
Under Mr. Gilo's agreement, he is entitled to receive an annual base salary
equal to $350,000 and an annual bonus, payable according to the following
schedule:
- if we meet 80% of our annual business plan, Mr. Gilo's bonus payment will
be equal to 15% of his annual base salary;
- if we meet 100% of our annual business plan, Mr. Gilo's bonus payment will
be equal to 50% of his annual base salary; and
- if we meet 120% of our plan, Mr. Gilo's bonus payment will be equal to 90%
of his annual base salary.
In addition, Mr. Gilo will also be entitled to a discretionary bonus, as
determined by our board of directors or the compensation committee. Mr Gilo is
required to devote at least 30 hours per week to the business of Vyyo under his
employment agreement.
If Mr. Gilo's employment is terminated by us without cause, 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.
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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 severence 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.
If Mr. Corwin's employment is terminated by us without cause, he will be
entitled to a severance payment equal to the greater of (a) the full amount of
the compensation that he would have been paid under his employment agreement or
(b) six months of his then-current base salary. If Mr. Corwin's employment is
terminated by us with cause, in exchange for a release as to any and all claims
Mr. Corwin may have against us, he will be entitled to a severance payment equal
to three months of his then-current base salary. If Mr. Corwin terminates his
employment with us, he will be entitled to a severance payment equal to three
months of his then-current base salary. If after the initial three-year term,
Mr. Corwin's employment is not renewed, he will be entitled to a severance
payment equal to 18 months of his then current base salary in exchange for a
release of any claims he may have against us. Mr. Corwin will remain as a
full-time employee during any period he is receiving severance pay and his
options will continue to vest during that period.
Under Mr. Pezzola's agreement, he is entitled to receive an annual base
salary equal to $202,500, a bonus in the amount of $25,000 upon the successful
completion of this offering and an annual bonus, payable according to the
following schedule:
- if we meet 80% of our annual business plan, Mr. Pezzola's bonus payment
will be equal to 15% of his annual base salary;
- if we meet 100% of our annual business plan, Mr. Pezzola's bonus payment
will be equal to 50% of his annual base salary; and
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- 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.
In addition, Mr. Pilovsky will also be entitled to a discretionary bonus, as
determined by our board of directors or the compensation committee.
If Mr. Pilovsky's employment is terminated by us without cause, he will be
entitled to a severance payment equal to the greater of (a) the full amount of
the compensation that he would have been paid under his employment agreement or
(b) six months of his then-current base salary. If Mr. Pilovsky's employment is
terminated by us with cause, in exchange for a release as to any and all claims
Mr. Pilovsky may have against us, he will be entitled to a severance payment
equal to three months of his then-current base salary, with the bonus prorated
if the plan is met between 80% and 100% or between 100% and 120%. If
Mr. Pilovsky terminates his employment with us, he will not be entitled to a
severance payment. If after the
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initial three-year term, Mr. Pilovsky's employment is not renewed, he will be
entitled to a severance payment equal to six months of his then current base
salary in exchange for a release of any claims he may have against us.
Mr. Pilovsky will remain as a full-time employee during any period he is
receiving severance pay and his options will continue to vest during that
period.
We have also entered into an employment agreement with Mr. Kohavi. His
agreement became effective on November 22, 1999, and provides for an 18 month
term that will automatically renew for consecutive six-month extensions, unless
terminated by either party by written notice. Under Mr. Kohavi's agreement, he
is entitled to receive an annual base salary equal to $155,000 and an annual
bonus, payable according to the following schedule:
- if we meet 80% of our annual business plan, Mr. Kohavi's bonus payment
will be equal to 25% of his annual base salary;
- if we meet 100% of our annual business plan, Mr. Kohavi's bonus payment
will be equal to 75% of his annual base salary; and
- if we meet 120% of our plan, Mr. Kohavi's bonus payment will be equal to
125% of his annual base salary, with the bonus prorated if the plan is met
between 80% and 100% or between 100% and 120%.
In addition, Mr. Kohavi will also be entitled to participate in each bonus plan
adopted by our board of directors.
If Mr. Kohavi's employment is terminated by us without cause, he will be
entitled to a severance payment equal to the lesser of (a) the full amount of
the compensation that he would have been paid under his employment agreement or
(b) six months of his then-current base salary. If after the initial 18-month
term, Mr. Kohavi's employment is not renewed, he will be entitled to a severance
payment equal to six months of his then current base salary in exchange for a
release of any claims he may have against us.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Upon completion of this offering, our certificate of incorporation will
limit the liability of our directors to the maximum extent permitted by Delaware
law. Delaware law provides that directors will not be personally liable for
monetary damages for breach of their fiduciary duties as directors, except
liability for:
- any breach of their duty of loyalty to the corporation or its
stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
- any transaction from which the director derived an improper personal
benefit.
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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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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since February 1, 1997, there has not been, nor is there currently proposed,
any transaction or series of similar transactions to which we were or are to be
a party in which the amount involved exceeds $60,000 and in which any director,
executive officer or holder of more than 5% of our common stock, or an immediate
family member of any of the foregoing, had or will have a direct or indirect
interest other than:
- compensation arrangements, which are described where required under
"Management," and
- the transactions described below. All references to shares of common stock
reflect our 1-for-5 reverse stock split effected on January 3, 2000.
SALES OF STOCK
On December 28, 1999, we sold 40,000 shares of common stock at a purchase
price of $1.25 per share in cash, to each of our directors, Lewis Broad, Neill
Brownstein, Avraham Fischer, Davidi Gilo, John Griffin, Samuel Kaplan and Alan
Zimmerman.
On December 28, 1999, we sold 178,571 shares of Series C convertible
preferred stock, at a purchase price of $0.56 per share in cash, to Arnon
Kohavi, our Senior Vice President, Strategic Relations.
On December 28, 1999, we sold 20,000 shares of common stock at $0.75 per
share to Avraham Fischer upon exercise of a warrant.
On August 31, 1999, we sold 9,172,010 shares of Series C convertible
preferred stock at a purchase price of $0.54 per share in cash, to ADC
Telecommunications, Inc., a principal stockholder of Vyyo.
On May 31, 1999, we sold 5,953,104 shares of common stock, at a purchase
price of $0.75 per share, to the Gilo Family Partnership, of which 1,953,104
shares were purchased in exchange for the cancellation of promissory notes
issued by us to the partnership, in the aggregate principal amount of $1,435,000
plus accrued interest, and 4,000,000 shares were purchased in exchange for the
issuance by the partnership of a promissory note in the principal amount of
$3,000,000. The note was due on the earlier of demand or April 22, 2000, and
bore interest at a rate of 9% per annum. The note was secured by the purchased
shares. The note was repaid in full and cancelled in February 2000.
On May 31, 1999, we sold 33,334 shares of common stock, at a purchase price
of $0.75 per share in cash, to the Samuel Kaplan/Ralph Strangis Investment
Partnership, an affiliate of Samuel L. Kaplan.
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On December 1, 1998, we sold shares of Series B preferred stock, at a
purchase price of $1.00 per share in cash, to the following investors, among
others:
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
- ---- -----------------
<S> <C>
Gilo Family Partnership................... 50,000
Kaplan/ Strangis Investment Partnership... 7,632
Michael Corwin............................ 8,104
Pezzola-Foster Trust...................... 4,000
Alan Zimmerman............................ 12,000
</TABLE>
In connection with this offering, we issued warrants to purchase up to the
number of shares of common stock equal to the sum of the number of shares of
Series B preferred stock each of these investors purchased multiplied by 0.6.
These warrants have terminated in accordance with their terms.
On September 28, 1998, we sold common 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>
Pezzola-Foster Trust...................... 7,500
Alan Zimmerman............................ 20,000
</TABLE>
On September 28, 1998, we sold 1,011,827 shares of common stock, at a
purchase price of $1.00 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 $2.45
per share in cash, and Series A preferred stock at a price of $8.77 in cash, to
the following persons.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
NAME COMMON SHARES PREFERRED SHARES
- ---- --------------- ----------------
<S> <C> <C>
The Davidi and Shamaya Gilo
Trust.................... 1,037 2,593
Pezzola-Foster Trust....... 1,000 2,500
PhaseCom Investor Group
Limited Partnership
No. 2.................... 53,166 132,913
Avraham Fischer............ 1,500 3,750
</TABLE>
CONVERTIBLE NOTE AND WARRANT FINANCINGS
On June 30, 1998, we issued unsecured promissory notes, which were
convertible into shares of common stock, and warrants to purchase common stock,
to the following investors, among others. The notes were due on June 30, 1999
and bore
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interest at a rate of 8% per annum. The notes were convertible into shares of
common stock at a conversion price equal to $7.50 if the note converted before
September 15, 1998, or if converted after September 15, 1998, the greater of
$7.50 or one third of the per share price of our common stock resulting from
either an initial public offering of our common stock or a merger with another
entity. In July 1999, we amended these notes so that they became convertible
into common stock at $1.25 per share. The warrants were originally convertible
into the number of shares of common stock equal to the sum of the principal
amount of the noteholder's note that we issued to it on June 30, 1998 multiplied
by .35 divided by the conversion price of the note. In November 1999, the
warrants were amended to fix the exercise price at $7.50 per share and to fix
the number of shares for which the warrants were exercisable into the number of
shares set forth below. In December 1999, the warrants were amended to reduce
the exercise price to $2.80 per share.
In consideration for the note issued to the Gilo Family Partnership, the
Partnership paid us $500,000 in cash, and we canceled the promissory notes dated
September 30, 1997, April 3, 1998 and May 8, 1998 in the aggregate principal
amount of $1,799,117, previously issued by us to the Partnership.
<TABLE>
<CAPTION>
NAME PRINCIPAL AMOUNT OF NOTE WARRANT SHARES
- ---- ------------------------ --------------
<S> <C> <C>
Gilo Family Partnership............. $2,875,556 134,193
Samuel Kaplan/Ralph Strangis
Investment Partnership............ $ 34,201 1,596
Alan Zimmerman...................... $ 26,052 1,216
Michael Corwin...................... $ 36,772 1,716
Pezzola-Foster Trust................ $ 15,000 700
Avraham Fischer..................... $ 21,723 1,014
</TABLE>
In November 1999, all of these notes were converted into an aggregate of
2,407,441 shares of common stock at a conversion rate of $1.25 per share. In
December 1999, all of these warrants were exercised for a total of 140,434
shares of common stock at an exercise price of $2.80 per share.
On February 26, 1998, we issued unsecured promissory notes, which were
convertible into shares of Series A preferred stock at $15.00 per share, and
warrants to purchase common stock at an exercise price of $14.25 per share, to
the following investors, among others. The notes were due on February 26, 1999
and bore interest at a rate of 8% per annum. In November 1999, these notes were
amended such that they were convertible into shares of common stock at a
conversion rate of $1.25 per
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share. In December 1999, these warrants were amended to have an exercise price
of $2.80 per share.
<TABLE>
<CAPTION>
NAME PRINCIPAL AMOUNT OF NOTE WARRANT SHARES
- ---- ------------------------ --------------
<S> <C> <C>
Gilo Family Partnership............. $417,600 43,200
Adi, Elad and Yael Gilo DSP Tel
Trusts............................ $ 83,520 8,640
Samuel Kaplan/Ralph Strangis
Investment Partnership............ $ 27,840 2,880
Alan Zimmerman...................... $ 27,840 2,880
Michael Corwin...................... $ 27,840 2,880
Neill Brownstein.................... $ 55,680 5,760
Pezzola-Foster Trust................ $ 9,280 960
</TABLE>
In November 1999, all of these notes were converted into an aggregate of
519,680 shares of common stock at a conversion rate of $1.25 per share. In
December 1999, all of these warrants were exercised for a total of 67,200 shares
of common stock at an exercise price of $2.80 per share.
On February 3, 1998, we issued promissory notes, which were convertible into
shares of Series A preferred stock at $15.00 per share, and warrants to purchase
common stock at an exercise price of $14.25 per share, to the following
investors, among others. The notes bore interest at a rate of 8% per annum and
were due on January 31, 1999. In November 1999, these notes were amended such
that they were convertible into shares of common stock at a conversion rate of
$1.25 per share. In December 1999, these warrants were amended to have an
exercise price of $2.80 per share.
<TABLE>
<CAPTION>
NAME PRINCIPAL AMOUNT OF NOTE WARRANT SHARES
- ---- ------------------------ --------------
<S> <C> <C>
Gilo Family Partnership............. $129,920 13,440
Adi, Elad and Yael Gilo DSP Tel
Trusts............................ $ 27,840 2,880
Samuel Kaplan/Ralph Strangis
Investment Partnership............ $ 9,280 960
Alan Zimmerman...................... $ 9,280 960
Michael Corwin...................... $ 9,280 960
Neill Brownstein.................... $ 37,120 3,840
Reshifa Management Holdings Ltd..... $ 9,280 960
</TABLE>
In November 1999, all of these notes were converted into an aggregate of
185,600 shares of common stock at a conversion rate of $1.25 per share. In
December 1999, all of these warrants were exercised for a total of 24,000 shares
of common stock at an exercise price of $2.80 per share.
On December 29, 1997, we issued promissory notes, which were convertible
into shares of Series A preferred stock at $15.00 per share, and warrants to
purchase
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common stock at an exercise price of $14.25 per share, to the following
investors, among others. The notes bore interest at a rate of 8% per annum and
were due on December 31, 1998. In November 1999, these notes were amended such
that they were convertible into shares of common stock at a conversion rate of
$1.25 per share. In December 1999, these warrants were amended to have an
exercise price of $2.80 per share.
<TABLE>
<CAPTION>
NAME PRINCIPAL AMOUNT OF NOTE WARRANT SHARES
- ---- ------------------------ --------------
<S> <C> <C>
Gilo Family Partnership............. $148,480 15,360
Adi, Elad and Yael Gilo DSP Tel
Trusts............................ $ 27,840 2,880
Samuel Kaplan/Ralph Strangis
Investment Partnership............ $ 9,280 960
Alan Zimmerman...................... $ 9,280 960
Michael Corwin...................... $ 9,280 960
Reshifa Management Holdings Ltd..... $ 9,280 960
</TABLE>
In November 1999, all of these notes were converted into an aggregate of
170,752 shares of common stock at a conversion rate of $1.25 per share. In
December 1999, all of these warrants were exercised for a total of 22,080 shares
of common stock at an exercise price of $2.80 per share.
On April 9, 1997, we issued a warrant to purchase 20,500 shares of common
stock, at an exercise price of $2.45 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............... 160,000 $0.75 06/99
80,000 $1.25 11/99
Menashe Shahar............... 8,000 $3.13* 11/97
20,000 $0.50 12/99
2,000 $2.45* 07/97
Eran Pilovsky................ 200,000 $1.25 01/00
Arnon Kohavi................. 160,000 $1.25 11/99
Stephen Pezzola.............. 15,000 $0.50 10/98
16,000 $1.50* 02/97
Avraham Fischer.............. 16,000 $1.50* 02/97
</TABLE>
- ---------------------
* In October 1998, these options were repriced to have an exercise price of
$0.50 per share.
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GILO-RELATED TRANSACTIONS
In March 1997, the Gilo Family Partnership loaned $250,000 to us. The loan
was evidenced by an unsecured demand promissory note bearing interest at a rate
of 9% per annum. This note was paid in full on April 15, 1997.
On June 25, 1997, the Gilo Family Partnership loaned $200,000 to us. The
loan was evidenced by an unsecured demand promissory note bearing interest at
rate of 8.5% per annum.
On July 9, 1997, the Gilo Family Partnership loaned $200,000 to us. The loan
was evidenced by an unsecured demand promissory note bearing interest at rate of
9% per annum.
On July 28, 1997, the Gilo Family Partnership loaned $200,000 to us. The
loan was evidenced by an unsecured demand promissory note bearing interest at
rate of 9% per annum
On August 14, 1997, the Gilo Family Partnership loaned $200,000 to us. The
loan was evidenced by an unsecured demand promissory note bearing interest at
rate of 9% per annum.
On September 30, 1997, the demand promissory notes dated June 25, 1997,
July 9, 1997, July 28, 1997 and August 14, 1997, were canceled in exchange for
(i) an unsecured promissory note in the principal amount of $799,117, bearing
interest at a rate of 9% per annum and due on March 31, 1998, and (ii) a warrant
to purchase 105,600 shares of our Common Stock at an exercise price of $11.88
per share. On June 30, 1998, the September 30, 1997 promissory note was canceled
as partial payment for issuance of an unsecured promissory note in the principal
amount of $2,875,555.50, as described above in this prospectus. In
December 1999, this warrant was amended to have an exercise price of $2.80 per
share. This warrant was exercised in December 1999.
On April 3, 1998, the Gilo Family Partnership loaned $500,000 to us. The
loan was evidenced by an unsecured demand promissory note bearing interest at a
rate of 8% per annum. On June 30, 1998, this promissory note was canceled as
partial payment for issuance of the $2,875,555.50 note.
On May 8, 1998, the Gilo Family Partnership loaned $500,000 to us. The loan
was evidenced by an unsecured demand promissory note bearing interest at a rate
of 8% per annum. On June 30, 1998, this note was canceled as partial payment for
issuance of the $2,875,555.50 note.
On August 4, 1998, the Gilo Family Partnership loaned $500,000 to us. The
loan was evidenced by an unsecured demand promissory note bearing interest at a
rate of 8% per annum. On September 28, 1998, this note was canceled in exchange
for 505,913.5 shares of our common stock at a price of $1.00 per share.
On August 28, 1998, the Gilo Family Partnership loaned $500,000 to us. The
loan was evidenced by an unsecured demand promissory note bearing interest at a
rate of
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8% per annum. On September 28, 1998, this note was canceled in exchange for
505,913.5 shares of our common stock at a price of $1.00 per share.
On November 12, 1998, the Gilo Family Partnership loaned $100,000 to us. The
loan was evidenced by an unsecured demand promissory note bearing interest at a
rate of 8.5% per annum.
On November 24, 1998, the Gilo Family Partnership loaned $50,000 to us. The
loan was evidenced by an unsecured demand promissory note bearing interest at a
rate of 8.5% per annum.
On December 1, 1998, the promissory notes dated November 12, 1998 and
November 24, 1998, in the aggregate principal amount of $150,000, plus accrued
interest, were canceled in exchange for the issuance of 150,404 shares of our
Series B preferred stock at a price of $1.00 per share.
On December 4, 1998, the Gilo Family Partnership loaned $50,000 to us. The
loan was evidenced by an unsecured demand promissory note bearing interest at a
rate of 8.5% per annum.
On January 5, 1998, the Gilo Family Partnership loaned $250,000 to us. The
loan was evidenced by an unsecured demand promissory note bearing interest at a
rate of 8.5% per annum.
On January 25, 1999, the Gilo Family Partnership loaned $50,000 to us. The
loan was evidenced by an unsecured demand promissory note bearing interest at a
rate of 8.5% per annum.
On February 12, 1999, the Gilo Family Partnership loaned $100,000 to us. The
loan was evidenced by an unsecured demand promissory note bearing interest at a
rate of 8.5% per annum.
On February 28, 1999, the Gilo Family Partnership loaned $60,000 to us. The
loan was evidenced by an unsecured demand promissory note bearing interest at a
rate of 8.5% per annum.
On March 1, 1999, the Gilo Family Partnership loaned $225,000 to us. The
loan was evidenced by an unsecured demand promissory note bearing interest at a
rate of 8.5% per annum.
On March 11, 1999, the Gilo Family Partnership loaned $150,000 to us. The
loan was evidenced by an unsecured demand promissory note bearing interest at a
rate of 8.5% per annum.
On March 31, 1999, the Gilo Family Partnership loaned $300,000 to us. The
loan was evidenced by an unsecured demand promissory note bearing interest at a
rate of 8.5% per annum.
On April 8, 1999, the Gilo Family Partnership loaned $50,000 to us. The loan
was evidenced by an unsecured demand promissory note bearing interest at a rate
of 8.5% per annum.
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On April 15, 1999, the Gilo Family Partnership loaned $200,000 to us. The
loan was evidenced by an unsecured demand promissory note bearing interest at a
rate of 8.5% per annum.
On May 31, 1999, the promissory notes dated December 4, 1998, January 5,
1999, January 25, 1999, February 12, 1999, February 28, 1999, March 1, 1999,
March 11, 1999, March 31, 1999, April 8, 1999 and April 15, 1999, in the
aggregate principal amount of $1,435,000, plus accrued interest, were canceled
in exchange for 1,953,104 shares of our common stock at a price of $0.75 per
share.
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.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table indicates information as of December 31, 1999 regarding
the beneficial ownership of our common stock by:
- each person known to the board of directors to own beneficially 5% or more
of our common stock;
- each of our directors;
- the named executive officers; and
- all of our directors and executive officers as a group.
Information with respect to beneficial ownership has been furnished by each
director, officer or 5% or more stockholder, as the case may be. Except as
otherwise noted below, the address for each person listed on the table is c/o
Vyyo Inc., 20400 Stevens Creek Boulevard, 8(th) Floor, Cupertino, California
95014.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission which generally attribute beneficial
ownership of securities to persons who possess sole or shared voting power or
investment power with respect to those securities and includes shares of common
stock issuable pursuant to the exercise of stock options or warrants that are
immediately exercisable or exercisable within 60 days. Unless otherwise
indicated, the persons or entities identified in this table have sole voting and
investment power with respect to all shares shown as beneficially owned by them,
subject to applicable community property laws.
Percentage ownership calculations are based on 17,964,857 shares of common
stock outstanding as of December 31, 1999, which number includes shares of
common stock that will be outstanding upon the conversion of outstanding shares
of preferred stock upon the closing of this offering. To the extent that any
shares are issued upon exercise of options, warrants or other rights to acquire
our capital stock that are
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<PAGE>
presently outstanding or granted in the future or reserved for future issuance
under our stock plans, there will be further dilution to new public investors.
<TABLE>
<CAPTION>
PERCENT OF SHARES
OUTSTANDING
NUMBER OF ---------------------------
SHARES BENEFICIALLY BEFORE AFTER
NAME OWNED THE OFFERING THE OFFERING
- ---- ------------------- ------------ ------------
<S> <C> <C> <C>
Davidi Gilo(1).................. 11,016,898 61.3% 49.6%
ADC Telecommunications, Inc..... 1,834,402 10.2 8.3
P. O. Box 1101
Minneapolis, MN 55440
Stephen P. Pezzola(2)........... 163,470 * *
Lewis S. Broad(3)............... 65,694 * *
Neill H. Brownstein(4).......... 148,840 * *
Avraham Fischer(5).............. 246,392 1.4 1.1
John Griffin(6)................. 1,889,402 10.5 8.5
Samuel Kaplan(7)................ 160,997 * *
Alan Zimmerman(8)............... 191,724 1.1 *
Shaul Berger(9)................. 91,015 * *
Menashe Shahar(10).............. 23,324 * *
All directors and executive
officers
As a group
(12 persons)(11)............ 14,248,838 77.5 62.9
</TABLE>
- ---------------------
* Less than 1% of the outstanding shares of common stock.
(1) Includes (a) 9,660,784 shares held by The Gilo Family Trust, of which Davidi
Gilo is a trustee, (b) 552,832 shares held by the PhaseCom Investor Group
Limited Partnership, of which Harmony Management, Inc. is the general
partner, (c) 4,876 shares of common stock issuable pursuant to warrants held
by the PhaseCom Investor Group Limited Partnership, (d) 106,331 shares held
by the PhaseCom Investor Group Limited Partnership No. 2, of which the
general partner is Gilo Group, LLC, a limited liability company of which
Mr. Gilo is a principal owner, and (e) 2,075 shares held in the Davidi and
Shamaya Gilo Trust, of which Davidi and Shamaya Gilo are the trustees.
Excludes 158,665 shares held in three trusts for the benefit of Mr. Gilo's
children, Adi, Elad and Yael Gilo, as to which Mr. Gilo has no voting or
investment power. Mr. Gilo disclaims beneficial ownership of such shares.
(2) Includes 31,471 shares held in the Pezzola-Foster Trust, of which Stephen
Pezzola and Twila Foster are the trustees. Also includes 49,000 shares of
common stock issuable pursuant to stock options exercisable within 60 days
of March 1, 2000. Excludes 28,000 shares held in two trusts for the benefit
of Mr. Pezzola's children, Genevieve and David Pezzola, as to which
Mr. Pezzola has no voting or investment power. Mr. Pezzola disclaims
beneficial ownership of such shares. Also excludes 2,085 shares held by the
PhaseCom Investor Group Limited Partnership,
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<PAGE>
of which the Pezzola-Foster Trust is a limited partner and as to which
Mr. Pezzola has no voting or investment power.
(3) Includes 25,000 shares of common stock issuable pursuant to stock options
exercisable within 60 days of March 1, 2000. Excludes 16,672 shares held by
the PhaseCom Investor Group Limited Partnership and 3,438 shares held by the
PhaseCom Investor Group Limited Partnership No. 2, of which Mr. Broad is a
limited partner and as to which Mr. Broad has no voting or investment power.
(4) Includes 25,000 shares of common stock issuable pursuant to stock options
exercisable within 60 days of March 1, 2000. Excludes 2,257 shares held by
the PhaseCom Investor Group Limited Partnership No. 2, of which
Mr. Brownstein is a limited partner and as to which Mr. Brownstein has no
voting or investment power.
(5) Includes 165,000 shares of common stock issuable pursuant to stock options
exercisable within 60 days of March 1, 2000. Excludes shares held by I.
Fischer & Co. as trustee, or Fischer, Behar & Co., as trustee, on behalf of
stockholders of Vyyo that are residents of Israel.
(6) Includes 15,000 shares of common stock issuable pursuant to stock options
exercisable within 60 days of March 1, 2000. Also includes 1,834,402 shares
held by ADC Telecommunications. Mr. Griffin is an officer of ADC
Telecommunications and may be deemed to share voting and investment power
will respect to the shares held by ADC Communications. Mr. Griffin disclaims
beneficial ownership of these shares.
(7) Includes 15,000 shares of common stock issuable pursuant to stock options
exercisable within 60 days of March 1, 2000. Also includes 105,737 shares
held by the Samuel Kaplan/Ralph Strangis Investment Partnership, of which
Samuel Kaplan is a general partner. Mr. Kaplan disclaims beneficial
ownership of these shares, except to the extent of his pecuniary interest
arising from his interest in this entity. Excludes 6,252 shares held by the
PhaseCom Investor Group Limited Partnership and 2,581 shares held by the
PhaseCom Investor Group Limited Partnership No. 2, of which Mr. Kaplan is a
limited partner and as to which Mr. Kaplan has no voting or investment
power.
(8) Includes 65,000 shares of common stock issuable pursuant to stock options
exercisable within 60 days of March 1, 2000. Excludes 8,336 shares held by
the PhaseCom Investor Group Limited Partnership and 1,716 shares held by the
PhaseCom Investor Group Limited Partnership No. 2, of which Mr. Zimmerman is
a limited partner and as to which Mr. Zimmerman has no voting or investment
power.
(9) Includes 261 shares of common stock issuable pursuant to warrants.
(10) Includes 22,791 shares of common stock issuable pursuant to stock options
exercisable within 60 days of March 1, 2000.
(11) Includes 331,791 shares of common stock issuable pursuant to stock options
exercisable within 60 days of March 1, 2000.
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<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.
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<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 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;
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<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."
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
We cannot predict if future sales of our common stock, or the availability
of our common stock for sale, will depress the market price for our common stock
or our ability to raise capital by offering equity securities. Sales of
substantial amounts of common stock, or the perception that these sales could
occur, may depress prevailing market prices for the common stock.
After this offering, approximately 22,214,857 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>
NUMBER OF
DATE OF AVAILABILITY FOR SALE SHARES
- ----------------------------- ----------------
<S> <C>
As of the date of the prospectus........................... --
September 27, 2000......................................... 16,231,195
At various times afterwards upon expiration of applicable
holding periods.......................................... 1,733,662
</TABLE>
Banc of America Securities LLC may release all or a portion of the shares
subject to this lockup agreement at any time without notice. See "Underwriting."
In general, under Rule 144, as currently in effect, a person who has
beneficially owned shares of our common stock for at least one year would be
entitled to sell within any three-month period a number of shares that does not
exceed the greater of:
- 1% of the number of shares of common stock then outstanding, which will
equal approximately shares immediately after this offering; or
- the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to the sale.
Sales under Rule 144 are also subject to manner of sales provisions and
notice requirements and to the availability of current public information about
us.
Under Rule 144(k), a person who is not deemed to have been one of our
affiliates at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner other than an affiliate, is
entitled to sell the shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
Rule 701, as currently in effect, permits resales of shares in reliance upon
Rule 144 but without compliance with certain restrictions, including the holding
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<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 2,891,829
shares were outstanding under our stock option plans of which 260,000 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.
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<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........................................
=======
</TABLE>
The underwriters initially will offer shares to the public at the price
specified on the cover page of this prospectus. The underwriters may allow to
some dealers a concession of not more than $ per share. The underwriters
also may allow, and any other dealers may reallow, a concession of not more than
$ per share to some other dealers. If all the shares are not sold at the
initial public offering price, the underwriters may change the offering price
and the other selling terms. The common stock is offered under a number of
conditions, including:
- receipt and acceptance of our common stock by the underwriters, and
- the right to reject orders in whole or in part.
We have granted an option to the underwriters to buy up to additional
shares of common stock. These additional shares would cover sales of shares by
the underwriters which exceed the number of shares specified in the table above.
The underwriters have 30 days to exercise this option. If the underwriters
exercise this option, they will each purchase additional shares approximately in
proportion to the amounts specified in the table above.
The expenses of the offering that are payable by us are estimated to be
$ .
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
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<PAGE>
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.
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.
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Prior to this offering, there has been no public market for our common
stock. The initial public offering price was negotiated between us and the
underwriters. Among the factors that will be considered in the negotiations are:
- our history and prospects, and the history and prospects of the industry
in which we compete,
- our past and present financial performance,
- an assessment of our management,
- the present state of our development,
- our prospects for future earnings,
- the prevailing market conditions of the applicable U.S. securities market
at the time of this offer,
- market valuations of publicly traded companies that we and the
underwriters believe to be comparable to US.
The underwriters have reserved up to shares of the common stock to be
sold in this offering for sale to some of our employees, directors and their
associates, and to other individuals or companies who have commercial
arrangements or personal relationships with us. Through this directed share
program, we intend to ensure that those individuals and companies that have
supported us, or who are in a position to support us in the future, have the
opportunity to purchase our common stock at the same price that we are offering
our shares to the general public. We do not currently expect that more than
approximately individuals (including our employees, directors and their
associates) and companies will participate in the directed share program.
Prospective participants will not receive any investment materials other than a
copy of this prospectus, and will be permitted to participate in this offering
at the initial public offering price presented on the cover page of this
prospectus. No commitment to purchase shares by any participant in the directed
share program will be accepted until after the registration statement of which
this prospectus is a part is effective and an initial public offering price has
been established. The number of shares available for sale to the general public
will be reduced by the number of shares sold through the directed share program.
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 which contains only the information permitted under Rule 134.
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, W.R. Hambrecht + Co., LLC will allocate shares to
individual and institutional account holders,
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<PAGE>
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.
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<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. David
Fox, a partner at Skadden, Arps, beneficially owns 43,561 shares of common
stock. Certain other legal matters in connection with this offering will be
passed upon for us by Bay Venture Counsel, LLP. Donald Reinke, Bruce Whitley and
Thomas Maier, partners at Bay Venture Counsel, and Bruce Johnson, of counsel at
Bay Venture Counsel, beneficially own 46,991, 12,698, 11,796 and 66,400 shares
of common stock, respectively. Certain matters of Israeli law will be passed
upon for us by Fischer, Behar, Chen & Co., Tel Aviv, Israel. Certain legal
matters in connection with this offering will be passed upon for the
underwriters by Brobeck, Phleger & Harrison LLP, San Francisco, California.
Avraham Fischer, a partner at Fischer, Behar and a director of Vyyo,
beneficially owns 263,160 shares of common stock.
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.
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<PAGE>
VYYO INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Consolidated Balance Sheets as of December 31, 1998 and
1999...................................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1997, 1998 and 1999.......................... F-4
Consolidated Statements of Stockholders' Equity (Net Capital
Deficiency) for the years ended December 31, 1997, 1998
and 1999.................................................. F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1998 and 1999.......................... F-6
Notes to Consolidated Financial Statments................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Vyyo, Inc.
We have audited the accompanying consolidated balance sheets of Vyyo Inc. as
of December 31, 1998 and 1999, and the related consolidated statements of
operations, stockholders' equity (net capital deficiency) and cash flows for
each of the three years in the period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Vyyo Inc. at
December 31, 1998 and 1999, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
1999, in conformity with generally accepted accounting principles in the United
States.
Ernst & Young LLP
San Jose, California
January 28, 2000
F-2
<PAGE>
VYYO INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, STOCKHOLDERS'
------------------- EQUITY AT
1998 1999 DECEMBER 31, 1999
-------- -------- -----------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 131 $ 5,036
Accounts receivable (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 2,629,702 shares of common stock at December 31,
1999; aggregate liquidation preference of $14,243 at
December 31, 1999...................................... 10,335 15,369 $ --
Common stock, $0.0001 par value at amounts paid in;
200,000,000 shares authorized at December 31, 1998 and
1999; 1,812,602 and 15,335,155 shares issued and
outstanding at December 31, 1998 and 1999,
respectively; 17,964,857 shares issued and outstanding
pro forma.............................................. 2,649 55,873 71,242
Note receivable from stockholder......................... -- (920) (920)
Deferred stock compensation.............................. -- (10,300) (10,300)
Accumulated deficit...................................... (22,555) (58,717) (58,717)
-------- -------- --------
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............... -- -- 7,700
-------- -------- --------
Total operating expenses.................................... 5,082 7,028 15,498
-------- -------- --------
Operating loss.............................................. (5,101) (7,147) (15,584)
Charge for amended financing arrangements................... -- -- (19,861)
Interest income............................................. 41 10 36
Interest expense and other.................................. (285) (534) (753)
-------- -------- --------
Net loss.................................................... $ (5,345) $ (7,671) $(36,162)
======== ======== ========
Net loss per share:
Basic and diluted $ (8.86) $ (8.15) $ (6.72)
======== ======== ========
Number of shares used in per share computation:
Basic and diluted 603 941 5,385
======== ======== ========
</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 $7,300 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)
<TABLE>
<CAPTION>
CONVERTIBLE NOTE
PREFERRED STOCK COMMON STOCK RECEIVABLE DEFERRED
--------------------- --------------------- FROM STOCK ACCUMULATED
SHARES AMOUNT SHARES AMOUNT STOCKHOLDER COMPENSATION DEFICIT
---------- -------- ---------- -------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996..................... 1,380,851 $ 7,996 552,340 $ 983 -- -- $ (9,539)
Exchange of stock for
subsidiary............... 1,092 -- 437 -- -- -- --
Issuance of preferred and
common shares for cash,
net of issuance costs.... 202,167 1,736 80,867 193 -- -- --
Issuance of warrants to
purchase common stock.... -- -- -- 165 -- -- --
Net loss................... -- -- -- -- -- -- (5,345)
---------- ------- ---------- ------- -------- -------- ----------
Balance at December 31,
1997..................... 1,584,110 9,732 633,644 1,341 -- -- (14,884)
Issuance of common stock
net of issuance costs.... -- -- 175,528 171 -- -- --
Issuance of Series A
preferred stock net of
issuance costs........... 21,123 15 -- -- -- -- --
Issuance of Series B
preferred stock net of
issuance costs........... 629,447 603 -- -- -- -- --
Conversion of notes payable
to stockholders into
common stock............. -- -- 1,011,827 1,012 -- -- --
Repurchase of preferred
stock and common stock... (20,992) (15) (8,397) (5) -- -- --
Issuance of warrants to
purchase common stock.... -- -- -- 130 -- -- --
Net loss................... -- -- -- -- -- -- (7,671)
---------- ------- ---------- ------- -------- -------- ----------
Balance at December 31,
1998..................... 2,213,688 10,335 1,812,602 2,649 -- -- (22,555)
Issuance of common stock,
net of issuance costs.... -- -- 4,417,333 3,481 $ (920) -- --
Issuance of Series C
preferred stock, net of
issuance costs........... 9,350,581 5,034 -- -- -- -- --
Issuance of common stock
upon exercise of
warrants, net of issuance
costs.................... -- -- 727,947 1,947 -- -- --
Conversion of notes payable
to shareholders into
common stock............. -- -- 7,418,836 9,090 -- -- --
Issuance of common stock
upon exercise of
options.................. -- -- 958,437 845 -- -- --
Deferred stock
compensation............. -- -- -- 18,000 -- (18,000) --
Amortization of deferred
stock compensation....... -- -- -- -- -- 7,700 --
Charge for amended
financing arrangements... -- -- -- 19,861 -- -- --
Net loss................... -- -- -- -- -- -- (36,162)
---------- ------- ---------- ------- -------- -------- ----------
Balance at December 31,
1999..................... 11,564,269 $15,369 15,335,155 $55,873 $ (920) $(10,300) $ (58,717)
========== ======= ========== ======= ======== ======== ==========
<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....... 7,700
Charge for amended
financing arrangements... 19,861
Net loss................... (36,162)
----------
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) $(36,162)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and other.................................... 343 368 454
Amortization of deferred stock compensation............... -- -- 7,700
Charge for amended financing arrangements................. -- -- 19,861
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, the Company effected a 5-for-1 reverse stock split of
its common stock. Common share, per common share data, and the preferred stock
conversion rates retroactively reflect the reverse stock splits. As a result of
the stock
F-9
<PAGE>
VYYO INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
split, the preferred stock is convertible to common stock at the following
ratios: Series A at 5 for 2, Series B at 5 for 1, and Series C at 5 for 1.
UNAUDITED PRO FORMA STOCKHOLDERS' EQUITY
All of the preferred shares will automatically be converted into common
shares upon completion of the Offering (see Note 8). The preferred stock is
convertible to common stock at the following split-adjusted ratios: Series A at
5 for 2, Series B at 5 for 1, and Series C at 5 for 1. Unaudited pro forma
stockholders' equity at December 31, 1999, as adjusted for the assumed
conversion of such shares, is disclosed on the balance sheet.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its employee stock options because the
alternative fair value accounting provided for under the Financial Accounting
Standards Board ("FASB") Statement No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123") requires use of option valuation models that were not
developed for use in valuing employee stock options. Under APB 25, when the
exercise price of the Company's employee stock or options equals the market
price of the underlying stock on the date of the grant, no compensation expense
is recognized.
During 1999, in connection with the grant of certain stock options and the
issuance of certain shares, the Company recorded deferred compensation expense
representing the difference between the option exercise price or the share
purchase price and the deemed fair value of the Company's common stock on the
date of grant. The deferred compensation costs are being amortized based on the
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
begging 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
Other....................................................... 1,314 1,486
------ ------
$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 1,011,827 and
7,418,836 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 note payable conversion price per share or the
deemed fair market value at the date of the amendment and the fair value of the
amended warrants issued in connection with the notes payable estimated at the
date of the amendment using the Black Scholes pricing model.
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 expire in 2003. As of December 31, 1999, future minimum
lease payments under these operating leases were $422,000, $392,000, $370,000
and $370,000 for 2000, 2001, 2002 and 2003 respectively. The Company's
headquarters facility in California is leased month-to-month from a company
under common control of a major stockholder. Rent and related payments to this
company amounted to $44,000 and $343,000 in 1998 and 1999, respectively.
The gross rental payments under all operating leases were $251,000, $381,000
and $494,000 for the years ended December 31, 1997, 1998 and 1999, respectively.
Rental expense, net of reimbursements from subleases, was $33,000, $127,000 and
$434,000 for the years ended December 31, 1997, 1998 and 1999, respectively.
Aggregate future minimum rentals to be received under noncancelable subleases
are $86,000 as of December 31, 1999.
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
F-13
<PAGE>
VYYO INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
delivered which did not meet product specifications. The Company no longer sells
or supports these products. The Company believes it has meritorious defenses
against these allegations and it plans to vigorously defend against them.
PATENT MATTER
In early 1999, the Company received a written notice from Hybrid Networks,
Inc. ("Hybrid"), a competitor, in which Hybrid claimed to have patent rights in
certain technology and requested that the Company review its products in light
of six of Hybrid's issued patents. The Company is investigating the Hybrid
claims and currently believes the patents are invalid or are not infringed by
the Company's products. However, Hybrid may pursue litigation with respect to
these or other claims. The results of any litigation are inherently uncertain.
Any successful infringement claim or litigation against the Company could have a
significant adverse impact on operating results and financial condition.
RESEARCH GRANTS
Prior to 1997, the Company participated in the following research and
development incentive programs:
a. The Office of the Chief Scientist in the Israeli Ministry of Industry and
Trade (the "Chief Scientist)
The Company has obtained grants from the Chief Scientist totaling
approximately $2 million. These grants were received through 1996. The
terms of the grants from the Chief Scientist prohibit the transfer of
technology developed pursuant to the terms of these grants to any 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.
F-14
<PAGE>
VYYO INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
As of December 31, 1999, the Company has repaid or provided for the
repayment of grants amounting to $651,000.
8. STOCKHOLDERS' EQUITY
PREFERRED STOCK
As of December 31, 1999, the board of directors had the authority, without
any further vote or action by the stockholders, to provide for the issuance of
up to 100,000,000 shares of preferred stock from time to time in one or more
series with such designations, rights, preferences, and limitations as the board
of directors may determine, including the consideration received therefore, the
number of shares comprising such series, dividend rights, redemption provisions,
liquidation preferences, redemption fund provisions, conversion rights, and
voting rights.
<TABLE>
<CAPTION>
SHARES ISSUED COMMON SHARES
SHARES AUTHORIZED AND OUTSTANDING DESIGNATED FOR CONVERSION
------------------------ ---------------------- -------------------------
1998 1999 1998 1999 1998 1999
---------- ----------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Series A............... 6,000,000 6,000,000 1,584,241 1,584,241 633,696 633,697
Series B............... 15,000,000 40,000,000 629,447 629,447 125,889 125,889
Series C............... -- 40,000,000 -- 9,350,581 -- 1,870,116
Undesignated........... 14,000,000 14,000,000 -- -- -- --
---------- ----------- --------- ---------- ------- ---------
35,000,000 100,000,000 2,213,688 11,564,269 759,585 2,629,702
========== =========== ========= ========== ======= =========
</TABLE>
The holders of Series A, B, and C preferred stock are entitled to receive,
when and if declared by the board of directors, noncumulative dividends at the
annual rate of $0.0432, $0.08 and $0.0216 per share, respectively, and in that
order of preference, in preference to payment of dividends on common stock. No
dividends have been declared to date.
Shares of Series A, B, and C preferred stock are convertible, at the
holders' option or automatically as set forth below, into 0.4 share, 0.2 share
and 0.2 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 or
(ii) in a business combination in which the common stock equivalent value of the
Company's stock as a result of such event and $1.00 per share (as adjusted from
time to time for stock splits, stock dividends, and like events). The holders of
preferred stock are entitled to one vote for each share of common stock into
which such preferred shares can be converted.
F-15
<PAGE>
VYYO INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
In the event of any liquidation, dissolution, or winding up of the Company
("Liquidation Event"), the holders of Series B preferred stock are entitled to
receive, in preference to holders of Series A preferred stock and common stock,
the amount of $1.50 per share plus any declared but unpaid dividends. Before the
payment of any portion of the Series A Liquidation Price ("Series A Liquidation
Price"), the holders of Series C preferred stock, are entitled to receive the
greater of (i) $0.541 per share plus cumulative dividends of four percent per
year in excess of dividends actually paid or (ii) declared and unpaid dividends.
Before payment of any portion of the Series A liquidation preference price and
after payment of the Series B liquidation price, in the event of a Liquidation
Event, the holders of Series A and Series B preferred stock and common stock are
entitled to receive an amount of $0.40 per share ("Series B to Common Stock
Liquidation Price"). After payment of the Series B to Common Stock Liquidation
Price, the holders of Series A preferred stock are entitled to receive, in
preference to holders of common stock, the amount of $4.60 per share plus any
declared but unpaid dividends.
WARRANTS
From 1997 through 1998, the Company issued warrants to purchase an aggregate
of 1,164,298 shares of common stock to investors in connection with equity and
convertible note financing transactions. As of December 31, 1999, 125,190
warrants remained outstanding with an average exercise price of $1.89 per share.
These warrants are exercisable through March 2002.
COMMON STOCK
As of December 31, 1999, the Company has reserved approximately 2,755,000
shares of common stock for issuance on the conversion of the Series A, B and C
convertible preferred stock and the warrants and 3,661,000 shares of common
stock for issuance of options granted under the stock-based compensation plan.
STOCK OPTION PLANS
The Company has the following stock option plans: (i) 1996 Equity Incentive
Plan, (ii) 1999 Employee and Consultant Equity Incentive Plan and (iii) 2000
Employee and Consultant Equity Incentive ("the Plans"). The plans as amended
provide for the grant to employees of incentive stock options ("ISOs"), the
grant to employees, directors, and consultants of nonstatutory stock options,
and the grant of stock options which comply with the applicable requirements of
Israeli law to the extent granted to persons who may be subject to income tax in
Israel. The Plans also provide for the awards of restricted stock and stock
bonuses.
F-16
<PAGE>
VYYO INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
ISOs granted under the Plans have an exercise price equal to the fair value
as determined by the board of directors of the common stock on the date of
grant. Nonstatutory stock options may not be granted with an exercise price less
than 85% of the fair value as determined by the board of directors of the common
stock on the date of grant. The period within which the option may be exercised
is determined at the time of grant, provided that no term is longer than ten
years. Options generally vest over a four-year period.
In October 1998, the Company adopted an option exchange program to allow
employees to exchange their options for new options with an exercise price of
$0.5. The program resulted in a total of approximately 197,200 options with
exercise price ranging from $1.50 to $3.15 being exchanged for the new options.
The terms of the repriced options remain the same.
A summary of stock option activity, and related information, under the Plans
for the years ended December 31, 1997, 1998 and 1999 is as follows (in
thousands, except per share data):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------- -------------------------------
WEIGHTED WEIGHTED WEIGHTED
SHARES AVERAGE AVERAGE AVERAGE
AVAILABLE NUMBER EXERCISE FAIR NUMBER EXERCISE
FOR GRANT OF SHARES PRICE VALUE OF SHARES PRICE
--------- --------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996.......... 190 29 $1.50
Granted............................. (187) 187 $2.45
------ ----- -----
Balance at December 31, 1997.......... 3 216 $2.35 0.53
------ ----- -----
Authorized.......................... 100 -- --
Granted............................. (341) 341 $0.50
Canceled............................ 199 (199) $2.15
------ ----- -----
Balance at December 31, 1998.......... (39) 358 $0.80 0.08
Authorized.......................... 4,300 -- --
Granted............................. (3,151) 3,151 $1.05
Exercised........................... -- (958) $0.90
Canceled............................ 102 (102) $1.55
------ ----- -----
Balance at December 31, 1999 1,212 2,449 $1.03 0.14 494 $0.85
====== ===== ===== ===== ===== =====
</TABLE>
The 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
F-17
<PAGE>
VYYO INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
rate of 6.5%, 6.5% and 6.0%; dividend yields of zero; and a weighted-average
expected life of the option of approximately 3.6, 2.29 and 2.46 years.
Option valuation models require the input of highly subjective assumptions.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma SFAS 123 disclosures, the estimated fair value of
the options is amortized to expense over the option vesting periods.
The Company pro forma information follows:
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Net loss
As reported............................................... $ (5,345) $ (7,671) $(36,162)
Pro forma................................................. $ (5,369) $ (7,731) $(36,252)
Basic and diluted loss per share
As reported............................................... $ (8.86) $ (8.15) $ (6.72)
Pro forma................................................. $ (8.90) $ (8.22) $ (6.73)
</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.................................................... $ (36,162)
==========
Shares used in computing basic and diluted net loss per
share..................................................... 5,385
==========
Basic and diluted net loss per share........................ $ (6.72)
==========
Pro forma
Shares used above......................................... 5,385
Pro forma adjustment to reflect weighted effect of assumed
conversion of convertible preferred stock (unaudited)... 1,373
----------
Shares used in computing pro forma basic and diluted net
loss per share (unaudited).............................. 6,758
----------
Pro forma basic and diluted net loss per share
(unaudited)............................................. $ (5.35)
==========
</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 1,587,644,
1,850,927, and 5,204,258 for the years ended December 31, 1997, 1998 and 1999.
10. INCOME TAXES
U.S. INCOME TAXES
As of December 31, 1999, the Company has U.S. federal and state net
operating loss carryforwards of approximately $6 million. The net operating loss
carryforwards will expire beginning in 2004 through 2019, if not utilized. The
utilization of net operating loss carryforwards may be subject to substantial
annual limitations if there has been a significant "change in ownership." Such a
"change in ownership," as described in Section 382 of the Internal Revenue Code,
may substantially limit the Company's utilization of the net operating loss
carryforwards.
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 $2,600
Valuation allowance......................................... (2,000) (2,600)
------ ------
Net deferred tax assets..................................... $ -- $ --
====== ======
</TABLE>
The valuation allowance increased by $1.5 million and $600,000 for the years
ended December 31, 1998 and 1999, respectively.
FASB Statement No. 109 provides for the recognition of deferred tax assets
if realization of such assets is more likely than not. Based upon the weight of
available evidence, which includes our historical operating performance and the
reported cumulative net losses in all prior years, we have provided a full
valuation allowance against our net deferred tax assets as the future
realization of the tax benefit is not sufficiently assured.
F-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
2,300,000 shares; (2) an automatic annual increase to the shares reserved under
the plan equal to the lesser of 900,000 shares or 5% of the outstanding shares;
(3) the adoption of the 2000 Employee Stock Purchase Plan, under which 500,000
shares have been reserved.
On February 2, 2000, the note from shareholders in the amount of $920,000
has been repaid.
F-21
<PAGE>
- ------------------------------------------------------------
- ------------------------------------------------------------
4,250,000 SHARES
[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............................................. 12,000
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............................. 124,640
----------
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, and (2) the one-for-five reverse stock split of the
outstanding common stock effected on January 3, 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 188,144 shares of common stock, at a weighted
average exercise price of $2.46 per share. On October 27, 1998, the
Registrant amended these options to have an exercise price of $0.50 per
share. Since October 27, 1998, the Registrant 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 145,497 shares of common stock, at a weighted average exercise
price of $0.50 per share.
(2) Since February 1, 1997, the Registrant has granted stock options under the
Registrant's 1999 Employee and Consultant Equity Incentive Plan to a total
of 27 officers, employees, directors and consultants of the Registrant, to
purchase an aggregate of 1,386,000 shares of common stock, at a weighted
average exercise price of $0.75 per share.
(3) Since February 1, 1997, the Registrant has granted stock options under the
Registrant's 2000 Employee and Consultant Equity Incentive Plan to a total
of 116 officers, employees, directors and consultants of the Registrant, to
purchase an aggregate of 2,339,559 shares of common stock, at a weighted
average exercise price of $1.52 per share.
(4) At various times from March 31, 1997 through July 17, 1997, the Registrant
sold and issued 56,930 shares of common stock at $2.45 per share 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 23,936 shares of common stock at $2.45 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 41,000 shares of common stock (the
"1997 Warrants") to the Davidi and Shamaya Gilo Trust and Suzon
Financial, S.A. at an exercise price of $2.45 with an aggregate exercise
price of $100,450.
(7) On June 17, 1997, the Registrant sold and issued 340 shares of common stock
and 850 shares of Series A Convertible Preferred Stock to Joseph Gorodnick
in exchange for all of his ordinary shares in Vyyo Ltd.
(8) From September 30, 1997 through November 10, 1997, the Registrant sold and
issued warrants to purchase an aggregate of 244,897 shares of common stock
(the "1997 Warrants") to 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 $11.88 with an aggregate exercise price of $2,908,154.25
(9) On November 18, 1997, the Registrant sold and issued an aggregate of 97
shares of common stock and 242 shares of Series A Convertible Preferred
Stock to 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
48,000 shares of Common stock to the purchasers of the 1997 Series A-2
Notes at an exercise price of $14.25 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
43,200 shares of Common stock to the purchasers of the 1998 Series A-1
Notes at an exercise price of $14.25 with an aggregate exercise price of
$615,600.
(16) On February 6, 1998, pursuant to a settlement agreement, the Registrant
sold and issued 8,298 shares of common stock and 20,744 of Series A
Convertible Preferred Stock to Yotam Financing Technological Ventures Ltd.
for an aggregate cash consideration of $20,744.
(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
128,160 shares of Common stock to the purchasers of the 1998 Series A-2
Notes at an exercise price of $14.25 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
$7.50 if the notes convert before September 15, 1998, or after
September 15, 1998 the greater of $7.50 or one third of the per share price
of Registrant's Common stock resulting from either an initial public
offering of its common stock or a merger of Registrant with another.
(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 $7.50 if the notes convert before September 15,
1998, or after September 15, 1998 the greater of $7.50 or one third of the
per share price of Registrant's common stock resulting from either an
initial public offering of Registrant's common stock or a merger of
Registrant with another entity.
(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 1,198,906 shares of
common stock at $1.00 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 152 shares of common
stock and 379 shares of Series A Convertible Preferred Stock to Shlomo
Rachiv in exchange for all of his ordinary shares in Vyyo Ltd.
(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 Merlin 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 $4,464,779.83 held by 20 of the purchasers of
the Series B Convertible Preferred Stock such that these notes became
convertible into an aggregate of 4,464,779 shares of Series B Convertible
Preferred Stock at a conversion price of $1.00 per share at the election of
the purchasers (the "1998 Amended Notes").
(28) On May 31, 1999, the Registrant sold and issued 5,986,437 shares of common
stock at $0.75 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 89,286 shares of common stock to Yehuda Atai at an exercise
price of $0.75per share with an aggregate exercise price of $63,750.
(30) On June 25, 1999, the Registrant sold and issued 64,000 shares of common
stock at $1.25 per share to Pezzola & Reinke, APC for the cancellation of
debt in the aggregate amount of $80,000.
(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 1,770,291 shares of
common stock at a conversion price of $1.25 per share at the election of
the holders of the notes.
(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 $2.80 per share.
(34) At various times from December 28, 1999 through January 31, 2000, the
Registrant sold and issued 733,366 shares of common stock to 58 warrant
holders of the Registrant upon exercise of warrants at a weighted average
exercise price of $2.69 per share.
(35) On December 28, 1999, the Registrant sold and issued 5,458,307 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 $1.25 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 320,000 shares of
common stock at $1.25 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 28, 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 6, 1999, by and among the Registrant and
certain holders of the Series A Preferred Stock and
Series C Preferred Stock
10.13** Employment Agreement with Davidi Gilo
10.14** Employment Agreement with Eran Pilovsky
10.15** Employment Agreement with Stephen P. Pezzola
10.16** Employment Agreement with Michael Corwin
10.17** Employment Agreement with Arnon Kohavi
10.18* Unprotected Lease Agreement, dated as of March 7, 1999
between Vyyo Ltd. and Ayalot Investments in Properties (Har
Hotzvim) 1994 Ltd.
10.19**+ Collaboration Agreement, dated August 6, 1999, between Vyyo
Ltd. and ADC Telecommunications, Inc.
10.20**+ License and Development Agreement, dated as of December
1999, by and between Philips Semiconductor, Inc., Vyyo Ltd.,
and the Registrant
21.1** Subsidiaries of the Registrant
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2* Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included in Exhibit 5.1)
24.1** Power of Attorney
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 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
II-8
<PAGE>
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. 1 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 6, 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. 1 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 6, 2000
Davidi Gilo (Principal Executive Officer)
Vice President, Finance and
/s/ ERAN PILOVSKY* Chief Financial Officer
------------------------------------ (Principal Financial and March 6, 2000
Eran Pilovsky Accounting Officer)
/s/ LEWIS S. BROAD* Director
------------------------------------ March 6, 2000
Lewis S. Broad
/s/ NEILL H. BROWNSTEIN* Director
------------------------------------ March 6, 2000
Neill H. Brownstein
/s/ JOHN P. GRIFFIN* Director
------------------------------------ March 6, 2000
John P. Griffin
/s/ AVRAHAM FISCHER* Director
------------------------------------ March 6, 2000
Avraham Fischer
/s/ SAMUEL L. KAPLAN* Director
------------------------------------ March 6, 2000
Samuel L. Kaplan
</TABLE>
II-10
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ALAN L. ZIMMERMAN* Director
------------------------------------ March 6, 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>
23.1 Consent of Ernst & Young LLP, Independent Auditors
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated January 28, 2000 in this Amendment No. 1 to the
Registration Statement (Form S-1) and related Prospectus of Vyyo Inc.
/s/ ERNST & YOUNG LLP
San Jose, California
March 6, 2000
