<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 17, 2000
REGISTRATION NO. 333-31732
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ACCELERATED NETWORKS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
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DELAWARE 3576 77-0442752
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION NUMBER) IDENTIFICATION NO.)
</TABLE>
301 SCIENCE DRIVE
MOORPARK, CALIFORNIA 93021
(805) 553-9680
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
SURESH NIHALANI
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ACCELERATED NETWORKS, INC.
301 SCIENCE DRIVE
MOORPARK, CALIFORNIA 93021
(805) 553-9680
(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
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BRUCE R. HALLETT, ESQ. WILLIAM HINMAN, JR., ESQ.
JOSEPH H. CHI, ESQ. SHEARMAN & STERLING
AMY J. HANSEN, ESQ. 555 CALIFORNIA STREET
LISA S. GOON, ESQ. SUITE 2000
BROBECK, PHLEGER & HARRISON LLP SAN FRANCISCO, CALIFORNIA 91404
38 TECHNOLOGY DRIVE (415) 616-1000
IRVINE, CALIFORNIA 92618
(949) 790-6300
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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<CAPTION>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITIES AMOUNT TO OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED BE REGISTERED SHARE(1) PRICE REGISTRATION FEE(2)
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<S> <C> <C> <C> <C>
Common Stock, $0.001 par
value........................ 4,600,000 $15.00 $69,000,000 $18,216
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</TABLE>
(1) Estimated solely for the purpose of computing the amount of registration fee
pursuant to Rule 457(a) under the Securities Act of 1933.
(2) $17,001.60 of the registration fee was previously paid by the registrant in
connection with the initial filing of the Registration Statement on March 3,
2000.
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 THE 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> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL SECURITIES AND IT IS NOT SOLICITING
OFFERS TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS
NOT PERMITTED.
SUBJECT TO COMPLETION, DATED APRIL 17, 2000
4,000,000 Shares
[ACCELERATED NETWORKS, INC. LOGO]
Common Stock
------------------
Prior to this offering, there has been no public market for our common
stock. The initial public offering price is expected to be between $13.00 and
$15.00 per share. We have applied to have our common stock approved for listing
on The Nasdaq Stock Market's National Market under the symbol "ACCL."
The underwriters have an option to purchase a maximum of 600,000 additional
shares to cover over-allotments of shares.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 4.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS ACCELERATED
---------- ------------- -----------
<S> <C> <C> <C>
Per Share............................................ $ $ $
Total................................................ $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about
, 2000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
CREDIT SUISSE FIRST BOSTON
U.S. BANCORP PIPER JAFFRAY
WARBURG DILLON READ LLC
The date of this prospectus is , 2000.
<PAGE> 3
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TABLE OF CONTENTS
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PAGE
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PROSPECTUS SUMMARY.................... 1
RISK FACTORS.......................... 4
SPECIAL NOTE REGARDING FORWARD-
LOOKING STATEMENTS.................. 22
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....................... 28
</TABLE>
<TABLE>
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PAGE
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<S> <C>
BUSINESS.............................. 38
MANAGEMENT............................ 54
CERTAIN TRANSACTIONS.................. 64
PRINCIPAL STOCKHOLDERS................ 67
DESCRIPTION OF CAPITAL STOCK.......... 70
SHARES ELIGIBLE FOR FUTURE SALE....... 73
UNDERWRITING.......................... 75
NOTICE TO CANADIAN RESIDENTS.......... 77
LEGAL MATTERS......................... 78
EXPERTS............................... 78
ADDITIONAL INFORMATION................ 78
INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS.......................... F-1
</TABLE>
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT. THIS
DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL TO SELL THESE SECURITIES. THE
INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE ON THE DATE OF THIS DOCUMENT.
DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL , 2000 (25 DAYS AFTER THE COMMENCEMENT 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 THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS AN
UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE> 4
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
You should read the entire prospectus carefully, including the section entitled
"Risk Factors," our consolidated financial statements and the related notes
included elsewhere in this prospectus, before making an investment decision.
ACCELERATED NETWORKS, INC.
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We develop and market telecommunications products that enable the bundling
of voice and data services over a single broadband access network. Our
multiservice broadband access products are designed to allow our customers to
efficiently and cost-effectively deliver and manage multiple voice and data
services using various broadband access technologies, including digital
subscriber line, or DSL, copper-line technologies such as T1 and NxT1, and
higher bandwidth technologies such as DS3. Our target customers are providers of
voice and/or data services, including competitive local exchange carriers, or
CLECs, interexchange carriers, or IXCs, regional bell operating companies, or
RBOCs, incumbent local exchange carriers, or ILECs, and foreign telephone
companies, all of which we refer to as service providers.
Our products enable service providers to offer their customers a broad
range of bundled voice and data services such as high speed Internet access,
local dial tone, long distance voice, frame relay, voice and data virtual
private networks, or VPNs, and other widely-used telecommunications services.
Our products also enable service providers to leverage emerging technologies,
such as voice or frame relay over DSL, over a single broadband access network.
The telecommunications industry has become increasingly competitive over
the last few years as a result of continued deregulation. Service providers that
offer only voice or data services are facing intensifying competition from those
service providers that offer both services. However, most service providers that
offer both voice and data services often have to use parallel access networks to
deliver these services, one for handling voice traffic and the other for
handling data traffic. The high underlying cost of maintaining these parallel
access networks has made it increasingly difficult for these service providers
to compete as well. In order to capture a growing share of this highly
competitive market, we believe service providers must be able to deliver
multiple voice and data services efficiently and cost-effectively to their
customers. Our products enable bundling of multiple voice and data services over
a single broadband access network, which we believe will enable service
providers to compete more effectively.
We offer a comprehensive family of multiservice broadband access products,
including our multi-service access platform, or MSAP, voice gateways, located at
a point-of-presence, or POP, our MSAP concentrators, located at a central
office, and our family of carrier-class integrated access devices, or IADs,
located at a customer premises. In addition, we offer a software-based element
management system designed to simplify the service provisioning and management
of our products. Our products are designed in accordance with relevant industry
standards to facilitate interoperability with different equipment deployed in
service provider networks. We believe this allows for efficient and seamless
installation and provides our customers with greater flexibility in designing
and deploying their networks.
Our objective is to become the leading provider of multiservice broadband
access solutions. Our strategy to achieve this includes the following key
elements:
- enhance our technology leadership;
- expand our domestic customer base;
- capitalize on international opportunities;
- broaden our distribution channels;
- continue to pursue and leverage strategic relationships; and
- facilitate deployment of multiservice broadband access networks.
1
<PAGE> 5
We began generating revenue in April 1999. Service providers that have
ordered in excess of $100,000 of our products in the last twelve months include
ACN Communications, Inc. (through Siemens ICN), Coast-to-Coast
Telecommunications, Inc. (through Siemens ICN), Cooperative Communications, CTC
Communications Group, Inc., FirstWorld Communications, Inc., MCIWorldCom, Onvoy,
Primary Network Communications and UniDial Communications, Inc.
We were incorporated in California in October 1996 and plan to
reincorporate in Delaware prior to the completion of this offering. Our
principal executive offices are located at 301 Science Drive, Moorpark,
California 93021 and our telephone number is (805) 553-9680. Our Web site is
located at http://www.acceleratednetworks.com. Information contained on our Web
site does not constitute part of this prospectus.
Accelerated Networks(TM), Accelerated Networks & Design(TM),
AccessPilot(TM), AcceleratedStart(TM), and AcceleratedTAC(TM) are our trademarks
and may be subject to pending trademark applications. All other trademarks or
service marks appearing in this prospectus are trademarks or service marks of
the respective companies that use them.
THE OFFERING
Common stock offered................ 4,000,000 shares
Common stock outstanding after this
offering(1)......................... 49,537,094 shares
Use of proceeds..................... We intend to use the net proceeds from
this offering for working capital and
other general corporate purposes.
Proposed Nasdaq National Market
symbol.............................. ACCL
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(1) The number of outstanding shares of our common stock is based on shares
outstanding as of March 31, 2000 and the other assumptions and exclusions
set forth under "Capitalization" on page 23.
------------------
You should be aware that our fiscal year ends on December 31; thus, a
reference to "fiscal 1999," for example, is to the fiscal year ended December
31, 1999. In addition, except as otherwise indicated, information in this
prospectus is based on the following assumptions:
- that each outstanding share of our redeemable convertible preferred stock
will convert into one share of common stock immediately prior to the
closing of this offering;
- that the underwriters' over-allotment option will not be exercised;
- that we will reincorporate in Delaware prior to the closing of this
offering; and
- that we will file our amended and restated certificate of incorporation
upon the closing of this offering.
For a more detailed description of technical terms used in this prospectus,
please see "Business" beginning on page 37.
2
<PAGE> 6
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth summary consolidated financial information
for Accelerated Networks, Inc. This information should be read in conjunction
with the consolidated financial statements and the notes to those consolidated
financial statements appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
FISCAL YEAR ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------------- ------------------
1997 1998 1999 1999 2000
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<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue................................... $ -- $ -- $ 8,466 $ -- $ 7,152
Cost of revenue............................... -- -- 6,312 -- 5,087
------- -------- -------- ------- --------
Gross profit.................................. -- -- 2,154 -- 2,065
Loss from operations.......................... (1,611) (10,163) (22,257) (4,047) (9,227)
Net loss...................................... (1,488) (9,711) (21,227) (3,847) (8,843)
Net loss applicable to common stockholders.... $(1,488) $ (9,711) $(21,227) $(3,847) $(18,725)
Net loss per share applicable to common
stockholders(1)
Basic and diluted........................... $ (0.42) $ (2.00) $ (3.29) $ (0.68) $ (2.44)
Weighted average shares..................... 3,550 4,853 6,447 5,694 7,664
Pro forma net loss per share applicable to
common stockholders(1)
Basic and diluted........................... $ (0.58) $ (0.22)
Weighted average shares..................... 36,789 40,797
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 2000
----------------------------------------
PRO FORMA
ACTUAL PRO FORMA(2) AS ADJUSTED(3)
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<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............................. $ 47,798 $47,798 $ 98,400
Working capital........................................ 49,586 49,586 100,188
Total assets........................................... 63,558 63,558 114,160
Capital lease obligations and credit facilities, less
current portion...................................... 1,770 1,770 1,770
Redeemable convertible preferred stock................. 88,282 -- --
Total stockholders' equity (deficit)................... (34,393) 53,889 104,491
</TABLE>
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(1) See notes 2 and 12 to the consolidated financial statements for
determination of shares used in computing basic and diluted net loss per
share and unaudited pro forma net loss per share.
(2) Pro forma to give effect to the conversion of all issued and outstanding
shares of Series A, B, C and D preferred stock into common stock.
(3) As adjusted to reflect sale of 4,000,000 shares of common stock offered
hereby at the assumed initial public offering price of $14.00 per share
after deducting the underwriting discount and estimated offering expenses
payable by us. See "Use of Proceeds" on page 22 for more information on our
intended use of the proceeds from this offering and "Capitalization" on page
23 for more information on our capital structure.
Except as otherwise noted, all information in this prospectus:
- reflects the automatic conversion of our outstanding Series A, Series B,
Series C and Series D preferred stock into common stock immediately prior
to the closing of this offering;
- reflects our anticipated reincorporation into Delaware; and
- assumes that the underwriters do not exercise the over-allotment option
granted to them.
3
<PAGE> 7
RISK FACTORS
An investment in our common stock is very risky. You should carefully
consider the risks described below, together with all of the other information
in this prospectus, before making a decision to invest in our common stock.
RISKS THAT MAY CAUSE FINANCIAL FLUCTUATIONS
WE HAVE A LIMITED OPERATING HISTORY, WHICH WILL MAKE IT DIFFICULT OR IMPOSSIBLE
FOR YOU TO PREDICT OUR FUTURE RESULTS OF OPERATIONS.
We have a very limited operating history upon which to base your investment
decision. We were incorporated in October 1996 and did not begin shipping our
products in significant volume until June 1999. Due to our limited operating
history, it is difficult or impossible to predict our future results of
operations. Investors in our common stock must consider our business, industry
and prospects in light of the risks and difficulties typically encountered by
companies in their early stages of development, particularly those in rapidly
evolving and intensely competitive markets such as the market for broadband
access equipment. In particular, you should carefully consider the specific
risks which are discussed in more detail in this section and the disclosure
elsewhere in this prospectus.
WE HAVE A HISTORY OF LOSSES AND MAY NOT BE ABLE TO GENERATE SUFFICIENT NET
REVENUE IN THE FUTURE TO ACHIEVE OR SUSTAIN PROFITABILITY.
We have incurred significant losses since inception and expect that our net
losses and negative cash flow will continue for the foreseeable future as we
grow our business. As of March 31, 2000, we had an accumulated deficit of
approximately $51.2 million. Although our net revenue has grown from zero for
the quarter ended March 31, 1999 to approximately $7.2 million for the quarter
ended March 31, 2000 and approximately $8.5 million for the year ended December
31, 1999, our net revenue may not continue to grow in the future, and we cannot
assure you that we will ever generate sufficient net revenue to achieve or
sustain profitability.
We have large fixed expenses and we expect to continue to incur significant
and increasing expenses for research and development, sales and marketing,
customer support, developing distribution channels and general and
administrative expenses. In particular, given our early stage of development,
our increasing operating expenses, and the rate at which competition in our
industry is intensifying, we may not be able to adequately control our costs and
expenses or achieve or maintain adequate operating margins. As a result, our
ability to achieve and sustain profitability will depend on our ability to
generate and sustain substantially higher revenue while maintaining reasonable
cost and expense levels. We may not be able to achieve or sustain profitability
in the future.
WE DERIVE ALMOST ALL OF OUR REVENUE FROM A SMALL NUMBER OF CUSTOMERS AND OUR
REVENUE COULD DECLINE SIGNIFICANTLY IF WE LOSE A CUSTOMER OR IF A CUSTOMER
CANCELS OR DELAYS AN ORDER.
Since we depend on a small number of customers, our revenue could be
materially and adversely impacted if we lose a customer, or if a customer
cancels or delays an order. Sales to CTC Communications Group, Inc., FirstWorld
Communications and Siemens ICN, accounted for approximately 54%, 20% and 16% of
our total revenue, respectively, for the year ended December 31, 1999 and sales
to Siemens ICN, CTC Communications Group, UniDial Communications, Inc. and
Primary Networks accounted for approximately 39%, 29%, 19% and 10% of our total
revenue, respectively, for the quarter ended March 31, 2000. Accordingly, if we
do not diversify and expand our customer base, our future success would
significantly depend upon the timing and size of future purchase orders, if any,
from our largest existing customers. In addition, if any of our customers is
acquired, we may lose its business. The loss of any one of our customers, or the
delay of a significant order from any of our customers, even if only temporary,
could, among other things, reduce or delay our recognition of revenue, harm our
4
<PAGE> 8
reputation in the industry, and reduce our ability to accurately predict
cash-flow. Any of these events could materially and adversely affect our
business, financial condition and results of operations.
IF WE FAIL TO CAPITALIZE ON OPPORTUNITIES TO WIN CONTRACTS FROM OUR KEY
CUSTOMERS, WE MAY NOT BE ABLE TO SELL PRODUCTS TO THOSE CUSTOMERS FOR AN
EXTENDED PERIOD OF TIME.
We believe that our key customers deploy their networks in large increments
and on a sporadic basis. As a result, if we fail to win a purchase contract from
a key customer, we may not have an opportunity to sell products to that customer
until its next purchase cycle, which may not be for an extended period of time.
In addition, if we fail to win contracts from key customers that are at an early
stage in their design cycle, our ability to sell products to these customers in
the future may be adversely affected because they may prefer to continue
purchasing products from their existing vendor. Since we rely on a small number
of customers for the majority of our sales, our failure to capitalize on limited
opportunities to win contracts with these customers would have a material
adverse effect on our business, results of operations and financial condition.
IF OUR REVENUE AND OPERATING RESULTS FALL BELOW ANALYSTS' AND INVESTORS'
EXPECTATIONS, OUR STOCK PRICE COULD SIGNIFICANTLY DECLINE.
Our quarterly operating results have fluctuated in the past and are likely
to fluctuate significantly in the future due to a variety of factors, many of
which are outside of our control. If our quarterly or annual operating results
do not meet the expectations of investors and securities analysts, the trading
price of our common stock could significantly decline. Some of the factors that
could affect our quarterly or annual operating results include:
- the amount and timing of orders for our products;
- the cancellation or rescheduling of significant orders for our products;
- our ability to develop, manufacture, introduce, ship and support new
products and product enhancements;
- our ability to manage product transitions and adapt to technological
advancements;
- our ability to develop, manufacture, ship and support all of our product
lines, for example, IADs, MSAP as a concentrator and MSAP as a voice
gateway.
- announcements, new product introductions and reductions in the price of
products offered by our competitors;
- our mix of products sold and the mix of distribution channels through
which our products are sold;
- the amount and timing of our research and development expenses;
- our ability to control costs;
- our ability to obtain sufficient supplies of sole or limited source
components for our products;
- changes in the prices of our components;
- our ability to attain and maintain production volumes and quality levels
for our products;
- the length and variability of the sales cycle for our products;
- our ability to realize forecasted sales for a particular period;
- the timing of recognizing revenue and deferral of revenue;
- our ability to receive and fulfill orders evenly, across any given
quarter;
- potential seasonality of our sales;
- costs relating to possible acquisitions and integration of technologies
or businesses; and
- telecommunications market conditions and economic conditions.
5
<PAGE> 9
As a result of any of these factors, it is likely that in the future, our
quarterly or annual operating results will fall below the expectations of public
market analysts and investors. In this event, the price of our common stock
could significantly decline.
OUR CUSTOMERS MAY SPORADICALLY PLACE LARGE ORDERS WITH SHORT LEAD TIMES, WHICH
MAY CAUSE OUR REVENUE AND OPERATING RESULTS TO VARY SIGNIFICANTLY FROM QUARTER
TO QUARTER.
We believe that our customers often deploy their networks in large
increments and on a sporadic basis. Accordingly, we expect to receive purchase
orders for significant dollar amounts on an irregular basis. These orders may
have short lead times. As a result, we may not have sufficient inventory to
fulfill these orders and we may incur significant costs in attempting to
expedite and fulfill these orders. Further, our revenue and operating results
may vary significantly and unexpectedly from quarter to quarter.
THE LONG SALES AND IMPLEMENTATION CYCLES FOR OUR PRODUCTS MAY CAUSE OUR REVENUE
AND OPERATING RESULTS TO VARY SIGNIFICANTLY.
A customer's decision to purchase our products often involves a significant
commitment of its resources and a lengthy evaluation and product qualification
process. As a result, our sales cycles may be lengthy and we may incur
substantial sales and marketing expenses and expend significant management
effort without any guarantee of a sale. The length of our sales cycles will vary
depending on the type of customer to whom we are selling. In particular, we
believe that our sales cycle will typically range from 1 to 3 months for CLECs,
3 to 6 months for IXCs, and 6 to 12 months for RBOCs. Even after making the
decision to purchase our products, our customers often deploy our products
slowly and deliberately. Timing of deployment can vary widely and depends on:
- the skill set of our customers;
- the size of the network deployment;
- the complexity of our customers' network environment;
- the degree of hardware and software configuration necessary to deploy our
products; and
- their ability to finance their purchase of our products as well as their
operations.
As a result, our revenue and operating results may vary significantly from
quarter to quarter.
6
<PAGE> 10
IF WE FAIL TO MANAGE OUR ORDER BACKLOG, NEW ORDERS AND SHIPMENT SCHEDULES FOR
EACH QUARTER OUR OPERATING RESULTS FOR THAT PERIOD WILL BE ADVERSELY AFFECTED.
We recognize revenue when our products are shipped and the linearity of our
revenue will depend on our ability to receive and fulfill orders evenly across
any given quarter. To date, our order backlog at the beginning of each quarter
has not been significant and we expect this trend to continue for the
foreseeable future. Accordingly, we must obtain additional orders in a quarter
for shipment in that quarter to achieve our revenue objectives. Our sales
agreements may allow purchasers to delay scheduled delivery dates without
penalty. Further, our customer purchase orders allow purchasers to cancel orders
within negotiated time frames without significant penalty. In addition, due in
part to factors such as the timing of product release dates, purchase orders and
product availability, significant volume shipments of our products could occur
at the end of our fiscal quarters. If we fail to ship products by the end of a
quarter our operating results may be materially and adversely affected for that
quarter. In the past, we have experienced cancellation of orders, resulting in
additional costs and expenses.
IF WE FAIL TO INCREASE OUR REVENUE, OR IF WE EXPERIENCE DELAYS IN GENERATING OR
RECOGNIZING REVENUE, WE COULD INCUR SUBSTANTIAL OPERATING LOSSES.
We plan to significantly increase our operating expenses to fund greater
levels of research and development, expand our sales and marketing operations,
broaden our customer support capabilities and develop new distribution channels.
We also plan to expand our general and administrative capabilities to address
the demands resulting from this offering and the continued growth of our
business. Our operating expenses are largely based on anticipated personnel
requirements and revenue trends, and a high percentage of our expenses are, and
will continue to be, fixed. In addition, we may be required to spend more in
research and development than originally budgeted in order to respond to
industry trends. We may also incur significant new costs related to possible
acquisitions and the integration of new technologies. As a result, if we fail to
increase our revenue, or if we experience delays in generating or recognizing
revenue results we could incur substantial operating losses.
IF WE FAIL TO MANAGE THE GROWTH OF OUR OPERATIONS, OUR BUSINESS WILL BE
ADVERSELY AFFECTED.
We have rapidly and significantly expanded our operations and expect to
continue to do so. This expansion is placing a significant strain on our
managerial, operational and financial resources. During 1999, we increased the
number of our employees from 63 to 174. Most of our existing senior management
personnel joined us within the last 18 months, including a number of key
managerial, technical and operations personnel whom we have not yet fully
integrated. We expect to add additional key personnel in these areas in the near
future. To manage the expected growth of our operations and personnel, we will
be required to:
- improve existing and implement new operational, financial and management
controls, reporting systems and procedures;
- expand access to additional manufacturing capacity;
- hire, train, motivate and manage our personnel; and
- effectively manage multiple relationships with our customers, suppliers
and other parties.
In addition, we will need to coordinate our domestic and international
operations and establish the necessary infrastructure to implement our
international strategy. If we are not able to accomplish the foregoing in an
efficient and timely manner, our business, financial condition and results of
operations will be materially and adversely affected.
7
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IF WE FAIL TO ENHANCE OUR EXISTING PRODUCTS OR DEVELOP AND INTRODUCE NEW
PRODUCTS THAT MEET CHANGING CUSTOMER REQUIREMENTS AND TECHNOLOGICAL ADVANCES,
OUR ABILITY TO SELL OUR PRODUCTS WOULD BE MATERIALLY AND ADVERSELY AFFECTED.
Our markets are characterized by rapid technological advances, evolving
industry standards, changes in end-user requirements, frequent new product
introductions and changes in voice and data service offerings by service
providers. Our future success will significantly depend on our ability to
anticipate or adapt to such changes and to offer, on a timely and cost-effective
basis, products that meet changing customer demands and industry standards. The
timely development of new or enhanced products is a complex and uncertain
process and we may not have sufficient resources to successfully and accurately
anticipate technological and market trends, or to successfully manage long
development cycles. We may also experience design, manufacturing, marketing and
other difficulties that could delay or prevent our development, introduction or
marketing of new products and enhancements. The introduction of new or enhanced
products also requires that we manage the transition from older products to
these new or enhanced products in order to minimize disruption in customer
ordering patterns and ensure that adequate supplies of new products are
available for delivery to meet anticipated customer demand. We may also be
required to collaborate with third parties to develop our products and may not
be able to do so on a timely and cost-effective basis, if at all. If we are not
able to develop new products or enhancements to existing products on a timely
and cost-effective basis, or if our new products or enhancements fail to achieve
market acceptance, our business, financial condition and results of operations
would be materially and adversely affected.
OUR ABILITY TO OPERATE AND GROW OUR BUSINESS MAY BE HARMED IF WE ARE UNABLE TO
DEVELOP AND MAINTAIN STRATEGIC RELATIONSHIPS WITH THIRD PARTIES.
Our success will substantially depend on our ability to develop and
maintain strategic relationships. For example, it is important that we continue
to leverage our OEM relationship with Siemens to support both our domestic and
planned international distribution and sales operations. Our strategic
relationships are relatively new, and we cannot be certain that any revenue will
be derived from those arrangements. The amount and timing of resources which our
strategic partners devote to our business is not within our control and our
strategic partners may not perform their obligations as expected. In the event
that any strategic partner breaches or terminates its relationship with us, we
may not be able to sustain or grow our business. We may also not be able to
maintain or develop strategic relationships or to replace strategic partners.
IF WE ARE UNABLE TO RETAIN AND HIRE ADDITIONAL QUALIFIED PERSONNEL, WE MAY NOT
BE ABLE TO SUCCESSFULLY ACHIEVE OUR OBJECTIVES.
Our success depends to a significant degree upon the continued
contributions of the principal members of our sales, marketing, engineering and
management personnel, many of whom perform important management functions and
would be difficult to replace. None of our officers or key employees is bound by
an employment agreement for any specific term and, except for Suresh Nihalani,
our President and Chief Executive Officer, we do not have "key person" life
insurance policies covering any of our employees. The loss of the services of
any key personnel, particularly senior management, sales personnel and
engineers, could materially adversely affect our business, financial condition
and results of operations.
In addition, our growth and expansion of operations has placed significant
demands on our management, engineering, sales and marketing staff and
facilities. We will need to hire additional personnel in each of these areas to
continue to grow our business. Recruiting qualified personnel in our industry is
intensely competitive and time-consuming. In particular, we have experienced
difficulty in hiring hardware, software, system and test and customer support
engineers. We believe that we will continue to experience difficulty in
recruiting and retaining qualified personnel in the future. If we are not able
to attract and retain the necessary personnel, we will not be able to operate
and grow our business.
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IF WE DO NOT SUBSTANTIALLY EXPAND OUR SALES AND MARKETING OPERATIONS, WE WILL
NOT BE ABLE TO ACHIEVE BRAND AWARENESS FOR OUR PRODUCTS AND GENERATE ADDITIONAL
SALES.
Our products and services are generally of a highly technical nature and
therefore require a sophisticated sales effort targeted at several key people
within each of our prospective customers' organizations. We have recently
expanded our direct sales force and plan to hire additional qualified sales
personnel and system and consulting engineers. We might not be able to hire the
kind and number of sales personnel and system and consulting engineers we need.
Similarly, our marketing efforts must be highly focused on creating brand
awareness. These efforts require significant marketing resources, including
technically-proficient personnel and substantial marketing budgets. We may not
be able to hire and retain the required personnel. Further, many of our
competitors have significantly larger marketing budgets than we have. As a
result, we may not be able to create sufficient brand awareness to generate
additional sales of our products.
IF WE ARE NOT ABLE TO ESTABLISH RELATIONSHIPS WITH A VARIETY OF DISTRIBUTION
PARTNERS, WE MAY NOT BE ABLE TO INCREASE OUR SALES AND GROW OUR BUSINESS.
We believe that our future success is dependent upon establishing
successful relationships with a variety of distribution partners. To date, we
have entered into an agreement with one distribution partner, Siemens ICN. While
entities affiliated with Siemens ICN will own approximately 18.4% of our
outstanding shares after this offering, Siemens ICN also sells products that
compete with our products and we cannot assure you that it will devote adequate
resources to distributing our products. We also cannot be certain that we will
be able to reach agreement with additional distribution partners on a timely
basis or at all, or that any of our current or future distribution partners will
devote adequate resources to selling our products. If we cannot establish these
relationships, we may not be able to increase our sales and grow our business.
IF INSTALLATION OF OUR MSAP CONCENTRATORS AT CENTRAL OFFICES ARE DELAYED, OUR
REPUTATION MAY BE HARMED AND WE MAY LOSE SALES.
Our MSAP concentrators are generally installed at carrier central offices.
In many cases, deployment of our equipment at carrier central offices is
intended to facilitate the provisioning of services which compete with the
carrier's services. Therefore, carriers may have an incentive to withhold or
delay installations of our MSAP concentrators. While we believe that current
regulations and laws require these carriers to cooperate in allowing
installation of our equipment, any delay, whether justified or not, will
adversely affect our customers' ability to deploy our equipment, which in turn
would adversely affect our reputation and result in lost sales. This would
result in a material adverse effect on our business, results of operations and
financial condition.
WE HAVE NO SIGNIFICANT EXPERIENCE OPERATING IN INTERNATIONAL MARKETS AND WE MAY
NOT BE ABLE TO SUCCESSFULLY ESTABLISH AND MANAGE OUR INTERNATIONAL OPERATIONS.
We intend to expand our international operations and enter new markets.
This expansion will require significant management attention and financial
resources. We have only recently launched our international sales operations in
Canada and Europe. As a result, we have limited experience in marketing and
distributing our products internationally and in developing versions of our
products that comply with local standards. In addition, our international
operations will be subject to other inherent risks, including:
- difficulties and costs of staffing and managing foreign operations;
- certification requirements;
- longer sales cycles;
- expenses associated with customizing products for foreign countries;
- dependence on local vendors;
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- dependence on our ability to establish and maintain strategic
relationships with international distribution partners;
- protectionist laws and business practices that favor local competition;
- reduced protection for intellectual property rights in some countries;
- difficulties associated with enforcing agreements through foreign legal
systems;
- greater difficulty in collecting accounts receivable;
- fluctuations in currency exchange rates;
- unexpected changes in regulatory requirements;
- the impact of recessions in economies outside the United States;
- political and economic instability;
- import or export licensing requirements; and
- potential adverse tax consequences.
IF OUR PRODUCTS CONTAIN UNDETECTED SOFTWARE OR HARDWARE ERRORS, WE COULD INCUR
SIGNIFICANT UNEXPECTED EXPENSES AND LOST SALES.
Our products are highly technical and are designed to be deployed in very
large and complex networks. Although we have thoroughly tested our products,
because of their nature, they can only be fully tested when deployed in networks
which generate high amounts of voice and/or data traffic. Because of our short
operating history, our products have not yet been broadly deployed.
Consequently, our customers may discover errors or defects in our products after
they have been broadly deployed. In addition, our customers may use our products
in conjunction with products from other vendors. As a result, when problems
occur, it may be difficult to identify the source of the problem. Any defects or
errors in our products discovered in the future, or failures of our customers'
networks, whether caused by our products or another vendor's products, could
result in:
- loss of, or delay in, revenue and loss of market share;
- product returns;
- negative publicity regarding us and our products;
- unexpected expenses to remedy errors;
- diversion of our development resources;
- increased service warranty, costs and repair; and
- increased insurance costs.
Any of the above items could have a material adverse effect on our
business, results of operations and financial condition.
IF OUR PRODUCTS CONTAIN DEFECTS, WE COULD BE EXPOSED TO SIGNIFICANT PRODUCT
LIABILITY CLAIMS AND DAMAGE TO OUR REPUTATION.
Because our products are designed to provide critical communications
services, we may be subject to significant liability claims. Our agreements with
customers typically contain provisions intended to limit our exposure to
liability claims. However, these limitations may not preclude all potential
claims resulting from a defect in one of our products. Although we believe that
we maintain adequate product liability insurance covering certain damages
arising from implementation and use of our products, our insurance may not be
sufficient to cover us against all possible liability. Liability claims could
also require us to spend significant time and money in litigation or to pay
significant damages. As a result, any such claims,
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whether or not successful, could seriously damage our reputation and have a
material adverse effect on our business, financial condition and results of
operations.
IF WE DO NOT SUBSTANTIALLY EXPAND OUR CUSTOMER SERVICE AND SUPPORT ORGANIZATION,
WE WILL NOT BE ABLE TO PROVIDE THE LEVEL OF SERVICE REQUIRED TO ESTABLISH STRONG
RELATIONSHIPS WITH OUR CUSTOMERS.
The nature of our business requires us to develop strong relationships with
our customers, which will depend on our ability to provide our customers with a
high level of service and support. The complexity of our products requires us to
have highly trained customer service and support personnel. We currently have a
small customer service and support organization, and we will need to increase
these resources to support the expanding needs of our existing customers as well
as new customers. Hiring customer service and support personnel in our industry
is very competitive due to the limited number of people available with the
necessary technical skills and understanding of our technologies. If we are
unable to expand our customer service and support organization, our customers
may become dissatisfied and our reputation could be harmed. These events would
prevent us from increasing sales to existing or new customers.
BECAUSE WE DEPEND UPON A SMALL NUMBER OF OUTSIDE CONTRACTORS TO MANUFACTURE OUR
PRODUCTS, OUR OPERATIONS COULD BE DELAYED OR INTERRUPTED IF WE ENCOUNTER
PROBLEMS WITH THEM.
We currently rely on Avnet, Inc., A-Plus Manufacturing and Arrow
Electronics to build our products. We do not have internal manufacturing
capabilities. Our reliance on these manufacturers involves a number of risks,
including the absence of adequate capacity, the unavailability of or
interruptions in access to certain process technologies and reduced control over
component availability, delivery schedules, manufacturing yields and costs. If
Avnet, A-Plus or Arrow is unable or unwilling to continue manufacturing our
products in required volumes and at high quality levels, we will have to
identify, qualify and select acceptable alternative manufacturers, which could
take more than six months. It is possible that an alternate source may not be
available to us when needed or be in a position to satisfy our production
requirements at acceptable prices and quality. Any significant interruption in
manufacturing would result in us having to reduce our supply of products to our
customers, which in turn could have a material adverse effect on our customer
relations, business, financial condition and results of operations. Avnet, Arrow
and A-Plus also build products for other companies, and we cannot be certain
that they will always have sufficient quantities of inventory available to fill
orders placed by our customers, or that they will allocate their internal
resources to fill our orders on a timely basis.
We currently do not have a long-term supply contract with Avnet, A-Plus or
Arrow. Qualifying a new contract manufacturer and commencing volume production
is expensive and time consuming. If we are required or choose to change contract
manufacturers, our revenue may decline and our customer relationships may be
damaged.
We may not be able to effectively manage our relationships with our
contract manufacturers and they may not meet our future requirements for timely
delivery. Any interruption in the operations of our contract manufacturers would
adversely affect our ability to meet our scheduled product deliveries to our
customers, which could cause the loss of existing or potential customers and
could materially adversely affect our business, results of operations and
financial condition. In addition, if our contract manufacturers fail to build
products with sufficient quality, our reputation, business, results of
operations and financial condition will be harmed.
IF WE FAIL TO ACCURATELY PREDICT OUR MANUFACTURING REQUIREMENTS, WE COULD INCUR
ADDITIONAL COSTS OR EXPERIENCE MANUFACTURING DELAYS.
We do not have long-term supply contracts with our contract manufacturers.
Consequently, these manufacturers are not obligated to supply products to us for
any specific period, in any specific quantity or at any certain price, except as
may be provided in a particular purchase order. We currently provide forecasts
of our demand to our contract manufacturers 12 months prior to scheduled
delivery of products to our customers. Lead times for the materials and
components that we order vary significantly and depend
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on numerous factors, including the specific supplier, contract terms and demand
for a component at a given time. If we overestimate our component requirements,
our contract manufacturers may purchase excess inventory. For those parts which
are unique to our products, we could be required to pay for these excess parts
and recognize related inventory write-down costs. If we underestimate our
requirements, our contract manufacturers may have an inadequate inventory, which
could interrupt manufacturing of our products and result in delays in shipments
and revenue. We also may experience shortages of certain components from time to
time, which also could delay the manufacturing of our products and recognition
of revenue.
WE DEPEND ON SOLE SOURCE AND LIMITED SOURCE SUPPLIERS FOR KEY COMPONENTS, AND IF
WE ARE UNABLE TO BUY THESE COMPONENTS ON A TIMELY BASIS, WE WILL NOT BE ABLE TO
DELIVER OUR PRODUCTS TO OUR CUSTOMERS.
Several of the key components used in our products, including field
programmable gate arrays, DSL transreceivers, microprocessors, digital signal
processors and custom power supplies, are sourced from single or limited sources
of supply. These suppliers range from small vendors to large established
companies. We do not have guaranteed supply arrangements with most of our key
suppliers, and we or our contract manufacturers may not be able to obtain
necessary supplies in a timely manner. Financial or other difficulties faced by
these suppliers or significant changes in demand for these components could
limit the availability of these components. In addition, any of our sole-source
suppliers could be acquired by, or enter into exclusive arrangements with, our
competitors, stop selling their products or components to us at commercially
reasonable prices, or refuse to sell their products or components to us
altogether. Any interruption or delay in the supply of any of these components,
or the inability to obtain these components from alternate sources at acceptable
prices and within a reasonable amount of time, would adversely affect our
ability to meet scheduled product deliveries to our customers and would
materially adversely affect our business, results of operations and financial
condition. As much as six months could be required before we would begin
receiving adequate supplies from alternative suppliers, if any. In addition,
qualifying additional suppliers is time-consuming and expensive and exposes us
to potential supplier production difficulties or quality variations.
It is also possible that a source may not be available for us or be in a
position to satisfy our production requirements at acceptable prices and on a
timely basis, if at all, which could have a material adverse effect on our
business, financial condition and results of operations.
WE MAY INVEST A SIGNIFICANT AMOUNT OF OUR RESOURCES TO DEVELOP, MARKET AND SELL
OUR PRODUCTS AND MAY NOT REALIZE ANY RETURN ON THIS INVESTMENT.
We plan to invest a significant amount of our resources to develop, market
and sell our products. Accordingly, our success will depend on our ability to
generate sufficient revenue from sales of these products to offset the expenses
associated with developing, marketing and selling them. There are many risks
that we face in doing so. In particular, the rapidly changing technological
environment in which we operate can require the frequent introduction of new
products, resulting in short product lifecycles. Accordingly, if our products do
not quickly achieve market acceptance, they may become obsolete before we have
generated enough revenue from their sales to realize a sufficient return on our
investment.
As a result, we may incur significant expenses and losses due to lack of
customer demand, unusable purchased components for these products and the
diversion of our engineers from future product development efforts. From time to
time we may also need to write-off excess and obsolete inventory. We recorded
charges totaling $264,000 for the year ended December 31, 1999 to take into
consideration excess inventory levels and obsolete inventory. If we incur
substantial development, sales, marketing and inventory expenses that we are not
able to recover, and we are not able to compensate for such expenses, our
business, financial condition and results of operations could be materially and
adversely affected.
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IF THE DEVELOPMENT AND ADOPTION OF RELEVANT INDUSTRY STANDARDS DO NOT OCCUR ON A
TIMELY BASIS, OUR PRODUCTS MAY NOT ACHIEVE MARKET ACCEPTANCE.
Our ability to achieve market acceptance for our products will also depend
on the timing and adoption of industry standards for new technologies in our
markets. Many technological developments occur prior to the adoption of relevant
industry standards. The absence of an industry standard related to a specific
technology may prevent widespread market acceptance of products using that
technology. The existence of multiple competing standards may also retard or
delay the development of a broad market for our products. We may develop
products that use new technologies prior to the adoption of industry standards
related to these technologies. Consequently, our products may not comply with
eventual industry standards, which could hurt our ability to sell these products
and also require us to quickly design and manufacture new products that meet
these standards. Even after industry standards are adopted, the future success
of our products depends upon widespread market acceptance of their underlying
technologies.
OUR INABILITY TO PROTECT OUR INTELLECTUAL PROPERTY COULD ADVERSELY AFFECT OUR
ABILITY TO COMPETE.
Our success and ability to compete substantially depend on our proprietary
technology. Despite our efforts to protect our proprietary rights, existing
copyright, trademark and trade secret laws afford us only limited protection.
Any infringement of our proprietary rights could result in significant
litigation costs, and any failure to adequately protect our proprietary rights
could result in our competitors offering similar products, potentially resulting
in loss of a competitive advantage and decreased revenue. We rely on a
combination of patent, copyright, trademark and trade secret laws, as well as
confidentiality agreements and licensing arrangements, to establish and protect
our proprietary rights. We presently have no patents, although we have six
patent applications pending. In addition, the laws of certain foreign countries
do not protect our proprietary rights to the same extent as do the laws of the
United States. Attempts may be made to copy or reverse engineer aspects of our
products or to obtain and use information that we regard as proprietary.
Accordingly, we may not be able to protect our proprietary rights against
unauthorized third-party copying or use. Furthermore, policing the unauthorized
use of our products is difficult. Litigation may be necessary in the future to
enforce our intellectual property rights, to protect our trade secrets or to
determine the validity and scope of the proprietary rights of others. Such
litigation could result in substantial costs and diversion of resources and
could have a material adverse effect on our business, financial condition and
operating results.
WE COULD BECOME SUBJECT TO LITIGATION REGARDING INTELLECTUAL PROPERTY RIGHTS
WHICH COULD SERIOUSLY HARM OUR BUSINESS.
Our industry is characterized by frequent intellectual property litigation
based on allegations of infringement of intellectual property rights. From time
to time, third parties may assert patent, copyright, trademark and other
intellectual property rights to technologies or rights that are important to our
business. In addition, in our agreements, we may agree to indemnify our
customers for any expenses or liabilities resulting from claimed infringements
of patents, trademarks or copyrights of third parties. Any claims asserting that
our products infringe or may infringe on proprietary rights of third parties,
with or without merit, could be time-consuming, resulting in costly litigation
and diverting the efforts of our technical and management personnel. These
claims could also result in product shipment delays or require us to modify our
products or enter into royalty or licensing agreements. Such royalty or
licensing agreements, if required, may not be available on terms acceptable to
us, if at all.
Although we are not aware of any intellectual property claims against us,
we may be a party to litigation in the future. We also cannot assure you that we
would prevail in any such actions, given their complex technical issues and
inherent uncertainties. Although we carry general liability insurance, our
insurance may not cover potential claims of this type or may not be adequate to
indemnify us for all liability that may be imposed. For more information
concerning our intellectual property rights, please see
"Business -- Intellectual Property" on page 51.
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IF WE BECOME SUBJECT TO UNFAIR HIRING CLAIMS WE COULD INCUR SUBSTANTIAL COSTS IN
DEFENDING OURSELVES.
Companies in our industry whose employees accept positions with competitors
frequently claim that their competitors have engaged in unfair hiring practices.
We have received claims of this kind in the past and we cannot assure you that
we will not receive claims of this kind in the future or that those claims will
not result in material litigation. We could incur substantial costs in defending
ourselves against these claims, regardless of their merits, which would have a
material and adverse effect on our business, financial condition and results of
operations.
POTENTIAL ECONOMIC AND POLITICAL INSTABILITY IN INDIA COULD ADVERSELY AFFECT OUR
PRODUCT DEVELOPMENT EFFORTS.
We believe that we currently receive favorable tax and tariff treatment for
our product development activities in India. However, if political instability
in India results in a government adverse to foreign corporate activity, a number
of adverse consequences could occur, including higher tariffs, taxes or export
controls, and increased governmental ownership or regulation, any of which would
increase our costs of product development. In addition, we record expenses for
our subsidiary in India in Indian Rupees. Accordingly, our operating results are
also exposed to changes in exchange rates between the U.S. dollar and Indian
Rupee. While to date, our results have not materially been affected by any
changes in currency exchange rates, devaluation of the U.S. dollar against the
Indian Rupee would adversely affect our expenses for our Indian subsidiary.
OUR BUSINESS COULD BE SHUT DOWN OR SEVERELY IMPACTED IF A NATURAL DISASTER
OCCURS.
Our business and operations depend on the extent to which our facility and
products are protected against damage from fire, earthquakes, power loss, and
similar events. Despite precautions taken by us, a natural disaster or other
unanticipated problem could, among other things, hinder our research and
development efforts, delay the shipment of our products and affect our ability
to receive and fulfill orders. For example, since we perform all of our final
assembly and tests in one location, any fire or other disaster at our assembly
facility would have a material adverse effect on our business, results of
operations and financial condition. While we believe that our insurance policy
is comparable to those of similar companies in our industry, it does not cover
all natural disasters, in particular, earthquakes or floods.
IF WE ENCOUNTER SIGNIFICANT YEAR 2000 PROBLEMS WITH OUR PRODUCTS, CUSTOMERS OR
VENDORS, OUR BUSINESS MAY BE ADVERSELY AFFECTED.
Although we are not aware of any Year 2000 issues to date associated with
our products or with our customers or vendors, we cannot assure you that these
issues will not arise in the future. If we experience significant unanticipated
problems and costs associated with Year 2000 compliance, our business, results
of operations and financial condition could be materially and adversely
affected. In addition, we have not developed, and do not plan to develop, any
contingency plan to address any Year 2000 situations that may result.
RISKS ASSOCIATED WITH THE BROADBAND ACCESS INDUSTRY
INTENSE COMPETITION COULD PREVENT US FROM INCREASING OR SUSTAINING OUR REVENUE
AND PREVENT US FROM ACHIEVING OR SUSTAINING PROFITABILITY.
The market for multiservice broadband access products is highly
competitive. We compete directly with numerous companies, including Alcatel SA,
Cisco Systems, Inc., CopperCom, Inc., Copper Mountain Networks, Inc., Jetstream
Communications, Inc., Lucent Technologies, Inc., Nokia, Nortel Networks, Inc.
and Tollbridge Technologies, Inc. Many of our current and potential competitors
have longer operating histories, significantly greater selling and marketing,
technical, manufacturing, financial, customer support, professional services and
other resources, including vendor-sponsored financing programs. As a result,
these competitors are able to devote greater resources to the development,
promotion, sale and support of their
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products. Moreover, our competitors may foresee the course of market
developments more accurately than we do and could develop new technologies that
compete with our products or even render our products obsolete. We may not have
sufficient resources to continue to make the investments or achieve the
technological advances necessary to compete successfully with existing or new
competitors. In addition, due to the rapidly evolving markets in which we
compete, additional competitors with significant market presence and financial
resources, including other large telecommunications equipment manufacturers, may
enter our markets, thereby further intensifying competition.
The markets in which we compete are characterized by increasing
consolidation, as exemplified by the recent acquisitions of Promatory
Communications, Inc., by Nortel Networks and FlowPoint Corporation by Efficient
Networks, Inc. and the recently announced acquisitions of PairGain Technologies,
Inc. by ADC Telecommunications, Inc., Newbridge Networks Corp. by Alcatel and
NetScreen Technologies, Inc. by Efficient Networks. We cannot predict how
industry consolidation will affect our competitors and we may not be able to
compete successfully in an increasingly consolidated industry. Additionally,
because we may be dependent on strategic relationships with third parties in our
industry, any consolidation involving these parties could reduce the demand for
our products and otherwise harm our business prospects. Our competitors that
have large market capitalizations or cash reserves are also better positioned
than we are to acquire other companies, including our competitors, thereby
obtaining new technologies or products that may displace our product lines. Any
of these acquisitions could give our competitors a strategic advantage that
would materially and adversely affect our business, financial condition and
results of operations.
In addition, many of our competitors have much greater name recognition and
have a more extensive customer base, broader customer relationships, significant
financing programs, and broader product offerings than we do. These companies
can adopt aggressive pricing policies and leverage their customer bases and
broader product offerings to gain market share. We have encountered, and expect
to continue to encounter, potential customers that, due to existing
relationships with our competitors, are committed to the product offerings of
these competitors. As a result, these potential customers may not consider
purchasing our products.
We expect that competitive pressures will result in price reductions,
reduced margin and loss of market share, which would materially and adversely
affect our business, financial condition and results of operations. Please see
"Business -- Competition" on page 50 for more information on our competitors.
SALES OF OUR PRODUCTS DEPEND ON THE WIDESPREAD ADOPTION OF MULTISERVICE
BROADBAND ACCESS SERVICES AND IF THE DEMAND FOR MULTISERVICE BROADBAND ACCESS
SERVICES DOES NOT DEVELOP, THEN OUR RESULTS OF OPERATIONS AND FINANCIAL
CONDITION WOULD BE ADVERSELY AFFECTED.
Our business would be harmed, and our results of operations and financial
condition would be adversely and materially affected, if the demand for
multiservice broadband access services does not increase as rapidly as we
anticipate, or if our customers' multiservice broadband access service offerings
are not well received in the marketplace. Certain critical factors will likely
continue to affect the development of the multiservice broadband access services
market. These factors include:
- demand for broadband access;
- the development of a viable business model for multiservice broadband
access services, including the capability to market, sell, install and
maintain these services;
- the extent that service providers are unable to deploy broadband access
using DSL due to delays or other difficulties in gaining access to the
copper-pair infrastructure from ILECs;
- cost constraints, such as installation, space and power requirements at
carrier central offices;
- ability to interoperate with equipment from multiple vendors in service
provider networks;
- evolving industry standards for DSL, T1 and other transmission
technologies;
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- varying and uncertain conditions of the copper-pair infrastructure,
including size and length, electrical interference, and crossover
interference with voice and data telecommunications services; and
- domestic and foreign government regulation.
Even if these factors are adequately addressed, the market for multiservice
broadband access services may fail to develop or may develop more slowly than
anticipated. This could happen for a number of reasons. For instance, if our
customers, particularly CLECs, fail to obtain sufficient capital, personnel and
other resources to operate and grow their business or fail to execute their
business plans, our market may fail to develop or may develop more slowly than
anticipated. As a result, our business would be harmed, and our results of
operations and financial condition would be adversely affected.
IF OUR PRODUCTS ARE NOT INTEROPERABLE WITHIN OUR CUSTOMERS' NETWORKS, ORDERS
WILL BE DELAYED OR CANCELLED AND COULD RESULT IN SUBSTANTIAL PRODUCT RETURNS,
WHICH COULD SERIOUSLY HARM OUR BUSINESS.
Many of our customers require that our products be designed to interface
with their existing networks, each of which may have different specifications
and utilize multiple protocol standards. Our customers' networks may contain
multiple generations of products from different vendors that have been added
over time as their networks have grown and evolved. Our products may be required
to interoperate with these products as well as with future products in order to
meet our customers' requirements. In some cases, we may be required to modify
our product designs to achieve a sale, which may result in a longer sales cycle,
increased research and development expense, and reduced operating margins. If
our products do not interoperate with existing equipment in our customers'
networks, installations could be delayed, orders for our products could be
cancelled or our products could be returned. This could have a material adverse
effect on our business, financial condition and results of operations.
IF WE FAIL TO COMPLY WITH REGULATIONS AND EVOLVING INDUSTRY STANDARDS, SALES OF
OUR EXISTING AND FUTURE PRODUCTS COULD BE ADVERSELY AFFECTED.
The markets for our products are characterized by a significant number of
communications regulations and standards, some of which are evolving as new
technologies are deployed. Our customers may require our products to comply with
various standards, including those promulgated by the Federal Communications
Commission, or FCC, standards established by Underwriters Laboratories and
Telcordia Technologies or proprietary standards promoted by our competitors. In
addition, our key competitors may establish proprietary standards which they do
not make available to us. As a result, we may not be able to achieve
interoperability with their products. Internationally, we may also be required
to comply with standards established by telecommunications authorities in
various countries as well as with recommendations of the International
Telecommunication Union.
Our customers may also require, or we may otherwise deem it necessary or
advisable, that we modify our products to address actual or anticipated changes
in the regulatory environment. Failure of our products to comply, or delays in
compliance, with the various existing, anticipated, and evolving industry
regulations and standards could adversely affect sales of our existing and
future products. Moreover, the enactment of new laws or regulations, changes in
the interpretation of existing laws or regulations or a reversal of the trend
toward deregulation in the telecommunications industry, could have a material
adverse effect on our customers, and thereby materially adversely affect our
business, financial condition and results of operations.
OUR CUSTOMERS ARE SUBJECT TO GOVERNMENT REGULATION, AND CHANGES IN CURRENT OR
FUTURE LAWS OR REGULATIONS THAT NEGATIVELY IMPACT OUR CUSTOMERS COULD HARM OUR
BUSINESS.
The jurisdiction of the FCC extends to the entire communications industry,
including our customers. Future FCC regulations affecting the broadband access
industry, our customers, or their service offerings, may harm our business. For
example, FCC regulatory policies that affect the availability of data and
Internet services may impede our customers' penetration into certain markets or
affect the prices that they
16
<PAGE> 20
are able to charge. In addition, international regulatory bodies are beginning
to adopt standards and regulations for the broadband access industry. These
domestic and foreign standards and regulations address various aspects of
Internet use, including issues over invasion of privacy, the security of data
transmitted over the Internet, and taxation of e-commerce. Resulting standards
and regulations, or judgments in favor of plaintiffs in lawsuits against service
providers, e-commerce and other Internet companies, could adversely affect the
development of e-commerce and other uses of the Internet. This, in turn, could
directly or indirectly materially adversely impact the broadband
telecommunications and data industry in which our customers operate. To the
extent our customers are adversely affected by laws or regulations regarding
their business, products or service offerings, this could result in a material
and adverse effect on our business, financial condition and results of
operations.
IF NECESSARY LICENSES OF THIRD-PARTY TECHNOLOGY ARE NOT AVAILABLE TO US OR ARE
VERY EXPENSIVE, WE MAY NOT BE ABLE TO DEVELOP NEW PRODUCTS OR PRODUCT
ENHANCEMENTS, WHICH WOULD SERIOUSLY IMPAIR OUR ABILITY TO COMPETE EFFECTIVELY.
From time to time we may be required to license technology from third
parties to develop new products or product enhancements. We cannot assure you
that these third-party licenses will be available to us on commercially
reasonable terms, if at all. Our inability to obtain necessary third-party
licenses may force us to obtain substitute technology of lower quality or
performance standards or at greater cost, any of which could seriously harm the
competitiveness of our products and which would result in a material and adverse
effect on our business, financial condition and results of operations.
IF THIRD-PARTY SUPPLIERS DO NOT CONTINUE TO DEVELOP NEW COMPONENTS THAT WE RELY
ON FOR FUTURE PRODUCTS, WE MAY NOT BE ABLE TO OFFER COMPETITIVE PRODUCTS.
Some of our planned future products will rely on components developed by
third parties, such as higher bandwidth switch fabrics. If these components fail
to be developed by third parties in a timely basis, or at all, or if they are
not otherwise made available to us, we may not be able to offer new products
which are competitive. In this event, our business, financial condition and
results of operations could be materially and adversely affected.
ADDITIONAL RISKS THAT MAY AFFECT OUR STOCK PRICE
OUR STOCK PRICE MAY BE VOLATILE AND YOU MAY NOT BE ABLE TO RESELL OUR SHARES AT
OR ABOVE THE PRICE YOU PAID, OR AT ALL.
There has previously not been a public market for our common stock. We
cannot predict the extent to which investor interest in our stock will lead to
the development of a trading market or how liquid that market might become. The
initial public offering price for the shares will be determined by negotiations
between us and the representatives of the underwriters and may not be indicative
of prices that will prevail in the trading market. The trading price of our
common stock could be subject to wide fluctuations in response to factors such
as:
- actual or anticipated variations in quarterly operating results;
- our loss of a customer;
- changes in financial estimates by securities analysts;
- failure to meet analyst predictions and projections;
- changes in market valuations of broadband access equipment companies;
- changes in market valuations of networking and telecommunications
companies;
- continued growth of the Internet and e-commerce;
- announcements of technological innovations;
- new products or services offered by us or our competitors;
17
<PAGE> 21
- announcements of significant acquisitions, strategic partnerships, joint
ventures or capital commitments by us or our competitors;
- additions or departures of key personnel;
- our sales of common stock or other securities in the future; and
- other events or factors, many of which are beyond our control.
In addition, the stock market in general, and the Nasdaq National Market
and technology companies in particular, have experienced extreme price and
volume fluctuations that have often been unrelated or disproportionate to the
operating performance of such companies. The trading prices and valuations of
many technology companies' stocks are at or near historical highs, which are
substantially above historical levels. These trading prices and valuations may
not be sustainable. These broad market and industry factors may materially
adversely affect the market price of our common stock, regardless of our actual
operating performance.
In addition, in the past, following periods of volatility in the overall
market and market price of a company's securities, securities class action
litigation has often been instituted against these companies. Such litigation,
if instituted, could result in substantial costs and a diversion of our
management's attention and resources, which would materially and adversely
affect our business, financial condition and results of operations.
IF WE ENGAGE IN FUTURE ACQUISITIONS OR STRATEGIC INVESTMENTS, OUR STOCKHOLDERS
COULD BE DILUTED, WE COULD INCUR ADDITIONAL DEBT AND WE COULD ASSUME ADDITIONAL
CONTINGENT LIABILITIES.
We may review acquisition prospects and strategic investments that would
complement our current product offerings, augment our market coverage or enhance
our technical capabilities, or that may otherwise offer growth opportunities.
Any such acquisitions or investments could significantly dilute our investors.
While we have no current agreements or negotiations underway with respect to any
such acquisitions or strategic investments, we may acquire or make investments
in businesses, products or technologies in the future. In this case, we could:
- issue equity securities which would dilute current stockholders'
percentage ownership;
- incur substantial debt;
- assume contingent liabilities;
- incur significant amortization expenses related to goodwill and other
intangible assets; or
- incur significant immediate write-offs.
Such actions by us could materially and adversely affect our business, financial
condition and results of operations and/or the price of our common stock.
IF WE MAKE ANY ACQUISITIONS OR STRATEGIC INVESTMENTS, WE MAY NOT BE ABLE TO
SUCCESSFULLY INTEGRATE OR MANAGE THESE ACQUISITIONS OR INVESTMENTS.
Acquisitions and strategic investments may entail numerous risks,
including:
- difficulties in assimilating acquired operations, technologies or
products;
- unanticipated costs;
- diversion of management's attention from our core business concerns;
- adverse effects on existing business relationships with suppliers and
customers;
- risks of entering markets in which we have no or limited prior
experience; and
- potential loss of key employees, either existing employees or those of
the acquired organizations.
We may not be able to successfully integrate any businesses, products,
technologies or personnel that we might acquire in the future, and our failure
to do so could have a material and adverse effect on our business, financial
condition and results of operations.
18
<PAGE> 22
IF WE ARE NOT ABLE TO OBTAIN ADDITIONAL CAPITAL TO FUND OUR OPERATIONS WHEN
NEEDED, OUR ABILITY TO EFFECTIVELY OPERATE AND GROW OUR BUSINESS WILL BE
LIMITED.
We expect to use the net proceeds of this offering primarily to continue
investments in product development, to expand sales and marketing activities and
to make capital expenditures. We believe that such proceeds, together with our
existing capital resources, will be sufficient to meet our capital requirements
for at least the next 12 months. However, our capital requirements depend on
several factors, including:
- the rate of market acceptance of our products;
- our ability to expand our client base;
- the growth of our research and development and sales and marketing
organizations; and
- other infrastructure requirements.
If capital requirements vary materially from those currently planned, we may
require additional financing sooner than anticipated. Additional financing may
not be available when needed on terms favorable to us or at all. If adequate
funds are not available or are not available on acceptable terms, we may be
unable to develop or enhance our services, take advantage of future
opportunities or respond to competitive pressures, which could materially and
adversely affect our business, financial condition or results of operations.
IF WE ARE REQUIRED TO RAISE ADDITIONAL CAPITAL, OUR EXISTING STOCKHOLDERS MAY BE
ADVERSELY AFFECTED.
We may be required to raise additional capital through the issuance of
stock, debt or a combination of the two. If additional funds are raised through
the issuance of equity securities, the percentage ownership of our stockholders
will be reduced. In addition, these newly issued equity securities may have
rights, preferences or privileges senior to those of the existing holders of our
common stock. If additional funds are raised through the issuance of debt
securities, these securities would have rights, preferences and privileges
senior to those of the existing holders of our common stock and the terms of
such debt could impose restrictions on our operations.
SUBSTANTIAL FUTURE SALES OF OUR COMMON STOCK IN THE PUBLIC MARKET COULD CAUSE
OUR STOCK PRICE TO FALL.
Additional sales of our common stock in the public market after this
offering, or the perception that such sales could occur, could cause the market
price of our common stock to decline. Upon completion of this offering, we will
have approximately 49,537,094 shares of common stock outstanding based on the
assumed initial offering price of $14.00 per share. See "Capitalization"
beginning on page 23 for a detailed discussion of shares included and excluded
from this number. In particular, if the initial offering price is less than
$8.912 per share, the outstanding shares of our Series D preferred stock will
convert into additional shares of common stock, which will result in more shares
being potentially eligible for sale into the public markets. The 4,000,000
shares sold in this offering will be freely transferable without restriction or
registration under the Securities Act of 1933. The remaining shares of common
stock outstanding after this offering will be available for sale, assuming the
effectiveness of lock-up agreements under which our stockholders have agreed not
to sell or otherwise dispose of their shares of common stock in the public
market, as follows:
<TABLE>
<CAPTION>
DATE OF AVAILABILITY FOR SALE NUMBER OF SHARES COMMENT
----------------------------- ---------------- -------
<S> <C> <C>
Date of prospectus 4,000,000 Freely tradeable shares sold in the
offering
180 days after prospectus (expiration of lock-
up) 40,520,955 Shares salable under Rule 144 or 701
</TABLE>
In addition, Credit Suisse First Boston Corporation may, in its sole
discretion, at any time without notice, release all or any portion of the shares
subject to the lock-up agreements, which would result in
19
<PAGE> 23
more shares being available for sale in the public market at an earlier date.
Sales of common stock by existing stockholders in the public market, or the
availability of such shares for sale, could materially and adversely affect the
market price of the common stock.
In addition, as soon as practicable after the date of this prospectus, we
intend to file a registration statement on Form S-8 with the Securities and
Exchange Commission covering the 7,518,669 shares of common stock reserved for
issuance under our 2000 Stock Incentive Plan and our 2000 Employee Stock
Purchase Plan. On the date 180 days after the effective date of this offering,
at least 5,385,116 shares will be subject to immediately exercisable options,
based on options outstanding on March 31, 2000. Sales of a large number of these
shares could have an adverse effect on the market price for our common stock.
After this offering, the holders of 41,934,338 shares of common stock,
including shares issuable upon exercise of outstanding warrants, will have
certain rights with respect to registration of such shares for sale to the
public. If such holders, by exercising their registration rights, cause a large
number of securities to be registered and sold in the public market, such sales
could have an adverse effect on the market price for our common stock. If we
were to include in a company-initiated registration shares held by such holders
pursuant to the exercise of their registration rights, such sales may have an
adverse effect on our ability to raise needed capital. Please see "Shares
Eligible for Future Sale" beginning on page 72 for more information on the
number of shares which may be sold into the public market upon the completion of
this offering.
MANAGEMENT AND CURRENT STOCKHOLDERS WILL CONTINUE TO HAVE SUBSTANTIAL CONTROL
OVER OUR COMPANY AFTER THIS OFFERING AND COULD DELAY OR PREVENT A CHANGE IN
CORPORATE CONTROL.
We anticipate that our executive officers, directors and major stockholders
will, in the aggregate, beneficially own approximately 75.9% of our outstanding
common stock following the completion of this offering. These stockholders, if
acting together, would be able to influence significantly all matters requiring
approval by our stockholders, including the election of directors and the
approval of mergers or other business combination transactions. See "Principal
Stockholders" beginning on page 66 for more information on principal
stockholders.
OUR MANAGEMENT MAY APPLY THE PROCEEDS OF THIS OFFERING TO USES THAT MAY NOT
INCREASE OUR PROFITABILITY OR OUR MARKET VALUE.
Our management will have considerable discretion in the application of the
net proceeds from this offering, and you will not have the opportunity, as part
of your investment decision, to assess whether the proceeds are being used
appropriately. The net proceeds may be used for corporate purposes that do not
increase our profitability or our market value. Pending application of the
proceeds, they may be placed in investments that do not produce income or that
lose value. See "Use of Proceeds" on page 22 for more information on our
intended use of the proceeds from this offering.
PURCHASERS IN THIS OFFERING WILL IMMEDIATELY EXPERIENCE SUBSTANTIAL DILUTION IN
NET TANGIBLE BOOK VALUE.
Because we expect that the initial offering price per share will be
substantially greater than our net tangible book value per share, you will
likely experience immediate and substantial dilution. In particular, purchasers
of our common stock in this offering will suffer immediate dilution of $11.89
per share in pro forma net tangible book value, based on an assumed initial
offering price of $14.00 per share of common stock. If the initial offering
price is less than $8.912 per share, our outstanding shares of Series D
preferred stock will convert into additional shares of common stock, which would
result in further dilution. The exact number of shares of common stock into
which each share of Series D preferred stock will convert will be determined by
dividing $8.912 by our initial public offering price, and will not be subject to
a cap on the maximum number of common shares into which the Series D preferred
stock will convert. The exercise of outstanding options and warrants will also
result in further dilution. See "Dilution" on page 24 for more information on
the dilution you will experience by purchasing shares in this offering.
20
<PAGE> 24
CERTAIN PROVISIONS IN OUR CORPORATE CHARTER AND BYLAWS MAY DISCOURAGE TAKE-OVER
ATTEMPTS AND THUS DEPRESS THE MARKET PRICE OF OUR STOCK.
Provisions in our certificate of incorporation, as amended and restated
upon the closing of this offering, may have the effect of delaying or preventing
a change of control or changes in our management. These provisions include:
- the right of the board of directors to elect a director to fill a vacancy
created by the expansion of the board of directors;
- the ability of the board of directors to alter our bylaws without getting
stockholder approval;
- the ability of the board of directors to issue, without stockholder
approval, up to 5,000,000 shares of preferred stock with terms set by the
board of directors; and
- the requirement that at least 10% of the outstanding shares are needed to
call a special meeting of stockholders.
Each of these provisions could discourage potential take-over attempts and
could adversely affect the market price of our common stock.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus, including the sections entitled "Prospectus Summary,"
"Risk Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and "Business," contains forward-looking statements.
These statements relate to future events or our future financial performance,
and involve known and unknown risks, uncertainties, and other factors that may
cause our actual results, levels of activity, performance or achievements to be
materially different from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking statements. These
risks and other factors include, among other things, those listed under "Risk
Factors" and elsewhere in this prospectus. In some cases, you can identify
forward-looking statements by terminology such as "may," "will," "should,"
"expects," "intends," "plans," "anticipates," "believes," "estimates,"
"predicts," "potential," "continue," or the negative of these terms or other
comparable terminology. These statements are only predictions. Actual events or
results may differ materially. In evaluating these statements, you should
specifically consider various factors, including the risks outlined under "Risk
Factors." These factors may cause our actual results to differ materially from
any forward-looking statement.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. We are under no duty to update any of the
forward-looking statements after the date of this prospectus to conform these
statements to actual results.
21
<PAGE> 25
USE OF PROCEEDS
Our net proceeds from the sale of the 4,000,000 shares of common stock sold
in this offering are estimated to be approximately $50.6 million, or $58.4
million if the underwriters exercise their over-allotment option in full, based
upon an assumed offering price of $14.00 per share and after deducting estimated
underwriting discounts and commissions and estimated offering expenses payable
by us.
Our principal purposes for engaging in this offering are to:
- increase our equity capital;
- create a public market for our common stock; and
- facilitate future access by us to public equity markets.
We expect to use the net proceeds of this offering primarily for working
capital and general corporate purposes, including expenditures for research and
development and sales and marketing efforts. In addition, we may use a portion
of the net proceeds to fund acquisitions or investments in complementary
businesses, technologies, or products; however, we currently have no commitments
or agreements and are not involved in any negotiations to do so. Pending use of
the net proceeds of this offering, we intend to invest the net proceeds in
interest-bearing, investment-grade securities.
DIVIDEND POLICY
We have never declared or paid any dividends on our capital stock. We
currently intend to retain future earnings, if any, for use in the operation and
expansion of our business and do not anticipate paying any cash dividends in the
foreseeable future. Any future determination to pay dividends will be at the
discretion of our board of directors and will depend on our results of
operations, financial condition, contractual and legal restrictions and other
factors the board deems relevant. We expect that any lease financing or credit
agreements we enter into will prohibit the payment of dividends without the
lender's consent.
22
<PAGE> 26
CAPITALIZATION
The table below sets forth the following information with respect to our
capitalization:
- the actual capitalization as of March 31, 2000;
- the actual capitalization at March 31, 2000 after giving pro forma effect
to the automatic conversion of all outstanding shares of redeemable
convertible preferred stock into shares of common stock immediately prior
to this offering; and
- the pro forma as adjusted capitalization to give effect to the sale of
4,000,000 shares of common stock at the assumed initial public offering
price of $14.00 per share in this offering, less underwriting discounts
and commissions and the estimated offering expenses payable by us.
This information should be read in conjunction with our consolidated
financial statements and the notes to those statements included in this
prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 2000
-------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- ---------- ------------
(IN THOUSANDS, EXCEPT SHARE AND PER
SHARE DATA)
<S> <C> <C> <C>
Capital lease obligations and credit facilities, net of
current portion........................................... $ 1,770 $ 1,770 $ 1,770
Redeemable convertible preferred stock:
Series A, $.001 par value; actual -- 11,500,000 shares
authorized, 11,220,000 shares issued and outstanding;
pro forma and pro forma as adjusted -- no shares
authorized, issued or outstanding...................... 5,490 -- --
Series B, $.001 par value; actual -- 11,600,000 shares
authorized, 11,584,848 shares issued and outstanding;
pro forma and pro forma as adjusted -- no shares
authorized, issued or outstanding...................... 14,428 -- --
Series C, $.001 par value; actual -- 8,845,648 shares
authorized, 8,845,648 issued and outstanding; pro forma
and pro forma as adjusted -- no shares authorized,
issued or outstanding.................................. 29,939 -- --
Series D, $.001 par value; actual -- 3,600,000 shares
authorized, 3,455,267 issued and outstanding; pro forma
and pro forma as adjusted -- no shares authorized,
issued or outstanding.................................. 38,425 -- --
Stockholders' equity (deficit):
Preferred Stock, $.001 par value; actual -- 454,352
authorized, no shares issued or outstanding; pro forma
and pro forma as adjusted-- 5,000,000 shares
authorized, no shares issued or outstanding............ -- -- --
Common Stock, $.001 par value; actual -- 90,000,000 shares
authorized and 10,431,331 shares issued and
outstanding; pro forma -- 90,000,000 shares authorized
and 45,537,094 shares issued and outstanding; pro forma
as adjusted -- 200,000,000 shares authorized and
49,537,094 shares issued and outstanding............... 1,209 46 50
Additional paid-in capital................................ 28,693 118,138 168,736
Deferred stock compensation............................... (13,110) (13,110) (13,110)
Accumulated deficit....................................... (51,185) (51,185) (51,185)
-------- -------- --------
Total stockholders' equity (deficit)................... (34,393) 53,889 104,491
-------- -------- --------
Total capitalization................................... $ 55,659 $ 55,659 $106,261
======== ======== ========
</TABLE>
Except where indicated otherwise, this table and the capitalization
information included elsewhere in this prospectus exclude an aggregate of
7,547,244 shares, consisting of:
- 5,385,116 shares subject to options outstanding as of March 31, 2000
under our stock option plan;
- 2,133,553 additional shares reserved for future issuance under our stock
option and employee stock purchase plans; and
- 28,575 shares of common stock issuable upon exercise of outstanding
warrants.
23
<PAGE> 27
DILUTION
The pro forma net tangible book value of our common stock on March 31,
2000, was $53.9 million, or approximately $1.18 per share. Pro forma net
tangible book value per share represents the amount of our total tangible assets
less total liabilities, divided by the number of shares of common stock
outstanding after giving pro forma effect to the conversion of all outstanding
shares of redeemable convertible preferred stock into 35,105,763 shares of
common stock, each as if they had occurred at March 31, 2000.
Dilution in pro forma net tangible book value per share represents the
difference between the amount per share paid by purchasers of shares of our
common stock in this offering and the pro forma net tangible book value per
share of our common stock immediately afterwards. After giving effect to our
sale of 4,000,000 shares of common stock offered by this prospectus at the
assumed initial public offering price of $14.00 per share and after deducting
underwriting discounts and commissions and the estimated offering expenses
payable by us, our pro forma net tangible book value would have been $104.5
million, or approximately $2.11 per share. This represents an immediate increase
in pro forma net tangible book value of $0.93 per share to existing stockholders
and an immediate dilution in net tangible book value of $11.89 per share to new
investors.
<TABLE>
<S> <C> <C>
Public offering price per share............................. $14.00
Pro forma net tangible book value per share as of March
31, 2000............................................... $1.18
Increase per share attributable to new investors.......... 0.93
-----
Pro forma net tangible book value per share after the
offering.................................................. $ 2.11
------
Dilution in pro forma net tangible book value per share to
new investors............................................. 11.89
======
</TABLE>
This table excludes all options and warrants outstanding as of, or issued
subsequent to, March 31, 2000. The exercise of outstanding options and warrants
having an exercise price less than the offering price would increase the
dilutive effect to new investors.
The following table summarizes, on a pro forma basis, as of March 31, 2000,
the differences between the number of shares of common stock (after the
conversion of Series A, B, C and D redeemable convertible preferred stock into
common stock) purchased from us, the total consideration and average price per
share paid by existing stockholders and by the new investors, before deducting
the underwriting discounts and commissions and estimated expenses payable by us,
assuming an initial public offering price of $14.00 per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------ -------------------------- AVERAGE PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
---------- ---------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders........ 45,487,000 91.9% $ 89,768,000 61.6% $ 1.97
New Investors................ 4,000,000 8.1% 56,000,000 38.4 14.00
---------- ---- ------------ ----
Total...................... 49,487,000 100% 145,768,000 100%
========== ==== ============ ====
</TABLE>
If the underwriters' over-allotment option is exercised in full, the number
of shares held by new public investors will be increased to 4,600,000 or
approximately 9.3% of the total number of shares of our common stock outstanding
after this offering.
24
<PAGE> 28
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the consolidated financial statements and notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," appearing elsewhere in this prospectus. The consolidated statement
of operations data for the three years in the period ended December 31, 1999 and
consolidated balance sheet data as of December 31, 1998 and 1999 set forth below
are derived from our audited consolidated financial statements which are
included elsewhere in this prospectus. The consolidated statement of operation
data from October 28, 1996 (inception) through December 31, 1996 and the
consolidated balance sheet data as of December 31, 1996 and 1997 are derived
from audited financial statements of the Company not included herein. The
consolidated statement of operations for each of the three-month periods ended
March 31, 1999 and 2000, and the consolidated balance sheet data at March 31,
2000, are derived from our unaudited interim consolidated financial statements
included elsewhere in this prospectus. The historical results are not
necessarily indicative of results to be expected for any future period.
Notes 2 and 12 of notes to the consolidated financial statements provide an
explanation of the determination of the weighted average shares used to compute
basic and diluted net loss per share and unaudited pro forma basic and diluted
net loss per share.
<TABLE>
<CAPTION>
OCTOBER 28, 1996
(INCEPTION) THREE MONTHS
THROUGH FISCAL YEAR ENDED DECEMBER 31, ENDED MARCH 31,
DECEMBER 31, -------------------------------- ------------------
1996 1997 1998 1999 1999 2000
---------------- -------- --------- --------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Net revenue.............................. $ -- $ -- $ -- $ 8,466 $ -- $ 7,152
Cost of revenue(1)....................... -- -- -- 6,312 -- 5,087
------ ------- -------- -------- ------- --------
Gross profit............................. -- -- -- 2,154 -- 2,065
Operating expenses
Research and product development(2).... 20 1,126 7,378 12,061 2,467 4,150
Sales and marketing(3)................. -- -- 1,979 7,500 952 3,963
General and administrative(4).......... 13 485 754 1,747 390 794
Amortization of deferred stock
compensation......................... -- -- 52 3,103 238 2,385
------ ------- -------- -------- ------- --------
Total operating expenses............. 33 1,611 10,163 24,411 4,047 11,292
------ ------- -------- -------- ------- --------
Loss from operations..................... (33) (1,611) (10,163) (22,257) (4,047) (9,227)
Other income (expense)................... -- 124 453 1,031 201 385
Provision for income taxes............... 1 1 1 1 1 1
------ ------- -------- -------- ------- --------
Net loss................................. (34) (1,488) (9,711) (21,227) (3,847) (8,843)
------ ------- -------- -------- ------- --------
Beneficial conversion feature............ -- -- -- -- -- (9,882)
------ ------- -------- -------- ------- --------
Net loss applicable to common
stockholders........................... $ (34) $(1,488) $ (9,711) $(21,227) $(3,847) $(18,725)
====== ======= ======== ======== ======= ========
Basic and diluted net loss per share
applicable to common stockholders...... $(0.09) $ (0.42) $ (2.00) $ (3.29) $ (0.68) $ (2.44)
====== ======= ======== ======== ======= ========
Weighted average shares.................. 393 3,550 4,853 6,447 5,694 7,664
====== ======= ======== ======== ======= ========
Unaudited pro forma basic and diluted net
loss per share......................... $ (0.58) $ (0.22)
======== ========
Weighted average shares used to compute
unaudited pro forma basic and diluted
net loss per share applicable to common
stockholders........................... 36,789 40,797
======== ========
</TABLE>
25
<PAGE> 29
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------------ AS OF MARCH 31,
1996 1997 1998 1999 1999
---- ------- -------- -------- ---------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............................. $ 17 $ 3,704 $ 3,507 $ 15,207 $ 47,798
Working capital....................................... 18 3,579 7,797 18,241 49,586
Total assets.......................................... 20 4,180 11,291 28,678 63,558
Redeemable convertible preferred stock................ -- 5,490 19,918 49,857 88,282
Total stockholders' deficit........................... (26) (1,498) (11,005) (28,565) (34,393)
</TABLE>
- ---------------
(1) excluding $0, $0, $100, $12 and $268 amortization of deferred stock
compensation for the years ended December 31, 1997, 1998, 1999 and for the
three months ended March 31, 1999 and 2000, respectively.
(2) excluding $0, $20, $873, $95 and $1,278 amortization of deferred stock
compensation for the years ended December 31, 1997, 1998, 1999 and for the
three months ended March 31, 1999 and 2000, respectively.
(3) excluding $0, $31, $1,498, $74 and $681 amortization of deferred stock
compensation for the years ended December 31, 1997, 1998, 1999 and for the
three months ended March 31, 1999 and 2000, respectively.
(4) excluding $0, $1, $632, $57 and $158 amortization of deferred stock
compensation for the years ended December 31, 1997, 1998, 1999 and for the
three months ended March 31, 1999 and 2000, respectively.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following commentary should be read in conjunction with "Selected
Consolidated Financial Data" and our consolidated financial statements and the
related notes contained elsewhere in this prospectus. The discussion contains
forward-looking statements that involve risks and uncertainties. Our actual
results may differ materially from those anticipated in these forward-looking
statements as a result of many factors, including but not limited to those set
forth under "Risk Factors" and elsewhere in this prospectus.
OVERVIEW
We design and market telecommunications products that enable the bundling
of voice and data services. Our multiservice broadband access products are
designed to allow our customers to efficiently and cost-effectively deliver and
manage multiple voice and data services over a single broadband access facility
using various broadband access technologies. Our target customers are CLECs,
IXCs, RBOCs, ILECs, and foreign telephone companies.
We were incorporated in October 1996. From inception through March 1999,
our operating activities consisted primarily of developing a research and
development organization, testing prototype designs, staffing of our marketing,
sales, field service and customer support organizations, building a management
team, and establishing relationships with potential customers. We commenced
shipments of our MSAP voice gateways, MSAP concentrators and carrier-class IADs
in the second calendar quarter of 1999. Sales of our MSAP and carrier-class IAD
products constituted approximately 58% and 42%, respectively, of our revenue for
the year ended December 31, 1999. Since inception, we have incurred significant
losses and as of December 31, 1999, we had an accumulated deficit of $32.5
million. We have not achieved profitability on a quarterly or annual basis. We
expect to incur significant research and development, sales and marketing, and
general and administrative expenses in the future and, as a result, we will need
to generate significantly higher revenue to achieve and maintain profitability.
To date, we have generated substantially all of our revenue from sales of
our MSAP and carrier-class IAD products and we believe that sales of these
products will continue to account for substantially all of our revenue for the
foreseeable future. We have not generated any significant amount of revenue from
sales of our AccessPilot element management system software or sales of our
extended warranty and customer support services, and we do not expect that sales
of these products and services will comprise a significant portion of our
revenue in the foreseeable future. A majority of all our sales of products are
through our direct sales force and we expect this trend to continue for the
foreseeable future. In addition, we sell a significant amount of our products in
the United States through our OEM relationship with Siemens ICN. For the year
ended December 31, 1999, direct sales and sales through Siemens ICN accounted
for 84% and 16%, respectively. To date, we have not generated any revenue from
international sales, although we recently initiated sales and marketing efforts
internationally.
For the year ended December 31, 1999, sales to our three largest customers
accounted for approximately 90% of our revenue, of which sales to CTC
Communications, FirstWorld Communications and Siemens ICN accounted for
approximately 54%, 20% and 16% of our revenue, respectively. For the three
months ended March 31, 2000, sales to our four largest customers accounted for
approximately 97% of our revenue, of which sales to Siemens ICN, CTC
Communications Group, UniDial Communications, Inc. and Primary Networks
accounted for approximately 39%, 29%, 19% and 10% of our revenue, respectively.
While we anticipate that sales to any specific customer will vary from period to
period, we expect that we will continue to have significant customer
concentration for the foreseeable future. To date, we have derived a significant
portion of our revenue from a small number of orders and all of our sales have
been made on the basis of individual purchase orders, rather than long-term
commitments.
We recognize revenue at the time products are shipped to our customers,
provided that a purchase order has been received or a contract has been
executed, there are no uncertainties regarding customer acceptance, the fee is
fixed and determinable and collectibility is deemed probable. If uncertainties
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<PAGE> 31
regarding customer acceptance exist, revenue is recognized when such
uncertainties are resolved. Revenue associated with multiple-element
arrangements (products, upgrades, enhancements and post-contract support) are
allocated to each element based on vendor specific objective evidence. Extended
warranty and other service revenues are recognized ratably over the respective
service periods. Such services have not been significant to date. Amounts billed
in excess of revenue recognized are deferred and included as deferred revenue on
the consolidated balance sheet. As of December 31, 1999, we had $219,000 of
deferred revenue. Although we have not generated any support, installation or
training revenue to date, we plan to recognize support revenue ratably over the
support period and installation and training revenue as services are performed.
We generally warrant our products for one year after sale and provide for
estimated future warranty costs at the time we recognize revenue.
Our cost of revenue consists primarily of amounts paid to third-party
contract manufacturers, personnel and other costs such as royalties on product
shipments, warranty expense and assembly costs. We outsource most of our product
and printed circuit board assembly to contract manufacturers. Avnet procures the
majority of our component kits for its sub-contractor, A-Plus, which assembles,
manufactures and tests our products at its facility in San Jose, California.
Arrow performs the same services as Avnet for a limited number of our products
and also sub-contracts with A-Plus for assembly, manufacturing and testing.
Our MSAP products typically have higher gross margin than our carrier-class
IADs. Our actual mix of products sold will depend significantly on the amount of
orders from new and existing customers, and the stage of their network
deployment. As a result, our gross margin may fluctuate significantly from
period to period. In general, our gross margin will primarily be affected by the
following factors:
- demand for our products and services;
- new product introductions both by us and by our competitors;
- changes in our pricing policies and those of our competitors;
- the mix of our products and services sold;
- the mix of sales channels through which our products and services are
sold; and
- the volume manufacturing pricing we are able to attain from our contract
manufacturers for outsourced manufacturing.
Research and development expenses consist primarily of salaries and related
personnel costs, consulting costs, costs associated with licensed technology,
prototype costs and other costs related to the design, development, testing, and
enhancements of our products. We also incur significant expenses in connection
with the purchase of equipment used to test our products as well as the use of
our products for internal design and learning purposes. We expense our research
and development costs as they are incurred. Several components of our research
and development efforts require significant expenditures, the timing of which
can cause significant quarterly variability in our expenses. We believe that
continued investment in research and development is critical to attain our
strategic product development objectives and to meet changing customer
requirements and technological advances. As a result, we expect our research and
development expenses to increase in the future.
Sales and marketing expenses consist primarily of salaries, commissions and
related expenses for personnel engaged in marketing, sales and customer
engineering support functions, as well as costs associated with promotional and
other marketing expenses. We intend to expand our direct and indirect sales
operations substantially, both domestically and internationally, in order to
increase market penetration of our products. We expect that sales and marketing
expenses will increase substantially over the next year as we hire additional
sales and marketing personnel, initiate additional marketing programs and
establish sales offices in additional domestic and international locations. In
addition, we believe our future success is dependent upon establishing
successful relationships with a variety of distribution partners. To date, we
have entered into one distribution agreement with Siemens ICN. To be successful,
we must reach agreements with additional distribution partners, both
domestically and internationally. Similarly, the
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<PAGE> 32
complexity of our products require highly trained customer service, professional
services and support personnel. We expect to significantly expand our customer
service, professional services and support organization to meet these
requirements. We believe that continued investment in sales and marketing is
critical to our success and expect these expenses to increase in the future.
General and administrative expenses consist primarily of salaries and
related expenses for executive, finance, human resources, information
technology, and administrative personnel, as well as recruiting, professional
fees, insurance and other general corporate expenses. We expect general and
administrative expenses to increase in the future as we add personnel and incur
additional costs related to the growth of our business and operation as a public
company.
Currently, competition in our market is intense. We continue to add
features to our products based on the needs of our customers. This has resulted
in increased research and development expenses and may result in reduced
operating margins. We expect competition to increase in the future. This
competition may also result in price reductions and loss of market share. We
expect that product life cycles will remain relatively short and that the
average selling price and gross margin for our products will decline as each
product matures. To offset such declines, we must introduce new, higher
performance products on a timely basis. Further, we must reduce our
manufacturing costs on a per unit basis and sell sufficient volumes in order to
maintain our gross margin. If we fail to reduce our manufacturing costs on a per
unit basis or achieve volume shipment requirements, our gross margin will
decline. Any of the above events could have a material and adverse effect on our
business, results of operations and financial condition.
In 1998 and 1999, we recorded total deferred stock compensation of
approximately $13.2 million, representing the difference between the deemed
value of our common stock for accounting purposes and the exercise price of the
options at their date of grant. Options granted are typically subject to a four
year vesting period. Stock issuances are generally subject to our right to
repurchase the stock, which lapses over a four year period. We are amortizing
the deferred stock compensation over the vesting periods of the applicable
options, or repurchase periods for the exercised options, generally over four
years. After taking into account the approximately $3.3 million of amortization
charges we recognized in 1998 and 1999, the outstanding annual amortization for
total amount of deferred stock compensation recognized as of December 31, 1999
will be approximately $5.4 million, $2.8 million, $1.5 million and $0.5 million
for the years ending December 31, 2000, 2001, 2002 and 2003, respectively.
In connection with the issuance of the Series D preferred stock in February
and March 2000, we incurred a non-cash charge to equity of approximately $9.9
million relating to the beneficial conversion feature on the Series D preferred
stock. This charge was calculated using the deemed fair value of our common
stock on the date of issuance, subtracting the conversion price and then
multiplying the resulting amount by the number of shares of common stock into
which the shares of Series D preferred stock are convertible. As a result of
this non-cash equity charge, our net loss per share attributable to common
shareholders was adversely impacted for the three months ending March 31, 2000.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
Net revenue
We did not generate any revenue in the quarter ended March 31, 1999, as we
did not sell any of our products until April 1999. We recognized net revenue of
approximately $7.2 million for the three months ended March 31, 2000. Net
revenue for the three months ended March 31, 2000 was primarily derived from
sales of our MSAP voice gateways and concentrators, which amounted to
approximately $3.9 million, and from sales of our carrier-class IADs, which
amounted to approximately $3.3 million. Net revenue from sales to our four
largest customers accounted for approximately 97% of our net revenue for the
three months ended March 31, 2000.
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Cost of revenue
Cost of revenue for the three months ended March 31, 2000 was approximately
$5.1 million, or approximately 71% of net revenue. Cost of revenue in the three
months ended March 31, 2000 consisted primarily of amounts paid to third-party
contract manufacturers, personnel and other costs such as royalties on product
shipments, warranty expense, inventory reserves and assembly costs. We did not
have any cost of revenue for the three months ended March 31, 1999 because we
did not begin production or sales of our products until April 1999. We expect
that our cost of revenue will increase in absolute dollars in future periods but
will vary as a percentage of net revenue depending on the mix and average
selling prices of products sold.
Research and product development expenses
Research and product development expenses for the three months ended March
31, 2000 were approximately $4.2 million, which represented an increase of
approximately $1.7 million, or approximately 68%, from approximately $2.5
million for the three months ended March 31, 1999. This increase was primarily a
result of additional personnel costs, higher design and prototype expenses and
higher costs of using our products for internal design and testing purposes. As
a percentage of net revenue, research and product development expenses for the
three months ended March 31, 2000 were approximately 58%. Research and
development expenditures are essential to our future success and we expect that
these expenses will significantly increase in future periods.
Sales and marketing expenses
Sales and marketing expenses for the three months ended March 31, 2000 were
approximately $4.0 million, which represented an increase of approximately $3.0
million, or approximately 300%, from approximately $1.0 million for the three
months ended March 31, 1999. The increase was primarily attributable to our
expanded efforts to sell and market our MSAP and carrier-class IAD products,
including increased costs related to the hiring of additional sales and systems
engineers, customer support, product marketing, and key management personnel, as
well as increased advertising, trade shows and public relations costs,
commission expenses, and demonstration equipment costs. We expect sales and
marketing expenses to significantly increase in future periods as we continue to
expand our domestic and international sales and marketing efforts.
General and administrative expenses
General and administrative expenses for the three months ended March 31,
2000 were approximately $794,000, which represented an increase of approximately
$404,000, or approximately 104%, from approximately $390,000 for the three
months ended March 31, 1999. This increase was primarily due to the hiring of
additional general and administrative personnel necessary to support and scale
our operations and increased legal and accounting expenses. We expect our
general and administrative expenses to increase in future periods as we hire
additional personnel required to support the expansion of our operations.
Amortization of deferred stock compensation
We recorded approximately $2.4 million in deferred stock compensation in
connection with employee and consultant stock option grants for the three months
ended March 31, 2000. We recorded approximately $238,000 in deferred stock
compensation for the three months ended March 31, 1999.
Other income (expense)
Our other income (expense) consists primarily of interest earned on our
cash balances and cash equivalents partially offset by interest expenses paid on
capital leases and credit facilities. Other income (expense) for the three
months ended March 31, 2000 was approximately $385,000, which represented an
increase of approximately $184,000, or approximately 92% from approximately
$201,000 for the three
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months ended March 31, 1999. This increase was primarily attributable to
interest earned on higher average cash balances throughout the relevant period,
and higher weighted-average rates of interest.
FISCAL YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
Net revenue
We began generating net revenue in the second quarter of 1999. We
recognized net revenue of approximately $8.5 million in 1999. Net revenue was
primarily derived from sales of our MSAP voice gateways and concentrators, which
amounted to approximately $4.9 million, and from sales of our carrier-class
IADs, which amounted to approximately $3.6 million. Prior to 1999, we did not
generate any net revenue. Net revenue from sales to our three largest customers
accounted for approximately 90% of our net revenue in 1999.
Cost of revenue
Cost of revenue for the year ended December 31, 1999 was approximately $6.3
million, or approximately 75% of net revenue. Cost of revenue as a percentage of
net revenue in 1999 was high due to the large costs associated with the initial
start-up of manufacturing operations. These costs included adding manufacturing
personnel, expanding our facilities, establishing final product testing
capabilities, and establishing operations with outside contract manufacturers,
as well as higher per-unit costs due to low initial volumes of our products. We
did not have any cost of revenue in either 1997 or 1998 because we did not begin
production or sales of our products until 1999.
Research and product development expenses
Research and product development expenses for the year ended December 31,
1999 were approximately $12.1 million, which represented an increase of
approximately $4.7 million, or approximately 64%, from approximately $7.4
million for the year ended December 31, 1998. This increase was primarily a
result of additional personnel costs, increased costs associated with
third-party certification of our products, higher design and prototype expenses
and higher costs of using our products for internal design and testing purposes.
As a percentage of net revenue, research and product development expenses for
the year ended December 31, 1999 were approximately 142%.
Research and product development expenses for the year ended December 31,
1998 were approximately $7.4 million, which represented an increase of
approximately $6.3 million, or approximately 573%, from approximately $1.1
million for the year ended December 31, 1997. These increases resulted primarily
from additional personnel costs, increased costs associated with third-party
certification of our products, higher design and prototype expenses and higher
costs of using our products for internal design and testing purposes.
Sales and marketing expenses
Sales and marketing expenses for the year ended December 31, 1999 were
approximately $7.5 million, which represented an increase of approximately $5.5
million, or approximately 275%, from approximately $2.0 million for the year
ended December 31, 1998. The increase was primarily attributable to our
aggressive efforts to launch our MSAP and carrier-class IAD products, including
increased costs related to the hiring of additional sales and systems engineers,
customer support, product marketing, and key management personnel, as well as
increased advertising, trade shows and public relations costs.
Our sales and marketing expenses increased from zero for the year ended
December 31, 1997 to approximately $2.0 million for the year ended December 31,
1998. This increase was primarily due to the hiring of sales and systems
engineers, and product marketing personnel, as well as advertising, trade shows
and public relations costs.
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General and administrative expenses
General and administrative expenses for the year ended December 31, 1999
were approximately $1.7 million, which represented an increase of approximately
$946,000, or approximately 125%, from approximately $754,000 for the year ended
December 31, 1998. This increase was primarily due to the hiring of additional
general and administrative personnel and increased legal expenses necessary to
support and scale our operations.
General and administrative expenses for the year ended December 31, 1998
were approximately $754,000, which represented an increase of approximately
$269,000, or approximately 55%, from approximately $485,000 for the year ended
December 31, 1997. This increase was primarily due to the hiring of additional
general and administrative personnel necessary to support and scale our
operations.
Amortization of deferred stock compensation
We recorded approximately $12.5 million in deferred stock compensation in
connection with employee and consultant stock option grants in 1999. We recorded
approximately $716,000 in deferred stock compensation in 1998. We recognized
amortization of stock compensation of approximately $3.1 million for the year
ended December 31, 1999 and approximately $52,000 for the year ended December
31, 1998.
Other income (expense)
Our other income (expense) consists primarily of interest earned on our
cash balances and cash equivalents partially offset by interest expenses paid on
capital leases and credit facilities. Other income (expense) for the year ended
December 31, 1999 was approximately $1.0 million, which represented an increase
of approximately $547,000, or approximately 121% from approximately $453,000 for
the year ended December 31, 1998. This increase was primarily attributable to
interest earned on the net proceeds of our Series C preferred stock financing in
February 1999.
Other income (expense) for the year ended December 31, 1998 was
approximately $453,000, which represented an increase of approximately $329,000,
or approximately 265% from approximately $124,000 for the year ended December
31, 1997. This increase was primarily attributable to interest earned on the net
proceeds of our Series B preferred stock financing in May 1998, partially offset
by miscellaneous non-operating expenses and interest expense on a bank loan.
Income taxes
From inception through December 31, 1999, we incurred net losses for
federal and state tax purposes and have not recognized any tax provision or
benefit. As of December 31, 1999, we had federal and state net operating loss
carryforwards of approximately $27.2 million and $27.2 million, respectively, to
offset future taxable income which will begin to expire in varying amounts
beginning in 2012 and 2005, respectively. Given our limited operating history,
losses incurred to date and the difficulty in accurately forecasting our future
results, there are substantial risks that we may not achieve the necessary
profitability required to realize the tax benefits of such loss carryforwards.
Accordingly, we have recorded a 100% valuation allowance. In addition, our
ability to utilize net operating losses and tax credits in the future may be
limited if there is a significant change in our ownership. The annual limitation
may result in the expiration of net operating losses and tax credits before
utilization. See note 5 of the notes to our consolidated financial statements.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth, for the periods presented, certain data
from our consolidated statement of operations, both in absolute dollar figures
and as a percentage of net revenue. The consolidated statement of operations
data have been derived from our unaudited consolidated financial statements. In
management's opinion, these statements have been prepared on substantially the
same basis as the audited consolidated financial statements and include all
adjustments, consisting only of normal recurring
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adjustments, necessary for a fair presentation of the consolidated financial
information for the periods presented. This information should be read in
conjunction with our consolidated financial statements and the notes thereto
included elsewhere in this prospectus. The operating results in any quarter are
not necessarily indicative of the results that may be expected for any future
period. We have incurred net losses in each quarter since inception, and we
expect to continue to incur losses for the foreseeable future.
<TABLE>
<CAPTION>
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1999(1) 1999(1) 1999(1) 1999 2000
--------- -------- ------------- ------------ ---------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue............................... $ -- $ 1,245 $ 2,883 $ 4,338 $ 7,152
Cost of revenue........................... -- 1,167 2,478 2,667 5,087
------- ------- ------- ------- -------
Gross profit.............................. -- 78 405 1,671 2,065
Operating expenses:
Research and product development........ 2,467 2,200 3,280 4,114 4,150
Sales and marketing..................... 952 1,648 1,963 2,937 3,963
General and administrative.............. 389 420 462 476 794
Amortization of deferred stock
compensation......................... 238 408 661 1,796 2,385
------- ------- ------- ------- -------
Total operating expenses............. 4,046 4,676 6,366 9,323 11,292
Loss from operations...................... (4,046) (4,598) (5,961) (7,652) (9,227)
Other income (expense).................... 201 378 313 139 385
------- ------- ------- ------- -------
Loss before provision for income taxes.... (3,845) (4,220) (5,648) (7,513) (8,842)
Provision for income taxes................ -- -- -- 1 1
------- ------- ------- ------- -------
Net loss.................................. $(3,845) $(4,220) $(5,648) $(7,514) $(8,843)
------- ------- ------- ------- -------
Beneficial conversion feature............. -- -- -- -- (9,882)
------- ------- ------- ------- -------
Net loss applicable to common
stockholders............................ $(3,845) $(4,220) $(5,648) $(7,514) $(18,725)
======= ======= ======= ======= =======
AS A PERCENTAGE OF NET REVENUE:
Net revenue............................... NM 100% 100% 100% 100%
Cost of revenue........................... -- 94 86 61 71
------- ------- ------- ------- -------
Gross profit.............................. -- 6 14 39 29
------- ------- ------- ------- -------
Operating expenses:
Research and product development........ -- 177 114 95 58
Sales and marketing..................... -- 132 68 68 55
General and administrative.............. -- 33 16 11 11
Amortization of deferred stock
compensation......................... -- 33 23 41 33
------- ------- ------- ------- -------
Total operating expenses............. -- 375 221 215 157
Loss from operations...................... -- 369 (207) (176) (129)
Other income (expense).................... -- 30 11 3 5
------- ------- ------- ------- -------
Net loss.................................. NM (339)% (196)% (173)% (124)%
------- ------- ------- ------- -------
Beneficial conversion feature............. -- -- -- -- (138)
------- ------- ------- ------- -------
Net loss applicable to common
stockholders............................ NM (339)% (196)% (173)% (262)%
</TABLE>
- ---------------
(1) Accelerated Networks reports its quarterly results based on a thirteen week
accounting calendar. Accordingly, the actual quarter end for these periods
was April 2, 1999, July 2, 1999 and October 1, 1999. However, for financial
presentation purposes, we report our quarterly results as of the last
calendar day of the last full month within the period.
Our quarterly operating results are likely to vary significantly in the
future due to a variety of factors, many of which are outside of our control. If
our quarterly or annual operating results do not meet the expectations of
investors and securities analysts, the trading price of our common stock could
decline significantly. Please see "Risk Factors -- If our revenue and operating
results fall below analysts' and
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investors' expectations, our stock price could significantly decline" on page 5
for some of the factors that could affect our quarterly or annual operating
results.
We plan to increase our operating expenses significantly to fund greater
levels of research and development, expand our sales and marketing operations,
broaden our customer support capabilities and develop new distribution channels.
We also plan to expand our general and administrative capabilities to address
the increased reporting and other administrative demands that will result from
this offering and the expected growth of our business. Our operating expenses
are based largely on anticipated organizational growth and revenue trends and a
significant amount of our expenses are, and will continue to be, fixed. In
addition, we may be required to spend more in research and development than
originally budgeted in order to respond to industry trends. As a result of the
above, any delay in generating or recognizing revenue could cause significant
variations in our operating results from quarter to quarter and could result in
substantial operating losses.
Because of the above, we believe that quarter-to-quarter comparisons of our
operating results are not a good indication of our future performance. You
should not rely on our results or growth for any quarterly or annual period as
an indication of our future performance. It is likely that in the future, our
quarterly or annual operating results may be below the expectations of public
market analysts and investors. In this event, the price of our common stock
could significantly decline.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily through private
sales of approximately $88.6 million of redeemable convertible preferred
securities as well as through a $2.5 million line of credit with Comerica Bank
and a $1.5 million equipment loan facility with Phoenix Leasing Incorporated. We
also have a $4.0 million revolving loan facility with Comerica Bank. We have not
drawn down on our revolving loan facility with Comerica Bank.
At March 31, 2000, we had cash and cash equivalents of approximately $47.8
million, approximately $39,000 in outstanding capitalized lease obligations,
$2.4 million of outstanding debt under our line of credit with Comerica Bank,
and approximately $282,000 of outstanding obligations under our equipment loan
facility with Phoenix Leasing. Amounts outstanding under our line of credit with
Comerica Bank bear interest at Comerica's base rate, plus 0.5% per annum.
Amounts outstanding under our equipment loan facility with Phoenix Leasing bear
interest at approximately 15% per annum. Any amounts which become outstanding
under our revolving loan facility with Comerica Bank will bear interest at
Comerica's base rate. As of March 31, 2000, Comerica's base rate was 9.0%.
We used approximately $22.5 million in cash for operating activities in
1999, an increase of approximately $14.5 million from the approximately $8.0
million used in 1998. The increase was primarily due to an increase in our net
loss from approximately $9.7 million in 1998 to approximately $21.2 million in
1999, approximately $4.5 million in increased accounts receivable and
approximately $3.8 million in increased inventory in 1999, partially offset by
approximately $3.1 million in increased non-cash charges and approximately $1.7
million in increased accounts payable and accrued expenses.
We used approximately $8.0 million in cash for operating activities in
1998, an increase of approximately $6.7 million from approximately $1.3 million
used in 1997. The increase was primarily due to an increase in our net loss from
approximately $1.5 million in 1997 to approximately $9.7 million in 1998
partially offset by approximately $52,000 in increased non-cash charges and
approximately $1.8 million in increased accounts payable and accrued expenses.
We generated approximately $1.4 million in cash from our investing
activities in 1999, an increase in cash of approximately $8.4 million from the
approximately $7.0 million used in 1998. The increase in cash was due to the
maturity of approximately $7.9 million of available-for-sale securities,
partially offset by our purchase of approximately $4.5 million of property and
equipment and approximately $2 million of available-for-sale securities. We used
approximately $7.0 million in cash for investing activities in 1998, an increase
of approximately $6.6 million from the approximately $440,000 used in 1997. The
increase was
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primarily due to an increase in our capital expenditures from approximately
$440,000 in 1997 to approximately $1.1 million in 1998 plus the purchase of
approximately $5.9 million of available-for-sale securities in 1998.
Cash provided by financing activities in 1999 was approximately $32.7
million, up from approximately $14.9 million in 1998 and approximately $5.4
million in 1997. Cash provided by financing activities primarily consists of
funds received from issuances of redeemable convertible preferred stock and
interest on outstanding credit balances, our term loan facility, our equipment
loan facility and stock option exercises. Cash provided by financing activities
is partially offset by principal and interest payments on our term loan
facility, equipment loan facility and capitalized lease obligations. The
increase in 1999 of approximately $17.8 million from 1998 is primarily due to
increased proceeds from redeemable convertible preferred stock of approximately
$15.5 million and from proceeds from our credit facilities of approximately $2.5
million. The increase in 1998 of approximately $9.5 million is primarily due to
proceeds from redeemable convertible preferred stock of approximately $8.9
million.
We currently have no significant commitments for capital expenditures or
obligations outstanding under capital lease commitments. We anticipate that we
will increase our capital expenditures and capital lease commitments consistent
with our anticipated growth in operations, infrastructure, including facilities
and systems, and personnel.
We expect to experience significant growth in our operating expenses for
the foreseeable future. As a result, we anticipate that operating expenses, as
well as planned capital expenditures, will constitute a material use of our cash
resources. In addition, we may use cash resources to fund acquisitions or
investments in complementary businesses, technologies or product. We believe
that our cash on hand, available borrowings under our credit facilities and the
net proceeds from the sale of the common stock in this offering will be
sufficient to meet our working capital and capital expenditure requirements for
at least the next 12 months. In the event additional financing is required, we
may not be able to raise it on acceptable terms, or at all.
YEAR 2000 ISSUE
Prior to December 31, 1999 many computer systems, software products and
other control devices were unable to accept four digit entries to distinguish
21st century dates from 20th century dates. As a result, these computer systems,
software products and control devices needed to be upgraded or replaced in order
to operate properly in the Year 2000 and beyond.
We have designed our products to be Year 2000 compliant. However, there can
be no assurance that our current products do not contain undetected errors or
defects associated with Year 2000 date functions. If such errors or defects do
exist, we may incur material costs to resolve them.
Our products utilize internally-developed, third-party provided hardware
and licensed software. We have completed an internal systems and processes
review for Year 2000 compliance. We have contacted our third-party providers to
gauge the Year 2000 compliance at their products. Based on these vendors'
representations, we believe that the third-party products we use are Year 2000
compliant. There can be no assurance, however, that we will not experience
unanticipated negative consequences, including material costs, caused by
undetected errors or defects in the technology used in our products.
We have no specific contingency plan to address the effect of Year 2000
noncompliance. While we have not experienced any Year 2000 problems to date, if
in the future it comes to our attention that certain of our products need
modification, or certain of our third-party products are not Year 2000
compliant, then we will seek to make modifications. In such cases, we expect
such modifications to be made on a timely basis and we do not believe that the
cost of such modifications will have a material effect on our operating results.
There can be no assurance, however, that we will be able to modify our products,
services and systems in a timely and successful manner to comply with Year 2000
requirements, which could have a material adverse effect on our business.
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<PAGE> 39
DISCLOSURES ABOUT MARKET RISK
We do not hold financial instruments for trading or speculative purposes.
Our financial instruments have short maturities and therefore are not subject to
significant interest rate risk. We generally place our marketable security
investments in high credit quality instruments, primarily corporate obligations
with contractual maturities of less than one year. Our financial liabilities
that are subject to interest rate risk are our credit facilities, which have
stated interest rates based on the bank's prime rate. We do not expect any
material loss from our marketable security investments and therefore believe
that our potential interest rate exposure is not material. We do not use any
derivatives or similar instruments to manage our interest rate risk.
We currently have product development activities in India. We record
expenses for our subsidiary in India in Indian Rupees. Accordingly, our
operating results are also exposed to changes in exchange rates between the U.S.
dollar and Indian Rupee. While to date, our results have not materially been
affected by any changes in currency exchange rates, devaluation of the U.S.
dollar against the Indian Rupee would adversely affect our expenses for our
Indian subsidiary.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") No. 98-1, "Accounting for the
Cost of Computer Software Developed or Obtained for Internal Use." SOP 98-1 is
effective for consolidated financial statements for years beginning after
December 15, 1998. SOP 98-1 provides guidance over accounting for computer
software developed or obtained for internal use including the requirement to
capitalize specified costs and amortization of such costs. We have adopted the
provisions of SOP 98-1 for our year ended December 31, 1999. The implementation
of SOP 98-1 did not have a material effect on our consolidated financial
statements.
In April 1998, the AICPA issued SOP No. 98-5, "Reporting on the Costs of
Start-Up Activities." SOP 98-5 requires that all start-up costs related to new
operations must be expensed as incurred. In addition, start-up costs that were
capitalized in the past must be written off when SOP 98-5 is adopted. We adopted
the SOP 98-5 effective January 1, 1999. The implementation of SOP 98-5 effective
January 1, 1999. The implementation of SOP 98-5 did not have a material effect
on our consolidated financial statements.
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<PAGE> 40
BUSINESS
OVERVIEW
We develop and market telecommunications products that enable the bundling
of voice and data services over a single broadband access network. Our
multiservice broadband access products are designed to allow our customers to
efficiently and cost-effectively deliver and manage multiple voice and data
services using various broadband access technologies, including digital
subscriber line, or DSL, copper-line technologies such as T1 and NxT1, and
higher bandwidth technologies such as DS3. Our comprehensive family of
multiservice broadband access products include our POP-located MSAP voice
gateways, central office MSAP concentrators, customer located carrier-class IADs
and software-based element management systems. Our multiservice broadband access
products are designed to facilitate interoperability with different types of
equipment deployed in service provider networks and comply with relevant
industry standards. We believe this allows for efficient and seamless
installation and provides our customers with greater flexibility in designing
and deploying their networks. Our target customers are competitive local
exchange carriers, or CLECs, interexchange carriers, or IXCs, regional bell
operating companies, or RBOCs, incumbent local exchange carriers, or ILECs and
foreign telephone companies.
INDUSTRY BACKGROUND
The growing need for high-speed broadband communications
In the last few years, the volume of data traffic over the Internet and
private communications networks has grown significantly, fueled by increasing
numbers of users and continued proliferation of Internet-based applications such
as e-commerce. International Data Corporation, or IDC, estimates that there were
69 million Internet users in the U.S. at the end of 1998 and anticipates that
this number will increase to approximately 197 million by the end of 2003. IDC
also estimates that the total value of products and services sold over the
Internet to U.S. consumers will increase from approximately $13.5 billion in
1998 to approximately $119 billion by 2003. In addition to e-commerce, business
usage of the Internet for applications such as supply chain management, Web
hosting, remote access for telecommuters and other services has generated a
significant amount of traffic for the existing communications infrastructure.
According to RHK, a market research and consulting firm, Internet traffic will
increase 4,600% between 1999 and 2003.
In an effort to meet this expected growth in data traffic, many service
providers have made significant investments in fiber optic core network
infrastructure to improve bandwidth and speed in the Internet backbone.
Similarly, many businesses have made significant investments to increase the
capacity of their premises' data network infrastructure. However, an access
bottleneck still exists between the ends of the fiber optic networks at
telephone companies' central offices and the customer premises. This segment of
the network, generally connected through the existing copper-pair
infrastructure, is commonly known as the "last mile."
Evolution of broadband access technologies
Historically, the telecommunications industry in the United States and
internationally was highly regulated, with both local and long distance service
providers operating as monopolies. In the U.S., ILECs had a monopoly on the last
mile and primarily offered T1 and Integrated Services Digital Network, or ISDN,
services to address their customers' needs for high speed connectivity. A T1
line is a phone connection supporting voice or data traffic at high speeds, and
ISDN is a communication standard for sending voice, video and data on digital or
normal telephone lines. Although T1 technology helped to fill the need for
broadband access for large businesses, which used leased T1 lines as a means to
create intra-enterprise private communications networks, it was not widely
adopted by small and medium size businesses, telecommuters and residential
users, largely because of its high cost. Analog dial-up modems and ISDN terminal
adapters are also limiting because of their lower access-speeds. To address
these issues, service providers are continuing to take advantage of new
technologies such as DSL to offer cost-
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<PAGE> 41
effective broadband access to their customers. DSL technologies use
sophisticated schemes to pack data onto copper wires, and are sometimes referred
to as last-mile technologies because they are used only for connections from a
telephone switching station to a home or office. In addition, declining costs
have now made T1 services a viable means for service providers to deliver
broadband access to medium-size business customers as well.
The competitive telecommunications environment
Two broad trends in the telecommunications industry are converging,
resulting in a new type of service provider: the integrated communications
provider, or ICP. The first trend began long before the 1996 Telecommunications
Reform Act and resulted in competitive access providers, which are now referred
to as "first generation" CLECs. Historically, CLECs have primarily focused on
delivering voice services to large and medium-size business customers and,
consequently, generally have designed their access networks to deliver a single
service, such as voice, over a single access facility, such as a T1 line. As a
result, CLECs often had to use parallel access networks, one for delivering
voice traffic and the other for data traffic, in order to provide their
customers with both voice and data services. While these CLECs could offer
competitive pricing relative to ILECs, heightened competition and increased
price pressure, coupled with the high underlying cost of maintaining parallel
access networks, has made it increasingly difficult for CLECs to compete.
The second trend began subsequent to the 1996 Telecommunications Reform Act
and resulted in a new type of CLEC commonly called a "data CLEC" or a "second
generation" CLEC. Data CLECs primarily constructed DSL-based access networks
initially intended for the delivery of a single service -- high speed Internet
access -- to residential and business customers. Data CLECs typically lease the
copper-pair infrastructure from ILECs, add DSL functionality, and sell broadband
access on a wholesale basis to Internet service providers, or ISPs, which then
market this access to end customers. Data CLECs are also finding it difficult to
compete in this market only having a single service to offer their customers.
The following diagram illustrates how service providers currently deliver
either single services over single access networks or multiple services over
parallel access networks:
[CURRENT SERVICE DELIVERY MODEL]
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[Graphic depicting a diagram entitled "Current service delivery model,"
which illustrates the current method of delivering single or multiple services
such as Internet, data or voice over separate access networks including digital
subscriber lines, T1 and traditional telephone lines. Graphic also lays out the
different equipment necessary to transmit voice data traffic from a service
provider the end-user.]
Many first generation CLECs need to consolidate their voice and data access
networks, currently used to deliver multiple services, in order to reduce costs
and compete more effectively. Data CLECs in turn need to provide additional
services over their existing access networks in order to increase their revenue
and compete more effectively. We believe the competitive dynamics discussed
above are driving first generation CLECs and data CLECs towards becoming
integrated communications providers.
The need for multiservice broadband access solutions
We believe that service providers must be able to cost-effectively bundle
multiple voice and data services over a single broadband access network in order
to compete more effectively. More specifically, we believe that these service
providers require multiservice broadband access solutions that:
- allow for the delivery of a rich set of bundled voice and data services
over a single broadband access facility;
- enable rapid deployment of additional services;
- provide a high degree of reliability and scalability;
- support multiple broadband access technologies;
- provide for ease of management; and
- interoperate with other network elements.
THE ACCELERATED NETWORKS SOLUTION
We develop and market multiservice broadband access solutions that enable
service providers to deliver and manage a wide range of voice and data services
efficiently and cost-effectively over a single broadband access network. We
offer a wide range of products, including our MSAP voice gateways, MSAP
concentrators, a family of carrier-class IADs and software-based element
management systems, which enable service providers to offer their end users
fully integrated, high-quality voice and data services. Using our products,
service providers can leverage emerging technologies, such as delivering voice
over digital subscriber line, or VoDSL, and enabling frame relay over digital
subscriber line, or FRoDSL, over a single broadband access facility.
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<PAGE> 43
The following diagram illustrates how service providers can deploy our
multiservice broadband access products in their networks to deliver multiple
voice and data services over a single broadband access facility:
[ARTWORK]
[Graphic depicting a diagram entitled "Multiservice delivery model," which
illustrates how our multiservice broadband access products, including our MSAP
voice gateway, MSAP Concentrator and carrier-class IAD, deliver multiple
services, including voice, data and Internet traffic over a single DSL, TI or
NxT1 broadband network]
Enable rich set of bundled services
Our multiservice broadband access products are designed to enable service
providers to efficiently and cost-effectively provide their end-users with a
broad range of voice and data services, including high speed Internet access,
local dial tone, long distance voice, frame relay access, voice and data virtual
private networks, or VPNs. Our multiservice broadband access products enable
service providers to deliver these services over a single broadband access
facility, using either DSL, T1, NxT1 or DS3 technologies, instead of having to
use parallel networks for their voice and data traffic. As a result, service
providers are able to reduce their total network costs. In addition, because our
multiservice broadband access products facilitate the bundling of multiple voice
and data services, service providers are better able to differentiate themselves
by offering tailored services and a single point of contact to their customers,
ultimately helping to increase their revenue and reduce their customer churn.
Facilitate rapid deployment of additional services
Our multiservice broadband access products enable service providers to
deploy services to their customers more quickly than is currently possible using
traditional access products. Our multiservice broadband access products enable
service providers to meet their customers' initial voice and/or data needs and
allow for efficient and cost-effective provisioning of additional voice and data
services as their customers' demands change. In addition, AccessPilot, our
software-based element management system, allows service providers to remotely
"turn on" new services to their customers from a central location.
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Broaden service provider target market
Our multiservice broadband access products are designed to enable service
providers to cost-effectively address the needs of multiple target markets.
These target markets include large, medium and small businesses, branch offices,
remote offices, small office/home office and telecommuters. In particular, we
offer service providers a broad range of carrier-class IADs, each with varying
features and functionality, which enable them to better address the bandwidth,
service and other requirements of their customers. In addition, because our
carrier-class IADs support the delivery of bundled voice and data services over
DSL, T1, NxT1 and DS3 access technologies, our products enable service providers
to effectively extend their service reach.
Enhance reliability and scalability
Our MSAP voice gateways and MSAP concentrators have been certified to be
compliant with Telcordia Technologies Network Equipment Building System, or
NEBS, an industry standard for equipment deployed in central office locations,
which is a requirement for their deployment in carrier central office locations.
In addition, because our customers are delivering mission-critical services such
as toll-quality local and long distance voice to their customers, we have
designed our products to comply with rigorous industry standards for
reliability. Our multiservice broadband access products are also highly modular
and flexible, providing a migration path for service providers to scale their
networks as their customers' requirements evolve.
Enhance network flexibility by interoperating with other network elements
Our multiservice broadband access products are designed to interoperate
with different types of equipment deployed in service provider networks, such as
Class 5 voice switches, DSL access multiplexers, or DSLAMs, asynchronous
transfer mode, or ATM, switches and customer premises equipment, or CPE. Toward
this end, we have successfully conducted joint interoperability testing with
Lucent, Nortel and Siemens AG for their Class 5 voice switches, Lucent and
Nortel for their DSLAMs, and Efficient Networks for their CPE, to enhance the
continued end-to-end functionality of our solutions. In addition, we have
performed in-house interoperability testing of our products with a number of
DSLAM and ATM switch products from Alcatel, Cisco, Marconi Communications, Nokia
and PairGain. We believe that our products comply with relevant industry
standards, allowing for efficient and seamless installation and providing our
customers with greater flexibility in designing and deploying their networks.
THE ACCELERATED NETWORKS STRATEGY
Our objective is to become the leading provider of multiservice broadband
access solutions. Our strategy to achieve this objective includes the following
key elements:
Enhance our technology leadership. We believe we are the only
telecommunications equipment vendor offering an architecturally homogeneous
multiservice broadband access solution comprised of our POP MSAP voice gateways,
central office MSAP concentrators and customer-located carrier-class IADs. We
utilize a common hardware and software architecture across all three product
families. We believe this enhances our ability to rapidly implement new features
and functionality across our entire product line. We intend to exploit this
advantage by continuing to conduct research and development on all three product
families comprising our complete multiservice broadband access solution.
We further believe that the individual network elements most critical to
deploying multiple broadband access services are those at either "edge" of the
broadband access network: POP voice gateways and customer-located IADs. As a
result, we intend to expand our technological leadership in these two product
areas. We believe this will help us create significant barriers to entry for
emerging competitors as well as established telecommunications equipment
vendors.
Expand our domestic customer base. To date, we have primarily focused our
efforts on selling to CLECs and IXCs. We intend to increase our sales to our
existing customers as they continue to expand
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their networks and service offerings. We also believe there is a significant
opportunity to sell to other voice and data CLECs and IXCs, as well as to ILECs
and RBOCs, as they continue to migrate toward a multiservice broadband access
strategy. We intend to increase our sales to these customers by leveraging our
relationships with current customers and by further developing our distribution
channels. We also plan to continue to work closely with current and potential
customers to implement enhancements to our current products, as well as to
design future products that specifically meet their evolving needs.
Capitalize on international opportunities. Many telecommunications service
providers outside the U.S. are beginning to deploy multiservice broadband access
networks. We believe these international markets present substantial
opportunities, and we plan to expand our sales and marketing efforts
accordingly. We will initially pursue international markets by developing
country-specific distribution relationships, leveraging existing and entering
into new OEM relationships, and establishing an international direct sales
force. We are currently focusing those efforts in Canada and Europe. We have
invested and will continue to invest in research and development to design
products that meet international standards requirements. We will also continue
to develop relationships with service providers and equipment manufacturers to
facilitate rapid product development and deployment in these markets.
Broaden our distribution channels. We plan to extend our distribution
channels to meet the growing demand for multiservice broadband access equipment.
In addition to increasing our direct sales force, we intend to pursue additional
OEMs, distributors, resellers and network integrators to increase the
penetration of our products in new and existing markets, both domestically and
internationally. OEMs, distributors, resellers and network integrators are an
integral part of our worldwide distribution strategy because we believe that, in
conjunction with our direct sales force, they will help identify new sales
prospects, sell our products as part of a complete solution, and customize and
integrate our products into service provider networks.
Continue to pursue and leverage strategic relationships. We believe that
establishing strategic relationships with companies whose business models and
competencies complement our own will enable us to more effectively penetrate
various market segments and offer our customers additional high-quality and
value-added solutions. For example, we intend to leverage our relationship with
Siemens to facilitate our penetration into international markets. We will also
continue to actively work with our customers and other equipment vendors to
ensure interoperability with equipment installed in their networks, as well as
equipment that is currently being developed. We also plan to work with our
customers and equipment manufacturers to develop and promote new standards so
that our products will continue to be interoperable with future network
equipment.
Facilitate deployment of multiservice broadband access networks. We believe
that helping our customers design and provide competitive multiservice voice and
data offerings will facilitate rapid adoption of products required to deliver
such services. We will continue to collaborate with our customers to assist them
in the design, engineering, and deployment of their multiservice broadband
access networks. We also plan to assist our customers in marketing bundled voice
and data services to their customers. Toward this end, we intend to develop
professional services specifically designed to help our customers, especially
CLECs, to successfully and rapidly deploy multiservice broadband access
networks.
PRODUCTS
We offer a comprehensive family of multiservice broadband access products
that enable efficient and cost-effective delivery of voice and data services
over a single broadband access network. Our products address service provider
requirements at three related areas within the broadband access network: the
POP, the central office, and the customer premises. In addition, we complement
our multiservice broadband access products with a software-based element
management system.
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MSAP Voice Gateways
[Photograph of one of our MSAP voice gateways.]
Our MSAP voice gateways are located at
service provider POPs or switching centers.
Our MSAP voice gateways receive streams of
voice packets from central offices and
convert the packetized voice traffic into
the format expected by public switch
telephone network, or PSTN, voice switches.
Our MSAP voice gateways then deliver the
converted voice traffic to the appropriate
PSTN voice switch. These PSTN voice switches
may be Class 5 local exchange switches,
Class 3 or 4 long distance switches, or
emerging packetized soft switches. For Class
5 switches, we use GR-303 signaling, which
allows switch ports to be cost-effectively
over-subscribed. For Class 3 and 4 voice
switches, we use T1 channel associated
signaling.
Our MSAP voice gateways are fully
NEBS-compliant, redundant, chassis-based
systems that provide high-density voice
switch connectivity. We currently support
144 channelized T1 interfaces in a single
chassis and 576 channelized T1 interfaces in
a standard seven foot rack. Our MSAP voice
gateways also provide circuit emulation
capabilities as well as voice compression,
silence suppression, comfort noise insertion, and built-in, high performance
echo cancellation. Our MSAP voice gateways support a wide range of network
interfaces, including T1, NxT1, DS3 and OC-3c, and may also be populated with
DSL line cards, allowing them to additionally act as DSL concentrators. Our MSAP
voice gateways are available in two configurations: the 4 slot AN-3204 and the
20 slot AN-3220.
MSAP Concentrators [Photograph of one of our MSAP concentrators.]
Our MSAP concentrators are located at
carrier central offices. Our MSAP
concentrators aggregate a large number of
broadband access lines into high-speed
uplinks and perform local switching
functionality. Our MSAP concentrators allow
service providers to employ a variety of
broadband access technologies, including
DSL, T1, and NxT1 lines. In addition, our
MSAP concentrators are built on a robust ATM
switching fabric that, when coupled with
advanced policing, shaping and traffic
management capabilities, allows service
providers to maintain high quality voice
connections while dynamically allocating
unused bandwidth to data services.
Our MSAP concentrators are fully
NEBS-compliant, redundant, chassis-based
systems that provide high-density DSL and T1
access concentration. A single chassis is
capable of supporting up to 216 symmetrical DSL or T1 connections. Four chassis
can be configured to provide up to 864 symmetric DSL or T1 lines within a
standard seven foot rack. Our MSAP concentrators also support T1 time division
multiplexing, or TDM, interfaces, which enables them to provide concentration
and voice and data backhaul services for legacy TDM devices, including digital
loop carriers and customer premises channel banks. Our MSAP concentrators may
also be populated with voice interface line cards, allowing them to additionally
act as voice gateways. This is important for those ILECs which have Class 5
voice switches installed in the same central office as their concentration
equipment. Our MSAP concentrators are available in two configurations: the 4
slot AN-3204, which is primarily targeted for multi-tenant unit, or MTU,
applications, and the 20 slot AN-3220.
[GRAPHIC]
[GRAPHIC]
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Carrier-class IADs [Photograph of one of our carrier-class IADs.]
Our carrier-class IADs are
located at the customer premises and
integrate multiple voice and data
services over a single broadband
access facility, allowing service
providers to cost-effectively deliver
bundled voice and data services to
business and residential subscribers.
Our carrier-class IADs provide robust
Quality of Service, or QoS.
Additionally, our carrier-class IADs
facilitate complete network management
and service provisioning from service
provider network operations centers,
or NOCs.
[GRAPHIC]
<TABLE>
<CAPTION>
- ---------------------------------------------------------
PRODUCT DATE FIRST TARGET APPLICATION
SHIPPED
- ---------------------------------------------------------
<S> <C> <C> <C>
AN-20 Q2 1999 Residential business data
only
- ---------------------------------------------------------
AN-24 Q4 1999 Small office/home office and
telecommuter
- ---------------------------------------------------------
AN-28 Q4 1999 Small office, remote office
- ---------------------------------------------------------
AN-30 Q2 1999 Small to medium-size office
- ---------------------------------------------------------
AN-3204 Q2 1999 Large office
- ---------------------------------------------------------
AN-31 In development Medium-size office
- ---------------------------------------------------------
AN-32 In development Medium-size to large office
- ---------------------------------------------------------
</TABLE>
All of our carrier-class IADs support internal layer two bridging and layer
three Internet protocol, or IP, routing, including such capabilities as network
address translation, dynamic host configuration protocol, packet filtering and
dynamic service selection. Additionally, our carrier-class IADs can connect
directly to customer frame relay equipment, including routers, using standard
frame relay-to-ATM internetworking functions. Our carrier-class IADs also
provide support for constant bit rate, or CBR, and real-time variable bit-rate,
or rt-VBR, voice-over-ATM, built-in voice compression, silence suppression,
comfort noise insertion, voice compression and echo cancellation. Finally, our
carrier-class IADs are fully manageable from remote NOCs using widely adopted
Internet protocols.
AccessPilot
Our software-based element management system, AccessPilot, is a Common
Object Request Broker Architecture, or CORBA, compliant solution that simplifies
the service provisioning and management of our products. AccessPilot is designed
to be easily integrated into existing and emerging service provider operations
support systems, or OSS, infrastructure using standard CORBA interfaces.
AccessPilot includes a user-friendly graphical user interface, or GUI, enabling
service providers to physically view and configure services from remote
management workstations. AccessPilot allows service providers to turn on new
services remotely through our multiservice broadband access products, thereby
eliminating the need for segment-by-segment manual service activation. In
particular, AccessPilot provides the following management capabilities:
- configuration management;
- fault management;
- performance management;
- accounting management;
We provide a full range of carrier-class IADs. Our AN-20 product provides data-
only broadband access over DSL or
T1 facilities and is intended for
small business and residential
customers. Our AN-24 IAD supports
broadband data access as well as
up to 4 analog voice ports and is
targeted at small offices, home
offices and telecommuters. Our
AN-28 IAD supports broadband data
access and up to 8 analog voice
ports and is designed for small
businesses and branch offices.
Our AN-30 IAD supports broadband
data access and up to 12 analog or 24 digital voice ports and is focused on
small to medium-size business locations. Our AN-3204 may be used as a large
business IAD, facilitating DS3 and OC-3c wide area network uplinks in addition
to DSL, T1 and NxT1.
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- security management;
- Java-based GUI*;
- IAD web management*; and
- bulk configuration*
- ---------------
* denotes capabilities currently under development
Products in development
We currently have under development a number of products, features and
functions which we believe will further enhance our overall multiservice
broadband access solution. We are generally focusing our development activities
on the following areas:
- augmenting voice signaling capabilities of our MSAP voice gateways;
- increasing port densities for our MSAP concentrators;
- adding DSL variants to our carrier-class IADs and MSAP concentrators; and
- broadening our carrier-class IAD product line with new IAD platforms.
CUSTOMERS
Historically, sales of our products have primarily been to CLECs and IXCs.
Our CLEC customers have generally had little legacy equipment installed in their
networks and, therefore, have typically deployed our MSAP voice gateways, MSAP
concentrators and carrier-class IADs as a complete end-to-end solution. Some of
our CLEC customers that have already purchased and deployed a DSLAM from another
equipment supplier have purchased our MSAP voice gateways and carrier-class IADs
to complete their end-to-end solutions. Our IXC customers have generally had
larger, more established network infrastructures and therefore have typically
purchased individual products from us for inclusion in their networks.
The following service providers have ordered a minimum of $100,000 of our
products over the last 12 months:
<TABLE>
<S> <C>
ACN (through Siemens ICN) MCIWorldCom
Coast-to-Coast (through Siemens ICN) Onvoy
Cooperative Communications Primary Network Communications
CTC Communications UniDial Communications
FirstWorld Communications
</TABLE>
Sales to CTC Communications, FirstWorld Communications and Siemens ICN,
constituted approximately 54%, 20% and 16% of our total sales, respectively, for
the year ended December 31, 1999. Sales to Siemens ICN, CTC Communications
Group, UniDial Communications and Primary Networks accounted for approximately
39%, 29%, 19% and 10% of our total revenue, respectively, for the quarter ended
March 31, 2000. No other customer accounted for more than 10% of our total
revenue for those periods.
Many service providers, including most of our current customers, are
building networks that are in their initial stages of deployment. In general,
these service providers make relatively small initial purchases. As these
service providers continue to build out their networks, we believe they will
need to purchase a significantly greater amount of equipment. Accordingly, we
intend to leverage our existing customer base to continue to provide them with
our products as they expand their networks.
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The following customer case studies illustrate the breadth of our product
functionality:
CTC Communications
CTC Communications is an ICP serving large and medium-size business
customers in the northeastern United States. CTC was building a core Cisco-based
IP+ATM network to transport packetized voice and data traffic, and was seeking a
multiservice broadband access solution to deliver long-distance voice, data,
video and Internet traffic from its IP+ATM core network to its customers. CTC
chose our MSAP voice gateways and our carrier-class IADs, the AN-30 and AN-3204.
Our MSAP voice gateways allow CTC to directly connect into multiple long
distance service providers network. Our carrier-class IADs enabled CTC to
provide voice channels, a high speed frame relay port, and a high speed Internet
port over a single T1 access facility. As a result, CTC has been able to
successfully provide voice and data VPNs, long distance voice and high speed
Internet access with full QoS, as one bundled service to its customers.
Onvoy
Onvoy, an emerging ICP located in Minnesota, desired to provide voice and
data services to small and medium-size businesses throughout the midwestern
states. Onvoy planned to target business customers with 4 to 8 lines that
required local dial tone, long distance voice and high speed Internet access
services. In addition, Onvoy was planning to build its access infrastructure
using co-locations and DSL access technology. Onvoy was looking for a
single-vendor end-to-end solution to ensure interoperability, ease of deployment
and ease of management. Onvoy chose to purchase our end-to-end multiservice
broadband access solution, consisting of our MSAP voice gateway, MSAP
concentrator and carrier-class IADs, the AN-24 and AN-28. Because our MSAP voice
gateway incorporates fully interoperable GR-303 functionality, an interface that
allows for oversubscription of Class 5 ports, Onvoy was able to maximize its
investment in its Class 5 voice switches. Our carrier-class IADs allowed Onvoy
to cost-effectively deliver bundled high-speed Internet access and voice
services over a single DSL access facility.
MCIWorldCom
MCIWorldCom recently announced that it will be rolling out a new converged
voice and data service to business customers nationwide using both T1 and DSL
access technologies. MCIWorldCom currently offers voice and data services using
parallel access networks, a packet/cell switched network for delivering data
traffic and a circuit-switched network for delivering voice traffic. As part of
its new converged service, MCIWorldCom desires to use switched virtual circuits,
or SVCs to provide increased control and flexibility over the delivery of its
voice and data services. Because our products offer SVCs and switched VoDSL
technology, MCIWorldCom has evaluated our MSAP voice gateways and our family of
carrier-class IADs for inclusion in its new converged voice and data network.
Consistent with its product qualification process, MCIWorldCom is currently in
the final stages of testing these products. The use of SVCs will allow
MCIWorldCom to terminate local calls on a Class 5 voice switch, place "on net"
calls between our carrier-class IADs without leaving MCIWorldCom's access
network, and terminate long distance calls directly on MCIWorldCom's long
distance switches. As a result, we believe MCIWorldCom will be able to realize
savings on both "on net" and long distance calls because the ILEC's Class 5
voice switch is bypassed. This will enable MCIWorldCom to avoid paying access
charges that it would otherwise have to pay for use of the ILEC's Class 5 voice
switch. In addition, because our products support both T1 and DSL, we believe
MCIWorldCom will also be able to cost-effectively expand its service offerings
to reach more business customers.
STRATEGIC RELATIONSHIPS
We believe that establishing strategic relationships with companies whose
business models and competencies complement our own will enable us to more
effectively penetrate various market segments
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and offer our customers additional high-quality and value-added solutions.
Toward this end, we have established strategic relationships in a number of
areas of our business, including:
OEM. We have established an OEM relationship with Siemens ICN in the United
States and are in the process of expanding this relationship worldwide through
its parent, Siemens AG. We are also currently pursuing additional strategic
relationships with other OEMs to increase market penetration of our products. We
believe that OEM relationships will be particularly important as we implement
our international sales operations.
Interoperability. We have successfully conducted joint interoperability
testing with Lucent, Nortel and Siemens AG for their Class 5 voice switches,
Lucent and Nortel for their DSLAMs, and Efficient Networks for their CPE to
ensure the continued end-to-end functionality of our solutions.
Technology and standards development. We have established technology
development relationships with IPCell for call agents and with OpenCon for
GR-303 interfaces. In addition, we work with our key customers to drive our
development efforts and to establish standards for areas where none currently
exist, including submissions of new applications of DSL technologies to the DSL
Forum, an association of DSL equipment vendors and service providers whose
primary function is to promote standards and the use of DSL technology in the
DSL industry. For example, in conjunction with MCIWorldCom, we have jointly
submitted an application of SVCs, called "switched VoDSL," to the DSL Forum for
standards consideration.
TECHNOLOGY
We design and manufacture MSAP voice gateways, MSAP concentrators, and
carrier-class IADs. These products combine a number of hardware and software
technologies. Our primary areas of expertise include:
Carrier-class hardware design
POP and central office environments are demanding. Accordingly, our
hardware design incorporates multiple levels of redundancy, including power,
cooling and system logic. Our carrier-class IAD hardware designs use processors
and memory components derived from the same component family. This allows us to
design our carrier-class IADs to support customer-specific applications using
common software. All models of our carrier-class IAD hardware are designed to
work with the same software, simplifying deployment for service providers. Our
hardware designs use market-leading component technology, especially for DSL
applications, which today are based on de facto standards for interoperability.
We endeavor to use widely-used chipsets to ensure interoperability with a wide
range of other DSL equipment. We also use field programmable gate arrays for
specific applications, which makes our hardware designs more flexible, allowing
for rapid enhancements or changes without the need to add new chips.
Packet-based voice expertise
We have extensive expertise in packetized voice technology. We utilize
digital signal processing algorithms to implement voice compression, echo
cancellation, silence suppression, and comfort noise insertion, which are key
elements in optimizing bandwidth use while delivering toll-quality voice
service. In addition, we have extensive experience in all aspects of analog and
digital telephony required to implement a wide range of call routing and
termination options. Our voice-over-ATM knowledge includes the use of rt-VBR,
which optimizes use of bandwidth and allows for compressed voice. A key area of
our research and development focuses on using ATM, or SVCs, to dynamically
connect telephone subscribers with local or long distance voice switches, as
well as emerging soft switches and to directly connect to other business
locations.
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Software and protocol technologies
We have extensive experience with protocols such as IP, ATM and frame
relay. Our protocol software is designed to be reusable across our products and
to support compatibility with new and existing hardware. IP technologies such as
network address translation and dynamic host configuration protocol help
conserve IP addresses, which is critical in today's rapidly growing Internet
environment. Furthermore, we have considerable experience with basic bridging
and routing functions, as well as interworking functions required to map IP to
frame relay, IP to ATM and frame relay to ATM. We also possess knowledge on the
policing, shaping and traffic management techniques required to preserve service
quality across converged voice/data access networks.
Transmission technologies
Our in-depth knowledge of copper-pair transmission technologies used in the
last mile includes various types of DSL, such as asymmetric DSL, symmetric DSL
and G.Lite, T1/E1, DS3, and inverse multiplexing over ATM. In addition, we have
extensive expertise in coaxial and fiber-optic based technologies used for
transmission between POPs and central offices, including DS3, E3, OC-3c and
STM-1. The physical layer of all our products has been abstracted from the
service layers, enabling new transmission technologies to be added very quickly.
Element management and provisioning
We have focused heavily on technology required to deploy and manage
large-scale service provider infrastructure that incorporates customer-located
IADs. Our AccessPilot system combines simple network management protocol, or
SNMP, with CORBA interfaces to tie in with a service provider's existing OSS. In
addition, we have developed flow-through and self-provisioning features that we
believe dramatically reduce network operation costs. We incorporate
self-provisioning functionality in our carrier-class IADs, enabling
configuration from a centrally located directory.
RESEARCH AND DEVELOPMENT
We have made, and will continue to make, substantial investments in
research and development. Research and development expenses were approximately
$24.7 million for the period from inception through March 31, 2000 and were
approximately $4.2 million for the quarter ended March 31, 2000. All of our
software development costs have been expensed as incurred. As of March 31, 2000,
we had 105 employees responsible for product development, quality assurance and
documentation.
We conduct the majority of our research and development at our Moorpark,
California headquarters. We also have an office in Richardson, Texas which
focuses on next-generation voice signaling technologies and an office in
Bangalore, India which focuses on software development. We plan to focus our
research and development efforts on the following areas:
- continued enhancement of our core product family;
- next-generation voice signaling technologies; and
- development of interfaces and protocols for international markets.
SALES AND MARKETING
We currently focus our sales and marketing efforts in three areas:
- Direct. Direct sales have constituted, and we believe will continue to
constitute, the majority of our sales. We believe that only through
direct interaction with service providers can we understand the business
models and technical requirements of our customers. Further, we believe
that the competitive nature of the telecommunications equipment industry
requires us to reduce costs that would otherwise be passed on to our
consumers. In many cases this is accomplished by avoiding intermediate
steps in the distribution chain.
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- OEM. To date, OEM sales through Siemens ICN have been an important
distribution channel for us in the U.S. Siemens ICN primarily sells its
products to ILECs, RBOCs, CLECs and smaller independent operating
companies. We believe that our relationship with Siemens will enhance our
ability to reach this customer base. We intend to continue to work
aggressively with Siemens ICN and are in the process of expanding our
relationship worldwide through its parent, Siemens AG. We also intend to
pursue additional OEMs to further expand our market reach.
- Integrator. We believe that many smaller CLECs prefer purchasing products
through systems integrators that provide other services as well, such as
integration, test, staging, installation and equipment procurement. While
systems integrators have not traditionally focused on generating demand
for our products, we believe that they are well-positioned to help
increase market penetration of our products. As a result, we intend to
work closely with integrators to provide training and engage in
cooperative sales and marketing programs.
We are focusing our marketing efforts on driving demand for products used
in multiservice broadband access networks. Toward this end, we work directly
with service providers to help them develop business models, service product
packages, promotional programs and pricing strategies, all designed to promote
the delivery of multiple voice and data services over a single broadband access
facility. In addition, we are actively working with a number of trade
publications and industry analysts to educate service providers on how to
deploy, and the benefits of, multiservice broadband access networks.
We emphasize the use of Web-based technology for both internal and external
sales and marketing applications. For internal applications, virtually all our
information, documentation, policies, procedures, directories, competitive data
and market research are contained in Web-accessible databases. This allows for
rapid internal dissemination of information to our sales and marketing
personnel. For external applications, we make our company, product, and
technology information available to existing and potential customers.
MANUFACTURING
We outsource most of our product and printed circuit board assembly to
contract manufacturers. Avnet performs the majority of our component procurement
and materials management and prepares component kits for its sub-contractor,
A-Plus, which assembles, manufactures and tests our products at its facility in
San Jose, California. Arrow performs the same services as Avnet for a limited
number of our products and also sub-contracts with A-Plus for assembly,
manufacturing and testing. Avnet, Arrow and A-Plus are registered as meeting the
requirements of the International Standards Organization, or ISO, for
manufacturing and design processes. For ease in manufacturing and inventory
management, we use standard parts and components whenever possible.
We conduct final product assembly and perform reliability, stress and final
testing for most of our products. A-Plus performs the majority of these
activities for our AN-24 and AN-28 carrier-class IADs. We have complete
capabilities for configuration, packaging, and shipping of our products. We
perform comprehensive inspection tests and use statistical process controls to
assure the reliability and quality of our products. Our manufacturing engineers
develop all test procedures and design and build all equipment and stations
required to test our products. We integrate these manufacturing tests with our
contract manufacturers' build processes. Our manufacturing personnel work
closely with our design engineers to design for manufacturability, and to ensure
that our test environment remains current as broadband access technologies
evolve.
We use a rolling 12-month forecast based on anticipated product orders to
determine our product requirements. In turn, we provide these forecasts to our
contract manufacturers, and they procure all material according to lead times.
We may, in the future, seek additional contract manufacturers or secure offshore
manufacturing capabilities to meet our anticipated manufacturing requirements
and to continue driving down the cost of our products.
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SERVICE AND SUPPORT
We provide a variety of technical support services under our AcceleratedTAC
program to help our customers deploy their multiservice broadband access
networks. AcceleratedTAC is administered by our technical assistance center and
is available with a wide variety of support options that can be tailored to
customer requirements, 24 hours a day, seven days a week.
In addition to direct technical support, we are in the process of
implementing AcceleratedStart, our comprehensive services program designed to
assist service providers in a wide variety of functional areas. Under
AcceleratedStart, our professional services teams will work with our customers
to manage the design and deployment of their networks and provide project
management, installation services, and on-site support. Initially, we may
utilize third parties to deliver many aspects of this program. We plan to offer
the following services through AcceleratedStart:
- planning, network design, and engineering;
- element and network management design;
- project management;
- network operations center design and implementation;
- "rack and stack" central office installation services;
- customer premises installation services;
- on-site network operations support; and
- customer training.
As of March 31, 2000, we employed 23 people in our customer support,
systems engineering and professional services organizations with the majority
located in Moorpark, California. We intend to significantly increase our service
and support operations in order to accommodate our growth and the needs of our
existing and future customers.
COMPETITION
The market for multiservice broadband access products is extremely
competitive and we believe that competition will increase substantially as the
introduction of new technologies, deployment of broadband access networks, and
potential regulatory changes create new opportunities for established and
emerging companies. Furthermore, DSL and T1 as technologies for deploying
broadband connections are competing with alternative technologies including
broadband wireless and cable solutions. Currently, we face competition in two
areas: equipment manufacturers providing point solutions and network integrators
offering end-to-end solutions.
With regard to point solutions, we compete in the following three product
categories:
Voice Gateways. We compete with other voice gateway providers, including
CopperCom, Jetstream and Tollbridge.
Concentrators. We compete with other concentrator providers, including:
- Alcatel, Lucent, Nortel, Nokia, and PairGain (pending acquisition by
ADC Telecommunications) -- central office DSLAM;
- Advanced Switching Communications, Alcatel, Cisco, and Lucent -- ATM
access concentrators; and
- Copper Mountain -- MTU concentrators.
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IADs. We compete with other IAD providers, including:
- Cisco, Mariposa and VINA -- T1/E1 IADs; and
- Polycom, Efficient Networks, and CopperCom -- DSL IADs.
However, in many cases, especially with CLECs, service providers building
multiservice broadband access network infrastructure require more than point
solutions and therefore prefer to purchase integrated solutions from a single
source. As a result, since we provide a complete multiservice broadband access
solution, we frequently compete with network integrators such as Lucent, Nortel
and Cisco, which utilize various point products from vendors listed above in
conjunction with their own products to offer a complete solution.
The principal competitive factors for products utilized in our markets
include:
- features;
- reliability and scalability;
- performance;
- interoperability with other products;
- price;
- ease of installation and use;
- technical support and customer service; and
- brand recognition.
While we believe we are successfully addressing each of these competitive
factors, we expect to face increasing competitive pressures from both current
and future competitors in the markets we serve.
A number of our competitors and potential competitors also have
significantly greater financial and other resources than we have, which may
enable them to more aptly meet new competitive opportunities, including offering
lease and other financing programs. In addition, the rapid technological
developments in our industry can result in frequent changes to our group of
competitors. Consolidation in our industry may also affect our ability to
compete. For instance, Efficient Networks acquired FlowPoint Corporation, Nortel
acquired Promatory Communications, Alcatel recently announced that it will
acquire Newbridge Networks, ADC Telecommunications recently announced that it
will acquire PairGain Technologies and Efficient Networks recently announced
that it will acquire NetScreen Technologies. Acquisitions such as these may
strengthen our competitors' financial, technical and marketing resources and
provide greater access to customers. As a result, these competitors may be able
to devote greater resources to the development, promotion, sale and support of
their products than we can. There can be no assurance that we will be able to
compete successfully with our existing or new competitors, or that competitive
pressures will not materially and adversely affect our business, financial
condition and results of operations.
INTELLECTUAL PROPERTY
We rely on a combination of copyright, patent, trademark, trade secret and
other intellectual property laws, nondisclosure agreements and other protective
measures to protect our proprietary rights. We also utilize unpatented
proprietary know-how and trade secrets and employ various methods to protect our
trade secrets and know-how. Although we do not have any issued patents to date,
we currently have six U.S. patent applications pending.
Although we employ a variety of intellectual property in the development
and manufacturing of our products, we believe that none of our intellectual
property is individually critical to our current operations. However, taken as a
whole, we believe our intellectual property rights are significant and that the
loss of all or a substantial portion of such rights could have a material
adverse effect on our results of operations. We cannot assure you that our
intellectual property protection measures will be sufficient to prevent
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misappropriation of our technology. In addition, the laws of many foreign
countries do not protect our intellectual properties to the same extent as the
laws of the United States. From time to time, we may desire or be required to
renew or to obtain licenses from others in order to further develop and market
commercially viable products effectively. We cannot assure you that any
necessary licenses will be available on reasonable terms, if at all.
We have filed trademark applications for "Accelerated Networks,"
"Accelerated Networks & Design," "AccessPilot," "AcceleratedStart" and
"AcceleratedTAC."
EMPLOYEES
As of March 31, 2000, we employed 196 full-time employees, including 33 in
sales and marketing, 22 in manufacturing, 105 in engineering, 13 in finance and
administration and 23 in customer support, systems engineering and professional
services. Most of our employees are located in the United States; however, we
have approximately 26 engineering employees located in Bangalore, India. None of
our employees is represented by collective bargaining agreements, and our
management considers its relations with our employees to be good.
PROPERTIES
We lease an approximately 23,000 square foot facility in Moorpark,
California, for executive offices and for administrative, sales and marketing,
and research and development purposes. The lease for this facility expires in
August 2001. We lease an approximately 4,100 square foot facility in Richardson,
Texas, primarily for research and development, and sales and marketing purposes.
This lease expires in August 2002. We lease an approximately 5,500 square foot
facility in Bangalore, India, which is used primarily for research and
development. This lease expires in January 2001. We lease an approximately
15,300 square foot facility in Simi Valley, California, which is used primarily
for manufacturing purposes. This lease expires in August 2001. We recently
entered into another lease for approximately 6,500 square feet of additional
space in the same building which we intend to use primarily for sales and
marketing purposes. This lease expires in February 2003. We also have other
offices in the U.S. and one office in Canada which are used primarily for sales
and support purposes.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to our
executive officers and directors as of March 31, 2000:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<S> <C> <C>
Suresh Nihalani(3)........................ 47 Chairman, Chief Executive Officer, President, and
Director
Frederic T. Boyer......................... 56 Vice President, Finance and Administration, Chief
Financial Officer and Secretary
Yogi Mistry............................... 46 Vice President, Software Engineering
Kiran P. Munj............................. 48 Vice President, Hardware Engineering
Pete S. Patel............................. 47 Vice President, Operations
Hitendra Sonny Soni....................... 40 Vice President, Business Development
Charles D. Vogt........................... 36 Vice President, Worldwide Sales
Kevin T. Walsh............................ 42 Vice President, Marketing
Brig. Gen. H. R. Johnson, USAF (Ret.)..... 76 Director
Steven M. Krausz(1)....................... 45 Director
Robert F. Kuhling, Jr.(1)(2).............. 51 Director
Anthony T. Maher.......................... 54 Director
Peter T. Morris (2)....................... 43 Director
Lip-Bu Tan(1)............................. 40 Director
</TABLE>
- ---------------
(1) Member of the audit committee
(2) Member of the compensation committee
(3) Sole member of the secondary compensation committee
Suresh Nihalani is a co-founder of our company and has served as our
Chairman, Chief Executive Officer, President and as a director since our
inception. From October 1987 to October 1996, Mr. Nihalani held various senior
executive management positions at ACT Networks, a telecommunications equipment
vendor, including Vice President of Business Development from May 1995 to
October 1996. Mr. Nihalani holds an M.B.A and an M.S. in Electrical Engineering
from the Florida Institute of Technology and a Bachelors of Technology in
Electrical Engineering from the Indian Institute of Technology.
Frederic T. Boyer has been our Vice President, Finance and Administration
and our Chief Financial Officer since November 1998. Mr. Boyer has also served
as our Secretary since May 1999. Prior to joining us, Mr. Boyer was the Chief
Financial Officer of Software Dynamics, Inc. from May 1997 to October 1998. From
January 1996 to May 1997, Mr. Boyer was a consultant to several technology
companies including Software Dynamics, a financial services software company,
Digital Insight, an online home banking company, ADC Telecommunications, Inc., a
telecommunications equipment company, Cambio Systems, a network management
software company, and Rapid Text, a medical and legal transcription outsourcing
company. From March 1990 to January 1996, Mr. Boyer was the Chief Financial
Officer of Fibermux, Corp., a telecommunications equipment company later
acquired by ADC Telecommunications. Mr. Boyer holds an M.B.A. from Loyola
University, a B.S. in Accounting from California State University, Los Angeles,
and a B.S. in Economics from California State Polytechnic University, Pomona.
Yogi Mistry has been our Vice President, Software Engineering since April
1999. Since November 1998, he has also been the General Manager of our Software
Resource Center in India. Prior to joining us, Mr. Mistry held various
management positions at Harris Corp., a telecommunications equipment
manufacturer, including the Vice President, Engineering from July 1995 to
October 1998 and Director of Engineering from September 1993 to June 1995. Mr.
Mistry holds an Executive M.B.A. from Pepperdine University, an M.S. in Computer
Science from California State University, Northridge and a Bachelors of
Engineering in Electronics Engineering from the University in India.
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Kiran P. Munj is a co-founder of our company and has been our Vice
President, Hardware Engineering since April 1999. Mr. Munj was our Vice
President of Engineering and Operations from October 1996 to April 1999. From
September 1993 to October 1996, Mr. Munj was the Senior Engineering Manager at
Telematics International, Inc., a data communications company,. Mr. Munj holds
an M.S. in Management/Operations Research from the University of Texas, an M.S.
in Electrical Engineering from Northwestern University and a Bachelors of
Technology in Electrical Engineering from the Indian Institute of Technology.
Pete S. Patel has been our Vice President, Operations since April 1999.
Prior to joining us, Mr. Patel held various senior management positions at
Advanced Fibre Communications, a telecommunications company, including Vice
President of Operations from May 1998 to April 1999, Director of Operations from
June 1997 to May 1998, Director of Design Verification and Test Engineering from
May 1996 to June 1997, and Senior Test Engineering Manager from August 1995 to
May 1996. From February 1988 to August 1995, Mr. Patel held various management
positions at DSC Communications Corporation, a telecommunications company. Mr.
Patel holds a F.Y.B.Sc. in Science from Gujarat University, India and a B.V.Sc.
and A.H. from Gujarat Agricultural University, India.
Hitendra Sonny Soni has been our Vice President, Business Development since
November 1999. Previously, Mr. Soni was our Vice President, Sales and Business
Development from October 1997 to November 1999. From October 1994 through
October 1997, Mr. Soni was the director of Business Development and Channels at
Xylan Corporation, a network communications company. From February 1988 to
September 1994, Mr. Soni was the Director of Business Development and Sales at
Allen Crawford Associates, a network integration company in Canada.
Charles D. Vogt has been our Vice President, Worldwide Sales since November
1999. Prior to joining us, Mr. Vogt was the Senior Vice President of Sales at
Lucent Technologies, a telecommunications company, from June 1999 to November
1999. From January 1996 to June 1999, he was the Assistant Vice President of
Sales at Ascend Communications, a data communications company which was acquired
by Lucent in June 1999. From May 1992 to January 1996, Mr. Vogt was the Director
of Sales at Adtran, a high speed digital communications provider. Mr. Vogt holds
a B.S. in Economics and Computer Science from St. Louis University.
Kevin T. Walsh has been our Vice President, Marketing since July 1998. From
May 1995 to June 1998, Mr. Walsh was the Director of Product Marketing and Vice
President, Marketing at Xylan Corporation. From July 1990 to May 1995, Mr. Walsh
was the Director of Vertical Marketing and Director of North America Marketing
at Ascom Timeplex, Inc., a telecommunications and service automation company.
Mr. Walsh holds an M.B.A. from Pepperdine University and a B.S. in Computer
Science from the University of California, Irvine.
Brig. Gen. H.R. Johnson, USAF (Ret.) has served as a director of our
company since March 1997. His current board memberships include Teuza Venture
Fund, an Israeli venture fund, and several private companies. Since March of
1999, General Johnson has been the President of H.R. Johnson and Associates,
where he provides technology strategy and consulting services for various
technology corporations. Previously, General Johnson was the Senior Vice
President of Business Development of Fairchild Corporation, an aerospace and
technology company. General Johnson has an M.B.A. from George Washington
University and a B.S. in Military Science from the University of Maryland.
Steven M. Krausz has served as a director of our company since May 1997.
Mr. Krausz has been a general partner of several venture capital funds
affiliated with U.S. Venture Partners, a venture capital firm, since August
1985. He also serves as a director of Verity, Inc., a provider of knowledge
retrieval software products, and several private companies. Mr. Krausz serves on
our board as a representative of U.S. Venture Partners. Mr. Krausz holds an
M.B.A. and a B.S. in Electrical Engineering from Stanford University.
Robert F. Kuhling, Jr. has served as a director of our company since May
1998. Mr. Kuhling has been a managing director and general partner of several
venture capital funds managed by ONSET
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Ventures, a venture capital firm, since 1987. He also serves as a director of
Euphonix, Inc., a developer of professional audio equipment, Gadzoox Networks,
Inc., a storage area networking company, and several private companies. Mr.
Kuhling serves on our board as a representative of ONSET Ventures. Mr. Kuhling
holds an M.B.A. from Harvard University and an A.B. in economics from Hamilton
College.
Anthony T. Maher has served as a director of our company since February
1999. Since May 1978, Mr. Maher has held various executive positions within the
Siemens Public Communication Networks Group of Siemens AG, a network equipment
provider, including as a member of the board of directors from October 1997 to
September 1998, Executive Director for Access Networks from October 1995 to
September 1997, and Executive Director of Worldwide Product Planning from
January 1993 to September 1995. Mr. Maher is currently a member of the board of
Siemens ICN, Efficient Networks, Inc. and several private companies. Mr. Maher
serves on our board as a representative of Siemens AG. Mr. Maher holds an M.S.
in Electrical Engineering and Solid State Physics and a B.S. in Electrical
Engineering from the University of Illinois.
Peter T. Morris has served as a director of our company since May 1997. Mr.
Morris is a general partner at New Enterprise Associates, a venture capital
firm, where he has been employed since 1992. He also serves as a director of
Gadzoox Networks, Packeteer, Inc., a bandwidth management software company,
Virata Corporation, a DSL chip provider, and several private companies. Mr.
Morris serves on our board as a representative of New Enterprise Associates. Mr.
Morris holds an M.B.A. and a B.S. in Electrical Engineering from Stanford
University.
Lip-Bu Tan has served as a director of our company since October 1999. Mr.
Tan is a general partner of the Walden Group and Chairman of Walden
International Investment Group. He also serves as a director of Creative
Technology Ltd., a multimedia product and peripheral company, MediaRing.com,
Inc., a provider of Web-based voice communication services, Integrated Silicon
Solution, Inc., a designer of high-performance memory devices, and several
private companies. Mr. Tan serves on our board as a representative of The Walden
International Investment Group. Mr. Tan holds an M.B.A. from the University of
San Francisco, an M.S. in Nuclear Engineering from Massachusetts Institute of
Technology and a B.S. in Physics from Nanyang University, Singapore.
BOARD COMPOSITION
Our board of directors is currently composed of seven members. Steven M.
Krausz, Robert F. Kuhling, Jr., Brig. Gen. H. R. Johnson, Anthony T. Maher,
Peter T. Morris, Suresh Nihalani and Lip-Bu Tan were appointed to our board of
directors pursuant to a voting agreement among us, our founders and holders of
preferred stock. The voting agreement will continue in effect after our planned
reincorporation to a Delaware corporation, but will terminate upon the closing
of this offering.
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. To implement the classified
structure, prior to the consummation of the offering, two of our directors will
be elected to one-year terms, two will be elected to two-year terms and three
will be elected to three-year terms. Thereafter, directors will be elected for
three-year terms. General Johnson and Mr. Kuhling have been designated Class I
directors whose term expires at the 2001 annual meeting of stockholders. Messrs.
Krausz and Maher have been designated Class II directors whose term expires at
the 2002 annual meeting of stockholders. Messrs. Morris, Nihalani, and Tan have
been designated Class III directors whose term expires at the 2003 annual
meeting of stockholders. The classification of the board of directors may delay
or prevent a change in control of our company or in our management. See
"Description of Capital Stock -- Anti-Takeover Effects of Provisions of Delaware
Law and Our Certificate of Incorporation and Bylaws" on page 70 for a more
detailed discussion of our classified board.
Executive officers are appointed by the board of directors on an annual
basis and serve until their successors have been duly elected and qualified.
There are no family relationships among any of our directors, officers or key
employees.
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BOARD COMMITTEES
We have established an audit committee, a compensation committee and a
secondary compensation committee.
Our audit committee consists of Messrs. Krausz, Kuhling and Tan. The audit
committee reviews our internal accounting procedures and consults with and
reviews the services provided by our independent accountants.
Our compensation committee consists of Messrs. Kuhling and Morris. The
compensation committee reviews and recommends to the board of directors the
compensation and benefits of our employees, including our directors and
officers. The compensation committee also administers our stock-based employee
benefit plans. Our secondary compensation committee consists of Suresh Nihalani
and has the authority to grant options under our stock-based employee benefit
plans to non-executive officer employees and consultants, subject to guidelines
established by our compensation committee.
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
We do not currently compensate directors in cash for their service as
members of our board of directors. However, outside directors are reimbursed for
all reasonable expenses incurred by them in attending board and committee
meetings. See "Certain Transactions" beginning on page 63 for a description of
any transactions between a director and us.
Directors who are also employees are eligible to receive options and be
issued shares of common stock directly under our 2000 Stock Incentive Plan.
Non-employee directors will also receive automatic option grants under our 2000
Stock Incentive Plan.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The table below sets forth the compensation earned for services rendered to
Accelerated Networks in all capacities for the fiscal years ended December 31,
1999 by our Chief Executive Officer and our next four most highly compensated
executive officers who earned more than $100,000 during fiscal 1999. These
executives are referred to as the "named executive officers" elsewhere in this
prospectus. There were no long-term compensation awards or other compensation
awarded to our named executive officers during fiscal 1999.
<TABLE>
<CAPTION>
SALARY BONUS
-------- -------
<S> <C> <C>
Suresh Nihalani............................................. $218,400 --
President and Chief Executive Officer
Hitendra Sonny Soni......................................... $102,159 $76,881
V.P., Business Development
Kevin T. Walsh.............................................. $155,999 $12,500
V.P., Marketing
Kiran P. Munj............................................... $156,250 --
V.P., Hardware Engineering
Frederic T. Boyer........................................... $151,750 --
V.P., Finance and Administration and Chief Financial
Officer
</TABLE>
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<PAGE> 60
OPTION GRANTS DURING LAST FISCAL YEAR
No options were granted to our named executive officers during the fiscal
year ended December 31, 1999. On January 10, 2000, we granted Suresh Nihalani an
option to purchase 690,200 shares, Hitendra Sonny Soni an option to purchase
40,000 shares, Kevin T. Walsh an option to purchase 40,000 shares and Kiran P.
Munj an option to purchase 159,800 shares. Each of these options had an exercise
price of $7.00 per share, an exercise price which the board of directors
believed to be equal to the fair value of our common stock on the date of grant.
All of these options have a term of ten years and vest over four years, with 25%
of the option shares vesting one year after the option grant date and the
remaining option shares vesting in a series of equal monthly installments over
the succeeding 36 months. See "Certain Transactions" beginning on page 63 for
more information regarding options granted to our named executive officers in
January 2000.
AGGREGATE OPTION EXERCISES DURING THE LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION VALUES
The table below sets forth information with respect to the ownership and
value of unexercised options held by our named executive officers as of December
31, 1999. No options were exercised by these individuals during the fiscal year
ended December 31, 1999. All options were granted at an exercise price which our
board of directors believed to be the fair value of our common stock at the date
of grant.
FISCAL YEAR END OPTION HOLDINGS
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Suresh Nihalani................................. -- -- -- --
Frederic T. Boyer............................... 300,000 -- $3,015,000 --
Kiran P. Munj................................... -- -- -- --
Hitendra Sonny Soni............................. -- -- -- --
Kevin T. Walsh.................................. -- -- -- --
</TABLE>
- -------------------------
(1) Based upon the deemed fair value of our common stock as of December 31,
1999, as subsequently determined for accounting purposes to be approximately
$10.20 per share, less the exercise price at the date of grant of $0.15 per
share, multiplied by the number of shares underlying the options.
All of the options in the above table are immediately exercisable, but are
subject to our right of repurchase which lapses periodically over time.
BENEFIT PLANS
2000 STOCK INCENTIVE PLAN
The 2000 Stock Incentive Plan is the successor program to our existing
stock option/stock issuance plan. The 2000 Stock Incentive Plan was adopted by
the board in March 2000, was approved by the stockholders in , 2000
and will become effective on the date the underwriting agreement for this
offering is signed. At that time, all outstanding options under our existing
stock option/stock issuance plan will be transferred to the 2000 Stock Incentive
Plan, and no further option grants will be made under that plan. The transferred
options will continue to be governed by their existing terms, unless our
compensation committee decides to extend one or more features of the 2000 Stock
Incentive Plan to those options. Except as otherwise noted below, the
transferred options have substantially the same terms as will be in effect for
grants made under the discretionary option grant program of our 2000 Stock
Incentive Plan.
SHARE RESERVE. Under the 2000 Stock Incentive Plan, 10,650,000 shares of
our common stock have been authorized for issuance. This share reserve consists
of the shares that will be carried over from our existing stock option/stock
issuance plan, including the shares subject to outstanding options thereunder.
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<PAGE> 61
As of March 31, 2000, options to purchase approximately 1,633,553 shares of
common stock remained available for grant under our existing stock option plan.
The share reserve under our 2000 Stock Incentive Plan will automatically
increase on the first trading day in January of each year, beginning with
calendar year 2001, by an amount equal to 5% of the total number of shares of
our common stock outstanding on the last trading day in December in the prior
year, but in no event will any such annual increase exceed 6,875,000 million
shares. In addition, no participant in the 2000 Stock Incentive Plan may be
granted stock options or direct stock issuances for more than one million shares
of common stock in total in any calendar year.
PROGRAMS. Our 2000 Stock Incentive Plan has four separate programs:
- the discretionary option grant program, under which eligible individuals
in our employ may be granted options to purchase shares of our common
stock at an exercise price not less than the fair market value of those
shares on the grant date;
- the stock issuance program, under which eligible individuals may be
issued shares of common stock directly, either through the purchase of
such shares at a price not less than their fair market value at the time
of issuance, or as a bonus tied to the attainment of performance
milestones or the completion of a specified period of service;
- the salary investment option grant program, under which our executive
officers and other highly compensated employees may be given the
opportunity to apply a portion of their base salary each year to the
acquisition of special below market stock option grants; and
- the automatic option grant program, under which option grants will
automatically be made at periodic intervals to eligible non-employee
board members to purchase shares of common stock at an exercise price
equal to the fair market value of those shares on the grant date.
ELIGIBILITY. The individuals eligible to participate in our 2000 Stock
Incentive Plan include our officers and other employees, our board members and
any consultants we hire.
ADMINISTRATION. The discretionary option grant and stock issuance programs
will be administered by our compensation committee. This committee will
determine which eligible individuals are to receive option grants or stock
issuances under these programs, the time or times when the grants or issuances
are to be made, the number of shares subject to each grant or issuance, the
status of any granted option as either an incentive stock option or a
nonstatutory stock option under the federal tax laws, the vesting schedule to be
in effect for the option grant or stock issuance and the maximum term for which
any granted option is to remain outstanding. The compensation committee will
also have the authority to select the executive officers and other highly
compensated employees who may participate in the salary investment option grant
program in the event that program is put into effect for one or more calendar
years.
PLAN FEATURES. Our 2000 Stock Incentive Plan will include the following
features:
- The exercise price for any options granted pursuant to the plan may be
paid in cash or in shares of our common stock valued at fair market value
on the exercise date. The option may also be exercised through a same-day
sale program without any cash outlay by the option holder. In addition,
the compensation committee may provide financial assistance to one or
more option holders in the exercise of their outstanding options by
allowing such individuals to deliver a full-recourse, interest-bearing
promissory note in payment of the exercise price and any associated
withholding taxes incurred in connection with such exercise. The issue
price of shares issued under the stock issuance program may also be paid
in cash or shares of our common stock or, with the approval of the
compensation committee, through a full-recourse promissory note.
- The compensation committee will have the authority to cancel outstanding
options under the discretionary option grant program, including any
transferred options from our existing stock option/ stock issuance plan,
in return for the grant of new options for the same or a different number
of
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<PAGE> 62
option shares with an exercise price per share based upon the fair market
value of our common stock on the new grant date.
- Stock appreciation rights may be issued under the discretionary option
grant program. These rights will provide the holders with the election to
surrender their outstanding options for a payment from us equal to the
fair market value of the shares subject to the surrendered options less
the exercise price payable for those shares. We may make the payment in
cash or in shares of our common stock. None of the outstanding options
under our existing stock option/stock issuance plan have any stock
appreciation rights.
CHANGE IN CONTROL. The 2000 Stock Incentive Plan will include the following
change in control provisions which may result in the accelerated vesting of
outstanding option grants and stock issuances:
- In the event that we are acquired by merger or asset sale, each
outstanding option under the discretionary option grant program which is
not to be assumed by the successor corporation will immediately become
exercisable for all the option shares, and all outstanding unvested
shares will immediately vest, except to the extent our repurchase rights
with respect to those shares are to be assigned to the successor
corporation.
- The compensation committee will have complete discretion to grant one or
more options which will become exercisable for all the option shares in
the event those options are assumed in the acquisition but the optionee's
service with us or the acquiring entity is subsequently terminated. The
vesting of any outstanding shares under the stock issuance program may be
accelerated upon similar terms and conditions.
The compensation committee will also have the authority to grant options
which will immediately vest in the event we are acquired, whether or not
those options are assumed by the successor corporation.
- The compensation committee may grant options and structure repurchase
rights so that the shares subject to those options or repurchase rights
will vest in connection with a successful tender offer for more than 50%
of our outstanding voting stock or a change in the majority of our board
through one or more contested elections. Such accelerated vesting may
occur either at the time of such transaction or upon the subsequent
termination of the individual's service.
- The options currently outstanding under our existing stock option/stock
issuance plan will immediately vest in the event we are acquired by
merger or asset sale, unless those options are assumed by the acquiring
entity or our repurchase rights with respect to any unvested shares
subject to those options are assigned to such entity. In addition, any of
those options which are so assumed will be subject to partial
acceleration upon an involuntary termination of the optionee's employment
within 12 months after the acquisition. In general, an employee with such
an acceleration provision will, after taking that partial acceleration
into account, be vested at the time of his or her involuntary termination
in the greater of:
(i) the number of shares in which he or she would have been vested at
that time had his or her service been twice as long as the actual period
of service rendered prior to such involuntary termination or
(ii) the number of shares in which he or she would have been vested in
had he or she completed one year of service prior to such termination.
SALARY INVESTMENT OPTION GRANT PROGRAM. In the event the compensation
committee decides to put this program into effect for one or more calendar
years, each of our executive officers and other highly compensated employees may
elect to reduce his or her base salary for the calendar year by an amount not
less than $10,000 nor more than $50,000. Each selected individual who makes such
an election will automatically be granted, on the first trading day in January
of the calendar year for which his or her salary reduction is to be in effect,
an option to purchase that number of shares of common stock determined by
dividing the salary reduction amount by two-thirds of the fair market value per
share of our
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<PAGE> 63
common stock on the grant date. The option will have an exercise price per share
equal to one-third of the fair market value of the option shares on the grant
date. As a result, the option will be structured so that the fair market value
of the option shares on the grant date less the exercise price payable for those
shares will be equal to the amount by which the optionee's salary is to be
reduced under the program. The option will become exercisable in a series of
twelve equal monthly installments over the calendar year for which the salary
reduction is to be in effect.
AUTOMATIC OPTION GRANT PROGRAM. Each individual who first becomes a
non-employee board member at any time after the effective date of this offering
will receive an option grant for 15,000 shares of common stock on the date such
individual joins the board. In addition, on the date of each annual stockholders
meeting held after the effective date of this offering, each non-employee board
member who is to continue to serve as a non-employee board member, including
each of our current non-employee board members, will automatically be granted an
option to purchase 7,500 shares of common stock, provided such individual has
served on the board for at least six months.
Each automatic grant will have an exercise price per share equal to the
fair market value per share of our common stock on the grant date and will have
a term of 10 years, subject to earlier termination following the optionee's
cessation of board service. The option will be immediately exercisable for all
of the option shares; however, we may repurchase, at the exercise price paid per
share, any shares purchased under the option which are not vested at the time of
the optionee's cessation of board service. The shares subject to each annual
automatic grant will vest in two successive semi-annual installments upon the
optionee's completion of each six month period of board service over the twelve
month period measured from the grant date. The shares subject to each initial
15,000-share automatic option grant will vest in a series of eight successive
quarterly installments upon the optionee's completion of each three-month period
of board service over the 24-month period measured from the grant date. However,
the shares subject to each outstanding automatic option grant will immediately
vest in full upon certain changes in control or ownership or upon the optionee's
death or disability while a board member.
ADDITIONAL PROGRAM FEATURES. Our 2000 Stock Incentive Plan will also have
the following features:
- Outstanding options under the salary investment option grant and
automatic option grant programs will immediately vest if we are acquired
by a merger or asset sale or if there is a successful tender offer for
more than 50% of our outstanding voting stock or a change in the majority
of our board through one or more contested elections.
- Limited stock appreciation rights will automatically be included as part
of each grant made under the salary investment option grant or automatic
option grant program, and these rights may also be granted to one or more
officers as part of their option grants under the discretionary option
grant program. Options with this feature may be surrendered to us upon
the successful completion of a hostile tender offer for more than 50% of
our outstanding voting stock. In return for the surrendered option, the
optionee will be entitled to a cash distribution from us in an amount per
surrendered option share based upon the highest price per share of our
common stock paid in that tender offer.
- The board may amend or modify the 2000 Stock Incentive Plan at any time,
subject to any required stockholder approval. The 2000 Stock Incentive
Plan will terminate no later than , 2010.
2000 EMPLOYEE STOCK PURCHASE PLAN
Our 2000 Employee Stock Purchase Plan was adopted by the board in March,
2000 and approved by the stockholders in , 2000. The plan will
become effective immediately upon the signing of the underwriting agreement for
this offering. The plan is designed to allow our eligible employees and the
eligible employees of our participating subsidiaries to purchase shares of
common stock, at semi-annual intervals, with their accumulated payroll
deductions.
SHARE RESERVE. 500,000 shares of our common stock will initially be
reserved for issuance under the plan. The reserve will automatically increase on
the first trading day in January each year, beginning in
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<PAGE> 64
calendar year 2001, by an amount equal to one percent of the total number of
outstanding shares of our common stock on the last trading day in December in
the prior year, but in no event will any such annual increase exceed 1,375,000
shares.
OFFERING PERIODS. The plan will have a series of successive offering
periods, each with a maximum duration of 24 months. The initial offering period
will start on and will end on the last business day in
, 2002. The next offering period will start on the first business
day in , 2002, and subsequent offering periods will be set by our
compensation committee.
ELIGIBLE EMPLOYEES. Individuals scheduled to work more than 20 hours per
week for more than 5 calendar months per year may join an offering period on the
start date or any semi-annual entry date within that period. Semi-annual entry
dates will occur on the first business day of and
each year. Individuals who become eligible employees after the start date of an
offering period may join the plan on any subsequent semi-annual entry date
within that offering period.
PAYROLL DEDUCTIONS. A participant may contribute up to 15% of his or her
cash earnings through payroll deductions, and the accumulated deductions will be
applied to the purchase of shares on each semi-annual purchase date. The
purchase price per share will be equal to 85% of the fair market value per share
on the participant's entry date into the offering period or, if lower, 85% of
the fair market value per share on the semi-annual purchase date. Semi-annual
purchase dates will occur on the last business day of and
each year. In no event, however, may any participant purchase
more than 1,000 shares on any purchase date, and not more than 150,000 shares
may be purchased in total by all participants on any purchase date. Our
compensation committee may increase or decrease these limits prior to the start
of any new offering period under the plan.
RESET FEATURE. If the fair market value per share of our common stock on
any purchase date is less than the fair market value per share on the start date
of the two-year offering period, then that offering period will automatically
terminate, and a new two-year offering period will begin on the next business
day. All participants in the terminated offering will be transferred to the new
offering period.
CHANGE IN CONTROL. Should we be acquired by merger or sale of substantially
all of our assets or more than fifty percent of our voting securities, then all
outstanding purchase rights will automatically be exercised immediately prior to
the effective date of the acquisition. The purchase price will be equal to 85%
of the market value per share on the participant's entry date into the offering
period in which an acquisition occurs or, if lower, 85% of the fair market value
per share immediately prior to the acquisition.
PLAN PROVISIONS. The plan will terminate no later than the last business
day of , 2010. The board may at any time amend, suspend or
discontinue the plan. However, certain amendments may require stockholder
approval.
401(k) PLAN
In 1999, we adopted a Retirement Savings and Investment Plan, or 401(k)
plan, covering our eligible full-time employees located in the United States.
The 401(k) plan is intended to qualify under Section 401(k) of the Internal
Revenue Code of 1986, as amended so that contributions to the 401(k) plan by
employees are not taxable to employees until withdrawn from the 401(k) plan.
Pursuant to the 401(k) plan, participating employees may elect to reduce their
current compensation by up to the lesser of 15% of their annual compensation or
the statutorily prescribed annual limit, and to have the amount of the reduction
contributed to the 401(k) plan. The 401(k) plan permits discretionary company
matching and profit sharing contributions. To date, we have not made any
contributions to the 401(k) plan on behalf of any of our employees.
LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS
The certificate of incorporation that we will adopt immediately prior to
the closing of this offering provides that, except to the extent prohibited by
the Delaware General Corporation Law, our directors will not be personally
liable to us or our stockholders for monetary damages for any breach of
fiduciary duty as
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<PAGE> 65
directors. Under the Delaware General Corporation Law, the directors have a
fiduciary duty to Accelerated Networks which is not eliminated by this provision
of the certificate of incorporation and, in appropriate circumstances, equitable
remedies such as injunctive or other forms of nonmonetary relief will remain
available. In addition, each director will continue to be subject to liability
under the Delaware law for breach of the director's duty of loyalty, for acts or
omissions which are found by a court of competent jurisdiction to be not in good
faith or which involve intentional misconduct, or knowing violations of law, for
actions leading to improper personal benefit to the director, and for payment of
dividends or approval of stock repurchases or redemptions that are prohibited by
Delaware law. This provision also does not affect the director's
responsibilities under any other laws, such as the federal securities laws or
state or federal environmental laws. We intend to obtain liability insurance for
our officers and directors.
Section 145 of the Delaware law empowers a corporation to indemnify its
directors and officers and to purchase insurance with respect to liability
arising out of their capacity or status as directors and officers, provided that
this provision shall not eliminate or limit the liability of a director:
- for any breach of the director's duty of loyalty to the corporation or
its stockholders;
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- arising under Section 174 of the Delaware law; or
- for any transaction from which the director derived an improper personal
benefit.
The indemnification permitted under Delaware law is not exclusive of any
other rights to which the directors and officers may be entitled under the
corporation's bylaws, any agreement, a vote of stockholders or otherwise. Our
certificate of incorporation will provide that we shall, to the fullest extent
permitted by the Delaware law, indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding (whether civil, criminal, administrative or investigative) by
reason of the fact that such person is or was a director or officer, or is or
was serving at our request as a director or officer of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
against expenses, including attorneys' fees, judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding.
We have entered into indemnification agreements with our directors. These
agreements contain provisions that may require us, among other things, to
indemnify these directors against certain liabilities that may arise because of
their status or service as directors, except for liabilities arising from
willful misconduct of a culpable nature, advance their expenses incurred as a
result of any proceeding against them as to which they could be indemnified, and
obtain directors' and officers' liability insurance if it is maintained for
other directors or officers.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent as to 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 TRANSACTIONS
The following is a description of transactions during our last three fiscal
years to which we have been a party, in which the amount involved in the
transaction exceeded $60,000 and in which any director, executive officer or
holder of more than 5% of our capital stock had or will have a direct or
indirect material interest, other than compensation arrangements that are
otherwise required to be described under "Management."
ISSUANCES OF STOCK, NOTES AND WARRANTS TO EXECUTIVE OFFICERS
In March 1997, we issued Suresh Nihalani 4,216,000 shares of our common
stock and Kiran Munj 1,224,000 shares of our common stock for a purchase price
of $0.0018 per share. The shares issued to Mr. Munj were subject to a repurchase
right in favor of Accelerated Networks. The repurchase right lapsed with respect
to 24% of the shares on October 31, 1997, subject to Mr. Munj's continued
service, and with respect to the remaining 76% of the shares over 36 equal
monthly installments thereafter. This vesting schedule was subsequently amended
in connection with our Series A financing in May 1997, as further described
below.
In March 1997, we entered into separate Loan and Warrant Purchase
Agreements with each of Messrs. Nihalani and Munj, pursuant to which Mr.
Nihalani loaned us an aggregate of $240,000 and Mr. Munj loaned us $10,000.
These loans bore interest at a rate of five percent per annum. In connection
with their loans, we issued Mr. Nihalani warrants to purchase 1,305,600 shares
of common stock at $0.0018 per share and Mr. Munj warrants to purchase 54,400
shares of common stock at $0.0018 per share. Each of Messrs. Nihalani and Munj
exercised their warrants in full in April 1997. In connection with the closing
of our Series A preferred stock financing in May 1997, we repaid the loans from
Messrs. Nihalani and Munj. At that time, Messrs. Nihalani and Munj also granted
us a repurchase right with respect to half of the stock that they held at that
time. The repurchase right lapses over a period of 48 equal monthly installments
beginning on April 30, 1997, subject to their continued service.
ISSUANCE OF PREFERRED STOCK
Since our inception, we have issued redeemable convertible preferred stock
as follows:
In May 1997, we issued 11,170,000 shares of Series A preferred stock in a
private placement at a purchase price of $0.50 per share to several affiliates
of New Enterprise Associates, several affiliates of U.S. Venture Partners, and
several other investors and an additional 50,000 shares of Series A preferred
stock to a third party in exchange for $25,000 of services performed in
connection with the private placement;
In May 1998, we issued 11,584,848 shares of Series B preferred stock in a
private placement at a purchase price of $1.25 per share to Onset Enterprise
Associates, affiliates of the Walden International Investment Group, several of
our Series A investors, and several other investors;
In March 1999, we issued 8,845,648 shares of Series C preferred stock in a
private placement at a purchase price of $3.39 per share to Siemens AG; and;
In February and March 2000, we issued an aggregate of 3,455,267 shares of
Series D preferred stock in a private placement at a purchase price of $11.14
per share to MCIWorldCom Ventures, Williams Communications Group, several of our
Series A, Series B and Series C investors and several other investors.
Immediately prior to the closing of this offering and assuming an initial
public offering price in excess of $5.50 per share, all outstanding shares of
our Series A, Series B, Series C and Series D preferred stock will convert
automatically into shares of common stock. If our initial public offering price
is less than $8.912 per share, each share of our Series D preferred stock will
convert into more than one share of common stock. The exact number of shares of
common stock into which each share of Series D preferred stock will convert will
be determined by dividing $8.912 by our initial public offering price, and will
not be subject to a cap on the maximum number of common shares into which the
Series D preferred stock will convert.
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Our officers, directors and 5% stockholders participated in the foregoing
transactions as follows:
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS, PREFERRED STOCK
DIRECTORS AND 5% --------------------------------------------
STOCKHOLDERS SERIES A SERIES B SERIES C SERIES D
------------------- --------- --------- --------- --------
<S> <C> <C> <C> <C>
Pete S. Patel........................................ 17,953
Hitendra Sonny Soni.................................. 17,953
Kevin T. Walsh....................................... 10,000
Brig. Gen. H.R. Johnson, USAF (Ret.)(1).............. 17,953
Siemens AG........................................... 8,845,648 268,425
Entities affiliated with New Enterprise
Associates(2)...................................... 4,160,000 2,268,448 195,074
Entities affiliated with U.S. Venture Partners(3).... 4,000,000 2,428,000 195,073
Onset Enterprise Associates III, L.P................. 3,200,000 97,105
Entities affiliated with The Walden International
Investment Group(4)................................ 3,200,000 97,105
</TABLE>
- ---------------
(1) Represents shares held by Gen. Johnson and Steven C. Johnson, as tenants in
common.
(2) Composed of New Enterprise Associates VII, L.P., NEA Presidents Fund, L.P.
and NEA Ventures 1997, L.P.
(3) Composed of U.S. Venture Partners V, L.P., USVP V International, L.P., 2180
Associates Fund V, L.P., USVP V Entrepreneur Partners, L.P. and U.S. Venture
Partners VII, L.P.
(4) Composed of Walden-SBIC, L.P., Walden Technology Ventures II, L.P., Walden
Media Information Technology Fund, L.P., Walden EDB Partners, L.P., Walden
EDB Partners II, L.P., Walden Japan Partners, L.P., Pacven Walden Ventures
III, L.P., and Walden-Nikko Mauritius Co.
ISSUANCE OF OPTIONS TO EXECUTIVE OFFICERS AND DIRECTORS
Since our inception, we have granted the following options to our executive
officers and directors:
<TABLE>
<CAPTION>
VESTING
COMMENCEMENT NO. OF EXERCISE
NAME GRANT DATE DATE SHARES PRICE VESTING
---- ---------- ------------ ------- -------- -------
<S> <C> <C> <C> <C> <C>
Suresh Nihalani.................... 1/10/2000 1/1/2000 690,200 $7.00 (1)
Frederic T. Boyer.................. 9/30/1998 11/2/1998 300,000 0.15 (1)
Yogi Mistry........................ 9/30/1998 11/2/1998 100,000 0.15 (1)
3/17/1999 3/17/1999 100,000 0.60 (1)
Kiran P. Munj...................... 1/10/2000 1/1/2000 159,800 7.00 (1)
Pete S. Patel...................... 3/17/1999 4/12/1999 170,000 0.60 (1)
1/10/2000 1/1/2000 30,000 7.00 (1)
Hitendra Sonny Soni................ 10/23/1997 10/7/1997 400,000 0.05 (1)
1/10/2000 1/1/2000 40,000 7.00 (1)
Charles D. Vogt.................... 11/17/1999 11/22/1999 696,757 3.50 (1)
Kevin T. Walsh..................... 6/18/1998 7/6/1998 400,000 0.15 (1)
1/10/2000 1/1/2000 40,000 7.00 (1)
Brig. Gen. H.R. Johnson, USAF 4/15/1997 3/28/1997 54,400 0.0018 (2)
(Ret.)...........................
7/1/1997 5/30/1997 217,600 0.05 (3)
12/21/1999 12/21/1999 15,000 4.50 (4)
Anthony T. Maher................... 7/20/1999 5/18/1999 60,000 1.75 (5)
</TABLE>
All of the above options are immediately exercisable and subject to a repurchase
right in favor of Accelerated Networks which lapses as the options vest.
- ---------------
(1) 25% of the option shares vest on the first anniversary of the vesting
commencement date and the remaining option shares vest over 36 equal monthly
installments thereafter subject to the optionee's continued service.
(2) The option shares vest over 38 equal monthly installments from the vesting
commencement date subject to the optionee's continued service.
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<PAGE> 68
(3) The option shares vest over 36 equal monthly installments from the vesting
commencement date subject to the optionee's continued service.
(4) The option shares vest over 12 equal monthly installments from the vesting
commencement date subject to the optionee's continued service.
(5) The option shares vest over 48 equal monthly installments from the vesting
commencement date subject to the optionee's continued service.
AGREEMENTS AND TRANSACTIONS WITH SIEMENS AG AND ITS AFFILIATE
In connection with the issuance of our Series C preferred stock to Siemens
AG in February 1999, we entered into an OEM Agreement with Siemens ICN, a
wholly-owned subsidiary of Siemens AG, pursuant to which we agreed to sell our
products to Siemens ICN for use in their own products for resale to third
parties. We also entered into a separate service level agreement with Siemens
ICN which sets forth our obligations to service the products we sell to Siemens
ICN under the OEM Agreement. As of December 31, 1999, Siemens ICN had purchased
approximately $1.3 million of our products pursuant to the OEM Agreement.
In December 1999, we entered into a two year warrant issuance agreement
with Siemens ICN pursuant to which we agreed to issue Siemens ICN warrants to
purchase up to 150,000 shares of our common stock, based upon the amount and
timing of Siemens' purchases of our products. As of February 29, 2000, we had
issued warrants to purchase a total of 28,575 shares of our common stock at a
purchase price of $7.00 per share pursuant to this agreement. Siemens ICN is
affiliated with Siemens AG, which will beneficially own approximately 18.4% of
our common stock after this offering.
INVESTORS RIGHTS AGREEMENT
We have entered into a Second Restated Investors Rights Agreement with
Suresh Nihalani, Kiran P. Munj and our preferred stockholders, which provides
those stockholders rights to require us to register their shares of Accelerated
Networks stock. Please see "Description of Capital Stock -- Registration Rights"
beginning on page 71 for more information regarding this agreement.
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<PAGE> 69
PRINCIPAL STOCKHOLDERS
The table below sets forth information regarding the beneficial ownership
of our common stock as of March 31, 2000, by:
- each person or entity who is known by us to own beneficially more than 5%
of our outstanding stock;
- each of our directors and a director nominee;
- each of the named executive officers; and
- all directors and executive officers as a group.
The information set forth in the table gives effect to the conversion of
all issued and outstanding preferred stock. Unless otherwise indicated, the
address of each beneficial owner listed below is c/o Accelerated Networks, Inc.,
301 Science Drive, Moorpark, California 93021.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Except as indicated by the footnotes below, we
believe, based on information furnished to us, that the persons and entities
named in the table below have sole voting and investment power with respect to
all shares of common stock shown as beneficially owned by them. Percentage of
beneficial ownership is based on 45,537,094 shares of common stock outstanding
as of March 31, 2000, and 49,537,094 shares of common stock outstanding after
the completion of this offering. In computing the number of shares of common
stock subject to options held by that person that are exercisable within 60 days
of March 31, 2000, these shares are deemed outstanding for the purpose of
determining the percentage ownership of the optionee. These shares, however, are
not deemed outstanding for the purpose of computing the percentage ownership of
any other stockholder.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF SHARES
SHARES BENEFICIALLY OWNED
BENEFICIALLY ---------------------------------------
NAME OF BENEFICIAL OWNER OWNED PRIOR TO OFFERING AFTER THE OFFERING
------------------------ ------------ ----------------- ------------------
<S> <C> <C> <C>
NAMED EXECUTIVE OFFICERS & DIRECTORS
Suresh Nihalani(1)............................. 6,264,658 13.5% 12.5%
Frederic T. Boyer(2)........................... 300,000 * *
Kiran P. Munj(3)............................... 1,495,342 3.3 3.0
Hitendra Sonny Soni(4)......................... 457,953 1.0 *
Kevin T. Walsh(5).............................. 450,000 * *
Brig. Gen. H. R. Johnson USAF (Ret.)(6)........ 184,953 * *
Steven M. Krausz(7)............................ 6,623,473 14.5 13.4
Robert F. Kuhling, Jr.(8)...................... 3,297,105 7.2 6.7
Anthony T. Maher(9)............................ 9,202,648 20.2 18.5
Peter T. Morris(10)............................ 6,463,522 14.2 13.0
Lip-Bu Tan(11)................................. 3,297,105 7.2 6.7
All directors and executive officers as a group
(14 persons)(12)............................ 39,093,516 82.3 75.9
OTHER 5% STOCKHOLDERS
Entities associated with Siemens AG(13)........ 9,142,648 20.1 18.4
Hofmannstrasse 51, D-81359
Munich, Germany
Entities associated with New Enterprise
Associates(14).............................. 6,623,522 14.5 13.4
2490 Sand Hill Road
Menlo Park, CA 94025
</TABLE>
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<PAGE> 70
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF SHARES
SHARES BENEFICIALLY OWNED
BENEFICIALLY ---------------------------------------
NAME OF BENEFICIAL OWNER OWNED PRIOR TO OFFERING AFTER THE OFFERING
------------------------ ------------ ----------------- ------------------
<S> <C> <C> <C>
Entities affiliated with U.S. Venture
Partners(15)................................ 6,623,473 14.5 13.4
2180 Sand Hill Road, Suite 300
Menlo Park, CA 94025
Onset Enterprise Associates III, L.P. ......... 3,297,105 7.2 6.7
2490 Sand Hill Road
Menlo Park, CA 94025
Entities affiliated with The Walden
International Investment Group(16).......... 3,297,105 7.2 6.7
750 Battery Street, Seventh Floor
San Francisco, CA 94111
</TABLE>
- ---------------
* Represents less than 1% of the total shares.
(1) Includes (a) 690,200 shares issuable upon the exercise of immediately
exercisable options granted to Mr. Nihalani, (b) 95,800 shares held by Mr.
Nihalani's wife, Varsha Nihalani, our controller, (c) 10,000 shares
issuable upon exercise of immediately exercisable options granted to Ms.
Nihalani, (d) 8,400 shares held by other members of Mr. Nihalani's
immediate family, and (e) 314,286 shares held by Mr. Nihalani as trustee of
a grantor retained annuity trust.
(2) Includes 300,000 shares issuable upon the exercise of immediately
exercisable options.
(3) Includes 159,800 shares issuable upon the exercise of immediately
exercisable options and 57,142 shares held as trustee of two irrevocable
trusts.
(4) Includes 40,000 shares issuable upon the exercise of immediately
exercisable options.
(5) Includes 40,000 shares issuable upon the exercise of immediately
exercisable options.
(6) Includes 40,000 shares held by Candace Maria Johnson. Gen. Johnson holds a
power of attorney with respect to the voting and disposition of these
shares, but disclaims beneficial ownership of such shares.
(7) Includes (a) 5,785,560 shares owned by U.S. Venture Partners V, L.P. ("USVP
V"), (b) 321,420 shares owned by USVP V International, L.P. ("V Int'l"),
(c) 179,995 shares owned by 2180 Associates Fund V, L.P. ("2180V"), (d)
141,425 shares owned by USVP V Entrepreneur Partners, L.P. ("EP V") and (e)
195,073 shares owned by U.S. Venture Partners VII, L.P. ("USVP VII"). Mr.
Krausz is a managing member of Presidio Management Group V, L.L.C. ("PMG
V") and Presidio Management Group VII, L.L.C. ("PMG VII"). PMG V is the
general partner of each of USVP V, V Int'l, 2180 V and EP V. PMG VII is the
general partner of USVP VII. PMG V or PMG VII may be deemed to share voting
and dispositive power over the shares held by each of USVP V, V INT'L, 2180
V, EP V and USVP VII, as the case may be. Accordingly, as the managing
member of PMG V and PMG VII, Mr. Krausz may be deemed to share voting and
dispositive power over these shares as well. Mr. Krausz disclaims
beneficial ownership of such shares except to the extent of his
proportionate membership interest therein.
(8) Includes 3,297,105 shares held by ONSET Enterprise Associates III, L.P.
("Onset"). Mr. Kuhling is the managing director of OEA III Management, LLC,
the general partner of Onset and, as such, may be deemed to exercise voting
and dispositive power over the shares held by Onset. Mr. Kuhling disclaims
beneficial ownership of such shares except as to his proportionate interest
therein.
(9) Includes 60,000 shares issuable upon the exercise of immediately
exercisable options. Also includes 9,114,073 shares held by Siemens AG and
28,575 shares issuable upon exercise of a warrant held by Siemens ICN. Mr.
Maher is a member of the board of Siemens ICN. Mr. Maher disclaims
beneficial ownership of the shares held by Siemens AG and the shares
underlying the warrant held by Siemens ICN.
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<PAGE> 71
(10) Includes 6,463,522 shares held by New Enterprise Associates VII, L.P. ("NEA
VII"). Mr. Morris is a general partner of NEA VII. Mr. Morris disclaims
beneficial ownership in such shares, except to the extent of his
proportionate partnership interest therein.
(11) Includes (a) 544,000 shares owned by Walden-SBIC, L.P., (b) 136,000 shares
owned by Walden Technology Ventures II, L.P., (c) 600,000 shares owned by
Walden Media Information Technology Fund, L.P., (d) 280,000 shares owned by
Walden EDB Partners, L.P., (e) 16,579 shares owned by Walden EDB Partners
II, L.P., (f) 280,000 shares owned by Walden Japan Partners, L.P., (g)
847,368 shares owned by Pacven Walden Ventures III, L.P. and (h) 593,158
shares owned by Walden-Nikko Mauritius Co. Mr. Tan is a general partner of
each of the above entities, with the exceptions of (1) Pacven Walden
Ventures III, L.P., of which he is a director of Pacven Walden Management
Co, Ltd., which is a general partner of Pacven Walden Management L.P.,
which is a general partner of Pacven Walden Ventures III, L.P. and (2)
Walden-Nikko Mauritius, of which he is a director. Mr. Tan disclaims
beneficial ownership in such shares, except to the extent of his pecuniary
interest therein, arising as a result of his partnership interests in the
above shares.
(12) Includes all information set forth in footnotes 1 through 11 above. In
addition, includes (a) 100,000 shares held by Yogi Mistry, (b) 42,500
shares held by Pete S. Patel and (c) 954,257 other shares issuable upon the
exercise of immediately exercisable options.
(13) Includes (a) 9,114,073 shares held by Siemens AG and (b) 28,575 shares
issuable upon exercise of a warrant held by Siemens ICN. Siemens AG is the
parent company of Siemens ICN and, as such, may be deemed to exercise
voting and dispositive power over the shares held by Siemens ICN.
(14) Includes (a) 6,463,522 shares held by NEA VII, (b) 150,000 shares held by
NEA Presidents Fund, L.P. and (c) 10,000 shares held by NEA Ventures 1997,
L.P.
(15) Includes (a) 5,785,560 shares owned by USVP V, (b) 321,420 shares owned by
V Int'l, (c) 179,995 shares owned by 2180V, (d) 141,425 shares owned by EP
V, and (e) 195,073 shares owned by USVP VII.
(16) Includes (a) 544,000 shares owned by Walden-SBIC, L.P., (b) 136,000 shares
owned by Walden Technology Ventures II, L.P., (c) 600,000 shares owned by
Walden Media Information Technology Fund, L.P., (d) 280,000 shares owned by
Walden EDB Partners, L.P., (e) 16,579 shares owned by Walden EDB Partners
II, L.P., (f) 280,000 shares owned by Walden Japan Partners, L.P., (g)
847,368 shares owned by Pacven Walden Ventures III, L.P. and (h) 593,158
shares owned by Walden-Nikko Mauritius Co.
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<PAGE> 72
DESCRIPTION OF CAPITAL STOCK
GENERAL
We are authorized to issue 200,000,000 shares of common stock, par value
$0.001, and 5,000,000 shares of undesignated preferred stock, par value $0.001.
The following description of our securities and the provisions of our
certificate of incorporation and bylaws are summaries. Statements contained in
this prospectus relating to these provisions are not necessarily complete.
Copies of our certificate of incorporation and bylaws have been filed with the
Commission as exhibits to our registration statement, of which this prospectus
forms a part. The descriptions of common stock and preferred stock reflect
changes to our capital structure that will occur upon the closing of this
offering in accordance with the terms of the certificate that will be adopted by
us immediately prior to the closing of this offering.
COMMON STOCK
As of March 31, 2000, there were 45,537,094 shares of common stock
outstanding and held of record by approximately 140 stockholders, assuming
conversion of all shares of preferred stock into common stock. Based on this
number of outstanding shares, and giving effect to the issuance of the 4,000,000
shares of common stock in this offering, there will be 49,537,094 shares of
common stock outstanding, assuming no exercise of the underwriters'
over-allotment option, upon the closing of the offering.
Holders of the common stock are entitled to one vote for each share held on
all matters submitted to a vote of the stockholders. Our certificate of
incorporation does not provide for cumulative voting for the election of
directors. This means that the holders of a majority of the shares voted can
elect all of the directors then standing for election. Holders of common stock
are entitled to receive ratably any dividends that may be declared by the board
of directors out of legally available funds, subject to any preferential
dividend rights of any outstanding preferred stock. Upon our liquidation,
dissolution or winding up, the holders of common stock are entitled to receive
ratably our net assets available after the payment of all debts and other
liabilities and subject to the prior rights of any outstanding preferred stock.
Holders of common stock have no preemptive, subscription, redemption or
conversion rights. The outstanding shares of common stock are, and the shares
offered by us in this offering will be, upon receipt of payment for such shares,
fully paid and nonassessable. The rights, preferences and privileges of holders
of common stock are subject to, and may be adversely affected by, the rights of
holders of shares of any series of preferred stock which we may designate and
issue in the future without further stockholder approval. Upon the closing of
the offering, there will be no shares of preferred stock outstanding.
PREFERRED STOCK
Immediately prior to the closing of this offering, and assuming an initial
public offering price equal to or greater than $5.50 per share, all outstanding
shares of our Series A, Series B, Series C and Series D preferred stock will
convert automatically into shares of common stock. If our initial public
offering price is less than $8.912 per share, each share of our Series D
preferred stock will convert into more than one share of common stock. The exact
number of shares of common stock into which each share of Series D preferred
stock will convert will be determined by dividing $8.912 by our initial public
offering price, and will not be subject to a cap on the maximum number of common
shares into which the Series D preferred stock will convert. Following our
initial public offering, the board of directors will be authorized without
further stockholder approval to issue from time to time up to an aggregate of
5,000,000 shares of preferred stock in one or more series and to fix or alter
the designations, preferences, rights, qualifications, limitations or
restrictions of the shares of each series, including the dividend rights,
dividend rates, conversion rights, voting rights, term of redemption including
sinking fund provisions, redemption price or prices, liquidation preferences and
the number of shares constituting any series or designations of such series
without further vote or action by the stockholders.
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<PAGE> 73
The issuance of preferred stock may have the effect of delaying, deferring
or preventing a change in control of our management without further action by
the stockholders and may adversely affect the voting and other rights of the
holders of common stock. The issuance of preferred stock with voting and
conversion rights may adversely affect the voting power of the holders of common
stock, including the loss of voting control to others. We have no present plans
to issue any shares of preferred stock.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF DELAWARE LAW AND OUR CERTIFICATE OF
INCORPORATION AND BYLAWS
Certain provisions of our certificate of incorporation and bylaws, which
will become effective upon the closing of this offering, may make it more
difficult to acquire control of Accelerated Networks by various means. These
provisions could deprive the stockholders of opportunities to realize a premium
on the shares of common stock owned by them. In addition, these provisions may
adversely affect the prevailing market price of the stock. These provisions are
intended to:
- enhance the likelihood of continuity and stability in the composition of
the board and in the policies formulated by the board;
- discourage certain types of transactions which may involve an actual or
threatened change in control of Accelerated Networks;
- discourage certain tactics that may be used in proxy fights;
- encourage persons seeking to acquire control of Accelerated Networks to
consult first with the board of directors to negotiate the terms of any
proposed business combination or offer; and
- reduce our vulnerability to an unsolicited proposal for a takeover that
does not contemplate the acquisition of all outstanding shares of
Accelerated or that is otherwise unfair to our stockholders.
The certificate and bylaws provide that upon the closing of this offering
the board shall be divided into three classes of directors serving staggered,
three-year terms. The classification of the board has the effect of requiring at
least two annual stockholder meetings, instead of one, to replace a majority of
members of the board. Subject to the rights of the holders of any outstanding
series of preferred stock, the certificate authorizes only the board to fill
vacancies, including newly created directorships. Accordingly, this provision
could prevent a stockholder from obtaining majority representation on the board
by enlarging the board of directors and filling the new directorships with its
own nominees. The certificate also provides that directors may be removed by
stockholders only for cause and only by the affirmative vote of holders of
two-thirds of the outstanding shares of voting stock.
The certificate provides that stockholders may not take action by written
consent, but may only take action at duly called annual or special meetings of
stockholders. The certificate further provides that special meetings of our
stockholders may be called only by the chairman of the board of directors or a
majority of the board of directors. This limitation on the right of stockholders
to call a special meeting could make it more difficult for stockholders to
initiate actions that are opposed by the board of directors. These actions could
include the removal of an incumbent director or the election of a stockholder
nominee as a director. They could also include the implementation of a rule
requiring stockholder ratification of specific defensive strategies that have
been adopted by the board of directors with respect to unsolicited takeover
bids. In addition, the limited ability of the stockholders to call a special
meeting of stockholders may make it more difficult to change the existing board
and management.
The bylaws provide that stockholders seeking to bring business before an
annual meeting of stockholders, or to nominate candidates for election as
directors at an annual meeting of stockholders, must provide timely notice
thereof in writing. To be timely, a stockholder's notice must be delivered to or
mailed and received at our principal executive offices not less than 120 days
prior to the date of our annual meeting. The bylaws also specify certain
requirements as to the form and content of a stockholder's notice. These
provisions may preclude stockholders from bringing matters before an annual
meeting of stockholders or from making nominations for directors at an annual
meeting of stockholders.
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The authorized but unissued shares of common stock and preferred stock are
available for future issuance without stockholder approval. These additional
shares may be utilized for a variety of corporate purposes, including future
public offerings to raise additional capital, corporate acquisitions and
employee benefit plans. The existence of authorized but unissued shares of
common stock and preferred stock could render more difficult or discourage an
attempt to obtain control of us by means of a proxy contest, tender offer,
merger or otherwise.
The Delaware General Corporation Law provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or bylaws, unless
a corporation's certificate of incorporation or bylaws, as the case may be,
requires a greater percentage. Our amended and restated certificate of
incorporation imposes supermajority vote requirements in connection with
business combination transactions and the amendment of certain provisions of our
certificate of incorporation and bylaws, including those provisions relating to
the classified board of directors, action by written consent, the ability of
stockholders to call special meetings and the ability of stockholders to bring
business before an annual meeting or to nominate directors. Following the
completion of this offering, our present directors and executive officers and
their respective affiliates will beneficially own approximately 75.9% of our
common stock. This gives them veto power with respect to any stockholder action
or approval requiring either a two-thirds vote or a simple majority.
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law, as amended from time to time. Section 203 generally prohibits a
publicly-held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years from the date of
the transaction in which the person became an interested stockholder, unless the
interested stockholder attained such status with the approval of the board of
directors or unless the business combination is approved in a prescribed manner.
A "business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the interested stockholder. Generally, an
"interested stockholder" is a person who, together with his or its affiliates
and associates, owns, or within three years did own, 15% or more of the
corporation's voting stock. This statute could prohibit or delay the
accomplishment of mergers or other takeover or change in control attempts with
respect to us and, accordingly, may discourage attempts to acquire us.
REGISTRATION RIGHTS
Upon consummation of this offering, the holders of approximately 41,934,338
shares of common stock will be entitled to registration rights with respect to
the registration of such shares under the Securities Act. Beginning six months
after this offering, if we propose to register any of our securities under the
Securities Act, either for our own account or the account of other security
holders, holders of registration rights are entitled to notice of such
registration and are entitled to include their shares in such registration. The
holders' rights with respect to all these registrations are subject to
additional conditions, including the right of the underwriters of any of these
offerings to limit the number of shares included in any of these registrations,
and we may, in certain circumstances defer such registrations. Accelerated
Networks is generally required to bear the expense, other than underwriting
discounts and sales commissions, of these registrations. In addition, these
holders may require us to register their shares on Form S-3 subject to certain
conditions and limitations. Of these approximately 41,934,338 shares,
approximately 6,800,000 shares are entitled only to the "piggy back"
registration rights, and not S-3 rights. Upon registration, these shares will be
freely tradable in the public market without restriction.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is U.S. Stock
Transfer Corporation.
NASDAQ NATIONAL MARKET LISTING
We have applied for listing our common stock on the Nasdaq National Market
under the trading symbol "ACCL."
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock, and there can be no assurance that a significant public market for the
common stock will develop or be sustained after this offering. Future sales of
substantial amounts of common stock, including shares issued upon exercise of
outstanding options and warrants, in the public market following this offering
could adversely affect market prices prevailing from time to time and could
impair our ability to raise capital through the sale of our equity securities.
Sales of substantial amounts of our common stock in the public market after the
restrictions lapse could adversely affect the prevailing market price and our
ability to raise equity capital in the future.
Upon completion of this offering and based on shares outstanding at March
31, 2000, we will have outstanding 49,537,094 shares of common stock. Of these
shares, all the shares sold in this offering, plus any shares issued upon
exercise of the underwriters' over-allotment option, will be freely tradable
without restriction under the Securities Act, unless purchased by our
"affiliates" as that term is defined in Rule 144 under the Securities Act.
The remaining 45,537,094 shares of common stock outstanding are "restricted
securities" within the meaning of Rule 144 under the Securities Act. Restricted
securities may be sold in the public market only if registered or if they
qualify for an exemption from registration under Rules 144, 144(k) or 701
promulgated under the Securities Act, which are summarized below.
Our directors, officers and stockholders have entered into lock-up
agreements with the underwriters of this offering generally providing that they
will not offer, sell, contract to sell or grant any option to purchase or
otherwise dispose of our shares of common stock or any securities exercisable
for or convertible into our common stock owned by them prior to this offering
for a period of 180 days after the effective date of the registration statement
filed pursuant to this offering without the prior written consent of Credit
Suisse First Boston Corporation. As a result of these contractual restrictions,
notwithstanding possible earlier eligibility for sale under the provisions of
Rules 144, 144(k) and 701, shares subject to lock-up agreements may not be sold
until such agreements expire or are waived by Credit Suisse First Boston
Corporation. Taking into account the lock-up agreements, and assuming Credit
Suisse First Boston Corporation does not release stockholders from these
agreements prior to the expiration of the 180 day lock-up period, the following
shares will be eligible for sale in the public market at the following times:
- beginning on the effective date of the registration statement, the
4,000,000 shares sold in this offering will be immediately available for
sale in the public market;
- beginning 180 days after the date of this prospectus, approximately
40,520,955 additional shares will become eligible for sale under Rule 144
or 701, subject to volume restrictions as described below; and
- the remainder of the restricted securities will be eligible for sale from
time to time thereafter, subject in some cases to compliance with Rule
144.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned restricted
shares for at least one year, including the holding period of any prior owner
except an affiliate, 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 495,371 shares immediately after this offering; or
- the average weekly trading volume of our common stock during the four
calendar weeks preceding the filing of a Form 144 with respect to such
sale.
Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about Accelerated Networks. Under Rule 144(k), a person who is not deemed to
have been an affiliate of Accelerated Networks at any time during the three
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months 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
except an affiliate, is entitled to sell such shares without complying with the
manner of sale, public information, volume limitation or notice provisions of
Rule 144.
Rule 701, as currently in effect, permits resales of shares in reliance
upon Rule 144 but without compliance with certain restrictions, including the
holding period requirement, of Rule 144. Any of our employees, officers,
directors, or consultant 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 such 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
such shares. However, 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 Credit Suisse First Boston Corporation.
Within 90 days following the effectiveness of this offering, we will file a
registration statement on Form S-8 registering approximately 7,518,669 shares of
common stock subject to outstanding options or reserved for future issuance
under our 2000 Stock Incentive Plan and or 2000 Employee Stock Purchase Plan. As
of March 31, 2000, options to purchase a total of 5,385,116 shares were
outstanding and 1,633,553 additional shares were reserved for future issuance
under our stock plan. Upon the filing of the registration statement on Form S-8,
common stock issued upon exercise of outstanding vested options or issued under
our purchase plan, other than common stock issued to our affiliates, will be
available for immediate resale in the open market. Also beginning six months
after the date of this offering, holders of approximately 41,905,763 restricted
shares and the holder of warrants to purchase 28,575 shares of common stock will
be entitled to certain registration rights. See "Description of Capital Stock --
Registration Rights" on page 71 for more information on these rights.
Registration of such shares under the Securities Act would result in such shares
becoming freely tradable without restriction under the Securities Act, except
for shares purchased by affiliates, immediately upon the effectiveness of such
registration.
73
<PAGE> 77
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 2000, we have agreed to sell to the
underwriters named below, for whom Credit Suisse First Boston Corporation, U.S.
Bancorp Piper Jaffray Inc. and Warburg Dillon Read LLC are acting as
representatives, the following respective numbers of shares of common stock:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
------------ ----------------
<S> <C>
Credit Suisse First Boston Corporation......................
U.S. Bancorp Piper Jaffray Inc. ............................
Warburg Dillon Read LLC.....................................
--------
Total.....................................................
========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that, if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to additional shares at the initial public offering price less the
underwriting discounts and commissions. The option may be exercised only to
cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and selling group members may allow a discount of $ per share
on sales to other broker/dealers. After the initial public offering, the public
offering price and concession and discount to dealers may be changed by the
representatives.
The following table summarizes the compensation and estimated expenses we
will pay:
<TABLE>
<CAPTION>
PER SHARE TOTAL
-------------------------------- --------------------------------
WITHOUT WITH WITHOUT WITH
OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting Discounts and
Commissions paid by us................ $ $ $ $
Expenses payable by us................ $ $ $ $
</TABLE>
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.
We have agreed that we will not offer, sell, contract to sell, announce our
intention to sell, pledge or otherwise dispose of, directly or indirectly, or
file with the Securities and Exchange Commission a registration statement under
the Securities Act relating to, any shares of our common stock or securities
convertible into or exchangeable or exercisable for any of our common stock
without the prior written consent of Credit Suisse First Boston Corporation for
a period of 180 days after the date of this prospectus, except in the case of
issuances by Accelerated Networks pursuant to the exercise of employee stock
options outstanding on the date hereof.
Our officers and directors and other stockholders holding an aggregate of
approximately 45,537,094 shares have agreed that they will not offer, sell,
contract to sell, announce our intention to sell, pledge or otherwise dispose
of, directly or indirectly, or file with the Securities and Exchange Commission
a registration statement under the Securities Act relating to, any shares of our
common stock or securities convertible into or exchangeable or exercisable for
any of our common stock without the prior written consent of Credit Suisse First
Boston Corporation for a period of 180 days after the date of this prospectus.
74
<PAGE> 78
The underwriters have reserved for sale, at the initial public offering
price, up to 200,000 shares of the common stock for some of our vendors,
customers and other people and entities with whom we maintain business
relationships who have expressed an interest in purchasing common stock in the
offering. The number of shares available for sale to the general public in the
offering will be reduced to the extent these persons purchase the reserved
shares. Any reserved shares not purchased will be offered by the underwriters to
the general public on the same terms as the other shares.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act or contribute to payments which the underwriters may be required
to make in that respect.
We have applied to list the shares of common stock on The Nasdaq Stock
Market's National Market subject to official notice of issuance, under the
symbol "ACCL."
Prior to this offering, there has been no public market for the common
stock. The initial public offering price will be determined by negotiation
between us and the representatives. The principal factors to be considered in
determining the public offering price will include:
- the information set forth in this prospectus and otherwise available to
the underwriters;
- the history and the prospects for the industry in which we will compete;
- the ability of our management; the prospects for our future earnings;
- the present state of our development and our current financial condition;
- the general condition of the securities markets at the time of this
offering; and
- the recent market prices of, and the demand for, publicly-traded common
stock of generally comparable companies.
The underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Securities Exchange Act of 1934.
- Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
- Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.
- Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by such
syndicate member is purchased in a syndicate covering transaction to
cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty bids
may cause the price of the common stock to be higher than it would otherwise be
in the absence of these transactions. These transactions may be effected on the
Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.
A prospectus in electronic format may be made available on the web sites
maintained by one or more of the underwriters participating in this offering.
The representatives may agree to allocate a number of shares to underwriters for
sale to their online brokerage account holders. Internet distributions will be
allocated by the underwriters that will make internet distributions on the same
basis as other allocations.
75
<PAGE> 79
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirements that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common stock
in Canada must be made in accordance with applicable securities laws which will
vary depending on the relevant jurisdiction, and which may require resales to be
made in accordance with available statutory exemptions or pursuant to a
discretionary exemption granted by the applicable Canadian securities regulatory
authority. Purchasers are advised to seek legal advice prior to any resale of
the common stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom such
purchase confirmation is received that (i) the purchaser is entitled under
applicable provincial securities laws to purchase such common stock without the
benefit of a prospectus qualified under the securities laws, (ii) where required
by law, that the purchaser is purchasing as principal and not as agent, and
(iii) the purchaser has reviewed the text above under "Resale Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities laws. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgment against the issuer or these persons in Canada
or to enforce a judgment obtained in Canadian courts against such issuer or
persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that the purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser in this offering. This report must be in
the form attached to British Columbia Securities Commission Blanket Order BOR
#95/17, a copy of which may be obtained from us. Only one report must be filed
in respect of common stock acquired on the same date and under the same
prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of common stock should consult with their own legal and
tax advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.
76
<PAGE> 80
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Brobeck, Phleger & Harrison LLP, Irvine, California. As of March 31, 2000,
Brobeck, Phleger & Harrison LLP and certain entities and individuals affiliated
with Brobeck, Phleger & Harrison LLP beneficially owned a total of 65,000 shares
of our Series A preferred stock, 40,000 shares of our Series B preferred stock
and 14,465 shares of our Series D preferred stock, all of which will convert to
common stock immediately prior to the closing of this offering. Certain legal
matters relating to the sale of common stock in this offering will be passed
upon for the underwriters by Shearman & Sterling, San Francisco, California.
EXPERTS
The consolidated financial statements of Accelerated Networks, Inc. as of
December 31, 1998 and 1999 and for each of the three years in the period ended
December 31, 1999 included in this prospectus have been so included in reliance
on the report of PricewaterhouseCoopers LLP, independent accountants, given on
the authority of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1, including exhibits and schedules, under the Securities
Act with respect to the shares to be sold in the offering. This prospectus does
not contain all the information set forth in the registration statement. For
further information with respect to us and the shares to be sold in the
offering, reference is made to the registration statement and the exhibits and
schedules attached to the registration statement. Statements contained in this
prospectus as to the contents of any contract, agreement or other document
referred to are materially complete. In addition, we intend to file annual,
quarterly and current reports, proxy statements and other information with the
Commission.
You may read and copy all or any portion of the registration statement or
any reports, statements or other information that we file at the Commission's
Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You can
request copies of these documents, upon payment of a duplicating fee, by writing
to the Commission. Please call the Commission at 1-800-SEC-0330 for further
information on the operation of the Public Reference Room. Our Commission
filings, including the registration statement, are also available to you on the
Commission's Web-site (http://www.sec.gov).
77
<PAGE> 81
ACCELERATED NETWORKS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Stockholders' Equity (Deficit)... F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 82
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Accelerated Networks, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows present fairly, in all material respects, the financial position
of Accelerated Networks, Inc. and its subsidiaries (the "Company") at December
31, 1998 and 1999, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States. 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 of these statements in accordance with
auditing standards generally accepted in the United States, which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Woodland Hills, California
February 28, 2000
F-2
<PAGE> 83
ACCELERATED NETWORKS, INC.
CONSOLIDATED BALANCE SHEETS
(THOUSANDS, EXCEPT PER SHARE DATA)
(ALL INTERIM INFORMATION RELATING TO MARCH 31, 2000 IS UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY
------------------- MARCH 31, MARCH 31,
1998 1999 2000 2000
-------- -------- --------- -------------
(UNAUDITED)
(NOTE 13)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 3,507 $ 15,207 $ 47,798
Short-term investments.................................... 5,954 -- --
Accounts receivable, net of allowance for doubtful
accounts of $0, $110 and $194, respectively............ -- 3,277 3,454
Amounts due from related party............................ -- 1,104 2,128
Inventories............................................... -- 3,811 3,398
Prepaid and other current assets.......................... 502 296 707
-------- -------- --------
Total current assets.............................. 9,963 23,695 57,485
Property and equipment, net................................. 1,328 4,840 5,916
Other assets................................................ -- 143 157
-------- -------- --------
Total assets...................................... $ 11,291 $ 28,678 $ 63,558
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses..................... $ 1,893 $ 3,567 $ 5,819
Accrued payroll........................................... 56 756 629
Capital lease obligations, current........................ 55 28 28
Credit facilities, current................................ 162 884 884
Deferred revenue.......................................... -- 219 539
-------- -------- --------
Total current liabilities......................... 2,166 5,454 7,899
Capital lease obligations, net of current portion........... 37 13 11
Credit facilities, net of current portion................... 175 1,919 1,759
-------- -------- --------
Total liabilities................................. 2,378 7,386 9,669
-------- -------- --------
Commitments and contingencies (Note 9)
Redeemable convertible preferred stock, $.001 par value;
authorized -- 23,100, 31,946 and 35,546 shares at December
31, 1998 and 1999, and March 31, 2000, respectively;
issued and outstanding -- 22,805, 31,651, and 35,106
shares at December 31, 1998 and 1999, and March 31, 2000,
and on pro forma basis, respectively; liquidation
preference of $20,091, $50,091, and $88,583 at December
31, 1998 and 1999, and March 31, 2000, respectively....... 19,918 49,857 88,282
Stockholders' equity (deficit):
Preferred stock, $.001 par value; authorized, issued and
outstanding -- 0, 0, 454 and 454 shares at December 31,
1998 and 1999, at March 31, 2000 and on a pro forma
basis, respectively....................................
Common stock, authorized -- 48,500, 75,000, and 90,000
shares at December 31, 1998 and 1999, and March 31,
2000, respectively; issued and outstanding -- 9,172,
10,166, and 10,431 shares at December 31, 1998 and
1999, and March 31, 2000, respectively; pro
forma -- $.001 par value; 90,000 shares authorized;
45,537 shares issued and outstanding................... 176 579 1,209 $ 46
Additional paid-in capital................................ 817 13,481 28,693 118,138
Deferred stock compensation............................... (765) (10,165) (13,110) (13,110)
Accumulated deficit....................................... (11,233) (32,460) (51,185) (51,185)
-------- -------- -------- --------
Total stockholders' equity (deficit).............. (11,005) (28,565) (34,393) $ 53,889
-------- -------- -------- ========
Total liabilities and stockholders' equity
(deficit)....................................... $ 11,291 $ 28,678 $ 63,558
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 84
ACCELERATED NETWORKS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(THOUSANDS, EXCEPT PER SHARE DATA)
(ALL INTERIM INFORMATION RELATING TO THE PERIODS
ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------- ---------------------
1997 1998 1999 1999 2000
------- -------- -------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenue (includes related party revenue of $1,332
and $2,796 at December 31, 1999 and March 31, 2000,
respectively)....................................... $ -- $ -- $ 8,466 $ -- $ 7,152
Cost of revenue (excluding $0, $0, $100, $12 and $268
amortization of deferred stock compensation for the
years ended December 31, 1997, 1998, and 1999 and
for the three months ended March 31, 1999 and 2000,
respectively)....................................... -- -- 6,312 -- 5,087
------- -------- -------- ------- --------
Gross profit.......................................... -- -- 2,154 -- 2,065
Operating expenses:
Research and product development (excluding $0, $20,
$873, $95, and $1,278 amortization of deferred
stock compensation for the years ended December
31, 1997, 1998, and 1999 and for the three months
ended March 31, 1999 and 2000, respectively)...... 1,126 7,378 12,061 2,467 4,150
Sales and marketing (excluding $0, $31, $1,498, $74
and $681 amortization of deferred stock
compensation for the years ended December 31,
1997, 1998, and 1999 and for the three months
ended March 31, 1999 and 2000, respectively)...... -- 1,979 7,500 952 3,963
General and administrative (excluding $0, $1, $632,
$57 and $158 amortization of deferred stock
compensation for the years ended December 31,
1997, 1998, and 1999 and for the three months
ended March 31, 1999 and 2000, respectively)...... 485 754 1,747 390 794
Amortization of deferred stock compensation......... -- 52 3,103 238 2,385
------- -------- -------- ------- --------
Total operating expenses.......................... 1,611 10,163 24,411 4,047 11,292
------- -------- -------- ------- --------
Loss from operations.................................. (1,611) (10,163) (22,257) (4,047) (9,227)
Other income (expense):
Interest income..................................... 129 494 1,131 212 442
Interest expense.................................... (5) (41) (100) 11 57
------- -------- -------- ------- --------
124 453 1,031 201 385
------- -------- -------- ------- --------
Loss before provision for income taxes................ (1,487) (9,710) (21,226) (3,846) (8,842)
Provision for income taxes............................ 1 1 1 1 1
------- -------- -------- ------- --------
Net loss.............................................. (1,488) (9,711) (21,227) (3,847) (8,843)
Beneficial conversion feature......................... -- -- -- -- (9,882)
------- -------- -------- ------- --------
Net loss applicable to common stockholders............ $(1,488) $ (9,711) $(21,227) $(3,847) $(18,725)
======= ======== ======== ======= ========
Basic and diluted net loss per share applicable to
common stockholders................................. $ (0.42) $ (2.00) $ (3.29) $ (0.68) $ (2.44)
======= ======== ======== ======= ========
Weighted-average shares outstanding used to compute
basic and diluted net loss per share applicable to
common stockholders................................. 3,550 4,853 6,447 5,694 7,664
======= ======== ======== ======= ========
Pro forma basic and diluted net loss per share
applicable to common stockholders (unaudited)....... $ (0.58) $ (0.22)
======== ========
Weighted-average shares outstanding used to compute
pro forma basic and diluted net loss per share
applicable to common stockholders (unaudited)....... 36,789 40,797
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 85
ACCELERATED NETWORKS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK ADDITIONAL DEFERRED STOCKHOLDERS'
------------------ PAID-IN STOCK ACCUMULATED EQUITY
SHARES AMOUNT CAPITAL COMPENSATION DEFICIT (DEFICIT)
------ -------- ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996................... 4,216 $ 8 $ -- $ -- $ (34) $ (26)
Issuance of common stock..................... 1,224 2 -- -- -- 2
Exercise of warrants......................... 1,360 3 -- -- -- 3
Exercise of stock options.................... 272 11 -- -- -- 11
Deferred stock compensation.................. -- -- 101 (101) -- --
Net loss..................................... -- -- -- -- (1,488) (1,488)
------ -------- -------- -------- -------- --------
Balance at December 31, 1997................... 7,072 24 101 (101) (1,522) (1,498)
Exercise of stock options.................... 2,200 157 -- -- -- 157
Repurchase of unvested common stock.......... (100) (5) -- -- -- (5)
Deferred stock compensation.................. -- 716 (716) -- --
Amortization of deferred stock
compensation............................... -- -- -- 52 -- 52
Net loss..................................... -- -- -- -- (9,711) (9,711)
------ -------- -------- -------- -------- --------
Balance at December 31, 1998................... 9,172 176 817 (765) (11,233) (11,005)
Exercise of stock options.................... 1,052 409 -- -- -- 409
Repurchase of unvested common stock.......... (58) (6) -- -- -- (6)
Issuance of warrants......................... -- -- 161 -- -- 161
Deferred stock compensation.................. -- -- 12,503 (12,503) -- --
Amortization of deferred stock
compensation............................... -- -- -- 3,103 -- 3,103
Net loss ..... . -- . (21,227) (21,227)
------ -------- -------- -------- -------- --------
Balance at December 31, 1999................... 10,166 579 13,481 (10,165) (32,460) (28,565)
Exercise of stock options (unaudited)........ 277 631 -- -- -- 631
Repurchase of unvested common stock
(unaudited)................................ (12) (1) -- -- -- (1)
Beneficial conversion feature on Series D
(unaudited)................................ -- -- 9,882 -- (9,882) --
Deferred stock compensation (unaudited)...... -- -- 5,330 (5,330) -- --
Amortization of deferred stock compensation
(unaudited)................................ -- -- -- 2,385 -- 2,385
Net loss (unaudited) ..... . -- . (8,843) (8,843)
------ -------- -------- -------- -------- --------
Balance at March 31, 2000 (unaudited).......... 10,431 $ 1,209 $ 28,693 $(13,110) $(51,185) $(34,393)
Assumed conversion of redeemable convertible
preferred stock (unaudited)................ 35,106 88,282 -- -- -- 88,282
Reincorporation into Delaware (unaudited).... -- (89,445) 89,445 -- -- --
------ -------- -------- -------- -------- --------
Balance at March 31, 2000 pro forma
(unaudited).................................. 45,537 46 118,138 (13,110) (51,185) 53,889
====== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 86
ACCELERATED NETWORKS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------- -----------------
1997 1998 1999 1999 2000
------- ------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss................................................ $(1,488) $(9,711) $(21,227) $(3,847) $(8,843)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization......................... 45 283 1,028 145 508
Provision for bad debts............................... -- -- 110 -- 84
Issuance of warrant in connection with purchase
order............................................... -- -- 161 -- --
Issuance of options for services...................... -- -- 17 -- --
Amortization of deferred stock compensation........... -- 52 3,103 238 2,385
Issuance of Series A redeemable convertible preferred
stock for services.................................. 25 -- -- -- --
Changes in current assets and liabilities:
Accounts receivable................................. -- -- (4,491) -- (1,285)
Inventories......................................... -- -- (3,811) -- 413
Prepaid and other current assets.................... (36) (464) 63 (211) (425)
Accounts payable and accrued expenses............... 122 1,771 1,674 (399) 2,252
Accrued payroll..................................... 29 27 700 216 (127)
Deferred revenue.................................... -- -- 219 -- 320
------- ------- -------- ------- -------
Net cash used in operating activities............ (1,303) (8,042) (22,454) (3,858) (4,718)
------- ------- -------- ------- -------
INVESTING ACTIVITIES:
Purchase of available-for-sale securities............... -- (5,954) (2,000) (2,000) --
Maturity of available-for-sale securities............... -- -- 7,954 7,954 --
Purchase of property and equipment...................... (444) (1,071) (4,535) (355) (1,584)
------- ------- -------- ------- -------
Net cash provided by (used in) investing
activities..................................... (444) (7,025) 1,419 5,599 (1,584)
------- ------- -------- ------- -------
FINANCING ACTIVITIES:
Proceeds from issuance of common stock.................. 5 -- -- -- --
Repurchase of common stock.............................. -- (5) (5) (3) (1)
Proceeds from issuance of redeemable convertible
preferred stock....................................... 5,585 14,481 30,000 30,000 38,492
Offering costs.......................................... (120) (53) (61) (55) (67)
Proceeds from exercise of stock options................. 11 158 391 83 631
Proceeds from issuance of notes payable................. 205 -- -- -- --
Repayment of notes payable.............................. (250) -- -- -- --
Payments under capital lease obligations................ (2) (48) (57) (14) (2)
Proceeds from credit facilities......................... -- 458 2,828 -- --
Repayments on credit facilities......................... -- (121) (361) (40) (160)
------- ------- -------- ------- -------
Net cash provided by financing activities........ 5,434 14,870 32,735 29,971 38,893
------- ------- -------- ------- -------
Net increase (decrease) in cash and cash
equivalents.................................... 3,687 (197) 11,700 31,712 32,591
Cash and cash equivalents at beginning of year............ 17 3,704 3,507 3,507 15,207
------- ------- -------- ------- -------
Cash and cash equivalents at end of year.................. $ 3,704 $ 3,507 $ 15,207 $35,219 $47,798
======= ======= ======== ======= =======
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest.............................................. $ -- $ 36 $ 100 $ 11 $ 38
Income taxes.......................................... $ 2 $ 1 $ 1 $ 1 $ 1
Supplemental disclosure of noncash transactions:
Purchase of equipment under capital leases.............. $ 38 $ 103 $ 19 $ -- $ --
Return of equipment under capital lease................. $ -- $ -- $ 14 $ -- $ --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 87
ACCELERATED NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL INTERIM INFORMATION RELATING TO THE PERIODS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)
1. BUSINESS AND BASIS OF PRESENTATION
Accelerated Networks, Inc. (the "Company") was incorporated in October 1996
as a California corporation. In January and May of 1999, the Company established
two wholly-owned subsidiaries, Accelerated Networks (India) Private Limited, in
Bangalore, India, and Accelerated Networks International Limited, in Mauritius,
respectively. All significant intercompany accounts and transactions are
eliminated in consolidation. Certain items shown in the December 31, 1997 and
1998 financial statements have been reclassified to conform with current period
presentation. Effective January 1, 1999, the Company began to operate under a
thirteen-week calendar quarter. For financial statement purposes, however, the
reporting periods are referred to as ended on the last day of related reporting
period. Prior to 1999, the Company operated under a calendar quarter. For the
year ended dated December 31, 1999, there was no difference between the
Company's reporting year end and the calendar year end.
The Company develops, manufactures, and markets telecommunications products
that enable the bundling of voice and data services over a single broadband
access network. The Company's target customers are providers of voice and/or
data services including competitive local exchange carriers, or CLECs,
interexchange carriers, or IXCs, regional bell operating companies, or RBOCs,
incumbent local exchange carriers, or ILECs, and foreign telephone companies.
The market for the Company's products is extremely competitive and is
characterized by rapid technological change, new product development and product
obsolescence, and a competitive business environment for the attraction and
retention of knowledge workers.
Through December 31, 1998, the Company was considered to be in the
development stage and was principally engaged in research and development,
raising capital and building its management team. During 1999, the Company
ceased to be in the development stage.
The accompanying consolidated financial statements have been prepared on
the basis that the Company will continue as a going concern. The Company has
incurred significant operating losses and negative operating cash flows since
its inception. The Company has funded operations primarily through the sale of
equity securities and debt borrowings. Management believes that the proceeds
received through the sale of equity securities, available borrowings under its
credit facility and revenue generated from operations will be adequate to
support the Company's operations through March of 2001.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
In the normal course of preparing financial statements in conformity with
generally accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. Cash and cash
equivalents are carried at cost, which approximates fair value.
F-7
<PAGE> 88
ACCELERATED NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INTERIM INFORMATION RELATING TO THE PERIODS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SHORT-TERM INVESTMENTS
The Company generally classifies its short-term investments, if any, as
available-for-sale and, accordingly, carries such securities at their aggregate
fair value. Unrealized gains and losses, if any, are reported as a separate
component of stockholders' equity (deficit). At December 31, 1998, the Company's
short-term investments consisted of high-grade corporate bonds, which had
maturities of less than one year. The aggregate fair value of the Company's
short-term investments approximated their amortized cost basis. At December 31,
1998, unrealized gains and losses, computed using the specific-identification
method, were not significant. The Company held no short-term investments at
December 31, 1999.
FOREIGN CURRENCY TRANSLATION
During 1999, the Company established two foreign subsidiaries. Translation
of foreign currencies are accounted for using the US Dollar as the functional
currency of the Company's foreign subsidiaries, however books of record are
maintained in the local currencies. Foreign currency translations occur during
remeasurement of the books of record into the functional currency. The lower of
cost or market value is applied to remeasure inventory not recorded in the
functional currency, however there were no such inventories at December 31,
1999. All other assets and liabilities are remeasured using the historical
exchange rates, while revenue and expenses are translated using the average
rates in effect for the period translated. The resulting gains and losses are
included as a separate component of stockholders' equity (deficit) and were not
significant for the year ended December 31, 1999.
INVENTORIES
Inventories are stated at lower of cost (first in, first out) or market.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments, including cash and cash equivalents,
accounts receivable, accounts payable and amounts due under capital leases and
credit facilities are carried at cost, which approximates their fair value
because of the short-term maturity of these instruments and the relatively
stable interest rate environment.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization is computed using the straight-line
method based upon the estimated useful lives of the assets of, generally, two to
five years. Leasehold improvements and equipment under capital leases are
depreciated over the shorter of the estimated useful life or the life of the
lease. Useful lives are evaluated regularly by management in order to determine
recoverability in light of current technological conditions. Maintenance and
repairs are charged to expense as incurred while renewals and improvements are
capitalized. Upon the sale or retirement of property and equipment, the accounts
are relieved of the cost and the related accumulated depreciation, with any
resulting gain or loss included in the Consolidated Statement of Operations.
LONG-LIVED ASSETS
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate the carrying amount of such assets may not be
recoverable. Recoverability of these
F-8
<PAGE> 89
ACCELERATED NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INTERIM INFORMATION RELATING TO THE PERIODS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
assets is determined by comparing the forecasted undiscounted cash flows
attributable to such assets to their carrying value. If the carrying value of
the assets exceeds the forecasted undiscounted cash flows, then the assets are
written down to their fair value. Fair value is determined based on undiscounted
cash flows or appraised values, depending upon the nature of the assets. To
date, there have been no such impairments.
REVENUE RECOGNITION
The Company applies the provisions of American Institute of Certified
Public Accountants ("AICPA") Statement of Position ("SOP") No. 97-2 "Software
Revenue Recognition."
Accordingly, revenue from product sales is recognized upon shipment, provided
that a purchase order has been received or a contract has been executed, there
are no uncertainties regarding customer acceptance, the fee is fixed and
determinable and collectibility is deemed probable. If uncertainties regarding
customer acceptance exist, revenue is recognized when such uncertainties are
resolved. Revenue associated with multiple-element arrangements (customer orders
that include two or more different Company products) are allocated to each
element based on vendor specific objective evidence. Extended warranty and other
service revenues are recognized ratably over the respective service periods.
Such services have not been significant to date. Amounts billed in excess of
revenue recognized are deferred and included as deferred revenue on the
Consolidated Balance Sheet.
STOCK COMPENSATION
The Company accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board ("APB") No. 25,
"Accounting for Stock Issued to Employees," and complies with the disclosure
requirements of Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation." Under APB No. 25, compensation cost,
if any, is recognized over the respective vesting period based on the
difference, on the date of grant, between the fair value of the Company's common
stock and the grant price. The Company accounts for stock issued to
non-employees in accordance with the provisions of SFAS No. 123 and Emerging
Issues Task Force ("EITF") No. 96-18.
ADVERTISING
Advertising costs are expensed as incurred and amounted to $48,000,
$132,000, $43,000 and $56,000 for the years ended December 31, 1998 and 1999 and
for the three months ended March 31, 1999 and 2000, respectively. No advertising
costs were incurred for the year ended December 31, 1997.
PRODUCT WARRANTY COSTS
The Company generally warrants its products for one year after sale and
provides for estimated future warranty costs at the time revenue is recognized.
At December 31, 1999 and March 31, 2000, accrued product warranty costs amounted
to $201,000 and $371,000, respectively, and are included in accounts payable and
accrued expenses.
SOFTWARE DEVELOPMENT COSTS
Software development costs not qualifying for capitalization are included
in research and development and are expensed as incurred. After technological
feasibility is established, software costs are capitalized.
F-9
<PAGE> 90
ACCELERATED NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INTERIM INFORMATION RELATING TO THE PERIODS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The capitalized cost is then amortized on a straight-line basis over the
estimated product life or on the ratio of current revenues to total projected
product revenues, if greater. The Company defines technological feasibility as
the establishment of a working model, which typically occurs upon completion of
a beta version. To date, the period between achieving technological feasibility,
and the general availability of the related products has been short and software
development costs qualifying for capitalization have been insignificant.
Accordingly, to date the Company has not capitalized any software development
costs.
RESEARCH AND PRODUCT DEVELOPMENT
Costs incurred in the research and development of products are expensed as
incurred.
INCOME TAXES
The Company utilizes the liability method of accounting for income taxes.
Under this method, deferred tax liabilities and assets are determined based on
the difference between the financial statement and the tax bases of assets and
liabilities using enacted tax rates in effect for the period in which the
differences are expected to reverse. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amount expected to be realized.
NET LOSS PER COMMON SHARE
The Company computes net loss per share in accordance with SFAS No. 128,
"Earnings per Share" and SEC Staff Accounting Bulletin No. 98 ("SAB 98"). Under
the provisions of SFAS No. 128 and SAB 98, basic net loss per share is computed
by dividing the net loss available to Common Stockholders for the period by the
weighted average number of shares of Common Stock outstanding during the period.
The calculation of diluted net loss per share gives effect to Common Stock
equivalents; however, potential Common Shares are excluded if their effect is
antidilutive. Potential Common Shares are composed of Common Stock subject to
repurchase rights and incremental shares of Common Stock issuable upon the
exercise of stock options and warrants and upon conversion of Series A, B, C and
D Redeemable Convertible Preferred stock.
UNAUDITED PRO FORMA NET LOSS PER SHARE
Unaudited pro forma net loss per share for the year ended December 31, 1999
and for the three months ended March 31, 2000, is computed by dividing the net
loss for the period by the weighted average number of common stock outstanding,
including the pro forma effects of the automatic conversion of the Company's
Redeemable Convertible Preferred stock into shares of the Company's common stock
effective at the time of the Company's initial public offering as if such
conversion occurred on January 1, 1999, respectively, or at the date of original
issuance, if later.
COMPREHENSIVE INCOME
In 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income." Comprehensive income generally represents all changes in stockholders'
equity (deficit) during the period except those resulting from investments by,
or distributions to, stockholders. For the years ended December 31, 1997, 1998
and 1999, there were no such significant changes in stockholders' equity
(deficit) other than net loss amounts.
F-10
<PAGE> 91
ACCELERATED NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INTERIM INFORMATION RELATING TO THE PERIODS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SEGMENTS
In 1998, the Company adopted the provisions of SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." SFAS No. 131
establishes standards for the way companies report information about operating
segments in interim and annual financial statements. It also establishes
standards for related disclosures about products and services, geographic areas
and major customers. The Company determined that it has operated within one
discrete reportable business segment since inception.
UNAUDITED INTERIM FINANCIAL INFORMATION
The interim consolidated financial statements of the Company for the three
months ended March 31, 1999 and 2000, included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations relating to interim financial statements. In the opinion of
management, the accompanying unaudited interim consolidated financial statements
reflect all adjustments, consisting of normal recurring adjustments, necessary
to present fairly the financial position of the Company at March 31, 2000 and
the results of its operations and its cash flows for the three months ended
March 31, 1999 and 2000.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the AICPA issued SOP No. 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use," which provides
guidance on accounting for the cost of computer software developed or obtained
for internal use. The Company adopted the SOP 98-1 effective January 1, 1999.
The implementation of SOP 98-1 did not have a material effect on the
consolidated financial statements.
In April 1998, the AICPA issued SOP No. 98-5, "Reporting on the Costs of
Start-Up Activities." SOP No. 98-5 requires that all start-up costs related to
new operations must be expensed as incurred. In addition, start-up costs that
were capitalized in the past must be written off when SOP No. 98-5 is adopted.
The Company adopted the SOP 98-5 effective January 1, 1999. The implementation
of SOP 98-5 did not have a material effect on the consolidated financial
statements.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------- MARCH 31,
1998 1999 2000
---- ------ ---------
(THOUSANDS)
<S> <C> <C> <C>
Raw materials.................................... $ -- $1,735 $1,469
Work-in-process.................................. -- 710 742
Finished goods................................... -- 1,366 1,187
---- ------ ------
Total.................................. $ -- $3,811 $3,398
==== ====== ======
</TABLE>
F-11
<PAGE> 92
ACCELERATED NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INTERIM INFORMATION RELATING TO THE PERIODS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- MARCH 31,
1998 1999 2000
------ ------- ---------
<S> <C> <C> <C>
Computer equipment and software, including assets under
capital leases of $141, $127, and $127 for December 31,
1998, 1999, and March 31, 2000, respectively............. $ 587 $ 2,087 $2,362
Machinery and equipment, including assets under capital
leases of $0, $19, and $19 for December 31, 1998, 1999,
and March 31, 2000, respectively......................... 771 3,339 4,468
Furniture and fixtures..................................... 152 355 535
Leasehold improvements..................................... 146 415 415
------ ------- ------
1,656 6,196 7,780
Less: Accumulated depreciation and amortization, including
amounts related to assets under capital leases of $33,
$62, and $71 for December 31, 1998, 1999, and March 31,
2000, respectively....................................... (328) (1,356) (1,864)
------ ------- ------
Total............................................ $1,328 $ 4,840 $5,916
====== ======= ======
</TABLE>
5. INCOME TAXES
The primary components of temporary differences which gave rise to deferred
taxes at December 31 are:
<TABLE>
<CAPTION>
1998 1999
------- --------
(THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $ 4,401 $ 11,666
Accrued compensation and related expenses................. -- 1,877
Allowances and reserves................................... -- 347
Depreciation and amortization............................. -- 12
Other..................................................... 56 217
------- --------
Gross deferred tax assets.............................. 4,457 14,119
Less: Valuation allowance................................... (4,422) (13,129)
------- --------
Net deferred tax assets................................ 35 990
------- --------
Deferred tax liabilities:
Depreciation and amortization............................. (35) --
State taxes............................................... -- (990)
------- --------
Gross deferred tax liabilities......................... (35) (990)
------- --------
Net.................................................... $ -- $ --
======= ========
</TABLE>
The difference between the income tax benefit at the statutory rate of 34%
and the Company's effective tax rate is due primarily to the valuation allowance
established to offset the net deferred tax asset.
F-12
<PAGE> 93
ACCELERATED NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INTERIM INFORMATION RELATING TO THE PERIODS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)
5. INCOME TAXES (CONTINUED)
The provision from income taxes is different than the amount computed using the
applicable statutory federal income tax rate with the difference for each year
summarized below:
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Federal tax benefit at statutory rate....................... (34)% (34)% (34)%
State taxes, net of federal benefit......................... (6) (6) (6)
Adjustment due to increase in valuation allowance........... 41 39 40
---- ---- ---
Other....................................................... (1) 1 --
---- ---- ---
-- -- --
==== ==== ===
</TABLE>
As a result of the Company's loss history, management believes a valuation
allowance for the entire net deferred tax assets, after considering deferred tax
liabilities, is required. The change in the valuation allowance was an increase
of approximately $8,707,000 in 1999. As of December 31, 1999, the Company had
federal and state net operating loss carryforwards of approximately $27,233,000
and $27,230,000 for which expiration begins in 2012 and 2005, respectively. Due
to changes in ownership, the Company may be limited in the annual utilization of
its net operating loss carryforwards.
6. CREDIT FACILITIES
In August 1997, the Company executed a revolving line of credit in the
amount of $750,000. Pursuant to the line of credit agreement, the Company could
utilize the line of credit to purchase equipment through February 1998, at which
time the unpaid balance became due in 36 equal monthly installments of principal
of approximately $13,000, plus interest. Additionally, the Company could utilize
up to $35,000 through February 1999 for general business expenses. The line of
credit bears interest at the prime rate plus 2.5% per annum and was
collateralized by substantially all of the Company's assets. Amounts outstanding
under the line of credit totalled approximately $337,000 as of December 31,
1998. During 1999, amounts outstanding under the line of credit were refinanced
and paid in full.
In May 1999, the Company executed a Senior Loan and Security Agreement (the
"Agreement") with a lender under which the Company can refinance up to
$1,500,000 of qualified equipment purchases through the end of May 2000. During
August 1999, the Company utilized the Agreement to execute one individual note
with the lender for approximately $328,000. The note bears interest at
approximately 15% per annum, matures in February 2003 if not renewed, is
collateralized by the purchased equipment and is payable in 41 monthly
installments of principal and interest. At the maturity date of the note, the
Company has the option to either extend the note for an additional 12 months or
make one final lump sum payment. At December 31, 1999, the outstanding principal
was approximately $303,000, of which approximately $51,000 was current.
In June 1999, the Company executed a $6,500,000 credit facility (the
"Facility") with a bank. The Facility consists of an eighteen-month, $4,000,000
revolving line of credit (the "Revolver") for general business purposes and a
twelve-month, $2,500,000 line of credit (the "Equipment Line") to finance
specified equipment purchases, respectively. The Facility is collateralized by
substantially all of the Company's assets, expires in June 2003 and requires the
Company to comply with various restrictive covenants, including a quick ratio of
not less than 2.5 to 1.0, a minimum tangible effective net worth of $17,000,000
and other financial thresholds. The Revolver bears interest at the bank's base
rate (8.5% per annum at December 31, 1999) with all outstanding principal and
accrued but unpaid interest due and payable in full in November 2000. The
Revolver, which also provides for a maximum of $500,000 in
F-13
<PAGE> 94
ACCELERATED NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INTERIM INFORMATION RELATING TO THE PERIODS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)
6. CREDIT FACILITIES (CONTINUED)
letters of credit, was unused at December 31, 1999. The Equipment Line bears
interest at the bank's base rate plus 0.5% per annum and was fully utilized by
December 1999, at which time, the Equipment Line became due and payable in 36
equal monthly installments of principal of approximately $69,000, plus accrued
interest, beginning in January 2000. At December 31, 1999, amounts outstanding
under the Equipment Line totalled $2,500,000, of which approximately $833,000
was current.
The aggregate amount of required payments under the Company's credit
facilities at December 31, 1999 is as follows (in thousands):
<TABLE>
<S> <C>
2000........................................................ $1,114
2001........................................................ 1,069
2002........................................................ 994
2003........................................................ 58
------
Total payments.............................................. 3,235
Less: Amount representing interest.......................... (432)
------
2,803
Less: Current portion....................................... (884)
------
Long-term portion........................................... $1,919
======
</TABLE>
7. CONCENTRATION OF CREDIT RISK, SIGNIFICANT CUSTOMERS AND SEGMENT REPORTING
Financial instruments which subject the Company to concentrations of credit
risk consist primarily of cash and cash equivalents and trade accounts
receivable. The Company maintains its cash and cash equivalents with major
financial institutions; at times, such balances with any one financial
institution may exceed FDIC insurance limits. The Company's accounts receivable
are derived from revenue earned from customers located primarily in the United
States. The Company extends differing levels of credit to customers and
generally does not require collateral. The Company maintains reserves for
potential credit losses based upon the expected collectibility of accounts
receivable. To date, such losses have been within management's expectations.
Net revenue and accounts receivable from significant customers were as
follows (in thousands, except percentages):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE THREE MONTHS
DECEMBER 31, 1999 ENDED MARCH 31, 2000
----------------------------------------------- -----------------------------------------------
NET % OF NET ACCOUNTS % OF ACCOUNTS NET % OF NET ACCOUNTS % OF ACCOUNTS
REVENUE REVENUE RECEIVABLE RECEIVABLE REVENUE REVENUE RECEIVABLE RECEIVABLE
------- -------- ---------- ------------- ------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Customer A.................. $4,565 54% $2,923 67% $2,044 29% $1,967 35%
Customer B.................. $1,722 20% -- -- -- -- -- --
Customer C.................. $1,332 16% $1,104 25% 2,796 39% 2,128 38%
Customer D.................. $ 264 3% $ 264 6% 723 10% 739 13%
Customer E.................. -- -- -- -- 1,332 19% 693 12%
</TABLE>
The Company operates in one industry segment providing multiservice
broadband access products. The Company's business operations are principally
based in the United States, and there were no foreign
F-14
<PAGE> 95
ACCELERATED NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INTERIM INFORMATION RELATING TO THE PERIODS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)
7. CONCENTRATION OF CREDIT RISK, SIGNIFICANT CUSTOMERS AND SEGMENT REPORTING
(CONTINUED)
operations during the year ended December 31, 1997 and 1998. Net revenue and
long-lived assets by geographical location were as follows (in thousands):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1999
-------------------------
UNITED
STATES INDIA TOTAL
------ ----- ------
<S> <C> <C> <C>
Net revenue................................................ $8,466 -- $8,466
Long-lived assets.......................................... $4,378 $462 $4,840
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31, 2000
-------------------------
UNITED
STATES INDIA TOTAL
------ ----- ------
<S> <C> <C> <C>
Net revenue................................................ $7,152 -- $7,152
Long-lived assets.......................................... $5,382 534 $5,916
</TABLE>
8. RELATED-PARTY TRANSACTIONS
For the year ended December 31, 1999 and the three months ended March 31,
2000, the Company sold product of approximately $1,332,000 and $2,796,000,
respectively, to a significant stockholder (the "Stockholder") of the Company.
At December 31, 1999 and March 31, 2000, amounts due from the Stockholder
totaled $1,104,000 and $2,128,000, respectively.
In December 1999, the Company entered into a Warrant Issuance Agreement
(the "Agreement") with the Stockholder whereby the Company will issue a warrant
to purchase common stock of the Company if the Stockholder submits a minimum
quarterly purchase order to, or takes quarterly shipments of a minimum amount of
product from, the Company. If the specified thresholds are met, the Company will
issue a warrant to the Stockholder for each fiscal quarter end through December
2000. The maximum number of shares that may be issued under the Agreement is
150,000. The warrants will be issued at the fair value of the underlying common
stock (or at a 20% discount if publicly traded) as of the date of grant, are
exercisable through December 2001, and are immediately vested and noncancellable
at the date of grant. During the quarter ended December 31, 1999, the Company
received a $4,000,000 purchase order from the Stockholder. Pursuant to the
Agreement, the Company issued a noncancellable, fully vested warrant to purchase
29,000 shares of common stock at $7.00 per share. The fair value of the warrant
was determined to be $161,000 as of the date of grant using the Black-Scholes
pricing model and assuming a risk-free interest rate of approximately 6.0%, an
expected life of 2 years, a 0% dividend yield and forfeiture rate and a
volatility rate of 80%. Accordingly, the Company recognized $161,000 as an
additional sales discount and offset to net revenues on the Consolidated
Statement of Operations for the year ended December 31, 1999. No warrants were
issued for the three months ended March 31, 2000.
F-15
<PAGE> 96
ACCELERATED NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INTERIM INFORMATION RELATING TO THE PERIODS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)
9. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases its facilities and certain assets under noncancellable
leases through 2002, excluding various renewal options. The following are the
minimum lease payments under these leases (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING CAPITAL OPERATING
DECEMBER 31, LEASES LEASES
------------ ------- ---------
<S> <C> <C>
2000........................................................ $34 $ 585
2001........................................................ 7 383
2002........................................................ 7 67
--- ------
Minimum lease payments...................................... 48 $1,035
======
Less: Amount representing interest.......................... 7
---
Present value of minimum lease payments..................... 41
Less: Current portion....................................... 28
---
Long-term portion........................................... $13
===
</TABLE>
Total rental expense pertaining to operating leases for the years ended
December 31, 1997, 1998 and 1999 and for the three months ended March 31, 1999
and 2000 was approximately $50,000, $184,000, $412,000, $65,000 and $158,000,
respectively.
ROYALTIES
The Company licenses certain technology for incorporation into its product.
Under the terms of these agreements, upon the commencement of production,
royalty payments will be made based on per-unit sales of certain of the
Company's products. Royalty expenses incurred for the year ended December 31,
1999 and the three months ended March 31, 2000 were $88,000 and $115,000,
respectively. There were no royalty expenses for the years ended December 31,
1997 and 1998.
LITIGATION
From time to time, the Company has been party to various litigation and
administrative proceedings relating to claims arising in the normal course of
business. The Company believes that the resolution of these matters will not
have a material adverse effect on the Company's consolidated financial position,
results of operations or cash flows.
10. CAPITALIZATION
COMMON STOCK
In March 1997, the Company executed Stockholders' Agreements (the
"Agreements") with its two founders to purchase 4,216,000 and 1,224,000 shares
of common stock at $0.0018 per share, respectively. The 1,224,000 shares were
subject to a repurchase right in favor of the Company. As of October 1997, 24%
of these shares were vested, with the remaining 76% of the shares vested ratably
over the next 36 months, subject to the continued service of that founder. The
vesting schedule was subsequently amended in connection with the Series A
financing in May 1997.
In March 1997, the Company entered into separate Loan and Warrant Purchase
Agreements with its two founders, whereby, in exchange for the loans to the
Company totaling $250,000, the Company issued
F-16
<PAGE> 97
ACCELERATED NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INTERIM INFORMATION RELATING TO THE PERIODS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)
10. CAPITALIZATION (CONTINUED)
to the founders notes payable and warrants to purchase 1,360,000 shares of
common stock with an exercise price of $0.0018 per share, a vesting term of 48
months and an expiration of ten years. The warrants were exercised in full in
April 1997. In May 1997, the Company repaid the loans in connection with the
closing of its Series A financing, at which time, the two founders granted the
Company repurchase rights with respect to half of the founders' shares issued in
March 1997. The repurchase rights lapse ratably over 48 months beginning in
April 1997. The Company recorded deferred stock compensation of $101,000 for the
shares covered under the restricted stock agreements, which will be recognized
as compensation expense over the vesting period.
At December 31, 1999 and March 31, 2000, 1,124,000 and 911,000 shares,
respectively, of the aforementioned common stock were subject to repurchase, of
which 897,000 and 727,000 shares, respectively, related to unvested shares under
the Agreements and 227,000 and 184,000 shares, respectively, related to unvested
warrants exercised.
PREFERRED STOCK
Redeemable convertible preferred ("Preferred Stock") and undesignated
preferred stock at March 31, 2000 consisted of the following (in thousands,
except per share data):
<TABLE>
<CAPTION>
VALUE
SHARES SHARES LIQUIDATION REDEMPTION PER
TYPE AUTHORIZED OUTSTANDING AMOUNT AMOUNT SHARE
---- ---------- ----------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C>
Series A Redeemable Convertible..... 11,500 11,220 $ 5,610 $ 5,610 $ 0.50
Series B Redeemable Convertible..... 11,600 11,585 14,481 14,481 1.25
Series C Redeemable Convertible..... 8,846 8,846 30,000 30,000 3.39
Series D Redeemable Convertible..... 3,600 3,455 38,492 38,492 11.14
Undesignated........................ 454 -- -- -- --
------ ------ ------- -------
Total............................. 36,000 35,106 $88,583 $88,583
====== ====== ======= =======
</TABLE>
The holders of Series A, Series B, Series C, and Series D Preferred Stock
have various rights and preferences as follows:
Conversion
Each share of Preferred Stock shall be convertible, at the option of the
holder, into fully paid and nonassessable shares of Common Stock at the
conversion rate. The conversion rate is determined by dividing the original
issue price by the conversion price, as defined in the Company's Articles of
Incorporation, in effect on the date the certificate is surrendered for
conversion.
Each share of Preferred Stock will automatically convert into shares of
Common Stock, at the conversion price, as defined in the Articles of
Incorporation, in effect at the time of the earlier of (i) a firm commitment
underwritten public offering, as defined in the Company's Articles of
Incorporation, not less than $15,000,000, or (ii) the date specified by written
consent or agreement of the holders of 60% percent of the outstanding shares of
such series.
In connection with the issuance of the Series D preferred stock, the
Company recorded an estimated noncash charge to equity of $9,882,000 relating to
the beneficial conversion feature on the Series D preferred stock. This charge
was calculated using the deemed fair value of common stock on the date of
issuance, subtracting the conversion price and then multiplying the resulting
amount by the number of
F-17
<PAGE> 98
ACCELERATED NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INTERIM INFORMATION RELATING TO THE PERIODS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)
10. CAPITALIZATION (CONTINUED)
shares of common stock into which the shares of Series D preferred stock are
convertible (3,455,000 shares). As a result of this noncash equity charge, the
Company's net loss per share applicable to common stockholders was adversely
impacted for the three months ended March 31, 2000.
Immediately prior to the closing of an initial public offering and assuming
an initial public offering price in excess of $5.50 per share, all outstanding
shares of our Series A, Series B, Series C, and Series D preferred stock will
convert automatically into shares of common stock. If our initial public
offering price is less than $8.912 per share, each share of our Series D
preferred stock will convert into more than one share of common stock. The exact
number of shares of common stock into which each share of Series D preferred
stock will convert would be determined by dividing $8.912 by our initial public
offering price.
Dividends
Each share of Series A, Series B, Series C, and Series D provides for
discretionary noncumulative dividends of $0.03, $0.075, $0.203, and $0.67 per
share per annum, respectively.
Voting
Each share of Series A, B, C, and D is entitled to the number of votes
equal to the number of shares of Common Stock that could be converted on the
date of the vote.
Redemption
Upon receipt by the Company of a written request, as defined in the
Articles of Incorporation, from the holders of at least two-thirds of the
then-outstanding preferred stock, the Company shall redeem each share of the
then-outstanding preferred stock at the original issuance price, plus accrued
dividends, if any, in two installments, as defined in the Articles of
Incorporation, on April 30, 2003 and April 30, 2004. As of December 31, 1999,
these two installments, if written request for repayment were made, totaled
$44,291,500 each.
Liquidation Preference
Upon liquidation, the holders of Series A, Series B, Series C, and Series D
Preferred Stock would receive $0.50, $1.25, $3.39 and $11.14 per share,
respectively and any declared but unpaid dividends. If at the time of
liquidation the assets and funds to be distributed are insufficient to permit
the above disbursement, then the entire available assets and funds shall be
distributed ratably among the preferred stockholders. Upon the completion of the
above distribution, any remaining assets would be distributed among the common
stockholders ratably, based on the number of shares held by each.
STOCK OPTIONS
In April 1997, the Company adopted the 1997 Stock Option/Stock Issuance
Plan ("Plan") which is divided into two separate equity programs, the Option
Grant Program and the Stock Issuance Program.
Under the terms of the Plan, as amended in March 2000, options to purchase
10,650,000 shares of common stock were reserved. As of December 31, 1999 and
March 31, 2000, approximately 775,000 and 1,626,000 options to purchase shares
of common stock were available for future grant, respectively.
The Option Grant Program provides for the issuance of non-qualified or
incentive stock options to employees, non-employee members of the board and
consultants. The exercise price per share is not to be
F-18
<PAGE> 99
ACCELERATED NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INTERIM INFORMATION RELATING TO THE PERIODS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)
10. CAPITALIZATION (CONTINUED)
less than 85% of the fair market value per share of the Company's common stock
on the date of grant. Incentive stock options may be granted at no less than
100% of the fair market value of the Company's common stock on the date of grant
(110% if granted to an employee who owns 10% or more of the common stock). The
Board of Directors has the discretion to determine the vesting schedule. Options
may be either immediately exercisable or in installments, but generally vest
over a four-year period from the date of grant. In the event the holder ceases
to be employed by the Company, all unvested options terminate and all vested
installment options may be exercised within an installment period following
termination. Any unvested shares acquired related to the immediately exercisable
options are subject to repurchase by the Company at the original exercise price.
The Company had 1,627,000 unvested shares of common stock issued and outstanding
under the Plan at December 31, 1999 which were subject to repurchase by the
Company at the related exercise prices. In general, options expire ten years
from the date of grant.
The Stock Issuance Program provides for shares of common stock to be issued
directly through either the immediate purchase of shares or as a bonus for
services rendered. The purchase price per share is not to be less than 85% of
the fair market value per share of the Company's common stock on the date of
grant. The purchase price, if granted to an employee who owns 10% or more of the
common stock, must be granted at no less than 110% of the fair market value of
the Company's common stock on the date of grant. Vesting terms are at the
discretion of the Plan Administrators and determined at the date of issuance. In
the event the holder ceases to be employed by the Company, any unvested shares
are subject to repurchase by the Company at the original purchase price.
A summary of the status of the Company's stock options, as of December 31,
1997, 1998, 1999 and March 31, 2000, and the changes during the periods ended on
those dates, is presented below (shares in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------ MARCH 31,
1997 1998 1999 2000
------------------ ------------------ ------------------ ------------------
WEIGHTED- WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE SHARES PRICE
------ --------- ------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of period...... -- $ -- 2,613 $0.05 1,989 $0.09 3,859 $2.00
Granted -- price equals fair value.... 2,885 0.05 328 0.05 -- -- -- --
Granted -- price less than fair
value............................... -- -- 1,393 0.15 3,013 2.64 1,818 8.36
Exercised............................. 272 0.04 2,200 0.07 1,052 0.48 277 2.28
Cancelled............................. -- -- 145 0.07 91 0.60 15 0.12
----- ----- ----- -----
Outstanding at period-end............... 2,613 $0.05 1,989 $0.09 3,859 $2.00 5,385 $4.14
===== ===== ===== =====
Options exercisable at period-end....... 2,613 $0.05 1,989 $0.09 3,859 $2.00 5,385 $4.14
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
The weighted-average fair value of options granted to employees for the
years ended December 31, 1997, 1998 and 1999 were $0.05, $0.64 and $6.76 per
share, respectively. The weighted-average fair value of options granted to
employees for the three months ended March 31, 2000 was $11.28 per share.
F-19
<PAGE> 100
ACCELERATED NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INTERIM INFORMATION RELATING TO THE PERIODS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)
10. CAPITALIZATION (CONTINUED)
Additional information with respect to the outstanding options as of
December 31, 1999 is as follows (shares in thousands):
<TABLE>
<CAPTION>
OPTIONS EXERCISED SUBJECT TO
OPTIONS OUTSTANDING AND EXERCISABLE REPURCHASE
- ----------------------------------------------- ----------------------------
NUMBER
OUTSTANDING WEIGHTED-
AND AVERAGE RANGE AND
EXERCISABLE AT REMAINING WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE
DECEMBER 31, CONTRACTUAL EXERCISE OF REPURCHASE
1999 LIFE PRICE SHARES PRICE
- -------------- ----------- ---------------- --------- ----------------
<S> <C> <C> <C> <C>
813 7.55 $0.05 761 $0.05
438 8.73 0.15 666 0.15
340 9.21 0.60 6 0.60
220 9.38 1.00 102 1.00
248 9.56 1.75 87 1.75
111 9.76 2.50 -- 2.50
1,140 9.92 3.50 5 3.50
549 9.97 4.50 -- 4.50
----- -----
3,859 9.17 $2.00 1,627 $0.24
===== =====
</TABLE>
During 1997, 1998, 1999 and the three months ended March 31, 2000, the
Company granted stock options to directors, employees, officers, and
consultants, at exercise prices below the fair market value of the Company's
common stock at the date of grant. Accordingly, the Company recorded deferred
stock compensation of $0, $716,000, $12,503,000 and $5,330,000, respectively, to
be amortized over the related vesting periods (generally four years). The
Company recognized compensation expense of $0, $52,000, $3,103,000, $238,000 and
$2,385,000 relating to these stock option grants for the years ended December
31, 1997, 1998 and 1999, and the three months ended March 31, 1999 and 2000,
respectively.
The Company calculated the minimum fair value of each option granted to
directors, employees and officers of the Company on the date of the grant using
the minimum value option pricing model as prescribed by SFAS No. 123 using the
following assumptions:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
----------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Risk-free interest rate..................................... 6.5% 5.5% 6.0%
Expected lives (in years)................................... 4.0 4.0 4.0
Dividend yield.............................................. 0.0% 0.0% 0.0%
Expected volatility......................................... 0.0% 0.0% 0.0%
</TABLE>
Had compensation costs been determined based upon the methodology
prescribed under SFAS No. 123, the Company's net loss applicable to common
stockholders and basic and diluted net loss per
F-20
<PAGE> 101
ACCELERATED NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INTERIM INFORMATION RELATING TO THE PERIODS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)
10. CAPITALIZATION (CONTINUED)
share applicable to common stockholders would approximate the following pro
forma amounts (thousands, except per share data):
<TABLE>
<CAPTION>
AS REPORTED PRO FORMA
----------- ---------
<S> <C> <C>
For the year ended December 31, 1999:
Net loss applicable to common stockholders.................. $(21,227) $(21,404)
======== ========
Basic and diluted net loss per share applicable to common
stockholders.............................................. $ (3.29) $ (3.32)
======== ========
For the year ended December 31, 1998:
Net loss applicable to common stockholders.................. $ (9,711) $ (9,727)
======== ========
Basic and diluted net loss per share applicable to common
stockholders.............................................. $ (2.00) $ (2.00)
======== ========
For the year ended December 31, 1997:
Net loss applicable to common stockholders.................. $ (1,488) $ (1,495)
======== ========
Basic and diluted net loss per share applicable to common
stockholders.............................................. $ (0.42) $ (0.42)
======== ========
</TABLE>
The effects of applying SFAS No. 123 in the above pro forma disclosure are
not indicative of future amounts, and additional awards in future years are
anticipated.
During 1998 and 1999, the Company utilized the Black-Scholes pricing model,
assuming a risk-free interest rate of approximately 6%, an expected life of 4
years, a 0% dividend yield and forfeiture rate, and an expected volatility rate
of approximately 80%, to calculate the fair values of stock options granted to
consultants. The stock options are valued at the grant date, and each subsequent
reporting period until the options are fully vested, exercisable and
noncancelable.
11. EMPLOYEE BENEFIT PLAN
During March 1999, the Company established a 401(k) Profit Sharing Plan
(the "Plan") available to all employees who meet the Plan's eligibility
requirements. Under the Plan, participating employees may defer a percentage
(not to exceed 15%) of their eligible pretax earnings up to the Internal Revenue
Service's annual contribution limit. Company matching and profit sharing
contributions are discretionary. To date, the Company has not made any
contributions to the Plan as of December 31, 1999.
F-21
<PAGE> 102
ACCELERATED NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INTERIM INFORMATION RELATING TO THE PERIODS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)
12. NET LOSS PER SHARE
The following table sets forth the computation of basic, diluted and pro
forma net loss per share (thousands, except per share data):
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE THREE MONTHS
ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------- --------------------
1997 1998 1999 1999 2000
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
HISTORICAL PRESENTATION
Numerator:
Net loss applicable to common stockholders... $(1,488) $(9,711) $(21,227) $(3,847) $(18,725)
======= ======= ======== ======= ========
Denominator:
Weighted-average common shares outstanding... 6,108 8,266 9,816 9,388 10,309
Adjustment for common shares issued subject
to repurchase............................. (2,558) (3,413) (3,369) (3,694) (2,645)
------- ------- -------- ------- --------
Denominator for basic and diluted
calculations.............................. 3,550 4,853 6,447 5,694 7,664
======= ======= ======== ======= ========
Basic and diluted net loss per share applicable
to common stockholders....................... $ (0.42) $ (2.00) $ (3.29) $ (0.68) $ (2.44)
======= ======= ======== ======= ========
PRO FORMA PRESENTATION (unaudited)
Numerator:
Net loss applicable to common stockholders... $(21,227) $(18,725)
Beneficial conversion feature................ -- 9,882
-------- --------
Net loss..................................... $ 21,227) $ (8,843)
======== ========
Denominator:
Shares used above............................ 6,447 7,664
Weighted-average effect of pro forma
conversion of securities:
Series A redeemable convertible preferred
stock................................... 11,220 11,220
Series B redeemable convertible preferred
stock................................... 11,585 11,585
Series C redeemable convertible preferred
stock................................... 7,537 8,846
Series D redeemable convertible preferred
stock................................... -- 1,482
-------- --------
Denominator for pro forma basic and diluted
calculation.................................. 36,789 40,797
======== ========
Pro forma basic and diluted net loss per
share........................................ $ (0.58) $ (0.22)
======== ========
</TABLE>
F-22
<PAGE> 103
ACCELERATED NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INTERIM INFORMATION RELATING TO THE PERIODS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)
The following table sets forth common stock equivalents (potential common
stock) that are not included in the diluted net loss per share calculation above
because their effect would be antidilutive for the periods indicated (shares in
thousands):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
-------------------------- ---------------------
1997 1998 1999 1999 2000
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Weighted-average common stock equivalents:
Series A preferred stock................... 6,609 11,220 11,220 11,220 11,220
Series B preferred stock................... -- 7,300 11,585 11,585 11,585
Series C preferred stock................... -- -- 7,537 873 8,846
Series D preferred stock................... -- -- -- -- 1,482
Unvested shares of common stock subject to
repurchase.............................. 2,558 3,413 3,369 3,694 2,645
Warrants................................... -- -- -- -- 29
Stock options.............................. 871 2,301.. 2,924 2,457 4,626
------ ------ ------ ------ ------
10,038.. 24,234 36,635 29,829 40,433
====== ====== ====== ====== ======
</TABLE>
13. SUBSEQUENT EVENTS -- UNAUDITED
In March 2000, the Board of Directors authorized the filing of a
registration statement with the Securities and Exchange Commission ("SEC") that
would permit the Company to sell shares of the Company's common stock in
connection with a proposed initial public offering ("IPO"). The Preferred Stock,
as described in Note 10, will automatically convert into shares of common stock
as discussed in Note 10. The conversion of the Preferred Stock has been
reflected in the accompanying unaudited pro forma consolidated balance sheet at
March 31, 2000.
In March 2000, the Board of Directors approved the reincorporation of the
Company in the state of Delaware, which will be effected prior to the closing of
the IPO. The effect of this reincorporation is presented in pro forma unaudited
stockholder's equity.
In March 2000, the Board of Directors adopted the 2000 Stock Incentive Plan
and the 2000 Employee Stock Purchase Plan, both of which will become effective
upon the closing of the IPO. When it becomes effective, the 2000 Stock Incentive
Plan will succeed and replace the Company's current Plan. 500,000 shares of
common stock are initially reserved for issuance under the 2000 Employee Stock
Purchase Plan.
F-23
<PAGE> 104
[ACCELERATED NETWORKS, INC. LOGO]
<PAGE> 105
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable in connection with the sale and
distribution of the securities being registered. All amounts are estimated
except the Securities and Exchange Commission, NASD and Nasdaq National Market
fees. All of the expenses below will be paid by Accelerated Networks.
<TABLE>
<CAPTION>
ITEM AMOUNT
---- ----------
<S> <C>
Registration fee............................................ $ 18,216
NASD filing fee............................................. 7,400
Nasdaq National Market listing fee.......................... 95,000
Blue sky fees and expenses.................................. 5,000
Printing and engraving expenses............................. 250,000
Legal fees and expenses..................................... 525,000
Accounting fees and expenses................................ 475,000
Transfer Agent and Registrar fees........................... 2,500
Miscellaneous............................................... 100,000
----------
Total..................................................... 1,478,116
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Certificate of Incorporation (the "Certificate") provides
that, except to the extent prohibited by the Delaware General Corporation Law
(the "DGCL"), the Company's directors shall not be personally liable to the
Company or its stockholders for monetary damages for any breach of fiduciary
duty as directors of the Company. Under the DGCL, the directors have a fiduciary
duty to the Company which is not eliminated by this provision of the Certificate
and, in appropriate circumstances, equitable remedies such as injunctive or
other forms of nonmonetary relief will remain available. In addition, each
director will continue to be subject to liability under the DGCL for breach of
the director's duty of loyalty to the Company, for acts or omissions which are
found by a court of competent jurisdiction to be not in good faith or involving
intentional misconduct, for knowing violations of law, for actions leading to
improper personal benefit to the director, and for payment of dividends or
approval of stock repurchases or redemptions that are prohibited by DGCL. This
provision also does not affect the directors' responsibilities under any other
laws, such as the federal securities laws or state or federal environmental
laws. The Company has obtained liability insurance for its officers and
directors.
Section 145 of the DGCL empowers a corporation to indemnify its directors
and officers and to purchase insurance with respect to liability arising out of
their capacity or status as directors and officers, provided that this provision
shall not eliminate or limit the liability of a director: (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) arising under Section 174 of the DGCL, or (iv)
for any transaction from which the director derived an improper personal
benefit. The DGCL provides further that the indemnification permitted thereunder
shall not be deemed exclusive of any other rights to which the directors and
officers may be entitled under the corporation's bylaws, any agreement, a vote
of stockholders or otherwise. The Certificate eliminates the personal liability
of directors to the fullest extent permitted by Section 102(b)(7) of the DGCL
and provides that the Company shall fully indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding (whether civil, criminal, administrative or
investigative) by reason of the fact that such person is or was a director or
officer of the Company, or is or was serving at
II-1
<PAGE> 106
the request of the Company as a director or officer of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding.
The Company, with the approval of the Board of Directors, intends to obtain
directors' and officers' liability insurance prior to the effectiveness of this
offering. In addition, the Company intends to enter into indemnification
agreements with each of its directors and executive officers, a form of which is
filed as Exhibit 10.25 hereto.
There is no pending litigation or proceeding involving any director,
officer, employee or agent of the Company in which indemnification will be
required or permitted. Moreover, the Company is not aware of any threatened
litigation or proceeding that might result in a claim for such indemnification.
The Company believes that the foregoing indemnification provisions and
agreements are necessary to attract and retain qualified persons as directors
and executive officers.
The Underwriting Agreement (the form of which is filed as Exhibit 1.1
hereto) provides for indemnification by the underwriters of Accelerated and its
officers and directors, and by Accelerated of the underwriters, for certain
liabilities arising under the Securities Act or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following is a summary of transactions by the Company since the
Company's inception in October 1996 involving sales of the Company's securities
that were not registered under the Securities Act. Prior to the Company's
reincorporation in Delaware in 2000, it had been operating as a
corporation organized under the laws of California.
(a) In March 1997, we issued an aggregate of 6,800,000 shares of
common stock for an aggregate purchase price of approximately $12,000 to
the founders of the Company.
(b) In May 1997, we issued an aggregate of 11,170,000 shares of Series
A preferred stock for an aggregate purchase price of approximately
$5,600,000 to several outside investors in connection with our initial
Series A financing and an additional 50,000 shares of Series A preferred
stock in exchange for $25,000 of services performed in connection with the
Series A financing.
(c) In May 1998, we issued an aggregate of 11,584,848 shares of Series
B preferred stock for an aggregate purchase price of approximately
$14,481,000 to several outside investors in connection with our Series B
financing.
(d) In March 1999, we issued an aggregate of 8,845,648 shares of
Series C preferred stock for an aggregate purchase price of approximately
$30,000,000 to Siemens AG in connection with our Series C financing.
(e) In January 2000, in connection with a Warrant Purchase Agreement,
we issued a warrant to Siemens ICN to purchase 28,575 shares of common
stock at $7.00 per share.
(f) In February and March 2000, we issued an aggregate of 3,455,267
shares of Series D preferred stock for an aggregate purchase price of
approximately $38,492,000 to several outside investors and several of our
officers in connection with our Series D financing.
(g) From October 1996 (inception) to March 31, 2000, we granted
options to purchase an aggregate of 9,011,447 shares of common stock to our
directors, executive officers, employees and consultants at a weighted
exercise price of $2.60 per share. As of March 31, 2000, options to
purchase 56,610 shares at an exercise price of $.00182 per share, options
to purchase 2,891,536 shares at an exercise price of $0.05 per share,
options to purchase 1,442,544 shares at an exercise price of $0.15 per
share, options to purchase 346,500 shares at an exercise price of $0.60 per
share, options to purchase 317,500 shares at an exercise price of $1.00 per
share, options to purchase 345,500 shares at an exercise price of $1.75 per
share, options to purchase 111,000 shares at an exercise price of
II-2
<PAGE> 107
$2.50 per share, options to purchase 1,144,757 shares at an exercise price
of $3.50 per share, options to purchase 532,500 shares at an exercise price
of $4.50 per share, options to purchase 1,174,000 shares at an exercise
price of $7.00 per share, options to purchase 150,000 shares at an exercise
price of $9.00 per share, options to purchase 131,500 shares at an exercise
price of $10.50 per share, and options to purchase 367,500 shares at an
exercise price of $11.70 per share had been granted. In addition, we issued
5,000 shares to a consultant at price of $3.50 per share.
None of the foregoing transactions involved any public offering, and the
Company believes that each transaction was exempt from the registration
requirements of the Securities Act by virtue of Section 4(2) thereof, Regulation
D promulgated thereunder or Rule 701 pursuant to compensatory benefit plans and
contracts relating to compensation as provided under such Rule 701. The
recipients in each such transaction represented their intention to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof, and appropriate legends were affixed to the share
certificates and instruments issued in such transactions. All recipients had
adequate access, through their relationships with the Company, to information
about the Company.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS
The following Exhibits are attached hereto and incorporated herein by
reference:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Registrant.
3.2 Bylaws of the Registrant.
4.1 See Exhibit 3.1 and 3.2 for provisions of the Registrant's
Certificate of Incorporation and Bylaws defining the rights
of holders of the Registrant's common stock. See Exhibit
10.8 for the rights of certain holders of registration
rights.
4.2* Specimen common stock certificates.
5.1 Opinion of Brobeck, Phleger & Harrison LLP.
10.1 Founder/Employee/Shareholder Agreement between the
Registrant and Suresh Nihalani, as amended.
10.2 Founder/Employee/Shareholder Agreement between the
Registrant and Kiran Munj, as amended.
10.3** Series A Preferred Stock Purchase Agreement dated as of May
30, 1997, among the Registrant and certain investors
thereto.
10.4** Series B Preferred Stock Purchase Agreement dated as of May
15, 1998, among the Registrant and certain investors
thereto.
10.5** Series C Preferred Stock Purchase Agreement dated as of
February 24, 1999, among the Registrant and Siemens AG.
10.6** Warrant Purchase Agreement dated as of December 16, 1999, by
and between the Registrant and Siemens Information and
Communication Networks, Inc.
10.7** Form of Series D Preferred Stock Purchase Agreement.
10.8** Second Restated Investors' Rights Agreement dated as of
February 18, 2000, as amended, among the Registrant and
certain of its stockholders.
10.9** 1997 Stock Option/Stock Issuance Plan.
10.10* 2000 Stock Incentive Plan.
10.11* Employee Stock Purchase Plan.
10.12+ Product Procurement Agreement dated as of April 21, 1999, by
and between the Registrant and CTC Communications Group,
Inc.
10.13+ Product Purchase and Sale Agreement dated as of August 1,
1999, by and between the Registrant and FirstWorld
Communications.
</TABLE>
II-3
<PAGE> 108
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.14+** Materials and Manufacturing Agreement Board Assembly
Agreement dated as of March 15, 1999, by and between the
Registrant and the Semiconductor Group of Arrow Electronics,
Inc.
10.15+** Standard Agreement dated as of June 1, 1999, by and between
the Registrant and Power-One, Inc.
10.16+** Value-Added Product Sale Agreement dated as of March 12,
1999, by and between the Registrant and AVNET Electronics
Marketing, a Group of Avnet, Inc.
10.17** Agreement for Purchase of Products dated as of January 21,
1999, by and between the Registrant and Siemens Information
and Communication Networks, Inc.
10.18** Service Level Agreement dated as of March 25, 1999, by and
between the Registrant and Siemens Information and
Communication Networks, Inc.
10.19** Standard Industrial/Commercial Multi-Tenant Lease dated as
of May 6, 1999, between the Registrant and Tyler Pacific
III, L.L.C.
10.20** Memorandum of Understanding dated as of January 13, 1999 by
and between Mr. Viren T. Ranjan and Accelerated Networks
(India) Private Limited.
10.21** Standard Industrial/Commercial Single-Tenant Lease-Gross
dated as of May 28, 1998, by and between the Registrant and
Robert B. Reingold, Trustee for Reingold Trust #21328.
10.22+** Licensing Agreement dated as of July 15, 1998, as amended,
by and between the Registrant and Ditech Communications
Corporation.
10.23+** OEM Orbix Development and Runtime Agreement dated December
17, 1999, by and between the Registrant and IONA.
10.24+** Letter Agreement regarding licenses dated as of December 30,
1999 by and between the Registrant and WindRiver Systems,
Inc.
10.25 Form of Director Indemnification Agreement.
10.26 Revolving Credit Loan and Security Agreement (Accounts and
Equipment Loans) dated as of June 1, 1999, by and between
the Registrant and Comerica Bank -- California.
10.27 Senior Loan and Security Agreement No. L6244 dated as of May
28, 1999, by and between the Registrant and Phoenix Leasing
Incorporated.
10.28+ Product Purchase and Sale Agreement dated as of February 23,
2000, by and between the Registrant and UniDial
Communications Inc.
21.1** List of Subsidiaries.
23.1 Consent of Brobeck, Phleger & Harrison LLP (Included in
Exhibit 5.1 hereto).
23.2 Consent of PricewaterhouseCoopers LLP, independent
accountants.
23.3 Consent of RHK Telecommunications Industry Analysis.
23.4 Consent of International Data Corporation.
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed by the Registrant.
+ Confidential treatment has been requested for certain confidential portions
of this exhibit pursuant to Rule 406 under the Securities Act. In accordance
with Rule 406, these confidential portions have been omitted from this
exhibit and filed separately with the Commission.
(b) FINANCIAL STATEMENT SCHEDULES
All such Schedules have been omitted because the information required to be
set forth therein is not applicable or is shown in the financial statements or
notes thereto.
II-4
<PAGE> 109
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised 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 Company of expenses
incurred or paid by a director, officer or controlling person of the Company 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 Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Company hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus as filed as
part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by us pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act 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 bona fide offering thereof.
II-5
<PAGE> 110
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, we have duly
caused this Amendment No. 2 to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Moorpark,
State of California, on the 17th day of April, 2000.
ACCELERATED NETWORKS, INC.
By: /s/ SURESH NIHALANI
------------------------------------
Suresh Nihalani
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement on Form S-1 has been signed by the following
persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <C> <S>
/s/ SURESH NIHALANI President, Chief Executive April 17, 2000
- -------------------------------------------------------- Officer and Director
Suresh Nihalani (Principal Executive Officer)
/s/ FREDERIC T. BOYER Vice President, Finance and April 17, 2000
- -------------------------------------------------------- Administration and Chief
Frederic T. Boyer Financial Officer (Principal
Financial and Accounting
Officer)
H.R. JOHNSON* Director April 17, 2000
- --------------------------------------------------------
Brig. Gen. H.R. Johnson, USAF (Ret.)
STEVEN M. KRAUSZ* Director April 17, 2000
- --------------------------------------------------------
Steven M. Krausz
PETER T. MORRIS* Director April 17, 2000
- --------------------------------------------------------
Peter T. Morris
ROBERT F. KUHLING, JR.* Director April 17, 2000
- --------------------------------------------------------
Robert F. Kuhling, Jr.
LIP-BU TAN* Director April 17, 2000
- --------------------------------------------------------
Lip-Bu Tan
ANTHONY MAHER* Director April 17, 2000
- --------------------------------------------------------
Anthony Maher
</TABLE>
* Power of attorney
By: /s/ FREDERIC T. BOYER
- --------------------------------------
Frederic T. Boyer
Attorney-in-Fact
II-6
<PAGE> 111
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Registrant.
3.2 Bylaws of the Registrant.
4.1 See Exhibit 3.1 and 3.2 for provisions of the Registrant's
Certificate of Incorporation and Bylaws defining the rights
of holders of the Registrant's common stock. See Exhibit
10.8 for the rights of certain holders of registration
rights.
4.2* Specimen common stock certificates.
5.1 Opinion of Brobeck, Phleger & Harrison LLP.
10.1 Founder/Employee/Shareholder Agreement between the
Registrant and Suresh Nihalani, as amended.
10.2 Founder/Employee/Shareholder Agreement between the
Registrant and Kiran Munj, as amended.
10.3** Series A Preferred Stock Purchase Agreement dated as of May
30, 1997, among the Registrant and certain investors
thereto.
10.4** Series B Preferred Stock Purchase Agreement dated as of May
15, 1998, among the Registrant and certain investors
thereto.
10.5** Series C Preferred Stock Purchase Agreement dated as of
February 24, 1999, among the Registrant and Siemens AG.
10.6** Warrant Purchase Agreement dated as of December 16, 1999, by
and between the Registrant and Siemens Information and
Communication Networks, Inc.
10.7** Form of Series D Preferred Stock Purchase Agreement.
10.8** Second Restated Investors' Rights Agreement dated as of
February 18, 2000, as amended, among the Registrant and
certain of its stockholders.
10.9** 1997 Stock Option/Stock Issuance Plan.
10.10* 2000 Stock Incentive Plan.
10.11* Employee Stock Purchase Plan.
10.12+ Product Procurement Agreement dated as of April 21, 1999, by
and between the Registrant and CTC Communications Group,
Inc.
10.13+ Product Purchase and Sale Agreement dated as of August 1,
1999, by and between the Registrant and FirstWorld
Communications.
10.14+** Materials and Manufacturing Agreement Board Assembly
Agreement dated as of March 15, 1999, by and between the
Registrant and the Semiconductor Group of Arrow Electronics,
Inc.
10.15+** Standard Agreement dated as of June 1, 1999, by and between
the Registrant and Power-One, Inc.
10.16+** Value-Added Product Sale Agreement dated as of March 12,
1999, by and between the Registrant and AVNET Electronics
Marketing, a Group of Avnet, Inc.
10.17** Agreement for Purchase of Products dated as of January 21,
1999, by and between the Registrant and Siemens Information
and Communication Networks, Inc.
10.18** Service Level Agreement dated as of March 25, 1999, by and
between the Registrant and Siemens Information and
Communication Networks, Inc.
10.19** Standard Industrial/Commercial Multi-Tenant Lease dated as
of May 6, 1999, between the Registrant and Tyler Pacific
III, L.L.C.
10.20** Memorandum of Understanding dated as of January 13, 1999 by
and between Mr. Viren T. Ranjan and Accelerated Networks
(India) Private Limited.
10.21** Standard Industrial/Commercial Single-Tenant Lease-Gross
dated as of May 28, 1998, by and between the Registrant and
Robert B. Reingold, Trustee for Reingold Trust #21328.
10.22+** Licensing Agreement dated as of July 15, 1998, as amended,
by and between the Registrant and Ditech Communications
Corporation.
</TABLE>
<PAGE> 112
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.23+** OEM Orbix Development and Runtime Agreement dated December
17, 1999, by and between the Registrant and IONA.
10.24+** Letter Agreement regarding licenses dated as of December 30,
1999 by and between the Registrant and WindRiver Systems,
Inc.
10.25 Form of Director Indemnification Agreement.
10.26 Revolving Credit Loan and Security Agreement (Accounts and
Equipment Loans) dated as of June 1, 1999, by and between
the Registrant and Comerica Bank -- California.
10.27 Senior Loan and Security Agreement No. L6244 dated as of May
28, 1999, by and between the Registrant and Phoenix Leasing
Incorporated.
10.28+ Product Purchase and Sale Agreement dated as of February 23,
2000, by and between the Registrant and UniDial
Communications Inc.
21.1** List of Subsidiaries.
23.1 Consent of Brobeck, Phleger & Harrison LLP (Included in
Exhibit 5.1 hereto).
23.2 Consent of PricewaterhouseCoopers LLP, independent
accountants.
23.3 Consent of RHK Telecommunications Industry Analysis.
23.4 Consent of International Data Corporation.
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed by the Registrant.
+ Confidential treatment has been requested for certain confidential portions
of this exhibit pursuant to Rule 406 under the Securities Act. In accordance
with Rule 406, these confidential portions have been omitted from this
exhibit and filed separately with the Commission.
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ACCELERATED NETWORKS, INC.
ARTICLE I
The name of this corporation is Accelerated Networks, Inc. (the
"Corporation").
ARTICLE II
The address of the Corporation's registered office in the State
of Delaware is 9 East Loockerman Street, Dover, County of Kent, Delaware 19901.
The name of the Corporation's registered agent at such address is National
Registered Agents, Inc.
ARTICLE III
The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of the State of Delaware (the
"GCL").
ARTICLE IV
The Corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total number
of shares that the Corporation is authorized to issue is Two Hundred Five
Million (205,000,000). Two Hundred Million (200,000,000) shares shall be Common
Stock, par value $0.001 per share, and Five Million (5,000,000) shares shall be
Preferred Stock, par value $0.001 per share.
The Preferred Stock may be issued from time to time in one or
more series, without further stockholder approval. The Board of Directors of the
Corporation is hereby authorized to fix or alter the rights, preferences,
privileges and restrictions granted to or imposed upon each series of Preferred
Stock, and the number of shares constituting any such series and the designation
thereof, or of any of them. The rights, privileges, preferences and restrictions
of any such additional series may be subordinated to, pari passu with
(including, without limitation, inclusion in provisions with respect to
liquidation and acquisition preferences, redemption and/or approval of matters
by vote), or senior to any of those of any present or future class or series of
Preferred Stock or Common Stock. The Board of Directors is also authorized to
increase or decrease the number of shares of any series prior or subsequent to
the issue of that series, but not below the number of shares of such series then
outstanding. In case the number of shares of any series shall be so decreased,
the shares constituting such decrease shall resume the status which they had
prior to the adoption of the resolution originally fixing the number of shares
of such series.
<PAGE> 2
ARTICLE V
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, repeal, alter,
amend and rescind any or all of the Bylaws of the Corporation. In addition, the
Bylaws may be amended by the affirmative vote of holders of at least sixty-six
and two-thirds percent (66 2/3%) of the outstanding shares of voting stock of
the Corporation entitled to vote at an election of directors.
ARTICLE VI
The number of directors of the Corporation shall be determined by
resolution of the Board of Directors.
Elections of directors need not be by written ballot unless the
Bylaws of the Corporation shall so provide. Advance notice of stockholder
nominations for the election of directors and of any other business to be
brought before any meeting of the stockholders shall be given in the manner
provided in the Bylaws of this Corporation.
At each annual meeting of stockholders, directors of the
Corporation shall be elected to hold office until the expiration of the term for
which they are elected, or until their successors have been duly elected and
qualified; except that if any such election shall not be so held, such election
shall take place at a stockholders' meeting called and held in accordance with
the GCL.
The directors of the Corporation shall be divided into three (3)
classes as nearly equal in size as is practicable, hereby designated Class I,
Class II and Class III. For the purposes hereof, the initial Class I, Class II
and Class III directors shall be those directors so designated by a resolution
of the Board of Directors. At the annual meeting of stockholders held in 2001,
the term of office of the Class I directors shall expire and Class I directors
shall be elected for a full term of three (3) years. At the annual meeting of
stockholders held in 2002, the term of office of the Class II directors shall
expire and Class II directors shall be elected for a full term of three (3)
years. At the annual meeting of stockholders held in 2003, the term of office of
the Class III directors shall expire and Class III directors shall be elected
for a full term of three (3) years. At each succeeding annual meeting of
stockholders, directors shall be elected for a full term of three (3) years to
succeed the directors of the class whose terms expire at such annual meeting. If
the number of directors is hereafter changed, each director then serving as such
shall nevertheless continue as a director of the class of which he is a member
until the expiration of his current term and any newly created directorships or
decrease in directorships shall be so apportioned among the classes as to make
all classes as nearly equal in number as is practicable.
Vacancies occurring on the Board of Directors for any reason may
be filled only by vote of a majority of the remaining members of the Board of
Directors, even if less than a quorum, at any meeting of the Board of Directors.
A person so elected by the Board of Directors to fill a vacancy shall hold
office for the remainder of the full term of the director for which the vacancy
was created or occurred and until such director's successor shall have been duly
elected and qualified. A director may be removed from office by the affirmative
vote of the holders of
2
<PAGE> 3
66 2/3% of the outstanding shares of voting stock of the Corporation entitled to
vote at an election of directors, provided that such removal is for cause.
ARTICLE VII
Any action required or permitted to be taken by the stockholders
of the Corporation must be effected at a duly called annual or special meeting
of the stockholders of the Corporation and may not be effected by any consent in
writing of such stockholders. At any annual or special meeting of stockholders
of the Corporation, only such business will be conducted or considered as has
been brought before such meeting in the manner provided in the Bylaws of the
Corporation. Special meetings of the stockholders, for any purpose or purposes,
may only be called by the Chairman of the Board of Directors of the Corporation
or by a majority of the members of the Board of Directors of the Corporation.
The books of the Corporation may be kept (subject to any provision contained in
the statutes) outside the State of Delaware at such place or places as may be
designated from time to time by the Board of Directors or in the Bylaws of the
Corporation. Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide.
ARTICLE VIII
To the fullest extent permitted by applicable law, this
Corporation is authorized to provide indemnification of (and advancement of
expenses to) directors, officers, employees and agents (and any other persons to
which Delaware law permits this Corporation to provide indemnification) through
Bylaw provisions, agreements with such agents or other persons, vote of
stockholders or disinterested directors or otherwise, in excess of the
indemnification and advancement otherwise permitted by Section 145 of the GCL,
subject only to limits created by applicable Delaware law (statutory or
non-statutory), with respect to action for breach of duty to the Corporation,
its stockholders, and others.
No director of the Corporation shall be personally liable to the
Corporation or any stockholder for monetary damages for breach of fiduciary duty
as a director, except for any matter in respect of which such director shall be
liable under Section 174 of the GCL or any amendment thereto or shall be liable
by reason that, in addition to any and all other requirements for such
liability, such director (1) shall have breached the director's duty or loyalty
to the Corporation or its stockholders, (2) shall have acted in manner not in
good faith or involving intentional misconduct or a knowing violation of law or,
in failing to act, shall have acted in a manner involving intentional misconduct
or a knowing violation of law, or (3) shall have derived an improper personal
benefit. If the GCL is hereafter amended to authorize the further elimination or
limitation of the liability of a director, the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the GCL, as so amended.
Each person who was or is made a party or is threatened to be
made a party to or is in any way involved in any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), including any appeal therefrom, by
reason of the fact that he or she, or a person of whom he or she is the legal
representative, is or was a director or officer of the Corporation or a direct
or indirect subsidiary of the Corporation, or is or was serving at the request
of the Corporation as a director
3
<PAGE> 4
or officer of another entity or enterprise, or was a director or officer of a
foreign or domestic corporation which was predecessor corporation of the
Corporation or of another entity or enterprise at the request of such
predecessor corporation, shall be indemnified and held harmless by the
Corporation, and the Corporation shall advance all expenses incurred by any such
person in defense of any such proceeding prior to its final determination, to
the fullest extent authorized by the GCL. In any proceeding against the
Corporation to enforce these rights, such person shall be presumed to be
entitled to indemnification and the Corporation shall have the burden of proving
that such person has not met the standards of conduct for permissible
indemnification set forth in the GCL. The rights to indemnification and
advancement of expenses conferred by this Article VIII shall be presumed to have
been relied upon by the directors and officers of the Corporation in serving or
continuing to serve the Corporation and shall be enforceable as contract rights.
Said rights shall not be exclusive of any other rights to which those seeking
indemnification may otherwise be entitled. The Corporation may, upon written
demand presented by a director or officer of the Corporation or of a direct or
indirect subsidiary of the Corporation, or by a person serving at the request of
the Corporation as a director or officer of another entity or enterprise, enter
into contracts to provide such persons with specified rights to indemnification,
which contracts may confer rights and protections to the maximum extent
permitted by the GCL, as amended and in effect from time to time.
If a claim under this Article VIII is not paid in full by the
Corporation within sixty (60) days after a written claim has been received by
the Corporation, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expenses of
prosecuting such claim. It shall be a defense to any such action (other than an
action brought to enforce the right to be advanced expenses incurred in
defending any proceeding prior to its final disposition where the required
undertaking, if any, has been tendered to the Corporation ) that the claimant
has not met the standards of conduct which make it permissible under the GCL for
the Corporation to indemnify the claimant for the amount claimed, but the
claimant shall be presumed to be entitled to indemnification and the Corporation
shall have the burden of proving that the claimant has not met the standards of
conduct for permissible indemnification set forth in the GCL.
If the GCL is hereafter amended to permit the Corporation to
provide broader indemnification rights than said law permitted the Corporation
to provide prior to such amendment, the indemnification rights conferred by this
Article VIII shall be broadened to the fullest extent permitted by the GCL, as
so amended.
ARTICLE IX
The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon stockholders herein are granted subject to this
reservation. Notwithstanding the foregoing, the provisions set forth in Articles
IV, V, VI, VII, VIII and this Article IX of this Amended and Restated
Certificate of Incorporation may not be repealed or amended in any respect
without the affirmative vote of holders at least 66-2/3% of the outstanding
voting stock of the Corporation entitled to vote at an election of directors.
4
<PAGE> 1
EXHIBIT 3.2
AMENDED & RESTATED BYLAWS
OF
ACCELERATED NETWORKS, INC.
ARTICLE I
OFFICES
Section 1. The registered office shall be at the office of National
Registered Agents, Inc., at 9 East Loockerman Street in the City of Dover,
County of Kent, State of Delaware.
Section 2. The corporation may also have offices at such other places
both within and without the State of Delaware as the Board of Directors may from
time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of
directors shall be held at such place as may be fixed from time to time by the
Board of Directors, or at such other place either within or without the State of
Delaware as shall be designated from time to time by the Board of Directors and
stated in the notice of the meeting. Meetings of stockholders for any other
purpose may be held at such time and place, within or without the State of
Delaware, as shall be stated in the notice of the meeting or in a duly executed
waiver of notice thereof.
Section 2. Annual meetings of stockholders shall be held at such date
and time as shall be designated from time to time by the Board of Directors and
stated in the notice of the meeting. At each annual meeting, the stockholders
shall elect directors to succeed those directors whose terms expire in that year
and shall transact such other business as may properly be brought before the
meeting.
Section 3. Written notice of the annual meeting stating the place, date
and hour of the meeting shall be given to each stockholder entitled to vote at
such meeting not less than ten (10) nor more than sixty (60) days before the
date of the meeting.
Section 4. The officer who has charge of the stock ledger of the
corporation shall prepare and make available, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to
<PAGE> 2
be held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present.
Section 5. Special meetings of the stockholders, for any purpose or
purposes, may only be called by the Chairman of the Board or by a majority of
the numbers of the Board.
Section 6. Written notice of a special meeting stating the place, date
and hour of the meeting and the purpose or purposes for which the meeting is
called, shall be given not fewer than ten (10) nor more than sixty (60) days
before the date of the meeting, to each stockholder entitled to vote at such
meeting.
Section 7. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
Section 8. The holders of a majority of the stock issued and outstanding
and entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum shall not be present or represented at
any meeting of the stockholders, either the Chairman of the Board, or the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present or
represented any business may be transacted that might have been transacted at
the meeting as originally notified. If the adjournment is for more than thirty
(30) days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 9. When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of applicable statute
or of the certificate of incorporation, a different vote is required, in which
case such express provision shall govern and control the decision of such
question.
Section 10. Unless otherwise provided in the certificate of
incorporation each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder, but no proxy shall be voted on
after three (3) years from its date, unless the proxy provides for a longer
period.
Section 11. Nominations for election to the Board of Directors must be
made by the Board of Directors or by a committee appointed by the Board of
Directors for such purpose or by any stockholder of any outstanding class of
capital stock of the corporation entitled to vote for the election of directors.
Nominations by stockholders must be preceded by notification in writing received
by the secretary of the corporation not less than one-hundred twenty (120) days
prior to any meeting of stockholders called for the election of directors. Such
notification shall contain the written consent of each proposed nominee to serve
as a director if so elected and the
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following information as to each proposed nominee and as to each person, acting
alone or in conjunction with one or more other persons as a partnership, limited
partnership, syndicate or other group, who participates or is expected to
participate in making such nomination or in organizing, directing or financing
such nomination or solicitation of proxies to vote for the nominee:
(a) the name, age, residence, address, and business address of
each proposed nominee and of each such person;
(b) the principal occupation or employment, the name, type of
business and address of the corporation or other organization in which such
employment is carried on of each proposed nominee and of each such person;
(c) the amount of stock of the corporation owned beneficially,
either directly or indirectly, by each proposed nominee and each such person;
and
(d) a description of any arrangement or understanding of each
proposed nominee and of each such person with each other or any other person
regarding future employment or any future transaction to which the corporation
will or may be a party.
The presiding officer of the meeting shall have the authority to
determine and declare to the meeting that a nomination not preceded by
notification made in accordance with the foregoing procedure shall be
disregarded.
Section 12. At any meeting of the stockholders, only such business shall
be conducted as shall have been brought before the meeting (a) pursuant to the
corporation's notice of meeting, (b) by or at the direction of the Board of
Directors or (c) by any stockholder of the corporation who is a stockholder of
record at the time of giving of the notice provided for in this Bylaw, who shall
be entitled to vote at such meeting and who complies with the notice procedures
set forth in this Bylaw.
For business to be properly brought before any meeting by a stockholder
pursuant to clause (c) above of this Section 12, the stockholder must have given
timely notice thereof in writing to the secretary of the corporation. To be
timely, a stockholder's notice must be delivered to or mailed and received at
the principal executive offices of the corporation not less than one hundred
twenty (120) days prior to the date of the meeting. A stockholder's notice to
the secretary shall set forth as to each matter the stockholder proposes to
bring before the meeting (a) a brief description of the business desired to be
brought before the meeting and the reasons for conducting such business at the
meeting, (b) the name and address, as they appear on the corporation's books, of
the stockholder proposing such business, and the name and address of the
beneficial owner, if any, on whose behalf the proposal is made, (c) the class
and number of shares of the corporation which are owned beneficially and of
record by such stockholder of record and by the beneficial owner, if any, on
whose behalf the proposal is made and (d) any material interest of such
stockholder of record and the beneficial owner, if any, on whose behalf the
proposal is made in such business.
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Notwithstanding anything in these Bylaws to the contrary, no business
shall be conducted at a meeting except in accordance with the procedures set
forth in this Section 12. The presiding officer of the meeting shall, if the
facts warrant, determine and declare to the meeting that business was not
properly brought before the meeting and in accordance with the procedures
prescribed by this Section 12, and if such person should so determine, such
person shall so declare to the meeting and any such business not properly
brought before the meeting shall not be transacted. Notwithstanding the
foregoing provisions of this Section 12, a stockholder shall also comply with
all applicable requirements of the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder with respect to the matters set forth
in this Section 12.
ARTICLE III
DIRECTORS
Section 1. The number of directors of this corporation that shall
constitute the whole Board of Directors shall be determined by resolution of the
Board of Directors; provided, however, that no decrease in the number of
directors shall have the effect of shortening the term of an incumbent director.
The Board of Directors shall be classified with respect to the time for which
they severally hold office, into three classes, as nearly equal in number as
possible as determined by the Board of Directors, one class to hold office
initially for a term expiring at the annual meeting to be held in 2001, another
class to hold office initially for a term expiring at the annual meeting of
stockholders held in 2002 and another class to hold office initially for a term
expiring at the annual meeting of stockholders to be held in 2003, with the
members of each class to hold office until their successors are elected and
qualified. At each annual meeting of stockholders, the successors of the class
of directors whose term expires at that meeting shall be elected to hold office
for a term expiring at the annual meeting of stockholders held in the third year
following the year of their election.
Section 2. Vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, even if less than a quorum, or by a sole remaining
director, and the directors so chosen shall hold office until the next election
of the class for which such directors were chosen and until their successors are
duly elected and qualified or until earlier resignation or removal. If there are
no directors in office, then an election of directors may be held in the manner
provided by statute.
Section 3. The business of the corporation shall be managed by or under
the direction of its Board of Directors which may exercise all such powers of
the corporation and do all such lawful acts and things as are not by statute or
by the certificate of incorporation or by these Bylaws directed or required to
be exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 4. The Board of Directors of the corporation may hold meetings,
both regular and special, either within or without the State of Delaware.
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Section 5. The first meeting of each newly elected Board of Directors
shall be held at such time and place as shall be fixed by the vote of the
stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of the
stockholders to fix the time or place of such first meeting of the newly elected
Board of Directors, or in the event such meeting is not held at the time and
place so fixed by the stockholders, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided for
special meetings of the Board of Directors, or as shall be specified in a
written waiver signed by all of the directors.
Section 6. Regular meetings of the Board of Directors may be held
without notice at such time and at such place as shall from time to time be
determined by the board.
Section 7. Special meetings of the Board of Directors may be called by
the Chairman of the Board or the chief executive officer on two (2) hours'
notice to each director by phone, fax or electronic mail; special meetings shall
be called by the Chairman of the Board, the chief executive officer or secretary
in like manner and on like notice upon the written request of a majority of the
Board unless the Board consists of only one director, in which case special
meetings shall be called by the Chairman of the Board, the chief executive
officer or secretary in like manner and on like notice on the written request of
the sole director.
Section 8. At all meetings of the Board of Directors, a majority of the
directors shall constitute a quorum for the transaction of business and the act
of a majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute or by the certificate of incorporation. If a
quorum shall not be present at any meeting of the Board of Directors, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
Section 9. Unless otherwise restricted by the certificate of
incorporation or these Bylaws, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting if all members of the Board of Directors or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the Board of Directors or committee.
Section 10. Unless otherwise restricted by the certificate of
incorporation or these Bylaws, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
COMMITTEES OF DIRECTORS
Section 11. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one (1) or more committees, each
committee to consist of one (1) or more of the directors of the corporation. The
Board of Directors may designate one (1) or more
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directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee.
In the absence of disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the
Board of Directors, shall have and may exercise all the powers and authority of
the Board of Directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers that may require it; but no such committee shall have the power or
authority in reference to amending the certificate of incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the corporation's property and
assets, recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the Bylaws of the corporation; and,
unless the resolution or the certificate of incorporation expressly so provide,
no such committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. Such committee or committees shall have such
name or names as may be determined from time to time by resolution adopted by
the Board of Directors.
Section 12. Each committee shall keep regular minutes of its meetings
and report the same to the Board of Directors when required.
COMPENSATION OF DIRECTORS
Section 13. Unless otherwise restricted by the certificate of
incorporation or these Bylaws, the Board of Directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the Board of Directors, may be paid a
fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director and may receive stock grants from the corporation. No such
payment shall preclude any director from serving the corporation in any other
capacity and receiving compensation therefor. Members of special or standing
committees may be allowed like compensation for attending committee meetings.
ARTICLE IV
NOTICES
Section 1. Whenever, under the provisions of the statutes or of the
certificate of incorporation or of these Bylaws, notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice (except as provided in Section 7 of Article III of these Bylaws), but
such notice may be given in writing, by mail, addressed to such director or
stockholder, at his address as it appears on the records of the corporation,
with postage thereon prepaid, and such notice shall be deemed to be given at the
time when the same shall be
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deposited in the United States mail. Notice to directors may also be given by
telephone, telegram or facsimile.
Section 2. Whenever any notice is required to be given under the
provisions of the statutes or of the certificate of incorporation or of these
Bylaws, a waiver thereof in writing, signed by the person or persons entitled to
said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be chosen by the Board
of Directors and shall, at a minimum, include a chief executive officer, a
president, a chief financial officer and a secretary. The Board of Directors may
elect from among its members a Chairman of the Board. The Board of Directors may
also choose one or more vice-presidents, assistant secretaries and assistant
treasurers. Any number of offices may be held by the same person, unless the
certificate of incorporation or these Bylaws otherwise provide.
Section 2. The Board of Directors at its first meeting after each annual
meeting of stockholders shall choose a chief executive officer, a president, a
chief financial officer, and a secretary and may choose vice presidents.
Section 3. The Board of Directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the board.
Section 4. The salaries of all officers of the corporation shall be
fixed by the Board of Directors or any committee established by the Board of
Directors for such purpose. The salaries of agents of the corporation shall,
unless fixed by the Board of Directors, be fixed by the chief executive officer,
the president or any vice-president of the corporation.
Section 5. The officers of the corporation shall hold office until their
successors are chosen and qualify. Any officer elected or appointed by the Board
of Directors may be removed at any time by the affirmative vote of a majority of
the Board of Directors. Any vacancy occurring in any office of the corporation
shall be filled by the Board of Directors.
THE CHAIRMAN OF THE BOARD
Section 6. The Chairman of the Board, if any, shall preside at all
meetings of the Board of Directors and of the stockholders at which he/she shall
be present. He/she shall have and may exercise such powers as are, from time to
time, assigned to him/her by the Board and as may be provided by law.
Section 7. In the absence of the Chairman of the Board, the chief
executive officer shall preside at all meetings of the Board of Directors and of
the stockholders at which he
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shall be present. He shall have and may exercise such powers as are, from time
to time, assigned to him by the Board and as may be provided by law.
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THE CHIEF EXECUTIVE OFFICER, PRESIDENT AND SENIOR VICE-PRESIDENTS
Section 8. The chief executive officer of the corporation shall have
general and active management of the business of the corporation and shall see
that all orders and resolutions of the Board of Directors are carried into
effect. In the absence of the Chairman of the Board, the chief executive officer
shall preside at all meetings of the stockholders and the Board of Directors.
Section 9. The chief executive officer, president or any senior vice
president shall execute bonds, mortgages and other contracts requiring a seal,
under the seal of the corporation, except where required or permitted by law to
be otherwise signed and executed and except where the signing and execution
thereof shall be expressly delegated by the Board of Directors to some other
officer or agent of the corporation.
Section 10. In the absence of the chief executive officer or in the
event of his inability or refusal to act, the president, if any, shall perform
the duties of the chief executive officer, and when so acting, shall have all
the powers of and be subject to all the restrictions upon the chief executive
officer. The president shall perform such other duties and have such other
powers as the Board of Directors may from time to time prescribe.
Section 11. In the absence of the chief executive officer and president
or in the event of their inability or refusal to act, a senior vice-president,
if any, (in the event there be more than one senior vice-president, the senior
the vice-president in the order designated by the directors shall perform the
duties of the chief executive officer, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the chief executive
officer. The vice-presidents shall perform such other duties and have such other
powers as the Board of Directors may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARY
Section 12. The secretary shall attend all meetings of the Board of
Directors and all meetings of the stockholders and record all the proceedings of
the meetings of the corporation and of the Board of Directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. He/she shall give, or cause to be given, notice of all meetings
of the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or
chief executive officer, under whose supervision he/she shall be. He/she shall
have custody of the corporate seal of the corporation and he/she, or an
assistant secretary, shall have authority to affix the same to any instrument
requiring it and when so affixed, it may be attested by his signature or by the
signature of such assistant secretary. The Board of Directors may give general
authority to any other officer to affix the seal of the corporation and to
attest the affixing by his signature.
Section 13. The assistant secretary, or if there be more than one, the
assistant secretaries in the order determined by the Board of Directors (or if
there be no such determination, then in the order of their election) shall, in
the absence of the secretary or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the secretary
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and shall perform such other duties and have such other powers as the board of
directors may from time to time prescribe.
THE CHIEF FINANCIAL OFFICER
Section 14. The chief financial officer shall be the chief financial
officer of the corporation, shall have the custody of the corporate funds and
securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the Board of Directors.
Section 15. He/she shall disburse the funds of the corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the chief executive officer and the Board of
Directors, at its regular meetings, or when the Board of Directors so requires,
an account of all his transactions as Chief Financial Officer and of the
financial condition of the corporation.
Section 16. If required by the Board of Directors, he/she shall give the
corporation a bond (which shall be renewed every six years) in such sum and with
such surety or sureties as shall be satisfactory to the Board of Directors for
the faithful performance of the duties of his/her office and for the restoration
to the corporation, in case of his/her death, resignation, retirement or removal
from office, of all books, papers, vouchers, money and other property of
whatever kind in his possession or under his/her control belonging to the
corporation.
Section 17. The treasurer or an assistant treasurer, in the order
determined by the Board of Directors (or if there be no such determination, then
in the order of their election) shall, in the absence of the chief financial
officer or in the event of his inability or refusal to act, perform the duties
and exercise the powers of the chief financial officer and shall perform such
other duties and have such other powers as the Board of Directors may from time
to time prescribe.
ARTICLE VI
CERTIFICATE OF STOCK
Section 1. Every holder of stock in the corporation shall be entitled to
have a certificate, signed by, or in the name of the corporation by, the
Chairman of the Board of Directors, or the chief executive officer or the
president and the secretary or an assistant secretary of the corporation,
certifying the number of shares owned by him/her in the corporation.
Certificates may be issued for partly paid shares and in such case upon
the face or back of the certificates issued to represent any such partly paid
shares, the total amount of the consideration to be paid therefor, and the
amount paid thereon shall be specified.
If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative,
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participating, optional or other special rights of each class of stock or series
thereof and the qualification, limitations or restrictions of such preferences
and/or rights shall be set forth in full or summarized on the face or back of
the certificate that the corporation shall issue to represent such class or
series of stock, provided that, except as otherwise provided in section 202 of
the General Corporation Law of Delaware, in lieu of the foregoing requirements,
there may be set forth on the face or back of the certificate that the
corporation shall issue to represent such class or series of stock, a statement
that the corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights.
Any of or all the signatures on the certificate may be facsimile. In
case any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued by the corporation with the same effect as if he/she were such
officer, transfer agent or registrar at the date of issue.
LOST CERTIFICATES
Section 2. The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or his/her
legal representative, to advertise the same in such manner as it shall require
and/or to give the corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
TRANSFER OF STOCK
Section 3. Upon surrender to the corporation or the transfer agent of
the corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignation or authority to transfer, it shall be
the duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
FIXING RECORD DATE
Section 4. In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty (60) nor less than ten (10) days before the
date of such meeting, nor more than sixty (60)
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days prior to any other action. A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
REGISTERED STOCKHOLDERS
Section 5. The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the corporation, subject
to the provisions of the certificate of incorporation, if any, may be declared
by the Board of Directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the certificate of incorporation.
Section 2. Before payment of any dividend, there may be set aside out of
any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purposes as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
CHECKS
Section 3. All checks or demands for money and notes of the corporation
shall be signed by such officer or officers or such other person or persons as
the Board of Directors may from time to time designate.
FISCAL YEAR
Section 4. The fiscal year of the corporation shall be fixed by
resolution of the Board of Directors.
SEAL
Section 5. The Board of Directors may adopt a corporate seal having
inscribed thereon the name of the corporation, the year of its organization and
the words "Corporate Seal, Delaware." The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
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INDEMNIFICATION
Section 6. The corporation shall, to the fullest extent authorized under
the laws of the State of Delaware, as those laws may be amended and supplemented
from time to time, indemnify any director made, or threatened to be made, a
party to an action or proceeding, whether criminal, civil, administrative or
investigative, by reason of being a director of the corporation or a predecessor
corporation or, at the corporation's request, a director or officer of another
corporation, provided, however, that the corporation shall indemnify any such
agent in connection with a proceeding initiated by such agent only if such
proceeding was authorized by the Board of Directors of the corporation. The
indemnification provided for in this Section 6 shall: (i) not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any bylaw, agreement or vote of stockholders or disinterested directors or
otherwise, both as to action in their official capacities and as to action in
another capacity while holding such office, (ii) continue as to a person who has
ceased to be a director, and (iii) inure to the benefit of the heirs, executors
and administrators of such a person. The corporation's obligation to provide
indemnification under this Section 6 shall be offset to the extent of any other
source of indemnification or any otherwise applicable insurance coverage under a
policy maintained by the corporation or any other person.
Expenses incurred by a director of the corporation in defending a civil
or criminal action, suit or proceeding by reason of the fact that he is or was a
director of the corporation (or was serving at the corporation's request as a
director or officer of another corporation) shall be paid by the corporation in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such director to repay such amount if it
shall ultimately be determined that he is not entitled to be indemnified by the
corporation as authorized by relevant sections of the General Corporation Law of
Delaware. Notwithstanding the foregoing, the corporation shall not be required
to advance such expenses to an agent who is a party to an action, suit or
proceeding brought by the corporation and approved by a majority of the Board of
Directors of the corporation which alleges willful misappropriation of corporate
assets by such agent, disclosure of confidential information in violation of
such agent's fiduciary or contractual obligations to the corporation or any
other willful and deliberate breach in bad faith of such agent's duty to the
corporation or its stockholders.
The foregoing provisions of this Section 6 shall be deemed to be a
contract between the corporation and each director who serves in such capacity
at any time while this bylaw is in effect, and any repeal or modification
thereof shall not affect any rights or obligations then existing with respect to
any state of facts then or theretofore existing or any action, suit or
proceeding theretofore or thereafter brought based in whole or in part upon any
such state of facts.
The Board of Directors in its discretion shall have power on behalf of
the corporation to indemnify any person, other than a director, made a party to
any action, suit or proceeding by reason of the fact that he, his testator or
intestate, is or was an officer or employee of the corporation.
To assure indemnification under this Section 6 of all directors,
officers and employees who are determined by the corporation or otherwise to be
or to have been
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"fiduciaries" of any employee benefit plan of the corporation which may exist
from time to time, Section 145 of the General Corporation Law of Delaware shall,
for the purposes of this Section 6, be interpreted as follows: an "other
enterprise" shall be deemed to include such an employee benefit plan, including
without limitation, any plan of the corporation which is governed by the Act of
Congress entitled "Employee Retirement Income Security Act of 1974," as amended
from time to time; the corporation shall be deemed to have requested a person to
serve an employee benefit plan where the performance by such person of his
duties to the corporation also imposes duties on, or otherwise involves services
by, such person to the plan or participants or beneficiaries of the plan; and
excise taxes assessed on a person with respect to an employee benefit plan
pursuant to such Act of Congress shall be deemed "fines."
ARTICLE VIII
AMENDMENTS
Section 1. These Bylaws may be altered, amended or repealed or new
Bylaws may be adopted by the affirmative vote of holders of at least 66-2/3% of
the outstanding voting stock of the corporation. These Bylaws may also be
altered, amended or repealed, or new Bylaws may be adopted by the Board of
Directors, when such power is conferred upon the Board of Directors by the
certificate of incorporation. The foregoing may occur at any regular meeting of
the stockholders or of the Board of Directors or at any special meeting of the
stockholders or of the Board of Directors if notice of such alteration,
amendment, repeal or adoption of new Bylaws be contained in the notice of such
special meeting. If the power to adopt, amend or repeal Bylaws is conferred upon
the Board of Directors by the certificate of incorporation, it shall not divest
or limit the power of the stockholders to adopt, amend or repeal Bylaws.
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EXHIBIT 5.1
[BROBECK, PHLEGER & HARRISON LLP LETTERHEAD]
FORM OF OPINION
_____________, 2000
Accelerated Networks, Inc.
301 Science Drive
Moorpark, CA 93021
Re: Accelerated Networks, Inc. Registration Statement on
Form S-1 for up to 4,600,000 Shares of Common Stock
Ladies and Gentlemen:
We have acted as counsel to Accelerated Networks, Inc., a
Delaware corporation (the "Company"), in connection with the proposed issuance
and sale by the Company of up to 4,600,000 shares of the Company's Common Stock
(the "Shares") pursuant to the Company's Registration Statement on Form S-1 (the
"Registration Statement") filed with the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Act").
This opinion is being furnished in accordance with the
requirements of Item 16(a) of Form S-1 and Item 601(b)(5)(i) of Regulation S-K.
We have reviewed the Company's charter documents and the
corporate proceedings taken by the Company in connection with the issuance and
sale of the Shares. Based on such review, we are of the opinion that the Shares
have been duly authorized, and if, as and when issued in accordance with the
Registration Statement and the related prospectus (as amended and supplemented
through the date of issuance) will be legally issued, fully paid and
nonassessable.
We consent to the filing of this opinion letter as Exhibit 5.1
to the Registration Statement and to the reference to this firm under the
caption "Legal Matters" in the prospectus which is part of the Registration
Statement. In giving this consent, we do not thereby admit that we are within
the category of persons whose consent is required under Section 7 of the Act,
the rules and regulations of the Securities and Exchange Commission promulgated
thereunder, or Item 509 of Regulation S-K.
<PAGE> 2
Accelerated Networks, Inc.
Page 2
This opinion letter is rendered as of the date first written
above and we disclaim any obligation to advise you of facts, circumstances,
events or developments which hereafter may be brought to our attention and which
may alter, affect or modify the opinion expressed herein. Our opinion is
expressly limited to the matters set forth above and we render no opinion,
whether by implication or otherwise, as to any other matters relating to the
Company or the Shares.
Very truly yours,
BROBECK, PHLEGER & HARRISON LLP
<PAGE> 1
EXHIBIT 10.1
ACCELERATED NETWORKS, INC.
FOUNDER/EMPLOYEE SHAREHOLDER AGREEMENT
This Agreement is made this 28th day of March, 1997, by and
between Accelerated Networks, Inc., a California corporation (the "Company"),
and Suresh Nihalani ("Purchaser").
NOW THEREFORE, IT IS HEREBY AGREED:
1. Sale of Stock. Subject to the terms hereof, the Company shall
sell to Purchaser and Purchaser shall purchase from the Company, Seven Million,
Seven Hundred Fifty Thousand (7,750,000) shares of common stock of the Company
(the "Stock") at a price of $.001 per share ("Purchase Price").
2. Payment of Purchase Price. Purchaser has previously paid the
Purchase Price by delivering to the Company a check for Seven Thousand Seven
Hundred Fifty ($7,750).
3. Issuance of Shares. Upon receipt by the Company of the
Purchase Price, the Company shall issue a duly executed certificate evidencing
the Stock in the name of Purchaser.
4. Representations and Warranties of Purchaser.
a. Investment Intent. This Agreement is made with
Purchaser in reliance upon his representation to the Company, which by
Purchaser's acceptance hereof Purchaser confirms, that the Stock has been
acquired with Purchaser's own funds for investment for an indefinite period for
Purchaser's own account, not as a nominee or agent, and not with a view to the
sale or distribution of any part thereof, and that Purchaser has no present
intention of selling, granting participation in, or otherwise distributing the
same. By executing this Agreement, Purchaser further represents that Purchaser
does not have any contract, undertaking, agreement or arrangement with any
person to sell, transfer, or grant participations, to such person or to any
third person, with respect to any of the Stock.
b. Restricted Securities. Purchaser understands that the
Stock has not been registered under the Securities Act of 1934, as amended (the
"Act"), on the ground that the sale provided for in this Agreement is exempt
from the registration requirements of the Act, and that the Company's reliance
on such exemption is predicated on his representations set forth herein.
Purchaser understands that if the Company does not register with
the Securities and Exchange Commission pursuant to sections 12 or 15 of the
Securities Exchange Act of 1934, as amended, or if a registration statement
covering the Stock (or a filing pursuant to the exemption from registration
under Regulation A of the Act) under the Act is not in effect when
<PAGE> 2
Purchaser desires to sell the Stock, Purchaser may be required to hold the Stock
for an indeterminate period. Purchaser also acknowledges that Purchaser
understands that any sale of the Stock that might be made by Purchaser in
reliance upon Rule 144 under the Act may be made only in limited amounts in
accordance with the terms and conditions of that rule and that Purchaser may not
be able to sell the Stock at the time or in the amount Purchaser so desires.
Purchaser is familiar with Rule 144 and understands that the Stock constitutes
"restricted securities" within the meaning of that Rule.
c. Investment Experience. In connection with the
investment representations made herein Purchaser represents that he is able to
fend for himself in the transactions contemplated by this Agreement, has such
knowledge and experience in financial and business matters as to be capable of
evaluating the merits and risks of his investment, has the ability to bear the
economic risks of his investment and has been furnished with and has had access
to such information as he has requested and deems appropriate to his investment
decision.
d. Limitations on Disposition. Purchaser agrees that in no
event will Purchaser make a disposition of any of the Stock, unless and until
(a) Purchaser shall have notified the Company of the proposed disposition and
shall have furnished the Company with a statement of the circumstances
surrounding the proposed disposition, and (b) Purchaser shall have furnished the
Company with an opinion of counsel satisfactory to the Company to the effect
that (i) such disposition will not require registration of such Stock under the
Act, or (ii) that appropriate action necessary for compliance with the Act has
been taken, or (c) the Company shall have waived, expressly and in writing, its
rights under clauses (a) and (b) of this subparagraph. In addition, prior to any
disposition of any of the Stock, the Company may require the transferee or
assignee to provide in writing investment representations in a form acceptable
to the Company.
The Company shall not be required (i) to transfer on its books
any shares of Stock of the Company which shall have been sold or transferred in
violation of any of the provisions set forth in this Agreement, or (ii) to treat
as owner of such shares or to accord the right to vote as such owner or to pay
dividends to any transferee to whom such shares shall have been so transferred.
e. Legends. All certificates representing any shares of
Stock of the Company subject to the provisions of this Agreement shall have
endorsed thereon the following legends:
(i) "THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY
NOT BE OFFERED, SOLD, OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO SUCH SECURITIES,
OR DELIVERY OF AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER OF SUCH
SECURITIES THAT SUCH OFFER, SALE, TRANSFER, PLEDGE OR HYPOTHECATION IS IN FULL
COMPLIANCE WITH THE SECURITIES ACT OF 1933, AS AMENDED, OR
2.
<PAGE> 3
UNLESS SOLD IN COMPLIANCE WITH RULE 144 UNDER SUCH ACT."
(ii) Any legend required to be placed thereon by
applicable state laws.
5. Miscellaneous.
a. Further Instruments and Actions. The parties agree to
execute such further instruments and to take such further action as may
reasonably be necessary to carry out the intent of this Agreement.
b. Notices. Any notice required or permitted hereunder
shall be given in writing and shall be deemed effectively given upon personal
delivery or upon deposit in the United States Post Office, by registered or
certified mail with postage and fees prepaid, addressed to the other party
hereto at the address hereinafter shown below that party's signature or at such
other address as such party may designate by ten (10) days' advance written
notice to the other party hereto.
c. Governing Law, Assignment and Enforcement. This
Agreement is governed by the internal law of California and shall inure to the
benefit of the successors and assigns of the Company and, subject to the
restrictions on transfer herein set forth, be binding upon Purchaser, his heirs,
executors, administrators, guardians, successors and assigns. The prevailing
party in any action to enforce this Agreement shall be entitled to attorneys'
fees and costs. The parties agree that damages are not an adequate remedy for
Purchaser's breach hereof and the Company shall accordingly be entitled to
specific performance of this Agreement.
d. Amendments and Waivers. This Agreement represents the
entire understanding of the parties with respect to the subject matter hereof
and supersedes all previous understandings, written or oral. This Agreement may
only be amended with the written consent of the parties hereto and the Company's
assignees pursuant to subsection 4(c) hereof, or the successors or assigns of
the foregoing, and no oral waiver or amendment shall be effective under any
circumstances whatsoever.
e. Cooperation. Purchaser agrees to cooperate
affirmatively with the Company, to the extent reasonably requested by the
Company, to enforce rights and obligations pursuant to this Agreement.
3.
<PAGE> 4
6. California Commissioner of Corporations. THE SALE OF THE
SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH
THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, AND THE ISSUANCE OF
SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION
THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE OF SECURITIES
IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UNLESS THE SALE IS SO EXEMPT.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
ACCELERATED NETWORKS, INC.
By: /s/ Suresh Nihalani
-------------------------------
Suresh Nihalani
President
Address: 5743 Corsa Avenue, Suite 221
Westlake Village, CA 91362
PURCHASER:
/s/ Suresh Nihalani
-------------------------------
Address: c/o Accelerated Networks, Inc.
5743 Corsa Avenue, Suite 221
Westlake Village, CA 91362
4.
<PAGE> 5
RESTATED FIRST AMENDMENT TO
FOUNDER/EMPLOYEE SHAREHOLDER AGREEMENT
THIS RESTATED FIRST AMENDMENT TO FOUNDER/EMPLOYEE SHAREHOLDER AGREEMENT
dated as of May 30, 1997 (the "Amendment") amends that certain Founder/Employee
Shareholder Agreement ("Founder Agreement") by and between Accelerated Networks,
Inc., a California corporation (the "Company"), and Suresh Nihalani
("Purchaser"). This Amendment replaces that certain First Amendment to
Founder/Employee Shareholder Agreement dated as of April 14, 1997 by and between
the Company and Purchaser ("Previous Amendment"), which Previous Amendment shall
be of no further force or effect.
NOW, THEREFORE, for good and valuable consideration, the receipt,
adequacy and sufficiency of which are hereby acknowledged, the parties hereto
covenant and agree as follows:
1. Defined Terms. Capitalized terms not otherwise defined in this
Amendment shall have the respective meanings assigned to them in the Founder
Agreement.
2. References to Founder Agreement. All references in the Founder
Agreement to "this Agreement", and to all other words referring to the Founder
Agreement (such as "herein", "hereto", "herewith" and "hereunder"), shall be
deemed to mean and refer to the Founder Agreement, as amended by this Amendment.
3. Amendments to Founder Agreement.
(a) The definition of "Stock" in the Founder Agreement
shall be deemed to include all shares of Common Stock of the Company owned by
Purchaser on the date hereof.
(b) Subsection 5.b shall be deleted in its entirety and
replaced with the following:
b. Except as otherwise provided, all notices and other
communications required or permitted hereunder shall be in writing,
shall be effective when given, and shall in any event be deemed to be
given upon receipt or, if earlier, (i) five (5) days after deposit with
the U.S. postal service or other applicable postal service, if delivered
by first class mail, postage prepaid, (ii) upon delivery, if delivered
by hand, (iii) one (1) business day after the day of deposit with
Federal Express or similar overnight courier, freight prepaid, if
delivered by overnight courier or (iv) one (1) business day after the
day of facsimile transmission, if delivered by facsimile transmission
with copy by first class mail, postage prepaid, and shall be addressed,
(a) if to Purchaser, at Purchaser's address set forth below its
signature, or at such other address as Purchaser shall have furnished
the Company in writing, or (b) if to the Company, at its address as set
forth below, or at such other address as the Company shall have
furnished to Purchaser in writing.
5.
<PAGE> 6
(c) A new Section 7 and Section 8 shall be added to the
Founder Agreement as follows:
7. Purchase Option. The Stock shall be subject to the following
option ("Purchase Option"):
a. In the event Purchaser ceases to be continuously
employed by the Company, or a parent or subsidiary of the Company, as a
result of Purchaser's Voluntary Termination (as defined below) or
Termination for Cause (as defined below), the Company may exercise the
Purchase Option. The date when Purchaser's continuous employment ceases
as a result of Voluntary Termination or Termination for Cause is
hereinafter referred to as the "Termination Date."
b. Voluntary Termination shall include any voluntary
cessation of employment with the Company unless such cessation of
employment occurs within twelve (12) months of any of the following
actions (unless such action is consummated with Purchaser's written
approval): (i) a material decrease in the salary paid or benefits
provided by the Company to Purchaser from the salary paid or benefits
provided at the time of such decrease, other than a decrease consistent
with an overall decline in the Company's financial condition or
prospects and consistent with executive officer salary reductions
generally, (ii) a material diminution in Purchaser's level of job
responsibilities or position with the Company, or (iii) the relocation
of Purchaser's place of employment to a location which is not within
fifty (50) miles of the Company's current offices or Purchaser's current
residence. Notwithstanding the foregoing, Voluntary Termination shall
not include a cessation of employment arising from Purchaser's death or
Purchaser's inability to perform his duties to the Company by reason of
any medically determinable physical or mental impairment.
c. Termination for Cause shall include only the following:
(i) theft of the Company's intellectual or other property other than
unintentional takings of immaterial property, (ii) any other wilful and
wrongful act not done in good faith by Purchaser causing material harm
to the reputation of the Company, or (iii) conviction of a felony that
adversely affects the Company.
d. The Company shall have the right at any time within
sixty (60) days after the Termination Date to purchase the Stock from
Purchaser at the price per share paid by Purchaser pursuant to this
Agreement ("Option Price"). Stock subject to the Purchase Option may not
be transferred by Purchaser (except for transfers by operation of law or
other involuntary transfers and transfers by gift, will or intestate
succession of Purchaser to Purchaser's spouse or lineal descendants or
ancestors or a trust for the benefit of such persons if the transferee
agrees in writing in a form satisfactory to the Company to be subject to
the terms of the Founder Agreement). The Purchase Option shall
terminate, and cease to be exercisable, with respect to any and all
Stock in which Purchaser acquires a vested interest. For purposes of
this Agreement, Purchaser shall acquire a
6.
<PAGE> 7
vested interest in 50% of the Stock immediately. Purchaser shall acquire
a vested interest in the remaining 50% of the stock in equal monthly
installments over the 48 months beginning on April 30, 1997, such that
Purchaser shall have a fully vested interest in all of the Stock on
April 29, 2001. Notwithstanding the foregoing, Purchaser shall not
acquire a vested interest in any shares of Stock after the Termination
Date. Notwithstanding the foregoing, Purchaser shall acquire a vested
interest in all unvested stock upon consummation of a merger,
consolidation, tender offer or other transaction or series of
transactions in which securities possessing more than fifty percent
(50%) of the total combined voting power of the Company's outstanding
securities are transferred to a person or persons different from the
persons holding those securities immediately prior to such transaction,
or the sale, transfer or other disposition of all or substantially all
of the Company's assets in complete liquidation or dissolution of the
Company.
e. The Purchase Option, if exercised by the Company, shall
be exercised by written notice signed by an officer of the Company and
delivered or mailed as provided in subsection 5.b. The Company may pay
for the shares of Stock it has elected to repurchase (i) by delivery of
a check in the amount of the repurchase price for the Stock being
repurchased, (ii) by cancellation by the Company of an amount of
Purchaser's indebtedness to the Company or (iii) by a combination of (i)
and (ii) so that the combined payment and cancellation of indebtedness
equals such repurchase price.
f. Nothing in this Agreement shall affect in any manner
whatsoever the at will status of Purchaser's employment or the right or
power of the Company, or a parent or subsidiary of the Company, to
terminate Purchaser's employment at any time, for any reason, with or
without cause.
8. Escrow of Shares.
a. Escrow Holder. The Stock issued under this Agreement
shall be held in escrow by the Secretary of the Company, as escrow
holder ("Escrow Holder"), along with an Assignment Separate from
Certificate executed by Purchaser in blank, until expiration of the
Company's Purchase Option described in Section 7 above.
b. Instructions to Escrow Holder. The Escrow Holder is
hereby directed to permit transfer of the Stock only in accordance with
this Agreement or instructions signed by both parties. In the event that
further instructions are desired by the Escrow Holder, he or she shall
be entitled to rely upon directions executed by a majority of the
authorized number of the Company's Board of Directors. Notwithstanding
anything else herein, the Escrow Holder (including persons and entities
acting on behalf of or under authority of Escrow Holder), (i) shall have
no liability for any act or omission hereunder unless it is shown that
such act or omission was intentional and in bad faith, (ii) may act in
accordance with any advice of counsel or any order, judgment or decree
of any court, whether or not final, (iii) in the event of any dispute,
the Escrow Holder may, in his or her sole discretion, take the course of
action it deems appropriate or take no action whatsoever, and (iv) shall
in no event be required to seek legal counsel but may do so at the
Company's expense.
7.
<PAGE> 8
c. Transfer to Transferee. If the Company exercises its
Purchase Option hereunder, then the Escrow Holder, upon receipt of
written notice of such option exercise from the proposed transferee,
shall take all steps necessary to accomplish such transfer.
d. Transfer to Purchaser. When the Purchase Option has
been exercised or expires unexercised or a portion of the Stock has been
released from the Purchase Option, upon Purchaser's request the Escrow
Holder shall promptly cause a new certificate to be issued for such
released Stock and shall deliver such certificate to Purchaser.
e. Rights of Purchaser. Subject to the terms hereof,
Purchaser shall have all the rights of a shareholder with respect to
such Stock while such shares are held in escrow, including without
limitation the right to vote the Stock and receive any cash dividends
declared thereon.
f. Adjustment of Stock and Option Price. If, at any time
or from time to time, there is (i) a dividend of any security, stock
split or other change in the character or amount of any of the
outstanding securities of the Company, or (ii) any consolidation, merger
or sale of all, or substantially all, of the assets of the Company,
then, in such event, any and all new, substituted or additional
securities or other property to which Purchaser is entitled by reason of
his ownership of the Stock shall be immediately subject to the escrow
referred to in this Section 8 (to the extent the Stock is then so
subject), shall be deposited with the Escrow Holder, and shall be
included in the word "Stock" for purposes of this Agreement, and shall
be subject to the Purchase Option with the same force and effect as the
shares of Stock presently subject to this Agreement and the Purchase
Option. While the total Option Price shall remain the same after each
such event, the Option Price per share of Stock upon exercise of the
Purchase Option shall be appropriately adjusted as determined by the
Board of Directors of the Company.
4. Legends. Upon consummation of this Amendment, Purchaser's
certificate representing the shares of Stock shall have endorsed thereon the
following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN FOUNDER/EMPLOYEE
SHAREHOLDER AGREEMENT WHICH INCLUDES A REPURCHASE RIGHT ON THE SALE OF
THE SECURITIES. COPIES OF THE AGREEMENT MAY BE OBTAINED UPON WRITTEN
REQUEST TO THE SECRETARY OF THE CORPORATION.
5. Effect of Amendment. The Founder Agreement, as amended hereby,
shall remain in full force and effect.
6. Governing Law. This Amendment shall be governed by and
construed in
8.
<PAGE> 9
accordance with the laws of the State of California without regard to the
conflicts of law provisions thereof.
9.
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment to the Founder Agreement as of the day and year first above written.
ACCELERATED NETWORKS, INC.
By: /s/ SURESH NIHALANI
-------------------------------
Suresh Nihalani
President
Address: 5743 Corsa Avenue, Suite 221
Westlake Village, CA 91362
PURCHASER:
/s/ SURESH NIHALANI
----------------------------------
Address: c/o Accelerated Networks, Inc.
5743 Corsa Avenue, Suite 221
10.
<PAGE> 1
EXHIBIT 10.2
ACCELERATED NETWORKS, INC.
FOUNDER/EMPLOYEE SHAREHOLDER AGREEMENT
This Agreement is made this 28th day of March, 1997, by and between
Accelerated Networks, Inc., a California corporation (the "Company"), and Kiran
Munj ("Purchaser").
NOW THEREFORE, IT IS HEREBY AGREED:
1. Sale of Stock. Subject to the terms hereof, the Company shall sell to
Purchaser and Purchaser shall purchase from the Company, subject to Section 4
hereof, two million two hundred fifty thousand (2,250,000) shares of common
stock of the Company (the "Stock") at a price of $.001 per share ("Purchase
Price").
2. Payment of Purchase Price. Purchaser shall pay the Purchase Price by
delivering to the Company at the time of execution of this Agreement a check for
Two Thousand Two Hundred Fifty Dollars ($2,250) and a duly executed blank
Assignment Separate from Certificate in the form attached hereto as Exhibit A.
3. Issuance of Shares. Upon receipt by the Company of the Purchase
Price, the Company shall issue a duly executed certificate evidencing the Stock
in the name of Purchaser, to be held in escrow until expiration of the Company's
Purchase Option described in Section 4 below.
4. Purchase Option. The Stock shall be subject to the following option
("Purchase Option"):
a. In the event Purchaser ceases to be continuously employed by
the Company, or a parent or subsidiary of the Company, for any reason, with or
without cause, the Company may exercise the Purchase Option. For the purpose of
this paragraph 4, Purchaser's "continuous employment" shall cease when Purchaser
ceases to be actively employed by the Company or a parent or subsidiary of the
Company as determined by and in the sole discretion of the Board of Directors of
the Company. A leave of absence (regardless of the reason therefor) shall be
deemed to constitute the cessation of Purchaser's active employment unless such
leave is authorized by the Company in writing and Purchaser returns to work
within the time specified in such authorization or in any amendment thereto. The
date when continuous employment ceases is hereinafter referred to as the
Termination Date.
The Company shall have the right at any time within sixty (60) days
after the later of the Termination Date or the date any approved leave
terminates (if employee fails to return within the time specified) to purchase
the Stock from Purchaser at the price per share paid by Purchaser pursuant to
this Agreement ("Option Price"). The Purchase Option shall terminate, and cease
to be exercisable, with respect to any and all Stock in which Purchaser acquires
a
<PAGE> 2
vested interest. For purposes of this Agreement, Purchaser shall acquire a
vested interest in 24% of the Stock on October 31, 1997. Purchaser shall acquire
a vested interest in the remaining 76% of the stock in equal monthly
installments over the 38 months thereafter, such that Purchaser shall have a
fully vested interest in all of the Stock on December 31, 2000. Notwithstanding
the foregoing, Purchaser shall not acquire a vested interest in any shares of
Stock after the Termination Date.
Nothing in this Agreement shall affect in any manner whatsoever the at
will status of Purchaser's employment or the right or power of the Company, or a
parent or subsidiary of the Company, to terminate Purchaser's employment at any
time, for any reason, with or without cause.
b. The Purchase Option, if exercised by the Company, shall be
exercised by written notice signed by an officer of the Company and delivered or
mailed as provided in subsection 9(b). The Company may pay for the shares of
Stock it has elected to repurchase (i) by delivery of a check in the amount of
the repurchase price for the Stock being repurchased, (ii) by cancellation by
the Company of an amount of Purchaser's indebtedness to the Company or (iii) by
a combination of (i) and (ii) so that the combined payment and cancellation of
indebtedness equals such repurchase price. If exercised by the assignees
pursuant to subsection 4(c), the Purchase Option shall be exercised by written
notice signed by the exercising assignees and delivered or mailed as provided in
subsection 9(b). Such assignees shall pay for the shares of Stock they have
elected to repurchase by delivery to Purchaser or his executor of a check in the
amount of the repurchase price.
c. In the event the Company for any reason elects not to
exercise the Purchase Option pursuant to subsection 4(b), the Company may assign
it, provided that the Purchase Option shall not extend beyond the 60 days
described in subsection 4(a). In the event that the Company or such assignee
does not elect to exercise the Purchase Option as to all of the shares of Stock
subject to it, the Purchase Option shall expire as to all shares that the
Company and such assignees have not elected to purchase.
5. Right of First Offer. Stock subject to the Purchase Option may not be
transferred. Before any shares of Stock registered in the name of Purchaser and
not subject to the Purchase Option may be sold or transferred (including
transfer by operation of law or other involuntary transfer and excluding
transfers by gift, will or intestate succession of Purchaser to Purchaser's
spouse or lineal descendants or ancestors or a trust for the benefit of such
persons if the transferee agrees in writing in a form satisfactory to the
Company to be subject to the terms of this Agreement) such shares shall first be
offered to the Company in the following manner:
a. Purchaser or his transferee shall deliver a notice by
certified mail ("Notice") to the principal business office of the Company
stating (i) his bona fide intention to sell or transfer such shares, (ii) the
number of such shares to be sold or transferred, (iii) the price and terms, if
any, for which he proposes to sell or transfer such shares, and (iv) the name
and address of the proposed purchaser or transferee and that such purchaser or
transferee is committed to acquire the stated number of shares on the stated
price and terms.
2.
<PAGE> 3
b. The Company shall have the right at any time within sixty
(60) days of receipt of the Notice to purchase some or all of the shares to
which the Notice refers at the price per share specified in the Notice, or if no
price is specified therein, at the fair market value thereof as determined by
the Board of Directors in good faith. Said right shall be exercised by written
notice signed by an officer of the Company and delivered or mailed as provided
in subsection 10(b), which notice shall specify the time, place and date for
settlement of such purchase.
c. In the event the Company does not, for any reason, exercise
its right pursuant hereto the Company may assign such right, provided such right
shall not extend beyond such 60-day period. If exercised by the assignee
pursuant hereto, the right to purchase shall be exercised by written notice
signed by the exercising assignee and delivered or mailed as provided in
subsection 10(b), which notice shall specify the time, place and date for
settlement of such purchase. Purchaser shall sell to the Company or such
assignees the number of shares that either of them elect to purchase, such sale
to be consummated within seventy-five (75) days after the date of the Notice.
d. If some or all of the shares to which the Notice refers are
not purchased, as provided in subsections 5(b) and 5(c) hereof, Purchaser may
sell such shares to the person named in the Notice at the price and terms
specified in the Notice, provided that such sale or transfer is consummated
within seventy-five (75) days of the date of said Notice to the Company, and
provided, further, that any such sale is in accordance with all the terms and
conditions hereof. If Purchaser does not consummate the sale or transfer within
such seventy-five (75) day period, the right provided hereby shall be deemed to
be revived with respect to such shares and no sale or transfer shall be effected
without first offering the shares in accordance herewith.
e. Notwithstanding the above, neither the Company nor the
assignees of the Company shall have any right under this Section 5 at any time
subsequent to the closing of a bona fide, firm commitment underwritten public
offering of the common stock of the Company pursuant to a registration statement
declared effective under the Securities Act of 1933, as amended (the "Act").
6. "Market Stand-Off" Agreement. Purchaser hereby agrees that, during
the period specified by the Company and the underwriter or underwriters of
common stock (or other securities) of the Company, following the effective date
of a registration statement of the Company filed under the Act, Purchaser shall
not, to the extent requested by the Company and such underwriter, directly or
indirectly, sell, offer or contract to sell (including, without limitation, any
short sale), grant any option to purchase or otherwise transfer or dispose of
(other than to donees who agree to be similarly bound) any securities of the
Company at any time during such period except common stock included in such
registration, provided, however, that (a) such agreement shall be applicable
only to the first such registration statement of the Company which covers common
stock (or other securities) to be sold on its behalf to the public in an
underwritten offering and (b) all officers and directors of the Company holding
securities of
3.
<PAGE> 4
the Company enter into similar agreements.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to common stock held by Purchaser until
the end of such period.
7. Representations and Warranties of Purchaser.
a. Investment Intent. This Agreement is made with Purchaser in
reliance upon his representation to the Company, which by Purchaser's acceptance
hereof Purchaser confirms, that the Stock has been acquired with Purchaser's own
funds for investment for an indefinite period for Purchaser's own account, not
as a nominee or agent, and not with a view to the sale or distribution of any
part thereof, and that Purchaser has no present intention of selling, granting
participation in, or otherwise distributing the same. By executing this
Agreement, Purchaser further represents that Purchaser does not have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer, or grant participations, to such person or to any third person, with
respect to any of the Stock.
b. Restricted Securities. Purchaser understands that the Stock
has not been registered under the Act, on the ground that the sale provided for
in this Agreement is exempt from the registration requirements of the Act, and
that the Company's reliance on such exemption is predicated on his
representations set forth herein.
Purchaser understands that if the Company does not register with the
Securities and Exchange Commission pursuant to sections 12 or 15 of the
Securities Exchange Act of 1934, as amended, or if a registration statement
covering the Stock (or a filing pursuant to the exemption from registration
under Regulation A of the Act) under the Act is not in effect when Purchaser
desires to sell the Stock, Purchaser may be required to hold the Stock for an
indeterminate period. Purchaser also acknowledges that Purchaser understands
that any sale of the Stock that might be made by Purchaser in reliance upon Rule
144 under the Act may be made only in limited amounts in accordance with the
terms and conditions of that rule and that Purchaser may not be able to sell the
Stock at the time or in the amount Purchaser so desires. Purchaser is familiar
with Rule 144 and understands that the Stock constitutes "restricted securities"
within the meaning of that Rule.
c. Investment Experience. In connection with the investment
representations made herein Purchaser represents that he is able to fend for
himself in the transactions contemplated by this Agreement, has such knowledge
and experience in financial and business matters as to be capable of evaluating
the merits and risks of his investment, has the ability to bear the economic
risks of his investment and has been furnished with and has had access to such
information as he has requested and deems appropriate to his investment
decision.
d. Limitations on Disposition. Purchaser agrees that in no event
will Purchaser make a disposition of any of the Stock, unless and until (a)
Purchaser shall have notified the Company of the proposed disposition and shall
have furnished the Company with a
4.
<PAGE> 5
statement of the circumstances surrounding the proposed disposition, and (b)
Purchaser shall have furnished the Company with an opinion of counsel
satisfactory to the Company to the effect that (i) such disposition will not
require registration of such Stock under the Act, or (ii) that appropriate
action necessary for compliance with the Act has been taken, or (c) the Company
shall have waived, expressly and in writing, its rights under clauses (a) and
(b) of this subparagraph. In addition, prior to any disposition of any of the
Stock, the Company may require the transferee or assignee to provide in writing
investment representations and its agreement to the provisions of this Agreement
in a form acceptable to the Company.
The Company shall not be required (i) to transfer on its books any
shares of Stock of the Company which shall have been sold or transferred in
violation of any of the provisions set forth in this Agreement, or (ii) to treat
as owner of such shares or to accord the right to vote as such owner or to pay
dividends to any transferee to whom such shares shall have been so transferred.
Purchaser shall, during the term of this Agreement, exercise all rights and
privileges of a shareholder of the Company with respect to the Stock after the
issuance, and prior to the repurchase, thereof.
e. Legends. All certificates representing any shares of Stock of
the Company subject to the provisions of this Agreement shall have endorsed
thereon the following legends:
(i) "THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN FOUNDER/EMPLOYEE SHAREHOLDER
AGREEMENT WHICH INCLUDES A REPURCHASE RIGHT, A MARKET STAND-OFF AGREEMENT AND A
RIGHT OF FIRST REFUSAL ON THE SALE OF THE SECURITIES. COPIES OF THE AGREEMENT
MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE CORPORATION.
(ii) "THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY
NOT BE OFFERED, SOLD, OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO SUCH SECURITIES,
OR DELIVERY OF AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER OF SUCH
SECURITIES THAT SUCH OFFER, SALE, TRANSFER, PLEDGE OR HYPOTHECATION IS IN FULL
COMPLIANCE WITH THE SECURITIES ACT OF 1933, AS AMENDED, OR UNLESS SOLD IN
COMPLIANCE WITH RULE 144 UNDER SUCH ACT."
(iii) Any legend required to be placed thereon by
applicable state laws.
8. Escrow of Shares.
a. Escrow Holder. The Stock issued under this Agreement shall be
5.
<PAGE> 6
held in escrow by the Secretary of the Company, as escrow holder ("Escrow
Holder"), along with the Assignment Separate from Certificate executed by
Purchaser in blank in the form attached hereto as Exhibit A, until expiration of
the Company's Purchase Option described in Section 4 above.
b. Instructions to Escrow Holder. The Escrow Holder is hereby
directed to permit transfer of the Stock only in accordance with this Agreement
or instructions signed by both parties. In the event that further instructions
are desired by the Escrow Holder, he or she shall be entitled to rely upon
directions executed by a majority of the authorized number of the Company's
Board of Directors. Notwithstanding anything else herein, the Escrow Holder
(including persons and entities acting on behalf of or under authority of Escrow
Holder), (i) shall have no liability for any act or omission hereunder unless it
is shown that such act or omission was intentional and in bad faith, (ii) may
act in accordance with any advice of counsel or any order, judgment or decree of
any court, whether or not final, (iii) in the event of any dispute, the Escrow
Holder may, in his or her sole discretion, take the course of action it deems
appropriate or take no action whatsoever, and (iv) shall in no event be required
to seek legal counsel but may do so at the Company's expense.
c. Transfer to Transferee. If the Company or any assignee
exercises its Purchase Option hereunder, then the Escrow Holder, upon receipt of
written notice of such option exercise from the proposed transferee, shall take
all steps necessary to accomplish such transfer.
d. Transfer to Purchaser. When the Purchase Option has been
exercised or expires unexercised or a portion of the Stock has been released
from the Purchase Option, upon Purchaser's request the Escrow Holder shall
promptly cause a new certificate to be issued for such released Stock and shall
deliver such certificate to Purchaser.
e. Rights of Purchaser. Subject to the terms hereof, Purchaser
shall have all the rights of a shareholder with respect to such Stock while such
shares are held in escrow, including without limitation the right to vote the
Stock and receive any cash dividends declared thereon.
f. Adjustment of Stock and Option Price. If, at any time or from
time to time, there is (i) a dividend of any security, stock split or other
change in the character or amount of any of the outstanding securities of the
Company, or (ii) any consolidation, merger or sale of all, or substantially all,
of the assets of the Company, then, in such event, any and all new, substituted
or additional securities or other property to which Purchaser is entitled by
reason of his ownership of the Stock shall be immediately subject to the escrow
referred to in Section 8 (to the extent the Stock is then so subject), shall be
deposited with the Escrow Holder, and shall be included in the word "Stock" for
purposes of this Agreement, and shall be subject to the Purchase Option and the
right of first offer pursuant to Section 5 with the same force and effect as the
shares of Stock presently subject to this Agreement, the Purchase Option and the
right of first offer. While the total Option Price shall remain the same after
each such event, the Option Price per share of Stock upon exercise of the
Purchase Option shall be appropriately adjusted as
6.
<PAGE> 7
determined by the Board of Directors of the Company.
9. Miscellaneous.
a. Further Instruments and Actions. The parties agree to execute
such further instruments and to take such further action as may reasonably be
necessary to carry out the intent of this Agreement.
b. Notices. Any notice required or permitted hereunder shall be
given in writing and shall be deemed effectively given upon personal delivery or
upon deposit in the United States Post Office, by registered or certified mail
with postage and fees prepaid, addressed to the other party hereto at the
address hereinafter shown below that party's signature or at such other address
as such party may designate by ten (10) days' advance written notice to the
other party hereto.
c. Governing Law, Assignment and Enforcement. This Agreement is
governed by the internal law of California and shall inure to the benefit of the
successors and assigns of the Company and, subject to the restrictions on
transfer herein set forth, be binding upon Purchaser, his heirs, executors,
administrators, guardians, successors and assigns. The prevailing party in any
action to enforce this Agreement shall be entitled to attorneys' fees and costs.
The parties agree that damages are not an adequate remedy for Purchaser's breach
hereof and the Company shall accordingly be entitled to specific performance of
this Agreement.
d. Amendments and Waivers. This Agreement represents the entire
understanding of the parties with respect to the subject matter hereof and
supersedes all previous understandings, written or oral. This Agreement may only
be amended with the written consent of the parties hereto and the Company's
assignees pursuant to subsection 4(c) and Section 5 hereof, or the successors or
assigns of the foregoing, and no oral waiver or amendment shall be effective
under any circumstances whatsoever.
e. Cooperation. Purchaser agrees to cooperate affirmatively with
the Company, to the extent reasonably requested by the Company, to enforce
rights and obligations pursuant to this Agreement.
10. California Commissioner of Corporations. THE SALE OF THE SECURITIES
WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, AND THE ISSUANCE OF
SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION
THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE OF SECURITIES
IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UNLESS THE SALE IS SO EXEMPT.
7.
<PAGE> 8
[Signature Page to Follow]
8.
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
ACCELERATED NETWORKS, INC.
By: /s/ Suresh Nihalani
---------------------------------
Suresh Nihalani
President
Address: 5743 Corsa Avenue, Suite 221
Westlake Village, CA 91362
PURCHASER:
/s/ Kiran Munj
------------------------------------
Kiran Munj
Address: c/o Accelerated Networks, Inc.
5743 Corsa Avenue, Suite 221
Westlake Village, CA 91362
9.
<PAGE> 10
EXHIBIT A
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, I, _______________, hereby sell, assign and transfer
unto _________________________________ (______) shares of the Common Stock of
Accelerated Networks, Inc., standing in my name on the books of said corporation
represented by Certificate No. ____ herewith and do hereby irrevocably
constitute and appoint attorney to transfer said stock on the books of the
within-named corporation with full power of substitution in the premises.
Dated:____________________.
Signature:
--------------------------
This Assignment Separate from Certificate was executed in conjunction
with the terms of Founder/Employee Shareholder Agreement between the above
assignor and Accelerated Networks, Inc., dated March 28, 1997.
<PAGE> 11
ELECTION PURSUANT TO SECTION 83(b)
OF THE INTERNAL REVENUE CODE
This statement is being made under Section 83(b) of the Internal Revenue
Code, pursuant to Treas. Reg. Section 1.83-2.
(1) The person who performed the services is:
Name: Kiran Munj
Address: 5743 Corsa Ave., Suite 221
Westlake Village, CA 91362
Taxpayer Ident. No.: ____________________
Taxable Year: Calendar Year 1997
(2) The property with respect to which the election is being made is
2,250,000 shares of the Common Stock of Accelerated Networks, Inc.
(3) The property was issued on March 28, 1997.
(4) The property is subject to a repurchase right pursuant to which the
issuer has the right to repurchase the property at the original purchase price
if for any reason the shareholder's employment with the issuer is terminated.
The issuer's repurchase right lapses in a series of installments ending on
December 31, 2000.
(5) The fair market value at the time of transfer (determined without
regard to any restriction other than a restriction which by its terms will never
lapse) is $.001 per share.
(6) The amount paid for such property is $.001 per share.
(7) A copy of this statement was furnished to Accelerated Networks, Inc.
for whom Purchaser rendered the service underlying the transfer of property.
------------------------------------
Purchaser
------------------------------------
Spouse (if any)
Dated:
------------------
<PAGE> 12
FIRST AMENDMENT TO
FOUNDER/EMPLOYEE SHAREHOLDER AGREEMENT
THIS FIRST AMENDMENT TO FOUNDER/EMPLOYEE SHAREHOLDER AGREEMENT dated as
of May 30, 1997 (the "Amendment") amends that certain Founder/Employee
Shareholder Agreement ("Founder Agreement") by and between Accelerated Networks,
Inc., a California corporation ("the Company"), and Kiran Munj ("Purchaser").
NOW, THEREFORE, for good and valuable consideration, the receipt,
adequacy and sufficiency of which are hereby acknowledged, the parties hereto
covenant and agree as follows:
1. Defined Terms. Capitalized terms not otherwise defined in
this Amendment shall have the respective meanings assigned to them in the
Founder Agreement.
2. References to Founder Agreement. All references in the
Founder Agreement to "this Agreement", and to all other words referring to the
Founder Agreement (such as "herein", "hereto", "herewith" and "hereunder"),
shall be deemed to mean and refer to the Founder Agreement, as amended by this
Amendment.
3. Amendments to Founder Agreement.
(a) The definition of "Stock" in the Founder Agreement
shall be deemed to include all shares of Common Stock of the Company owned by
Purchaser on the date hereof.
(b) Section 4 shall be deleted in its entirety and
replaced with the following:
4. Purchase Option. The Stock shall be subject to the following
option ("Purchase Option"):
a. In the event Purchaser ceases to be continuously employed by
the Company, or a parent or subsidiary of the Company, as a result of
Purchaser's Voluntary Termination (as defined below) or Termination for
Cause (as defined below), the Company may exercise the Purchase Option.
The date when Purchaser's continuous employment ceases as a result of
Voluntary Termination or Termination for Cause is hereinafter referred
to as the "Termination Date."
b. Voluntary Termination shall include any voluntary cessation
of employment with the Company unless such cessation of employment
occurs within twelve (12) months of any of the following actions (unless
such action is consummated with Purchaser's written approval): (i) a
material decrease in the salary paid or benefits provided by the Company
to Purchaser from the salary paid or benefits provided at the time of
such decrease, other than a decrease consistent with an overall
12.
<PAGE> 13
decline in the Company's financial condition or prospects and consistent
with executive officer salary reductions generally, (ii) a material
diminution in Purchaser's level of job responsibilities or position with
the Company, or (iii) the relocation of Purchaser's place of employment
to a location which is not within fifty (50) miles of the Company's
current offices or Purchaser's current residence. Notwithstanding the
foregoing, Voluntary Termination shall not include a cessation of
employment arising from Purchaser's death or Purchaser's inability to
perform his duties to the Company by reason of any medically
determinable physical or mental impairment.
c. Termination for Cause shall include only the following: (i)
theft of the Company's intellectual or other property other than
unintentional takings of immaterial property, (ii) any other wilful and
wrongful act not done in good faith by Purchaser causing material harm
to the reputation of the Company, or (iii) conviction of a felony that
adversely affects the Company.
d. The Company shall have the right at any time within sixty
(60) days after the Termination Date to purchase the Stock from
Purchaser at the price per share paid by Purchaser pursuant to this
Agreement ("Option Price"). Stock subject to the Purchase Option may not
be transferred by Purchaser (except for transfers by operation of law or
other involuntary transfers and transfers by gift, will or intestate
succession of Purchaser to Purchaser's spouse or lineal descendants or
ancestors or a trust for the benefit of such persons if the transferee
agrees in writing in a form satisfactory to the Company to be subject to
the terms of the Founder Agreement). The Purchase Option shall
terminate, and cease to be exercisable, with respect to any and all
Stock in which Purchaser acquires a vested interest. For purposes of
this Agreement, Purchaser shall acquire a vested interest in 50% of the
Stock immediately. Purchaser shall acquire a vested interest in the
remaining 50% of the stock in equal monthly installments over the 48
months beginning on April 30, 1997, such that Purchaser shall have a
fully vested interest in all of the Stock on April 29, 2001.
Notwithstanding the foregoing, Purchaser shall not acquire a vested
interest in any shares of Stock after the Termination Date.
Notwithstanding the foregoing, Purchaser shall acquire a vested interest
in all unvested stock upon consummation of a merger, consolidation,
tender offer or other transaction or series of transactions in which
securities possessing more than fifty percent (50%) of the total
combined voting power of the Company's outstanding securities are
transferred to a person or persons different from the persons holding
those securities immediately prior to such transaction, or the sale,
transfer or other disposition of all or substantially all of the
Company's assets in complete liquidation or dissolution of the Company.
e. The Purchase Option, if exercised by the Company, shall be
exercised by written notice signed by an officer of the Company and
delivered or mailed as provided in subsection 5.b. The Company may pay
for the shares of Stock it has elected to repurchase (i) by delivery of
a check in the amount of the repurchase price for the Stock being
repurchased, (ii) by cancellation by the Company of an amount of
Purchaser's indebtedness to the Company or (iii) by a combination of (i)
and (ii) so that the combined payment and cancellation of indebtedness
equals such repurchase price.
13.
<PAGE> 14
f. Nothing in this Agreement shall affect in any manner
whatsoever the at will status of Purchaser's employment or the right or
power of the Company, or a parent or subsidiary of the Company, to
terminate Purchaser's employment at any time, for any reason, with or
without cause.
(c) Sections 5 and 6 shall be deleted in their entirety.
(d) Clause (i) of subsection 7.e shall be deleted in its
entirety and replaced with the following:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
THE TERMS AND CONDITIONS OF A CERTAIN FOUNDER/EMPLOYEE SHAREHOLDER
AGREEMENT WHICH INCLUDES A REPURCHASE RIGHT ON THE SALE OF THE
SECURITIES. COPIES OF THE AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST
TO THE SECRETARY OF THE CORPORATION.
(e) Subsection 9.b shall be deleted in its entirety and replaced
with the following:
b. Except as otherwise provided, all notices and other
communications required or permitted hereunder shall be in writing,
shall be effective when given, and shall in any event be deemed to be
given upon receipt or, if earlier, (i) five (5) days after deposit with
the U.S. postal service or other applicable postal service, if delivered
by first class mail, postage prepaid, (ii) upon delivery, if delivered
by hand, (iii) one (1) business day after the day of deposit with
Federal Express or similar overnight courier, freight prepaid, if
delivered by overnight courier or (iv) one (1) business day after the
day of facsimile transmission, if delivered by facsimile transmission
with copy by first class mail, postage prepaid, and shall be addressed,
(a) if to Purchaser, at Purchaser's address set forth below its
signature, or at such other address as Purchaser shall have furnished
the Company in writing, or (b) if to the Company, at its address as set
forth below, or at such other address as the Company shall have
furnished to Purchaser in writing.
4. Effect of Amendment. The Founder Agreement, as amended hereby, shall
remain in full force and effect.
5. Governing Law. This Amendment shall be governed by and construed in
accordance with the laws of the State of California without regard to the
conflicts of law provisions thereof.
14.
<PAGE> 15
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to the
Founder Agreement as of the day and year first above written.
ACCELERATED NETWORKS, INC.
By: /s/ Suresh Nihalani
---------------------------------
Suresh Nihalani
President
Address: 5743 Corsa Avenue, Suite 221
Westlake Village, CA 91362
PURCHASER:
/s/ Kiran Munj
------------------------------------
Kiran Munj
Address: c/o Accelerated Networks, Inc.
5743 Corsa Avenue, Suite 221
Westlake Village, CA 91362
15.
<PAGE> 1
EXHIBIT 10.12
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR CERTAIN REDACTED PROVISIONS OF
THIS AGREEMENT. THE REDACTED PROVISIONS ARE IDENTIFIED BY THREE ASTERISKS
ENCLOSED BY BRACKETS AND UNDERLINED. THE CONFIDENTIAL PORTION HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
- --------------------------------------------------------------------------------
PRODUCT PROCUREMENT AGREEMENT
BY AND BETWEEN
CTC COMMUNICATIONS GROUP, INC.
AND
ACCELERATED NETWORKS, INC.
DATED
APRIL 21, 1999
- --------------------------------------------------------------------------------
<PAGE> 2
PRODUCT PROCUREMENT AGREEMENT (PPA)
FOR STRATEGIC ACCOUNT
THIS PRODUCT PROCUREMENT AGREEMENT (PPA) FOR STRATEGIC ACCOUNT (this
"AGREEMENT"), effective as of this 21st day of April, 1999 (the "EFFECTIVE
DATE"), is made and entered into by and between ACCELERATED NETWORKS, INC., a
California corporation with its principal place of business at 301 Science
Drive, Moorpark, CA 93021 ("SELLER"), and CTC COMMUNICATIONS CORP., a
Massachusetts corporation with its principal place of business at 360 2nd
Avenue, Waltham, MA 02451 ("CUSTOMER"). CUSTOMER and SELLER are also hereinafter
referred to individually as a "PARTY" and collectively as the "PARTIES".
WHEREAS, CUSTOMER desires to expand its network throughout the
Northeastern United States, and to facilitate such expansion, CUSTOMER wishes to
purchase from SELLER certain products (the "PRODUCT" or "PRODUCTS") more fully
described on Attachment A hereto at the discounted rates (the "DISCOUNTS") more
fully described on Attachment B hereto; and
WHEREAS, SELLER desires to provide the Products at the Discounts to
CUSTOMER pursuant to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises contained
herein, and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the Parties, intending to be legally bound,
hereby agree hereto as follows:
1. PRODUCT ORDERS.
1.1 Initial Purchase Order. Upon execution of this Agreement, CUSTOMER
shall submit a blanket purchase order (the "INITIAL PURCHASE ORDER") for the
Products having an aggregate purchase price of at least (US$8,000,000). CUSTOMER
will periodically submit purchase orders to SELLER for release of the Products
covered by the Initial Purchase Order as per the timeframes described in
Attachment B. CUSTOMER may specify the carrier and mode of transportation for
shipment of the Products. Unless specifically stated to the contrary in a
particular purchase order signed by representatives of both Parties, the terms
and conditions of this Agreement shall be controlling over any inconsistent or
conflicting terms or provisions contained in any purchase order pursuant hereto.
1.2 Subsequent Purchase Orders. During the term of this Agreement,
CUSTOMER shall submit purchase orders in addition to the Initial Purchase Order
in order to meet the Minimum Purchase Commitment as indicated and defined on
Attachment B hereto. The terms of this Agreement shall apply to all such
subsequent purchase orders.
1.
<PAGE> 3
1.3 Submission of Orders. All purchase orders, including purchase orders
for release of the Products, shall be sent by fax to the following number
(followed by a hard copy sent by mail pursuant to Section 13.2 hereof):
ACCELERATED NETWORKS, INC;
ATTN: SALES ADMINISTRATION
FAX: (805) 553-9690
TEL: (805) 553-9680
1.4 Cancellation and Rescheduling. CUSTOMER may cancel delivery of
Products pursuant to a purchase order without charge upon written notice to
SELLER not less than [***] prior to the scheduled delivery date. CUSTOMER will
be responsible for payment of one hundred percent (100%) of the amount of any
portion of a purchase order that is canceled less than [***] prior to the
scheduled delivery date. CUSTOMER may extend the date for delivery of Products
pursuant to a purchase order [***] without charge upon written notice to SELLER
not less than [***] prior to the scheduled delivery date; provided, that, the
new delivery date is on or before the: [***].
1.5 Pricing. Product prices payable by CUSTOMER and applicable Discounts
are set forth in Attachment B. Prices are exclusive of all taxes, customs,
duties or similar tariffs and fees, shipping and insurance charges which SELLER
may be required to pay or collect upon the sale or delivery of the Products or
upon collection of the sales price, all of which shall be CUSTOMER's
responsibility. SELLER shall promptly extend to CUSTOMER any price reductions
made by SELLER in its generally available, then current published list prices
for Software or Products. Such price reduction shall apply to all purchase
orders received on or after the effective date of such price reduction.
1.6 Payment. Terms of payment are net thirty (30) days of CUSTOMER's
receipt of SELLER's invoice, unless CUSTOMER fails to pay within thirty (30)
days of receipt of SELLER's invoice three (3) times within any twelve (12) month
period, in which case payment terms shall be, at SELLER's election, cash on
delivery (C.O.D.), in advance of delivery or by irrevocable letter of credit in
favor of SELLER. All payments shall be made in U.S. dollars in the United
States. The payment date shall be deemed the date that CUSTOMER initiates the
wire transfer or the date CUSTOMER mails the payment pursuant to the
requirements of Section 13.2.
2. DELIVERY AND ACCEPTANCE.
2.1 Delivery. Products shall be delivered free on board (FOB) SELLER's
facility or other place of shipment. Shipments will be made to the delivery
address specified on CUSTOMER's purchase order. In the absence of a specified
delivery address on the purchase order, delivery will be made to CUSTOMER's
facility, or any other standard location designated by CUSTOMER Shipping
arrangements shall be mutually agreed upon by the Parties prior to
- -------------
*** Confidential Treatment has been requested for certain redacted
provisions of this agreement. The redacted provisions are identified by three
asterisks, enclosed by brackets and underlined. The confidential portion has
been filed separately with the Securities and Exchange Commission.
2.
<PAGE> 4
delivery. SELLER shall use its best efforts to fill CUSTOMER's orders up to the
committed units on Attachment B within [***] of receiving a purchase order, and
shall use its commercially reasonable efforts to fill (by full or partial
shipment) CUSTOMER's purchase orders for Products in excess of those indicated
on Attachment B within [***] of receiving a purchase order.
2.2 Inspection and Acceptance of Deliveries. CUSTOMER shall have the
right to visually inspect all Products ordered pursuant to this Agreement for a
period of [***] following receipt of delivery. If any delivered Product fails to
conform to the applicable purchase order or release, in whole or in part,
CUSTOMER may reject the delivery and CUSTOMER shall promptly return the rejected
Product(s) to SELLER at SELLER's risk and expense. Promptly following SELLER's
general release of Software (as defined below) SELLER will provide CUSTOMER with
a reasonable number of copies of such Software release for the sole purpose of
performing acceptance testing during the [***] following receipt of the
applicable Software copies (the "ACCEPTANCE TEST PERIOD"). If any Software, or
portion thereof, is determined by CUSTOMER during the Acceptance Test Period to
fail to conform to the applicable specifications in any material adverse way,
then CUSTOMER may reject the delivery and CUSTOMER shall promptly return the
rejected Software to SELLER at SELLER's risk and expense. CUSTOMER shall notify
SELLER if such Software release fails to conform to the applicable
specifications in any materially adverse way, specifying in reasonable detail so
as to permit SELLER to reproduce the failures. CUSTOMER's failure to notify
SELLER of any such failure of the Software release before the end of the
applicable Acceptance Test Period shall be deemed acceptance of Software
release. Upon receipt of the rejected Product(s), or Software SELLER shall
promptly ship replacement Product(s) or Software to CUSTOMER, at SELLER's risk
and expense until Product(s) or Software is reasonably determined by CUSTOMER to
be satisfactory as per applicable specifications. CUSTOMER shall have the right
to test the replacement Product(s), including the Software, as provided above in
this Section 2.2. SELLER shall ship the remaining portion of the order within
five (5) business days of the earlier of the date such CUSTOMER notifies SELLER
of its acceptance of the Software or the date CUSTOMER is deemed to have
accepted such Software.
2.3 Pre-shipment Review. If requested by CUSTOMER, a representative of
CUSTOMER may participate, to the extent applicable, in SELLER's preshipment
configuration, prestaging and inspection of Products at SELLER's facility or any
reasonable location where Products are held or stored as determined by SELLER.
- -------------
*** Confidential Treatment has been requested for certain redacted
provisions of this agreement. The redacted provisions are identified by three
asterisks, enclosed by brackets and underlined. The confidential portion has
been filed separately with the Securities and Exchange Commission.
3.
<PAGE> 5
3. SOFTWARE LICENSE.
3.1 License Grant. SELLER grants CUSTOMER, subject to the terms and
conditions set forth in this Agreement, a non-exclusive, non-transferable,
non-sublicensable perpetual license to use the software, including any
enhancements, upgrades, and patches, used in connection with or comprising any
Product (including software contained in firmware embedded in a Product) (the
"SOFTWARE"). All copies of the Software are licensed and not sold. As between
the Parties, SELLER retains all title to (except as expressly licensed by
SELLER), and rights (including all intellectual property and proprietary rights
anywhere in the world) and interest in the Software.
3.2 License Restrictions. CUSTOMER shall not, and shall use commercially
reasonable efforts to deter others from, (i) copying, modifying, distributing,
or creating any derivative work of the Software or including the Software in any
other software, (ii) deleting, altering or obscuring any copyright or other
notice or proprietary legend appearing in the Software or on any documentation,
media, master or package materials for the Software provided by SELLER or (iii)
reverse assembling, decompiling, reverse engineering (except to the extent
permitted by applicable law) or otherwise attempting to derive the source code
(or the underlying ideas, structure, sequence, organization or algorithms) from
the Software.
3.3 Liability for Infringement. SELLER shall defend CUSTOMER against any
suit, claim, proceeding or threatened suit brought against CUSTOMER alleging
that the licensing to, or use by CUSTOMER of, any Software or Product furnished
hereunder infringes any patent ("INFRINGEMENT CLAIM"). SELLER shall pay all
litigation costs, reasonable attorneys' fees, settlement payments and damages
awarded or resulting from any such suit, claim, or proceeding provided, that,
CUSTOMER (i) notifies SELLER in writing within a reasonable time of its actual
knowledge of any such claim, suit, or proceeding; (ii) gives SELLER the right to
control or direct the investigation, preparation, defense and settlement of any
claim, suit or proceeding related thereto; and (iii) gives SELLER reasonable
assistance and cooperation for the defense or settlement thereof. SELLER shall
not be liable for, and CUSTOMER shall defend, indemnify and hold SELLER harmless
in respect of, any suit, claim, proceeding or threatened suit and all litigation
costs, reasonable attorneys' fees, settlement payments and damages awarded or
resulting from any claim, suit or proceeding based on (i) CUSTOMER's willful,
knowing, or deliberate infringement of a patent, copyright, trade secret,
trademark or other proprietary right; (ii) any Software, Product or portion
thereof (a) not supplied by SELLER to CUSTOMER or directed by SELLER that
CUSTOMER purchase, (b) designed in accordance with CUSTOMER's specifications, or
to the extent the infringement results from compliance with such specifications,
(c) modified by CUSTOMER, to the extent the infringement results from such
modification, (d) combined with other products, processes or materials not
supplied, specified or distributed by SELLER, to the extent the infringement
results from such combination, (e) where CUSTOMER continues allegedly infringing
activity after being notified thereof and after being provided with a
non-infringing modification or workaround that would have avoided the alleged
infringement, or (f) where CUSTOMER's use of the Software or Product is incident
to an infringement not resulting primarily from such Software or Product or is
intentionally outside the scope of the license granted in Section 3.1. Neither
Party may enter into any settlement or other agreement without prior written
consent of the other Party under which such other Party would be obligated to
make any payment or incur any liability. If any Software
4.
<PAGE> 6
or any Product becomes, or in SELLER's reasonable opinion is likely to become,
the subject of an infringement claim, SELLER, in addition to providing
indemnity, may at SELLER's option (i) procure for CUSTOMER the right to continue
using the alleged infringing Software or Product; (ii) replace or modify the
same with equivalent or better Software or Product so that CUSTOMER's use is
non-infringing; or (iii) accept return of the affected portion of the Software
or Product and refund to CUSTOMER the depreciated value of the Software or
Product so returned (as amortized on a straight-line basis over three (3) years
from the Effective Date).
4. MONTHLY MEETINGS. SELLER and CUSTOMER shall each designate one
representative to serve as a liaison with the other Party (each, a
"REPRESENTATIVE" and collectively the "REPRESENTATIVES"). The Representatives
will meet, either in person or by telephone, to discuss in good faith matters
relating to this Agreement including Product delivery schedules, joint marketing
activities, sales training needs, price changes, review of the forecast and new
Product features and enhancements. Such meetings will take place on a monthly
basis at a mutually agreed upon location. Each Party shall bear its own costs
incurred in attending or participating in such meetings.
5. SELLER'S WARRANTY.
5.1 Product Warranty. SELLER warrants to CUSTOMER (i) For a period of
one (1) year from the date of acceptance, that the hardware Products shall be
free from material defects in materials and workmanship; (ii) for a period of
ninety (90) days from the date of acceptance, any existing Software shall
perform in accordance with applicable specifications in all material respects
identified in the user manual of the then current release and any new or
specially developed software or Product shall perform in accordance with
mutually agreeable documented specifications in all material respects; and (iii)
services performed by SELLER hereunder shall be performed in a professional and
workmanlike manner and in accordance with current industry standards. SELLER's
warranty does not extend to any Product that (a) is modified or altered by the
CUSTOMER or at the CUSTOMER's direction; (b) is not maintained to SELLER's
maintenance recommendations set forth in the applicable documentation actually
received by CUSTOMER; (c) is operated in a manner other than that specified by
SELLER, (d) has its serial number removed or altered; or (e) is treated with
abuse, negligence or other improper treatment (including, without limitation,
use outside the recommended environment).
5.2 Remedies. Products delivered to CUSTOMER by SELLER hereunder which
do not comply With the, warranties in Sections 5.1, 5.4 or 5.5 hereof, and are
returned to SELLER during the applicable warranty period shall be repaired or
replaced at SELLER's option, at no cost to CUSTOMER. Subject to Section 10.4
hereof, if SELLER cannot or determines that it is not practical to, repair or
replace a returned Product, the price paid by CUSTOMER for such Product will be
credited and applied to future orders.
5.3 Disclaimer. SELLER MAKES NO WARRANTIES (OTHER THAN AS EXPRESSLY
PROVIDED IN SECTIONS 5.1, 5.4, 5.5 AND 6 HEREOF) WITH RESPECT TO THE PRODUCTS OR
ANY SERVICES, AND DISCLAIMS ALL IMPLIED WARRANTIES, INCLUDING WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NON-INFRINGEMENT. FURTHER,
SELLER DOES NOT WARRANT
5.
<PAGE> 7
THE USE, OR THE RESULTS OF THE USE, OF THE PRODUCTS OR THAT ANY SOFTWARE WILL BE
ERROR-FREE.
5.4 Year 2000 Compliance Warranty. SELLER represents and warrants (the
"YEAR 2000 WARRANTY") that (a) all calendar-related processing by the Products
of date data or of any system date shall not cause the Products to cease to
operate in accordance with their applicable specifications, (b) all data fields
for the date data contained in the Products are four-digit fields capable of
indicating century and millennium, and (c) that SELLER has verified through its
testing procedures that no change in the system date (including the change from
the year 1999 to the year 2000 and leap year calculations) will cause the
Products to cease to operate in accordance with their applicable specifications,
provided that, all other products and systems, including, without limitation,
hardware, software and firmware used in combination with the Products, properly
and accurately exchange date data with the Products.
5.5 Infringement Warranty. SELLER represents and wan ants to the
CUSTOMER that, to the best of SELLER's knowledge at the time of each delivery of
Software or Products hereunder, such Software and Products do not infringe the
intellectual property rights of any third parties.
6. OTHER REPRESENTATIONS AND WARRANTIES. The Parties represent, warrant
and covenant that (i) they shall comply with good business practices and all
laws and regulations relevant to this Agreement or the subject matter hereof;
(ii) they shall use the then current names used for the Products, provided that
all advertisements, promotional materials, packaging and anything else bearing
any trademark of the SELLER shall identify SELLER as the trademark owner of the
Products and shall be subject to SELLER's prior written approval, which approval
shall not be unreasonably withheld or delayed; (iii) they shall comply with all
export laws, restrictions, national security controls and regulations of the
United States or other applicable foreign agency or authority; and (iv) shall
not export or re-export, or allow the export or re-export of any Product or
Proprietary Information (as defined below) or any direct product thereof in
violation of any such restrictions, laws or regulations, or without all required
licenses and proper authorizations, to or from any Group D:I or E:2 country (or
national of such country) specified in the then current U.S. Export
Administration Regulations (or any successor supplement or regulations).
7. LIMITATION OF LIABILITY. UNLESS CAUSED OR CONTRIBUTED TO BY A PARTY'S
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, NEITHER PARTY WILL BE LIABLE WITH
RESPECT TO ANY SUBJECT MATTER OF THIS AGREEMENT UNDER ANY CONTRACT, NEGLIGENCE,
STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY FOR (I) ANY AMOUNTS IN
EXCESS IN THE AGGREGATE OF THE AMOUNTS PAID TO IT (IN THE CASE OF SELLER) OR (IN
THE CASE OF CUSTOMER) PAID OR OWED BY IT HEREUNDER DURING THE TWELVE (12) MONTH
PERIOD PRIOR TO DATE THE CAUSE OF ACTION AROSE, (II) ANY INCIDENTAL OR
CONSEQUENTIAL DAMAGES, LOST PROFITS OR LOST DATA OR (III) COST OF PROCUREMENT OF
SUBSTITUTE GOODS, TECHNOLOGY OR SERVICES. THE LIMITATIONS OF THIS SECTION 7
SHALL NOT APPLY TO ANY BREACH OF SECTIONS 3.2, 3.3 OR 9.
6.
<PAGE> 8
8. RELATIONSHIP OF THE PARTIES. The Parties expressly acknowledge that
they are independent contractors in the performance of this Agreement, and each
Party is solely liable for all labor and related expenses it incurs in
connection with this Agreement. Neither Party will have, nor will it represent
that it has, any power, right or authority to bind the other Party, or to assume
or create any obligation or responsibility, express or implied, on behalf of the
other Party.
9. PROPRIETARY INFORMATION.
9.1 The Parties acknowledge that in the course of performing their
duties under this Agreement, each may obtain confidential and proprietary
information of the other ("PROPRIETARY INFORMATION"). Such Proprietary
Information may include, but is not limited to, trade secrets, know-how,
inventions, techniques, processes, programs, schematics, software source code,
data, customer lists, financial information, and sales and marketing plans.
Nothing will be considered Proprietary Information unless either (i) it is or
was disclosed in tangible form and is conspicuously marked "Confidential,"
"Proprietary" or the like or (ii) it is or was disclosed in non-tangible form
and orally identified as confidential at the time of disclosure and is
summarized in tangible form conspicuously marked "Confidential," "Proprietary"
or the like within thirty (30) days of the original disclosure. Notwithstanding
the foregoing, source code of Software supplied to CUSTOMER shall be deemed
SELLER's Proprietary Information. Each Party shall at all times keep in trust
and confidence all Proprietary Information of the other Party and, during the
term of this Agreement and for three (3) years after its termination, shall not
use such Proprietary Information other than in the course of performing its
duties under this Agreement nor shall it disclose any such Proprietary
Information to any third party without the written consent of the other. Upon
termination or expiration of this Agreement or upon the request of the
disclosing Party, each Party shall promptly return all manifestations of the
other's Proprietary Information in its possession.
9.2 Neither Party shall have an obligation to maintain the
confidentiality of information for which it can demonstrate to the reasonable
satisfaction of the disclosing Party that (a) it received rightfully from
another party without restrictions on disclosure prior to its receipt from the
disclosing Party; (b) the disclosing Party has disclosed to an unaffiliated
third party without any obligation to maintain such information in confidence;
or (c) is independently developed by the obligated Party.
9.3 Further, the receiving Party may disclose Proprietary Information as
required by final, unappealable governmental or judicial order, provided such
Party gives the disclosing Party prompt written notice prior to such disclosure,
and complies with any protective order (or equivalent) imposed on such
disclosure, and provides the disclosing Party the option of either seeking a
protective order or having its Proprietary Information be subject to the same
protective orders as may apply to the disclosing Party's own information. Except
as otherwise provided herein, neither Party shall disclose, disseminate or
distribute any of the other Party's Proprietary Information to any third party
without the other Party's prior written permission.
9.4 All Proprietary Information, unless otherwise specified in writing,
shall remain the property of the disclosing Party, shall be used by the
receiving Party only for the purpose intended, and such Proprietary Information,
including all copies thereof, shall be returned to the
7.
<PAGE> 9
disclosing Party or destroyed upon the earliest to occur of (a) the written
request of the disclosing Party; or (b) the date of termination or expiration of
this Agreement. The receiving Party shall promptly provide a written
certification the disclosing Party that all Proprietary Information has been
returned or destroyed.
9.5 Each Party agrees that, without the other Party's written consent,
it will not use the name, service marks or trademarks of the other Party or of
any of its affiliates in any advertising, publicity releases or sales
presentations. Neither Party shall take any actions which will in any manner
compromise the other Party's registered trademarks and/or service marks.
9.6 The Parties agree that a breach of the terms of this Section 9 would
result in irreparable injury to the disclosing Party for which a remedy in
damages would be inadequate and that the disclosing Party shall be entitled to
seek injunctive relief to prevent the breach or threatened breach, in addition
to remedies otherwise available at law or in equity.
10. TERM AND TERMINATION.
10.1 Term. This Agreement shall commence on the Effective Date and shall
remain in force for a period of three (3) years from the date of the first
shipment unless earlier terminated as provided in this Section 10. Thereafter,
this Agreement shall automatically renew for successive one (1) year terms
unless a Party provides written notice to the other Party no later than sixty
(60) days prior to the expiration of the then current term of such Party's
intent not to renew. Notwithstanding anything to contrary contained in this
Agreement, the license granted in Section 3.1 shall survive the expiration or
any termination of this Agreement for reasons other than for breach by the
CUSTOMER of Section 3.2 or intentional violation of Section 9.
10.2 Termination for Cause. This Agreement may be terminated by either
Party for cause immediately upon receipt of written notice upon the occurrence
of any of the following events: (i) if the other Party ceases to do business, or
otherwise terminates its business operations; provided, however, that the
acquisition of all or substantially all of a Party's stock, assets or business
shall not be grounds for termination of this Agreement; or (ii) if the other
Party breaches any material provision of this Agreement and fails to cure such
breach within thirty (30) days of receipt of written notice describing the
breach, provided, however, that a breach of any of the obligations set forth in
Section 3.2 or an intentional violation of Section 9 shall be grounds for
immediate termination of this Agreement by the non-breaching Party; or (iii) if
the other Party becomes insolvent or seeks protection under any bankruptcy,
receivership, trust deed, creditors arrangement, composition or comparable
proceeding, or if any such proceeding is instituted against the other (and not
dismissed within ninety (90) days).
10.3 Effect of Termination. Upon any termination or expiration of this
Agreement, all pending purchase orders, including purchase orders for release of
Products under a blanket purchase order shall be canceled as of the effective
date of termination or expiration, all sums payable to SELLER shall be due and
payable on the effective date of termination or expiration and all licenses
granted to CUSTOMER under this Agreement shall immediately terminate and
CUSTOMER shall discontinue all distribution of the Products, provided, however,
that, except in the event of a breach by CUSTOMER of Section 3.2 or intentional
violation of Section 9, CUSTOMER shall be entitled to continue to use the
Products pursuant to Section 3.1.
8.
<PAGE> 10
10.4 If the Software or Products, or parts thereof, do not meet the
applicable specifications in any materially adverse respect at any time during
the duration of the license granted for such Software or Products, then SELLER
shall develop an action plan to cure the deficiency within seventy (70) days of
the discovery of the deficiency and deliver such action plan to CUSTOMER within
ten (10) days of SELLER's discovery, or the receipt of notice from CUSTOMER, of
the deficiency. Notwithstanding anything to the contrary contained herein, if
SELLER does not diligently pursue the action plan or the deficiency is not
corrected to the reasonable satisfaction of CUSTOMER within such seventy (70)
day period, then CUSTOMER may, as its sole remedy, terminate this Agreement
without any further liability to SELLER. Nothing contained herein shall obligate
the CUSTOMER to pay for any Products that do not conform to any purchase order
or release or any Software that does not meet the applicable specifications in
any materially adverse respect.
10.5 In addition to the right of CUSTOMER to terminate this Agreement as
set forth in this Section 10, the Parties shall have the following rights: If at
any time competent public authority shall revoke or suspend CUSTOMER's Federal
Communications Commission (FCC) permit to construct or operate its network, or
if CUSTOMER without fault on its part shall be denied access reasonably
requested to the incumbent local exchange carrier's ("ILEC") central office due
to the Product not meeting the ILEC's standards, CUSTOMER may issue a written
notice to SELLER to "STOP WORK". In such event all work in progress shall be
halted and any executory items on the schedules in the Attachments hereto shall
be automatically canceled. At such time as the impediment is removed, the
Parties shall in good faith negotiate new schedules considering commitments
SELLER has made in the interim, and SELLER shall be entitled to an equitable
adjustment in the price to be paid under this Agreement for any increased costs
to SELLER associated with the Stop Work notice. If such impediment is not
removed within six (6) months, then CUSTOMER may issue notice to SELLER of
termination of this Agreement, together with any documentation evidencing the
circumstances, and be released from any remaining minimum commitment hereunder.
The CUSTOMER hereby represents and warrants to the SELLER as of the date of this
Agreement that, to the best of its knowledge, no circumstances exist that would
permit CUSTOMER to exercise its rights under this Section 10.5.
11. PUBLICITY. The Parties shall announce this Agreement and the
establishment of the relationship between CUSTOMER and SELLER under this
Agreement pursuant to a joint press release to be mutually agreed upon. The
Parties agree to submit to each other for approval all other press releases
relating to this Agreement and to not publish any press release without prior
approval of the other Party, which approval shall not be unreasonably withheld
or delayed.
12. ASSIGNMENT. This Agreement shall be binding on successors and
assigns, provided, however, this Agreement may not be assigned or transferred by
one Party without the prior written consent of the other Party, which consent
shall not be unreasonably withheld or delayed. Notwithstanding the foregoing
sentence, an assignment by operation of law to a company under common ownership
and/or control with the assigning Party, or to an acquirer of all or
substantially all of the assigning Party's stock, assets or business to which
this Agreement pertains, shall not require the consent of the other Party, but
rather, in such cases, the assigning Party shall give written notification of
such assignment to the other Party. Any purported assignment in violation of
this Section 12 shall be null and void.
9.
<PAGE> 11
13. MISCELLANEOUS.
13.1 No Waiver. A waiver by either Party of any provision of this
Agreement or breach, in any one instance, shall not be construed as a waiver of
any other provision or subsequent breach thereof.
13.2 Notices. All notices or communications of any kind made or required
to be given pursuant to this Agreement shall be in writing and delivered by
facsimile, if to SELLER, to Mr. Suresh Nihalani, Accelerated Networks, Inc.,
fax: (805) 553-9690, tel: (805) 553-9860, and if to CUSTOMER, to Mr. Frederic
Kunzi, CTC Communications Corp., fax: (781) 890-1613, tel: (781) 466-1391, or by
hand delivery or by nationally recognized overnight mail service, or sent by
first class mail, postage prepaid to the address for such Party specified in
this first paragraph of this Agreement or such other address or number as such
Party shall provide notice of in accordance with this Section 13.2.
13.3 Governing Law. The validity, interpretation and effect of this
Agreement shall be governed by the law of the State of California, without
regard to conflicts of law provisions thereof.
13.4 Severability. If any provision of this Agreement is held by a court
of competent jurisdiction to be illegal, invalid or unenforceable, that
provision shall be limited or eliminated to the minimum extent necessary so that
this Agreement shall otherwise remain in full force and effect and enforceable.
13.5 Force Majeure. A Party shall not be liable for non-performance or
delay in performance (other than of confidentiality obligations) caused by any
event reasonably beyond the control of such Party including, but not limited to
wars, hostilities, revolutions, riots, civil commotion, national emergency,
strikes, lockouts or other labor disputes or shortages or inability to obtain
material or equipment, unavailability of supplies, compliance with laws or
regulation (including, without limitation, those related to infringement),
epidemics, fire, flood, earthquake, force of nature, explosion, embargo, or any
Act of God, or any law, proclamation, regulation, ordinance or other act or
order of any court, government or governmental agency.
13.6 Entire Agreement; Amendment. This Agreement, including all
Attachments to this Agreement, constitutes the entire agreement between the
Parties relating to the subject matter hereof and all prior or simultaneous
proposals, negotiations, representations, conversations, discussions and
agreements, whether written or oral, among the Parties and all past dealing or
industry custom. This Agreement may not be amended except by a writing signed by
the Parties, or by a purchase order as described in Section 1.1.
13.7 Counterparts. This Agreement may be executed in two or more
counterparts, ach of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.
<PAGE> 12
IN WITNESS WHEREOF, the Parties hereto have executed this Product
Procurement Agreement (PPA) for Strategic Account effective as of the day and
year first above written.
"SELLER": "CUSTOMER":
ACCELERATED NETWORKS, INC. CTC COMMUNICATIONS CORP.
By: /s/ Suresh Nihalani By: /s/ Frederic Kunzi
---------------------------- -------------------------
Suresh Nihalani Name: Frederic Kunzi
President & CEO Title: CTO
11.
<PAGE> 1
EXHIBIT 10.13
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR CERTAIN REDACTED
PROVISIONS OF THIS AGREEMENT. THE REDACTED PROVISIONS ARE IDENTIFIED BY THREE
ASTERISKS ENCLOSED BY BRACKETS AND UNDERLINED. THE CONFIDENTIAL PORTION HAS BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
- --------------------------------------------------------------------------------
PRODUCT PURCHASE AND SALE AGREEMENT
BY AND BETWEEN
FIRSTWORLD COMMUNICATIONS, INC.
AND
ACCELERATED NETWORKS, INC.
DATED
AUGUST 1, 1999
- --------------------------------------------------------------------------------
<PAGE> 2
[ACCELERATED NETWORKS LOGO]
PRODUCT PURCHASE AND SALE AGREEMENT
This Product Purchase and Sale Agreement ("Agreement"), effective as of
August 1, 1999 (the "Effective Date'), is made by and between ACCELERATED
NETWORKS, INC., a California corporation with its principal place of business at
301 Science Drive, Moorpark CA 93021 ("Seller") and FIRSTWORLD COMMUNICATIONS,
INC., a Delaware corporation with its principal place of business at 7100 East
Belleview Avenue, Suite 210, Greenwood Village, Colorado 80211 ("Customer").
Customer and Seller are also referred to collectively as the "Parties". The
Parties agree as follows:
WHEREAS, Seller desires to supply to Customer and Customer desires to
purchase from Seller the products described herein, pursuant to the terms and
conditions contained herein.
NOW, THEREFORE, in consideration of the mutual promises herein contained
and other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties intending to be lawfully bound agree as
follows:
1. TERM
The Agreement shall commence on the Effective Date and shall continue in
force for an initial period of eighteen (18) months unless earlier terminated as
provided for in Section 13 ("Initial Term"). Thereafter this Agreement shall
continue on a month-to-month term unless a party provides written notice to the
other party 60 days of its termination.
2. SCOPE
The terms and conditions of this Agreement shall apply to all
transactions occurring during the Term whereby products or Services are provided
by Seller to Customer. Customer as used herein shall mean FirstWorld
Communications, Inc. or any of its wholly owned subsidiaries.
Customer understands and agrees that all Products, provided by Seller to
Customer pursuant to this Agreement and to the Exhibits listed below shall be
for Customer's internal use in the United Sates only.
Exhibit A Products
Exhibit B FirstWorld Communications National Price List
Exhibit C End-User Software License
1
<PAGE> 3
3. PURCHASE OF PRODUCTS
3.1 Annual Purchase
In consideration for Seller's discounts, allowances, credits, and
incentives as set forth in Section 3.2 of this Agreement or any Schedule or
Exhibit ("Attachments") to this Agreement; Customer intends to purchase from
Seller an aggregate of $10 Million ("Purchase Objective") for Products purchased
during the Initial Term of this Agreement.
3.2 Discounts
From the Effective Date up to and through February 1, 2001, Customer
shall receive a purchase discount of [***] from the list prices set forth in
Exhibit B of all Products purchased by Customer from Seller. In the event
Customer has not achieved an aggregate purchase of $10 Million in Products on or
before February 1, 2001, Customer shall not be eligible for any future
discounts. Forfeiture of future discounts after February 1, 2001 shall be
Seller's sole and exclusive remedy for Customer's failure to meet its Purchase
Objective. Failure to attain the Purchase Objective shall not be a default or
breach of this Agreement.
3.3 Pricing
Prices are exclusive of all taxes, customs duties or similar tariffs and
fees, shipping and insurance charges which Seller may be required to pay or
collect upon the sale or delivery of the Products or upon collection of the
sales price, all of which shall be Customer's responsibility.
4. ORDERS AND PAYMENT
4.1 Customer shall submitted purchase orders by fax to the following
address:
Accelerated Networks, Inc.
301 Science Drive
Moorpark, California 93021
Attn: Sales Administration
Fax: (805) 553-9690
4.2 Cancellation and Rescheduling
Customer may cancel delivery of Products pursuant to a purchase order
without charge upon written notice to Seller not less than one hundred and
eighty (180) days prior to the scheduled delivery date. Customer will be
responsible for payment of 75% (seventy-five percent) of the amount of any
portion of a purchase order that is cancelled less than one hundred and eighty
(180) days prior to the scheduled delivery date. Customer may reschedule, or
extend the date of, delivery of Products pursuant to a purchase order without
charge upon written notice
- ---------------------
*** Confidential Treatment has been requested for certain redacted
provisions of this agreement. The redacted provisions are identified by three
asterisks, enclosed by brackets and underlined. The confidential portion has
been filed separately with the Securities and Exchange Commission.
2
<PAGE> 4
to Seller not less than sixty (60) days prior to the scheduled delivery date.
This reschedule of delivery of Products by Seller can only be done one (1) time
per purchase order and the revised delivery date cannot be greater than sixty
(60) days from the originally scheduled date of delivery.
4.3 Payment
Payment for Products (including transportation charges and taxes, if
applicable) will be due as follows:
To Accompany Purchase Order [***]
Upon Delivery [***]
Within thirty (30) days of Seller's invoice [***]
date after delivery
All payments shall be made in U.S. dollars in the United States.
5. DELIVERY AND ACCEPTANCE
5.1 Delivery
Products are delivered FOB Seller's plant or other place of shipment.
Shipments will be made to the delivery address specified on Customer's purchase
order. In the absence of a specified delivery address, delivery will be made to
Customer's facility in Greenwood Village, Colorado, or any other standard
location designated by Customer. Shipping arrangements will be mutually agreed
upon by the Parties prior to delivery. Seller shall use its commercially
reasonable efforts to fill (by full or partial shipment) Customer's purchase
orders for Products within sixty (60) days of receiving purchase order. If
Seller cannot fill Customer's purchase order, in which said purchase order falls
within the range of quarterly forecasts (as set forth in Section 7 herein)
within 60 days for reasons other than those as described in Section 17.5 herein,
Customer may cancel purchase order without penalty and Seller will apply
cancelled purchase order's value toward Purchase Objective.
5.2 Inspection and Acceptance of Deliveries
Customer shall have the right to visually inspect all Products ordered
pursuant to this Agreement for a period of ten (10) days following delivery. If
the delivered Product(s) fails to conform to the applicable purchase order or
release, in whole or in part, Customer may reject the delivery and Customer
shall promptly return the rejected Product(s) to Seller at Seller's risk and
expense. Upon receipt of the rejected Product(s), Seller will promptly ship
replacement Product(s) to Customer.
- ---------------------
*** Confidential Treatment has been requested for certain redacted
provisions of this agreement. The redacted provisions are identified by three
asterisks, enclosed by brackets and underlined. The confidential portion has
been filed separately with the Securities and Exchange Commission.
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<PAGE> 5
5.3 Pre-shipment Review
If reasonably requested by Customer, a representative of Customer may
participate, to the extent applicable, in Seller's preshipment configuration,
prestaging and inspection of Product at Seller's facility.
6. SOFTWARE LICENSE
6.1 License Grant
Seller grants Customer, subject to the terms and conditions set forth in
this Agreement, a non-exclusive, non-transferable, non-sublicensable license to
(i) use the software comprising any Product (including software contained in
firmware embedded in a Product) ("Software") and (ii) at Customer's option, to
distribute the Software as incorporated and/or embedded within a Product to
Customer's end-user customers in conjunction with Customer's product and service
offerings. All copies of the Software are licensed and not sold. As between the
Parties, Seller retains all title to (except as expressly licensed by Seller),
and rights (including all intellectual property and proprietary rights anywhere
in the world) and interest in the Software. Seller shall use commercially
reasonable efforts to deliver Seller's standard End User Software License
Agreement ("End User License Agreement") included in the Product package
delivered to the end user.
6.2 License Restrictions
Customer shall not, nor permit others to, (i) copy, modify or create any
derivative work of the Software or include the Software in any other software,
(ii) delete, alter. or obscure any copyright or other notice or proprietary
legend appearing in the Software or on any documentation, media, master or
package materials for the Software provided by Seller or (iii) reverse assemble,
decompile, reverse engineer or otherwise attempt to derive the source code (or
the underlying ideas, structure, sequence, organization or algorithms) from the
Software (each, a "Misuse"). Customer shall have no liability to Seller or any
other party for an end-user's Misuse of the Software, unless Customer has actual
knowledge of an end-user's Misuse and fails to promptly take corrective action.
7. MONTHLY MEETINGS AND QUARTERLY FORECASTS
Seller and Customer shall each designate at least one representative to
serve as a liaison with the other party (each, a "Representative"). The
Representatives shall meet, either in person or by telephone, to discuss in good
faith matters relating to this Agreement including Product delivery schedules,
joint marketing activities, sales training needs, price changes and new Product
features and enhancements, and Purchase Objective levels. Customer shall provide
seller with quarterly product forecasts. Such forecasts will contain, but are
not necessarily limited to, requested products and quantities, projected
shipping dates, and shipping locations. Quarterly forecasts shall commence and
be in effect beginning with Q3, 1999, and shall continue for the term of this
contract. Such meetings shall take place on a monthly basis at a mutually agreed
upon location. Each party shall bear its own costs incurred in attending or
participating in such meetings.
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<PAGE> 6
8. SELLER'S WARRANTY
8.1 Product Warranty
Seller warrants to Customer: (i) For a period of one (1) year from the
date of shipment that the hardware Products will be free from material defects
in materials and workmanship, (ii) for a period of ninety (90) days from the
date of shipment, the Software will perform substantially in accordance with
applicable specifications identified in the user manual of the then current
release and (iii) services performed by Seller hereunder will be performed in a
professional and workmanlike manner and in accordance with current industry
standards. Seller's warranty does not extend to any Product that (a) is modified
or altered, (b) is not maintained to Seller's maintenance recommendations, (c)
is operated in a manner other than that specified by Seller, (d) has its serial
number removed or altered or (e) is treated with abuse, negligence or other
improper treatment (including, without limitation, use outside the recommended
environment).
8.2 Remedies
Products delivered to Customer by Seller hereunder which do not comply
with the warranty in Section 8.1 above and are returned to Seller during the
applicable warranty period will be repaired or replaced at Seller's option, at
no cost to Customer. If Seller cannot, or determines that it is not practical
to, repair or replace a returned Product, the price paid by Customer for such
Product will be credited and applied to future orders.
8.3 Disclaimer
SELLER MAKES NO WARRANTIES (OTHER THAN AS EXPRESSLY PROVIDED IN SECTION
8.1 ABOVE) WITH RESPECT TO THE PRODUCTS, THE SOFTWARE OR ANY SERVICES AND
DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NON-INFRINGEMENT. FURTHER,
SELLER DOES NOT WARRANT THE USE, OR THE RESULTS OF THE USE, OF THE PRODUCTS OR
THAT ANY SOFTWARE WILL BE ERROR-FREE.
8.4 Year 2000 Compliance Warranty
Seller represents and warrants (the "Year 2000 Warranty) that (a) all
calendar date-related processing by the Products of date data or of any system
date will not cause the Products to cease to operate substantially in accordance
with their specifications, (b) all data fields for the date data contained in
the Products are four-digit fields capable of indicating century and millennium,
and (c) that Seller has verified through its testing procedures that no change
in the system date (including the change from the year 1999 to the year 2000)
will cause the Products to cease to operate substantially in accordance with
their specifications. Notwithstanding any provision to the contrary set forth in
this Agreement, Seller makes no representation or warranty with respect to the
Products operating in conjunction with any computer software, computer firmware,
computer hardware, or any combination of the foregoing supplied by third
parties.
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<PAGE> 7
9. CUSTOMER'S REPRESENTATIONS AND WARRANTIES
Customer represents, warrants and covenants that: (i) it shall comply
with good business practices and all laws and regulations relevant to this
Agreement or the subject matter hereof, (ii) it shall use the then current names
used by Seller for the Products, provided that all advertisements, promotional
materials, packaging and anything else bearing any trademark of Seller's shall
identify Seller as the trademark owner and shall be subject to Seller's prior
written approval and (iii) it shall comply with all export laws, restrictions,
national security controls and regulations of the United States or other
applicable foreign agency or authority, and not to export or re-export, or allow
the export or re-export of any Product or Proprietary Information of Seller or
any direct product thereof in violation of any such restrictions, laws or
regulations, or without all required licenses and proper authorizations, any
Group D:I or E:2 country (or national of such country) specified in the then
current U.S. Export Administration Regulations (or any successor supplement or
regulations).
10. LIMITATION OF LIABILITY
NEITHER PARTY WELL BE LIABLE WITH RESPECT TO ANY SUBJECT MATTER OF THIS
AGREEMENT UNDER ANY CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER LEGAL OR
EQUITABLE THEORY FOR (I) ANY AMOUNTS IN EXCESS IN THE AGGREGATE OF THE AMOUNTS
PAID TO IT (IN THE CASE OF SELLER) OR (IN THE CASE OF CUSTOMER) PAID OR OWED BY
IT HEREUNDER DURING THE TWELVE (12) MONTH PERIOD PRIOR TO DATE THE CAUSE OF
ACTION AROSE OR (II) ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES, LOST PROFITS OR
LOST DATA OR (III) COST OF PROCUREMENT OF SUBSTITUTE GOODS, TECHNOLOGY OR
SERVICES. THE LIMITATIONS OF THIS SECTION 10 SHALL NOT APPLY TO ANY BREACH OF
SECTION 6.2 OR 13.
11. INDEMNIFICATION
Seller hereby agrees to defend, indemnify and hold harmless Customer
from and against any third party claims, action, demands, costs or expenses
arising from (i) infringement by the Products as and in the form delivered to
Customer of any United States patent, trademark, copyright or other intellectual
property right of any third party or (ii) the Products' failure to perform in
accordance with the Product Warranty set forth in Section 8.1, provided that
Customer (a) promptly notifies Seller in writing of any such claim, action or
demand, (b) permits Seller to have sole control and authority in the
investigation, defense and settlement of such claim, action or demand and (c)
provides Seller with reasonable assistance and cooperation in connection with
the investigation, defense and settlement thereof and Seller agrees to reimburse
Customer for out-of-pocket expenses incurred in providing such cooperation and
assistance. Seller shall have no obligation with respect to any settlement that
it does not approve in writing. Customer shall permit Seller to replace or
modify any affected Product so to avoid infringing, so long as the replacement
or modification has substantially the equivalent functionality as set forth in
the design specifications, or to procure the right for Customer to continue use
of such Products. If neither of such alternatives is reasonably practicable, the
infringing Products shall be returned to Seller and Seller's sole liability
hereunder, in addition to Seller's obligations to defend, indemnify and hold
harmless set forth in this Section 11, shall be to refund amounts paid
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<PAGE> 8
therefor by Customer. Seller shall have no obligation hereunder for or with
respect to claims, actions, or demands alleging infringement that arise by (i)
reason of combination of noninfringing, Product with any other product, system
or process not supplied by Seller; (ii) Products modified after delivery to
Customer without Seller's prior written consent; (iii) Products not supplied by
Seller; and (iv) Customer's continued use of infringing Products after being
notified of the alleged infringement and after being provided with modifications
that would have avoided the alleged infringement. The foregoing states Seller's
entire liability with respect to infringement of any intellectual property
rights by any Product.
12. RELATIONSHIP OF PARTIES
Customer expressly acknowledges that it is an independent contractor in
the performance of this Agreement, and is solely liable for all labor and
related expenses in connection with this Agreement. Customer will not have, and
will not represent that it has, any power, right or authority to bind Seller, or
to assume or create any obligation or responsibility, express or implied, on
behalf of Seller.
13. PROPRIETARY INFORMATION
The Parties acknowledge that in the course of performing their duties
under this Agreement, each may obtain confidential and proprietary information
of the other ("Proprietary Information"). Such Proprietary Information may
include, but is not limited to, trade secrets, know-how, inventions, techniques,
processes, programs, schematics, software source code, data, customer lists,
financial information, and sales and marketing plans. Each party shall at all
times keep in trust and confidence all Proprietary Information of the other
party and, during the term of this Agreement and for five (5) years after its
termination, shall not use such Proprietary Information other than in the course
of performing its duties under this Agreement nor shall it disclose any such
Proprietary Information to any third party without the written consent of the
other. Upon termination or expiration of this Agreement or upon the request of
the disclosing party, each party shall promptly return all manifestations of the
other's Proprietary Information in its possession.
14. TERMINATION
14.1 Termination for Cause
This Agreement may be terminated by either party for cause immediately
by written notice upon the occurrence of any of the following events: (i) if the
other ceases to do business, or otherwise terminates its business operations;
provided, however, that the acquisition of all or substantially all of a party's
stock, assets or business shall not be grounds for termination of this
Agreement; or (ii) if the other breaches any material provision of this
Agreement and fails to cure such breach within thirty (30) days of written
notice describing the breach; provided, however, that a breach of the
obligations set forth in Section 6.2 or 13 and shall be grounds for immediate
termination of this Agreement by the non-breaching party; or (iii) if the other
becomes insolvent or seeks protection under any bankruptcy, receivership, trust
deed, creditors arrangement, composition or comparable proceeding, or if any
such proceeding is instituted against the other (and not, dismissed within
ninety (90) days).
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14.2 Effect of Termination
Upon any termination or expiration of this Agreement, all pending
purchase orders for release of Products shall be cancelled as of the effective
date of termination or expiration, all sums payable to Seller shall be due and
payable on the effective date of termination or expiration and all licenses
granted to Customer under this Agreement shall immediately terminate, and
Customer shall discontinue all use and distribution of the Products. Upon an
end-user acquiring a copy of the Software incorporated and/or contained in a
Product, the end-user shall be entitled to use that copy of the Software,
subject to the terms and conditions of the End-User License Agreement.
15. PUBLICITY
The Parties shall announce this Agreement and the establishment of the
relationship between Customer and Seller under this Agreement pursuant to a
joint press release to be mutually agreed upon prior to issuance. The Parties
agree to submit to each other for approval all press releases relating to this
Agreement and to not publish any press release which mentions the parties
relationship without prior approval of the other party, which approval shall not
be unreasonably withheld.
16. ASSIGNMENT
This Agreement shall be binding upon and insure to the benefit of the
parties hereto and their respective permitted successors and assigns. Neither
party may assign its rights or obligations hereunder without the prior written
consent of the other which consent shall not be unreasonably withheld,
conditioned or delayed, provided that no consent shall be required in connection
with an assignment to an entity controlling, controlled by or under common
control with such party, or to an entity that succeeds to all, or substantially
all, of the party's assets whether by merger, sale or otherwise.
17. MISCELLANEOUS
17.1 No Waiver
A waiver by either party of any provision of this Agreement or breach,
in any one instance, shall not be construed as a waiver of any other provision
or subsequent breach thereof.
17.2 Notices
Notices under this Agreement shall be in writing and delivered by
certified or registered mail, return receipt requested, or by nationally
recognized overnight courier service next day delivery, or personal deliver, to
the addresses as specified in the first paragraph of this Agreement. Such notice
shall be effective on the date of receipt or refusal thereof by the receiving
party.
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17.3 Governing Law
This Agreement shall be governed and construed under California law
without regard to conflicts of law provisions.
17.4 Severability
If any provision of this Agreement is held by a court of competent
jurisdiction to be illegal, invalid or unenforceable, that provision shall be
limited or eliminated to the minimum extent necessary so that this Agreement
shall otherwise remain in full force and effect and enforceable.
17.5 Force Majeure
A party shall not be liable for non-performance or delay in performance
(other than of payment or confidentiality obligations) caused by any event
reasonably beyond the control of such party including, but not limited to wars,
hostilities, revolutions, riots, civil commotion, national emergency, strikes,
lockouts or other labor disputes or shortages or inability to obtain material or
equipment, unavailability of supplies, compliance with laws or regulation
(including, without limitation, those related to infringement), epidemics, fire,
flood, earthquake, force of nature, explosion, embargo, or any Act of God, or
any law, proclamation, regulation, ordinance or other act or order of any court,
government or governmental agency.
17.6 Entire Agreement; Amendment
This Agreement, including all Attachments to this Agreement, constitutes
the entire agreement between the parties relating to the subject matter hereof
and all prior or simultaneous proposals, negotiations, representations,
conversations, discussions and agreements, whether written or oral, among the
parties and all past dealing or industry custom. This Agreement may not be
amended except by a writing signed by the Parties.
17.7 Counterparts
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement
effective as of the Effective Date.
ACCELERATED NETWORKS, INC. FIRSTWORLD COMMUNICATIONS, INC.
By: /s/ Suresh Nihalani By: /s/ Doug Kramer
--------------------------- ---------------------------------
Name: Suresh Nihalani Name: Doug Kramer
--------------------------- ---------------------------------
Title: President & CEO Title: Chief Technology Officer
--------------------------- ---------------------------------
Date: 8/5/99 Date: 8/4/99
--------------------------- ---------------------------------
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EXHIBIT 10.25
DIRECTOR'S INDEMNIFICATION AGREEMENT
THIS DIRECTOR'S INDEMNIFICATION AGREEMENT is made and entered into this ___
day of __________________ 2000 between Accelerated Networks, Inc., a Delaware
corporation ("Corporation"), and ____________________ ("Director"),
RECITALS:
A. Director, as a member of the Board of Directors of the Company, performs
a valuable service in such capacity for the Company;
B. The stockholders of the Company have adopted Bylaws (the "Bylaws")
providing for the indemnification of the officers, directors, agents and
employees of the Company to the maximum extent authorized by Section 145 of the
Delaware General Corporation Law, as amended (the "Delaware Law");
C. The Bylaws and the Delaware Law, by their non-exclusive nature, permit
contracts between the Company, its officers and the members of its Board of
Directors with respect to indemnification of such persons;
D. In accordance with the authorization as provided by the Delaware Law,
the Company has purchased and presently maintains or will shortly hereafter
purchase and thereafter maintain, a policy or policies of directors and officers
liability insurance ("D & O Insurance"), covering certain liabilities which may
be incurred by its directors and officers in their performance as directors or
officers of the Company;
E. As a result of developments affecting the terms, scope and availability
of D & O Insurance, there exists general uncertainty as to the extent of
protection afforded members of the Board of Directors and officers of the
Company by such D & O Insurance and by statutory and Bylaw indemnification
provisions; and
F. In order to induce Director to continue to serve as a member of the
Board of Directors of the Company, the Company has determined and agreed to
enter into this contract with Director.
NOW, THEREFORE, in consideration of Director's continued service as a
director after the date hereof, the parties hereto agree as follows:
1. INDEMNITY OF DIRECTOR. Corporation hereby agrees to hold harmless and
indemnify Director to the fullest extent authorized or permitted by the
provisions of the Delaware Law, as may be amended from time to time, and by the
Bylaws as they exist on the date hereof
2. ADDITIONAL INDEMNITY. Subject only to the exclusions set forth in
Section 3 hereof, Corporation hereby further agrees to hold harmless and
indemnify Director:
<PAGE> 2
a. against any and all expenses (including attorneys' fees), witness
fees, judgments, fines and amounts paid in settlement actually and reasonably
incurred by Director in connection with any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (including an action by or in the right of Corporation) to which
Director is, was or at any time becomes a party, or is threatened to be made a
party, by reason of the fact that Director is, was or at any time becomes a
director, officer, employee or agent of Corporation, or is or was serving or at
any time serves at the request of Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise; and
b. otherwise to the fullest extent as may be provided to Director by
Corporation under the non-exclusivity provisions of Section 6 of Article
VII of the Bylaws of the Corporation.
3. LIMITATIONS ON ADDITIONAL INDEMNITY.
No indemnity pursuant to Section 2 hereof shall be paid by Corporation for
any of the following:
a. except to the extent the aggregate of losses to be indemnified
thereunder exceeds the sum of such losses for which Director is indemnified
pursuant to Section 1 hereof or pursuant to any D & O Insurance purchased and
maintained by Corporation;
b. in respect to remuneration paid to Director if it shall be
determined by a final judgment or other final adjudication that such
remuneration was in violation of law;
c. on account of any suit in which judgment is rendered against
Director for an accounting of profits made from the purchase or sale by Director
of securities of Corporation pursuant to the provisions of Section 16(b) of the
Securities Exchange Act of 1934 and amendments thereto or similar provisions of
any federal, state or local statutory law;
d. on account of Director's conduct which is finally adjudged to have
been knowingly fraudulent or deliberately dishonest, or to constitute willful
misconduct;
e. on account of Director's conduct which is the subject of an action,
suit or proceeding described in Section 7(c)(ii) hereof;
f. on account of any action, claim or proceeding (other than a
proceeding referred to in Section 8(b) hereof) initiated by Director unless such
action, claim or proceeding was authorized in the specific case by action of the
Board of Directors; or
g. if a final decision by a Court having jurisdiction in the matter
shall determine that such indemnification is not lawful (and, in this respect,
both Corporation and Director have been advised that the Securities and Exchange
Commission believes that indemnification for liabilities arising under the
federal securities laws is against public policy and is, therefore,
unenforceable and that claims for indemnification should be submitted to
appropriate courts for adjudication).
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<PAGE> 3
4. CONTRIBUTION. If the indemnification provided in Sections 1 and 2 hereof
is unavailable by reason of a court decision described in Section 3(g) hereof
based on grounds other than any of those set forth in paragraphs (b) through (f)
of Section 3 hereof, then in respect of any threatened, pending or completed
action, suit or proceeding in which Corporation is jointly liable with Director
(or would be if joined in such action, suit or proceeding), Corporation shall
contribute to the amount of expenses (including reasonable attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
and paid or payable by Director in such proportion as is appropriate to reflect
(i) the relative benefits received by Corporation on the one hand and Director
on the other hand from the transaction from which such action, suit or
proceeding arose, and (ii) the relative fault of Corporation on the one hand and
of Director on the other in connection with the events which resulted in such
expenses, judgments, fines or settlement amounts, as well as any other relevant
equitable considerations. The relative fault of Corporation on the one hand and
of Director on the other shall be determined by reference to, among other
things, the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent the circumstances resulting in such expenses,
judgments, fines or settlement amounts. Corporation agrees that it would not be
just and equitable if contribution pursuant to this Section 4 were determined by
pro rata allocation or any other method of allocation which does not take
account of the foregoing equitable considerations.
5. CONTINUATION OF OBLIGATIONS. All agreements and obligations of
Corporation contained herein shall continue during the period Director is a
director, officer, employee or agent of Corporation (or is or was serving at the
request of Corporation as a director, officer employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise) and shall continue thereafter so long as Director shall be subject
to any possible claim or threatened, pending or completed action, suit or
proceeding, whether civil, criminal or investigative, by reason of the fact that
Director was a director of Corporation or serving in any other capacity referred
to herein.
6. NOTIFICATION AND DEFENSE OF CLAIM. Not later than thirty (30) days after
receipt by Director of notice of the commencement of any action, suit or
proceeding, Director will, if a claim in respect thereof is to be made against
Corporation under this Agreement, notify Corporation of the commencement
thereof; but the omission so to notify Corporation will not relieve it from any
liability which it may have to Director otherwise than under this Agreement.
With respect to any such action, suit or proceeding as to which Director
notifies Corporation of the commencement thereof:
a. Corporation will be entitled to participate therein at its own
expense;
b. except as otherwise provided below, to the extent that it may wish,
Corporation jointly with any other indemnifying party similarly notified will be
entitled to assume the defense thereof, with counsel reasonably satisfactory to
Director. After notice from Corporation to Director of its election so as to
assume the defense thereof, Corporation will not be liable to Director under
this Agreement for any legal or other expenses subsequently incurred by Director
in connection with the defense thereof other than reasonable costs of
investigation or as otherwise provided below. Director shall have the right to
employ its counsel in such action,
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<PAGE> 4
suit or proceeding but the fees and expenses of such counsel incurred after
notice from Corporation of its assumption of the defense thereof shall be at the
expense of Director unless (i) the employment of counsel by Director has been
authorized by Corporation, (ii) Director shall have reasonably concluded, based
on the advice of counsel, that there may be a conflict of interest between
Corporation and Director in the conduct of the defense of such action or (iii)
Corporation shall not in fact have employed counsel to assume the defense of
such action, in each of which cases the fees and expenses of Director's separate
counsel shall be at the expense of Corporation. Corporation shall not be
entitled to assume the defense of any action, suit or proceeding brought by or
on behalf of Corporation or as to which Director shall have made the conclusion
provided for in (ii) above; and
c. Corporation shall not be liable to indemnify Director under this
Agreement for any amounts paid in settlement of any action or claim effected
without its written consent. Corporation shall be permitted to settle any action
except that it shall not settle any action or claim in any manner which would
impose any penalty or limitation on Director without Director's written consent.
Neither Corporation nor Director will unreasonably withhold its consent to any
proposed settlement.
7. ADVANCEMENT AND REPAYMENT OF EXPENSES.
a. In the event that Director employs his own counsel pursuant to
Section 6(b)(i) through (iii) above, Corporation shall advance to Director,
prior to any final disposition of any threatened or pending action, suit or
proceeding, whether civil, criminal, administrative or investigative, any and
all reasonable expenses (including legal fees and expenses) incurred in
investigating or defending any such action, suit or proceeding within ten (10)
days after receiving copies of invoices presented to Director for such expenses;
and
b. Director agrees that Director will reimburse Corporation for all
reasonable expenses paid by Corporation in defending any civil or criminal
action, suit or proceeding against Director in the event and only to the extent
it shall be ultimately determined by a final judicial decision (from which there
is no right of appeal) that Director is not entitled, under provisions of
Delaware Law, the Bylaws, this Agreement or otherwise, to be indemnified by
Corporation for such expenses.
c. Notwithstanding the foregoing, Corporation shall not be required to
advance such expenses to Director if Director (i) commences any action, suit or
proceeding as a plaintiff unless such advance is specifically approved by a
majority of the Board of Directors or (ii) is a party to an action, suit or
proceeding brought by Corporation and approved by a majority of Corporation's
Board of Directors which alleges willful misappropriation of corporate assets by
Director, disclosure of confidential information in violation of Director's
fiduciary or contractual obligations to Corporation, or any other willful and
deliberate breach in bad faith of Director's duty to Corporation or its
stockholders.
8. ENFORCEMENT.
a. Corporation expressly confirms and agrees that it has entered into
this Agreement and assumed the obligations imposed on Corporation hereby in
order to induce
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Director to continue as a director of Corporation, and acknowledges that
Director is relying upon this Agreement in continuing in such capacity.
b. In the event Director is required to bring any action to enforce
rights or to collect moneys due under this Agreement and is successful in such
action, Corporation shall reimburse Director for all of Director's reasonable
fees and expenses in bringing and pursuing such action.
9. SUBROGATION. In the event of payment under this agreement, Corporation
shall be subrogated to the extent of such payment to all of the rights of
recovery of Director, who shall execute all documents required and shall do all
acts that may be necessary to secure such rights and to enable Corporation
effectively to bring suit to enforce such rights.
10. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on Director by this
Agreement shall not be exclusive of any other right which Director may have or
hereafter acquire under any statute, provision of Corporation's Articles or
Bylaws, agreement, vote of stockholders or directors, or otherwise, both as to
action in Director's official capacity and as to action in another capacity
while a member of the Board of Directors.
11. SURVIVAL OF RIGHTS. The rights conferred on Director by this Agreement
shall continue after Director has ceased to be a director, officer, employee or
other agent of Corporation and shall inure to the benefit of Director's heirs,
executors and administrators.
12. SEVERABILITY. Each of the provisions of this Agreement is a separate
and distinct agreement and independent of the others, so that if any provision
hereof shall be held to be invalid or unenforceable for any reason, such
invalidity or unenforceability shall not affect the validity or enforceability
of the other provisions hereof or the obligation of Corporation to indemnify the
Director to the fullest extent provided by the Bylaws or the Delaware Law.
13. GOVERNING LAW; VENUE AND JURISDICTION. This Agreement shall be
interpreted and enforced in accordance with the laws of the State of Delaware,
without regard to the conflicts of law provisions thereof. The Company and
Director hereby irrevocably and unconditionally (i) agree that any action or
proceeding arising out of or in connection with this Agreement shall be brought
only in the Court of Chancery of the State of Delaware (the "Delaware Court"),
and not in any other State or federal court in the United States of America or
any court in any other country, (ii) consent to submit to the exclusive
jurisdiction of the Delaware Court for purposes of any action or proceeding
arising out of or in connection with this Agreement, (iii) waive any objection
to the laying of venue of any such action or proceeding in the Delaware Court,
and (iv) waive, and agree not to plead or to make, any claim that any such
action or proceeding brought in the Delaware Court has been brought in an
improper or otherwise inconvenient forum.
14. BINDING EFFECT. This Agreement shall be binding upon Director and upon
Corporation, its successors and assigns, and shall inure to the benefit of
Director, his heirs, personal representatives and assigns and to the benefit of
Corporation, its successors and assigns.
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15. AMENDMENT AND TERMINATION. No amendment, modification, termination or
cancellation of this Agreement shall be effective unless in writing signed by
both parties hereto.
16. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements and understandings of the parties relating
thereto.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and
as of the day and year first above written.
Accelerated Networks, Inc.
By:
-------------------------------
Suresh Nihalani
Its Chief Executive Officer
DIRECTOR
----------------------------------
Name:
-----------------------------
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EXHIBIT 10.26
REVOLVING CREDIT LOAN & SECURITY AGREEMENT
(ACCOUNTS AND EQUIPMENT LOANS)
OBLIGOR # NOTE # AGREEMENT DATE
June 1, 1999
CREDIT LIMIT INTEREST RATE OFFICER NO./INITIALS
$6,500,00 Base Rate 48711, Thomas Hicks
THIS AGREEMENT is entered into on June 1, 1999, between Comerica
Bank-California ("Bank") as secured party, whose Headquarter Office is 333 West
Santa Clara Street, San Jose, California and Accelerated Networks, Inc.
("Borrower") a corporation whose chief executive office is located at 301
Science Drive, Moorpark, California. The parties agree as follows:
I. DEFINITIONS.
1.1 "Affiliate" means, with respect to any Person, any Person that
owns or controls directly or indirectly more than fifty percent (50%) of the
ownership of such Person, any Person that controls or is controlled by or is
under common control with such Person, and each of such Person's senior
executive officers, directors, and partners.
1.2 "Agreement" as used in this Agreement means and includes this
Revolving Credit Loan & Security Agreement (Accounts and Inventory), any
concurrent or subsequent rider and any extensions, supplements, amendments or
modifications hereto.
1.3 "Bank Expenses" as used in this Agreement means and includes: all
costs or expenses required to be paid by Borrower under this Agreement which are
paid or advanced by Bank; taxes and insurance premiums of every nature and kind
of Borrower paid by Bank; filing, recording, publication and search fees,
appraiser fees, auditor fees and costs, and title insurance premiums paid or
incurred by Bank in connection with Bank's transactions with Borrower; costs and
expenses incurred by Bank in collecting the Receivables (with or without suit)
to correct any default or enforce any provision of this Agreement, or in gaining
possession of, maintaining, handling, preserving, storing, shipping, selling,
disposing of, preparing for sale and/or advertising to sell the Collateral,
whether or not a sale is consummated; costs and expenses of suit incurred by
Bank in enforcing or defending this Agreement or any portion hereof, including,
but not limited to, expenses incurred by Bank in attempting to obtain relief
from any stay, restraining order, injunction or similar process which prohibits
Bank from exercising any of its rights or remedies; and attorneys.' fees and
expenses incurred by Bank in advising, structuring, drafting, reviewing,
amending, terminating, enforcing, defending or concerning this Agreement, or any
portion hereof or any agreement related hereto, whether or not suit is brought.
Bank Expenses shall include Bank's in-house legal charges at reasonable rates.
1.4 "Base Rate" as used in this Agreement means that variable rate of
interest so announced by Bank at its headquarters office in San Jose, California
as its "Base Rate" from time to time and which serves as a basis upon which
effective rates of interest are calculated for those loans making reference
thereto.
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1.5 "Borrower's Books" as used in this Agreement means and includes
all of the Borrower's books and records including but not limited to: minute
books; ledgers; records indicating, summarizing or evidencing Borrower's assets,
liabilities, Receivables, business operations or financial conditions, and all
information relating thereto, computer programs; computer disk or tape files,
computer printouts; computer runs; and other computer prepared information and
equipment of any kind.
1.6 "Borrowing Base" as used in this Agreement means the sum of
Eighty Percent (80%) of the net amount of Eligible Accounts after deducting
therefrom all payments, adjustments and credits applicable thereto ("Accounts
Receivable Borrowing Base").
1.7 [Intentionally Deleted]
1.8 "Collateral" as used in this Agreement means and includes each
and all of the following: the Receivables; the Intangibles; the Negotiable
Collateral, the Inventory; all money, deposit accounts and all other assets of
Borrower in which Bank receives a security interest or which hereafter come into
the possession, custody or control of Bank; and the proceeds of any of the
foregoing, including, but not limited to, proceeds of insurance covering the
Collateral and any and all Receivables, Intangibles, Negotiable Collateral,
Inventory, equipment, money, deposit accounts or other tangible and intangible
property of borrower resulting from the sale or other disposition of the
Collateral, and the proceeds thereof. Notwithstanding anything to the contrary
contained herein, neither Collateral nor any of its constituent elements shall
include (i) any waste or other materials which have been or may be designated as
toxic or hazardous by Bank or (ii) any Third-Party Equipment Collateral to the
extent a grant of a security interest to Bank therein would constitute a default
under any provision of the agreement or agreements pursuant to which Borrower
has an interest in such Third-Party Equipment Collateral provided that such
Third-Party Equipment Collateral shall automatically become part of the
Collateral upon the termination, lapse or ineffectiveness of such provision.
1.9 "Credit" as used in this Agreement means all Obligations, except
those obligations arising pursuant to any other separate contract, instrument,
note, or other separate agreement which, by its terms, provides for a specified
interest rate and term.
1.10 "Current Assets" as used in this Agreement means, as of any
applicable date of determination, all cash, non-affiliated customer receivables,
United States government securities, claims against the United States
government, and inventories.
1.11 "Current Liabilities" as used in this Agreement means, as of any
applicable date of determination (i) all liabilities of a person that should be
classified as current in accordance with GAAP, including without limitation any
portion of the principal of the Indebtedness classified as current, plus (ii) to
the extent not otherwise included, all liabilities of the Borrower to any of its
affiliates whether or not classified as current in accordance with GAAP.
1.12 "Daily Balance" as used in this Agreement means the amount
determined by taking the amount of the Credit owed at the beginning of a given
day, adding any new Credit advanced or incurred on such date, and subtracting
any payments or collections which are deemed to be paid and are applied by Bank
in reduction of the Credit on that date under the provisions of this Agreement,
but not including the amount of any outstanding, undrawn Letter of Credit.
1.13 "Eligible Accounts" as used in this Agreement means and includes
those accounts of Borrower which are due an payable within thirty (30) days, or
less, from the date of invoice,
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have been validly assigned as security to Bank and strictly comply with all of
Borrower's warranties and representations to Bank; but Eligible Accounts shall
not include the following unless otherwise agreed in advance by Bank: (a)
accounts with respect to which the account debtor is an officer, employee,
PARTNER, joint venturer or agent of Borrower; (b) accounts with respect to which
goods are placed on consignment, guaranteed sale or other terms by reason of
which the payment by the account debtor may be conditional; (c) accounts with
respect to which the account debtor is not a resident of the United States
(other than Siemens AG and its affiliates); (d) accounts with respect to which
the account debtor is the United States or any department, agency or
instrumentality of the United States; (e) accounts with respect to which the
account debtor is any State of the United States or any city, county, town
municipality or division thereof, (f) accounts with respect to which the account
debtor is a subsidiary of, related to, affiliated or has common controlling
shareholders, officers or directors with Borrower; (g) accounts with respect to
which Borrower is or may become liable to the account debtor for goods sold or
services rendered by the account debtor to Borrower; (h) accounts not paid by an
account debtor within ninety (90) days from the date of the invoice; (i)
accounts with respect to which account debtors dispute liability or make any
claim, or have any defense, crossclaim, counterclaim, or offset; 0) accounts
with respect to which any Insolvency Proceeding is filed by or against the
account debtor, or if an account debtor becomes insolvent, fails or goes out of
business; and (k) accounts owed by any single account debtor which exceed twenty
percent (20%) of all of the Eligible Accounts (except that the concentration
limit for Siemens AG and its United States subsidiaries shall be ninety percent
(90%) until December 1, 1999, and seventy-five percent (75%) thereafter, and the
concentration limit for MGC Group shall be eighty percent (80%) until December
1, 1999, and fifty percent (50%) thereafter; and (1) accounts with a particular
account debtor on which over twenty-five percent (25%) of the aggregate amount
owing is greater than ninety (90) days from the date of the invoice.
1.14 "Event of Default" as used in this Agreement means those events
described in Section 7 contained herein below.
1.15 Intentionally Deleted.
1.16 "GAAP" as used in this Agreement means as of any applicable
period, generally accepted accounting principles in effect during such period.
1.17 "Insolvency Proceeding" as used in this Agreement means and
includes any proceeding or case commenced by or against the Borrower, or any
guarantor of Borrower's Obligations, or any borrower's account debtors, under
any provisions of the Bankruptcy Code, as amended, or any other bankruptcy or
insolvency law, including but not limited to assignments for the benefit of
creditors, formal or informal moratoriums, composition or extensions with some
or all creditors, any proceeding seeking reorganization, arrangement or any
other relief under the Bankruptcy code, as amended, or any other bankruptcy or
insolvency law.
1.18 "Intangibles" as used in this Agreement means and includes all
Borrower's present and future general intangibles and other personal property
(including, without limitation, any and all rights in any legal proceeding,
goodwill, patents, trade names, copyrights, trademarks, blueprints, drawings,
purchase orders, computer programs, computer disks, computer tapes, literature,
reports, catalogs and deposit accounts) other than goods and Receivables, as
well as Borrower's Books relating to any of the foregoing.
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1.19 "Inventory" as used in this Agreement means and includes all
present and future inventory in which Borrower has any interest, including, but
not limited to, goods held by Borrower for sale or lease or to be furnished
under a contract of service and all of Borrower's present and future raw
materials, work in process, finished goods, advertising materials and packing
and shipping materials, wherever located and any documents of title representing
any of the above, and any equipment, fixtures or other property used in the
storing, moving, preserving, identifying, accounting for and shipping or
preparing for the shipping of inventory, and any and all other items hereafter
acquired by Borrower by way of substitution, replacement, return, repossession
or otherwise, and all additions and accessions thereto, and the resulting
product or mass, and any documents of title respecting any of the above.
1.20 "Letter of Credit" means a letter of credit issued pursuant to
Section 2.5.
1.21 "Net Income" as used in this Agreement means the net income (or
loss) of a person for any period determined in accordance with GAAP but
excluding in any event:
(a) any gains or losses on the sale or other disposition, not in
the ordinary course of business, of investments or fixed or capital assets, and
any taxes on the excluded gains and any tax deductions or credits on account on
any excluded losses; and
(b) in the case of the Borrower, net earnings of any Person in
which Borrower has an ownership interest, unless such net earnings shall have
actually been received by Borrower in the form of cash distributions.
1.22 "Judicial Officer or Assignee" as used in this Agreement means
and includes any trustee, receiver, controller, custodian, assignee for the
benefit of creditors or any other person or entity having powers or duties like
or similar to the powers and duties of trustee, receiver, controller, custodian
or assignee for the benefit of creditors.
1.23 "Negotiable Collateral" means all of Borrower's present and
future letters of credit of which it is a beneficiary, notes, drafts,
instruments, securities, documents of title, and chattel paper, and Borrower's
Books relating to any of the foregoing.
1.24 "Obligations" as used in this Agreement means and includes any
and all loans, advances, overdrafts, debts, liabilities, obligations in respect
of drawn or undrawn Letters of Credit issued hereunder (including, without
limitation, any and all amounts charged to Borrower's account pursuant to any
agreement authorizing Bank to charge Borrower's account), obligations, lease
payments, guaranties, covenants and duties owing by Borrower to Bank of any kind
and description whether advanced pursuant to or evidenced by this Agreement; by
any note or other instrument; or by any other agreement between Bank and
Borrower and whether or not for the payment of money, whether direct or
indirect, absolute or contingent, due or to become due, now existing or
hereafter arising, and including, without limitation, any debt, liability or
obligation owing from Borrower to others which Bank may have obtained by
assignment, participation, purchase or otherwise, and further including, without
limitation, all interest not paid when due and all Bank Expenses which Borrower
is required to pay or reimburse by this Agreement, by law, or otherwise.
1.25 "Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank arising under this
Agreement;
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(b) Indebtedness secured by a Lien described in Subsection (c) of
the definition of "Permitted Liens" below provided the principal amount of such
Indebtedness does not exceed the cost of' the Equipment financed;
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the ordinary
course of business;
(e) Contingent Obligations of Borrower consisting of guarantees
(and other credit support) of the obligations of vendors and suppliers of
Borrower in respect of transactions entered into in the ordinary course of
business:
(f) Indebtedness with respect to capital lease obligations
(including leases of real property);
(g) prepaid royalties and deferred revenue in connection with
prepaid support services and deferred sales; and
(h) extensions, renewals, refundings, refinancings,
modifications, amendments and restatements of any of the items of Permitted
Indebtedness (a) through (g) above, provided that the principal amount thereof
is not increased or the terms thereof are not modified to impose more burdensome
terms upon Borrower;
1.26 "Permitted Investment" means:
(a) marketable direct obligations issued or unconditionally
guaranteed by the United States of America or any agency or any State thereof
maturing within one (1) year from the date of acquisition thereof;
(b) Corporate commercial paper, corporate notes and bonds, master
notes, medium term notes, bankers acceptances, institutional money market funds,
certificates of deposit and repurchase agreements which, if short-term, have a
minimum credit rating of A-I or P-I or, if long-term, have a minimum credit
rating of A by Standard Poor's or Moody's Investor Services; and nondiversified
short duration mutual funds with an average credit rating of at least A- and a
duration not to exceed three (3) years. Investments shall mature no more than
three (3) years from the date of purchase by Borrower, and shall have been
approved by Borrower's investment policy, provided that such investment policy
and any amendments thereto have been approved by Bank, which approval shall not
be unreasonably withheld;
(c) Certificates of deposit maturing no more than one (1) year
from the date of investment therein issued by Bank;
(d) Extensions of credit in the nature of accounts receivable or
note receivable arising from the sale or lease of goods or services in the
ordinary course of business;
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(e) Investments consisting of the endorsement of negotiable
instruments for deposit or collection or similar transactions in the ordinary
course of business;
(f) Investments (including debt obligations) received in
connection with the bankruptcy or reorganization of customers or suppliers and
in settlement of delinquent obligations of, and other disputes with, customers
or suppliers arising in the ordinary course of business; and
(g) Investments consisting of (i) compensation of employees,
officers and directors of Borrower so long as the Board of Directors of Borrower
determines that such compensation is in the best interests of Borrower, (ii)
travel advances, employee relocation loans and other employee loans and advances
in the ordinary course of business, (iii) loans to employees, officers or
directors relating to the purchase of equity securities of Borrower, and (iv)
other loans to officers and employees approved by the Board of Directors,
provided that all Investments permitted under this clause (g) shall be excluded
from the calculation of Borrower's Tangible Effective Net Worth);
1.27 "Permitted Liens" means:
(a) any Liens existing on the Closing Date and disclosed in the
Schedule or arising under the terms of this Agreement;
(b) Liens for taxes, fees, assessments or other governmental
charges or levies, either not delinquent or being contested in good faith by
appropriate proceedings, provided the same have no priority over any of Bank's
security interests;
(c) Liens (i) upon or in any equipment acquired or held by
Borrower or any of its Subsidiaries (other than Equipment financed under Section
2.4 hereof) to secure the purchase price of such equipment or indebtedness
incurred solely for the purpose of financing the acquisition of such equipment,
(ii) upon any Third Party Equipment Collateral, or (iii) existing on such
equipment at the time of its acquisition, provided that the Lien is confined
solely to the property so acquired and improvements thereon, and the proceeds of
such equipment;
(d) Liens on Equipment and on Third Party Equipment Collateral
(other than Equipment financed under Section 2.4 hereof) leased by Borrower or
any Subsidiary pursuant to an operating or capital lease in the ordinary course
of business (including proceeds thereof and accessions thereto) incurred solely
for the purpose of financing the lease of such Equipment;
(e) Leases or subleases and licenses and sublicenses granted to
others in the ordinary course of Borrower's business not interfering in any
material respect with the business of Borrower;
(f) Liens on assets (including the proceeds thereof and
accessions thereto) that existed at the time such assets were acquired by
Borrower or any Subsidiary (including Liens on assets of any corporation that
existed at the time it became or becomes a Subsidiary); provided such Liens are
not granted in contemplation of or in connection with the acquisition of such
asset by Borrower or a Subsidiary;
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(g) easements, reservations, rights-of-way, restrictions, minor
defects or irregularities in title and other similar charges or encumbrances
affecting real property not constituting a Material Adverse Effect;
(h) Liens in favor of customs and revenue authorities arising as
a matter of law to secure payments of customs duties in connection with the
importation of goods; and
(i) Liens that are not prior to the Lien of Bank which constitute
rights of set-off of a customary nature or banker's Liens with respect to
amounts on deposit, whether arising by operation of law or by contract, In
connection with arrangement entered in to with banks in the ordinary course of
business.
1.28 "Person" or "person" as used in this Agreement means and
includes any individual, corporation, partnership, joint venture, association,
trust unincorporated association, joint stock company, government, municipality,
political subdivision or agency, or other entity.
1.29 "Receivables" as used in this Agreement means and includes all
presently existing and hereafter arising accounts, instruments, documents,
chattel paper, general intangibles, all other forms of obligations owing to
Borrower, all of Borrower's rights in, to and under all purchase orders
heretofore or hereafter received, all moneys due to Borrower under all contracts
or agreements (whether or not yet earned or due), all merchandise returned to or
reclaimed by Borrower and the Borrower's books (except minutes books) relating
to any of the foregoing.
1.30 "Subordinated Debt" as used in this Agreement means indebtedness
of the Borrower to third parties which has been subordinated to the Obligations
pursuant to a subordination agreement in form and content satisfactory to the
Bank.
1.31 [Intentionally Deleted]
1.32 "Tangible Effective Net Worth" as used in the Agreement means
net worth as determined in accordance with GAAP consistently applied, increased
by Subordinated Debt, if any, and decreased by the following: patents, licenses,
goodwill, subscription lists, organization expenses, trade receivables converted
to notes, money due from affiliates (including officers, directors, subsidiaries
and commonly held companies).
1.33 "Tangible Net Worth" as used in the Agreement means, as of any
applicable date of determination, the excess of
(a) the net book value of all assets of a person (other than
patents, patent rights, trademarks, trade names, franchises, copyrights,
licenses, goodwill, and similar tangible assets) after all appropriate
deductions in accordance with GAAP (including, without limitation, reserves for
doubtful receivables, obsolescence, depreciation and amortization), over
(b) all Debt of such person.
1.34 "Third-Party Equipment Collateral" means equipment now or
hereafter leased from or financed, on a secured basis, by a third-party lessor
or financier, together with all rents, issues,
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income, profits and other proceeds arising from the disposition thereof and
insurance proceeds paid thereon, subject to and in accordance with Section 6.17
hereof.
1.35 "Total Liabilities" as used in this Agreement means the total of
all items of indebtedness, obligation or liability which, in accordance with
GAAP consistently applied, would be included in determining the total
liabilities of the Borrower as of the date Total Liabilities is to be
determined, including without limitation (a) all obligations secured by any
mortgage, pledge, security interest or other lien on property owned or acquired,
whether or not the obligations secured thereby shall have been assumed; (b) all
obligations which are capitalized lease obligations; and (c) all guaranties,
endorsements or other contingent or surety obligations with respect to the
indebtedness of others, whether or not reflected on the balance sheets of the
Borrower, including any obligation to furnish funds, directly or indirectly
through the purchase of goods, supplies, services, or by way of stock purchase,
capital contribution, advance or loan or any obligation to enter into a contract
for any of the following.
1.36 Intentionally Deleted.
1.37 Any and all terms used in this Agreement shall be construed and
defined in accordance with the meaning and definition of such terms under and
pursuant to the California Uniform Commercial Code (hereinafter referred to as
the "Code") as amended.
2. LOAN AND TERMS OF PAYMENTS.
For value received, Borrower promises to pay to the order of Bank
such amount, as provided for below, together with interest, as provided for
below.
2.1 Upon the request of Borrower, made at any time and from time to
time through December 1, 2000, and so long as no Event of Default exists, Bank
shall lend to Borrower and/or issue Letters of Credit for the account of
Borrower an amount equal to the Borrowing Base; provided, however, that in no
event shall Bank be obligated to make advances to Borrower under this Section
2.1 whenever the Daily Balance exceeds, at any time, either the Borrowing Base
or the sum of Four Million Dollars ($4,000,000), such amount being referred to
herein as an "Overadvance". Notwithstanding the limitations on advances of this
Section 2.1 Bank shall permit Borrower to request cash advances ("Advances") or
Letters of Credit in excess of the Borrowing Base, provided the outstanding
balance of Advances and the face amount of the outstanding Letters of Credit
before and after the making of such Advance or issuance of such Letter of Credit
is not in excess of $500,000.
2.2 Except as hereinbelow provided, the Credit shall bear interest,
on the Daily Balance owing, at a rate equal to the Base Rate (the "Rate"). The
Credit shall bear interest, during the continuance of an Event of Default and
without constituting a waiver of any such Event of Default, on the Daily Balance
owing, at a rate of three (3) percentage points per annum above the Rate. All
interest chargeable under this Agreement that is based upon a per annum
calculation shall be computed on the basis of a three hundred sixty (360) day
year for actual days elapsed. The Base Rate as of the date of this Agreement is
Seven and 75/100 (7.75%) per annum. In the event that the Base Rate announced
is, from time to time hereafter changed, adjustment in the Rate shall be made
and based on the Base Rate in effect on the date of such change. The Rate, as
adjusted, shall apply to the Credit until the Base Rate is adjusted again. All
interest payable by Borrower under the Credit shall be due and payable on the
first day of each calendar month during the term of the Agreement and Bank may,
at its option, elect to treat such interest and any and all Bank Expenses as
advances under the Credit, which amounts shall thereupon constitute
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Obligations and shall thereafter accrue interest at the rate applicable to the
Credit under the terms of the Agreement.
Borrower will pay Bank a fee equal to $20,000 on account of the
revolving facility, payable in six (6) quarterly payments of $3,333.34 each,
with the first payment due on the date hereof, and subsequent payments due on
the first day of each fiscal quarter thereafter.
2.3 All principal and accrued but unpaid interest under Sections 2.1
and 2.2 shall be due and payable in full on November 20, 2000.
2.4 Equipment Advances.
(a) At any time from the date hereof through May 20, 2000, Bank
agrees to make advances (each an "Equipment Advance" and, collectively, the
"Equipment Advances") to Borrower in an aggregate outstanding amount not to
exceed Two Million Five Hundred Thousand Dollars ($2,500,000). Each Equipment
Advance shall not exceed one hundred percent (100%) of the invoice amount of
equipment, leasehold improvements, and software presented to Bank from time to
time, provided that Bank may exercise its right of prior consent in respect of
used equipment or leasehold improvements such consent not to be unreasonably
withheld, excluding taxes, shipping, warranty charges, freight discounts and
installation expense, provided that aggregate Equipment Advances used for
leasehold improvements and software shall not exceed Seven Hundred Fifty
Thousand Dollars ($750,000), and provided further that, except for the initial
Equipment Advance in a principal amount of up to $360,000 (which Borrower will
use to repay an obligation to Silicon Valley Bank), Equipment Advances shall
finance only Equipment purchased or acquired after February 21, 1999. Each
Equipment Advance shall be for a minimum of Fifty Thousand Dollars ($50,000),
provided that individual items of equipment may be for lesser amounts.
(b) Interest shall accrue from the date of each Equipment Advance
at a rate equal to the Base Rate plus one half percent (0.5%), and shall be
payable monthly on the first (1st) day of each month through June 1, 2003.
During the continuance of an Event of Default, the Equipment Advances shall bear
interest at a rate of three (3) percentage points above the rate applicable
prior to such continuance. Any Equipment Advances that are outstanding on
December 1, 1999 ("First Tranche Advances") shall be payable in thirty-six (36)
equal monthly installments of principal, plus all accrued interest, beginning on
January 1, 2000, and continuing on the same day of each month thereafter through
December 1, 2002. Any Equipment Advances that are outstanding on June 1, 2000
and not outstanding as of December 1, 1999 (the "Second Tranche Advances") shall
be payable in thirty-six (36) equal monthly installments of principal, plus all
accrued interest, beginning on June 1, 2000, and continuing on the same day of
each month thereafter through June 1, 2003, at which time all outstanding
Equipment Advances and interest thereon shall be immediately due and payable.
Equipment Advances, once repaid, may not be reborrowed. Borrower may prepay any
Equipment Advances without penalty or premium. Notwithstanding the foregoing,
any or all First Tranche Advances or Second Tranche Advances, or both, that are
outstanding before December 1, 1999, or on June 1, 2000, may upon Borrower's
three (3) day prior written notice to Bank, accrue interest at a fixed rate
equal to three and one quarter of one percent (3.25%) above the rate quoted by
Bank to Borrower as the "Cost of Funds Rate." For the purposes of this
paragraph, "Cost of Funds Rate" shall mean the rate of interest generally
determined by Bank for purposes of all loans and credits making reference to
such "Cost of Funds," in its sole discretion, from time to time, as its cost of
funds, as such rate may change from time to time.
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(c) When Borrower desires to obtain an Equipment Advance,
Borrower shall notify Bank (which notice shall be irrevocable) by facsimile
transmission to be received no later than 5:00 p.m. Pacific Time one (1)
Business Day before the day on which the Equipment Advance is to be made. The
notice shall be signed by an officer of Borrower or its designee and (except for
the initial Equipment Advance refinancing the Silicon Valley Bank debt) include
a copy of the invoice for any equipment, leasehold improvements, and/or software
to be financed.
(d) Borrower shall pay Bank a fee on account of the equipment
facility equal to $20,000, which shall be due and payable on the date hereof.
2.5 Letters of Credit. Subject to the terms and conditions of this
Agreement, Bank agrees to issue or cause to be issued Letters of Credit for the
account of Borrower in an aggregate outstanding face amount not to exceed (i)
the lesser of the Borrowing Base or $4,000,000, minus (ii) the then outstanding
principal balance of the Advances; provided the face amount of such undrawn
Letters of Credit shall not at any time exceed $500,000. All Letters of Credit
shall be, in form and substance, acceptable to Bank in its sole discretion and
shall be subject to the terms and conditions of Bank's form of standard
Application and Letter of Credit Agreement. The expiry date of each Letter of
Credit shall be not later than June 1, 2000, unless Borrower secures all
obligations relating to such Letter of Credit with cash on terms reasonably
acceptable to Bank. Borrower shall pay Bank a fee as a condition to the issuance
of any Letter of Credit equal to 1.25 percent of the face amount of such Letter
of Credit.
3. TERM.
3.1 This Agreement shall remain in full force and effect until June
1, 2003, or until terminated by notice by Borrower. Notice of such termination
by Borrower shall be effectuated by mailing of a registered or certified letter
not less than thirty (30) days prior to the effective date of such termination,
addressed to the Bank at the address set forth herein and the termination shall
be effective as of the date so fixed in such notice. Notwithstanding the
foregoing, during the continuance of an Event of Default, Bank may terminate
this Agreement at any time without notice. Notwithstanding the foregoing, should
either Bank or Borrower become insolvent or unable to meet its debts as they
mature, or fail, suspend, or go out of business, the other party shall have the
right to terminate this Agreement at any time without notice. On the date of
termination all Obligations shall become immediately due and payable without
notice or demand; no notice of termination by Borrower shall be effective until
Borrower shall have paid all Obligations to Bank in full. Notwithstanding
termination, until all Obligations have been fully satisfied, Bank shall retain
its security interest in all existing Collateral and Collateral arising
thereafter, and Borrower shall continue to perform all of its Obligations.
3.2 After termination and when Bank has received payment in full in
satisfaction of Borrower's Obligations to Bank, Bank shall reassign to Borrower
all Collateral held by Bank, and shall execute a termination of all security
agreements and security interests given by Borrower to Bank, upon the execution
and delivery of mutual general releases.
4. CREATION OF SECURITY INTEREST.
4.1 Borrower hereby grants to Bank a continuing security interest in
all presently existing and hereafter arising Collateral in order to secure
prompt repayment of any and all Obligations owed by Borrower to Bank and in
order to secure prompt performance by Borrower of each and all of its covenants
and Obligations under the Agreement and otherwise created. Bank's security
interest in the
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LOAN & SECURITY AGREEMENT
Collateral shall attach to all Collateral without further act on the part of
Bank or Borrower. In the event that any Collateral, including proceeds, is
evidenced by or consists of Negotiable Collateral, Borrower shall, immediately
upon Bank's request, endorse and assign such Negotiable Collateral over to Bank
and deliver actual physical possession of the Negotiable Collateral to Bank.
4.2 Bank's security interest in Receivables shall attach to all
Receivables without further act on the part of Bank or Borrower. Upon request
from Bank, Borrower shall provide Bank with schedules describing all Receivables
created or acquired by Borrower (including without limitation agings listing the
names and addresses of, and amounts owing by date by account debtors), and
during the continuance of an Event of Default shall execute and deliver written
assignments of all Receivables to Bank all in a form acceptable to Bank,
provided, however, Borrower's failure to execute and deliver such schedules
and/or assignments shall not affect or limit Bank's security interest and other
rights in and to the Receivables. Together with each schedule, Borrower shall
furnish Bank upon Bank's reasonable request with copies of Borrower's customers'
invoices or the equivalent, and original shipping or delivery receipts for all
merchandise sold, and Borrower warrants the genuineness thereof. During the
continuance of an Event of Default, Bank or Bank's designee may notify customers
or account debtors of collection costs and expenses to Borrower's account but,
unless and until Bank does so or gives Borrower other written instructions,
Borrower shall collect all Receivables for Bank, receive in trust all payments
thereon as Bank's trustee, and, if so requested to do so from Bank, Borrower
shall during the continuance of an Event of Default immediately deliver said
payments to Bank in their original form as received from the account debtor and
all letters of credit, advices of credit, instruments, documents, chattel paper
or any similar property evidencing or constituting Collateral. The receipt of
any check or other item of payment by Bank shall not be considered a payment on
account until such check or other item of payment is honored when presented for
payment, in which event, said check or other item of payment shall be deemed to
have been paid to Bank two (2) calendar days after the date Bank actually
receives such check or other item of payment.
4.3 Bank's security interest in Inventory shall attach to all
Inventory without further act on the part of Bank or Borrower. Upon Bank's
request during the continuance of an Event of Default Borrower will from time to
time at Borrower's expense pledge, assemble and deliver such Inventory to Bank
or to a third party as Bank's bailee; or hold the same in trust for Bank's
account or store the same in a warehouse in Bank's name; or deliver to Bank
documents of title representing said Inventory; or evidence of Bank's security
interest in some other manner acceptable to Bank.
4.4 Borrower shall execute and deliver to Bank concurrently with
Borrower's execution of this Agreement, and at any time or times hereafter at
the request of Bank, all financing statements, continuation financing
statements, security agreements, mortgages, collateral assignments, certificates
of title, affidavits, reports, notices, schedules of accounts, letters of
authority and all other documents that Bank may request, in form satisfactory to
Bank, to perfect and maintain perfected Bank's security interest in the
Collateral and in order to fully consummate all of the transactions contemplated
under this Agreement. Borrower hereby irrevocably makes, constitutes and
appoints Bank (and any of Bank's officers, employees or agents designated by
Bank) as Borrower's true and lawful attorney-in-fact with owner to sign the name
of Borrower on any financing statements, continuation financing statements,
security agreement, mortgage, collateral assignment, certificate of title,
affidavit, letter of authority, notice of other similar documents which must be
executed and/or filed in order to perfect or continue perfected Bank's security
interest in the Collateral.
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Borrower shall make appropriate entries in Borrower's Books
disclosing Bank's security interest in the Receivables. Bank (through any of its
officers, employees or agents) all have the right at any time or times hereafter
during Borrower's usual business hours, or during the usual business hours of
any third party having control over the records of Borrower, to inspect and
verify Borrower's Books in order to verify the amount or condition of, or any
other matter, relating to, said Collateral and Borrower's financial condition.
4.5 Borrower appoints Bank or any other person whom Bank may
designate as Borrower's attorney-in-fact, effective upon the occurrence of an
Event of Default, with power to endorse Borrower's name on any checks, notes,
acceptances, money order, drafts or other forms of payment or security that may
come into Bank's possession; to sign Borrower's name on any invoice or bill of
lading relating to any Receivables, on drafts against account debtors, on
schedules and assignments of Receivables, on verifications of Receivables and on
notices to account debtors; to establish a lock box arrangement and/or to notify
the post office authorities to change the address for delivery of Borrower's
mail addressed to Borrower to an address designated by Bank, to receive and open
all mail addressed to Borrower, and to retain all mail related to the Collateral
and forward all other mail to Borrower; to send, whether in writing or by
telephone, requests for verification of Receivables; and to do all things
necessary to carry out this Agreement. Borrower ratifies and approves all acts
of the attorney-in-fact. Neither Bank nor its attorney- in-fact will be liable
for any acts or omissions or for any error of judgment or mistake of fact or
law. This power being coupled with an interest, is irrevocable so long as any
Receivables in which Bank has a security interest remain unpaid and until the
Obligations have been fully satisfied.
4.6 During the continuance of an Event of Default, in order to
protect or perfect any security interest which Borrower is granted hereunder,
Borrower may, in its sole discretion, upon notice to Borrower, discharge any
lien or encumbrance or bond the same, pay any insurance, maintain guards,
warehousemen, or any personnel to protect the Collateral, pay any service
bureau, or, obtain any records, and all costs for the same shall be added to the
Obligations and shall be payable on demand.
4.7 Borrower agrees that Bank may provide information relating to
this Agreement or relating to Borrower to Bank's parent, affiliates,
subsidiaries and services providers.
5. CONDITIONS PRECEDENT.
5.1 Conditions precedent to the making of the loans and the extension
of the financial accommodations hereunder, Borrower shall execute, or cause to
be executed, and deliver to Bank, in form and substance satisfactory to Bank and
its counsel, the following:
(a) This Agreement and other documents required by Bank, provided
that Bank shall not require any opinion of counsel in connection herewith;
(b) Financing statements (Form UCC-1) in form satisfactory to
Bank for filing and recording with the appropriate governmental authorities;
(c) Certified extracts from the minutes of the meeting of its
board of directors, authorizing the borrowings and the granting of the security
interest provided for herein and authorizing specific officers to execute and
deliver the agreements provided for herein;
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LOAN & SECURITY AGREEMENT
(d) A certificate of good standing showing that Borrower is in
good standing under the laws of the state of its incorporation and certificates
indicating that Borrower is qualified to transact business and is in good
standing in any other state in which it conducts business;
(e) UCC searches, tax lien and litigation searches, fictitious
business statement filings, insurance certificates, notices or other similar
documents which Bank may require and in such form as Bank may require, in order
to reflect, perfect or protect Bank's first priority security interest in the
Collateral and in order to fully consummate all of the transactions contemplated
under this Agreement;
(f) Evidence that Borrower has obtained insurance and acceptable
endorsements; and
(g) Warranties and representations of officers.
6. WARRANTIES REPRESENTATIONS AND COVENANTS.
6.1 If so requested by Bank, Borrower shall, not more frequently than
once per calendar month, during the term hereof execute and deliver a Report of
Accounts Receivable or similar report, in form customarily used by Bank.
Borrower's Borrowing Base at all times pertinent hereto shall not be less than
the advances made hereunder when the Daily Balance exceeds $500,000. Bank shall
have the right to recompute Borrower's Borrowing Base in conformity with this
Agreement.
6.2 If any warranty is breached as to any account previously included
in the Borrowing Base, or any such account is not paid in full by an account
debtor within ninety (90) days from the date of invoice and such failure relates
to more than twenty-five percent (25%) of outstanding Receivables from such
account debtor, or an account debtor disputes liability, or a petition in
bankruptcy or other application for relief under the Bankruptcy Code or any
other insolvency law is filed by or against an account debtor, or an account
debtor makes an assignment for the benefit of creditors, becomes insolvent,
fails or goes out of business, then Bank may deem ineligible any and all
accounts owing by that account debtor, and reduce Borrower's Borrowing Base by
the amount thereof Bank may retain its security interest in all Receivables and
accounts, whether eligible or ineligible, until all Obligations have been fully
paid and satisfied. Returns and allowances, if any, as between Borrower and its
customers, will be on the same basis and in accordance with the usual customary
practices of the Borrower, as they exist at this time. Borrower shall promptly
notify Bank of all disputes and claims, relating to the Collateral, in excess of
$50,000. During the continuance of an Event of Default, no discount, credit or
allowance shall be granted to any account debtor by Borrower and no return of
merchandise shall be accepted by Borrower without Bank's consent. Bank may,
during the continuance of an Event of Default, settle or adjust disputes and
claims directly with account debtors for amounts and upon terms which Bank
considers advisable, and in such cases Bank will credit Borrower's account with
only the net amounts received by Bank in payment of the accounts, after
deducting all Bank Expenses in connection therewith.
6.3 Borrower warrants, represents, covenants and agrees that:
(a) Borrower has good and marketable title to the Collateral.
Bank has and shall continue to have a first priority perfected security interest
in and to the Collateral. The Collateral shall at all times remain free and
clear of all liens, encumbrances and security interests (except those in favor
of Bank and Permitted Liens).
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REVOLVING
LOAN & SECURITY AGREEMENT
(b) All Eligible Accounts are and will, at all times pertinent
hereto, be bona fide existing obligations created by the sale and delivery of
merchandise or the rendition of services to account debtors in the ordinary
course of business, free of liens, claims, encumbrances and security interests
(except as held by Bank and except as may be consented to, in writing, by Bank)
and are unconditionally owed to Borrower without defenses, disputes, offsets,
counterclaims, rights of return or cancellation, and Borrower shall have
received no notice of actual or imminent bankruptcy or insolvency of any account
debtor at the time an account due from such account debtor is assigned to Bank.
6.4 At the time each Eligible Account is assigned to Bank, such
Eligible Account will be due and payable on terms set forth in Section 1.12, or
on such other terms approved in writing by Bank in advance of the creation of
such accounts and which are expressly set forth on the face of all invoices,
copies of which shall be held by Borrower as custodian for Bank, and no such
Eligible Account will then be past due.
6.5 [Deleted]
6.6 Borrower represents, warrants and covenants with Bank that
Borrower will not, without Bank's prior written consent:
(a) Convey, sell, lease, transfer or otherwise dispose of
(collectively, a "Transfer"), or permit any of its Subsidiaries to Transfer, all
or any part of its business or property, other than: (i) Transfers of Inventory
in the ordinary course of business; (ii) Transfers of non-exclusive licenses
granted in the ordinary course of business and similar arrangements for the use
of the property of Borrower or its Subsidiaries by licensee(s); (iii) Transfers
of worn-out or obsolete Equipment, (iv) transfers in connection with Permitted
Indebtedness or (iv) other Transfers not exceeding One Million Dollars
($1,000,000) in the aggregate in any fiscal year, provided that in each such
case an Event of Default does not exist before or after giving effect to such
Transfer;
(b) Engage in any business, or permit any of its Subsidiaries to
engage in any business, other than the businesses currently engaged in by
Borrower and any business substantially similar or related thereto (or
incidental thereto). Borrower will not, without thirty (30) days prior written
notification to Bank, relocate its chief executive office;
(c) Merge or consolidate, or permit any of its Subsidiaries to
merge or consolidate, with or into any other business organization, or acquire,
or permit any of its Subsidiaries to acquire, all or substantially all of the
capital stock or property of another Person; provided that without Bank's
consent, (i) any Subsidiary may merge into Borrower or another Subsidiary, and
(ii) Borrower may merge or consolidate with another entity, or acquire all or
substantially all of the capital stock or property of another Person where the
aggregate consideration in such merger, consideration or acquisition consists of
not more than Ten Million Dollars ($ 10,000,000) of Borrower's capital stock or
not more than Five Million Dollars ($5,000,000) in cash, so long as Borrower in
any case is the surviving entity after giving effect to such transaction.
(d) Create, incur, assume or be or remain liable with respect to
any Indebtedness, or permit any Subsidiary so to do, other than Permitted
Indebtedness;
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LOAN & SECURITY AGREEMENT
(e) Create, incur, assume or suffer to exist any Lien with
respect to any of its property, or assign or otherwise convey any right to
receive income, including the sale of any Accounts, or permit any of its
Subsidiaries so to do, except for Permitted Liens;
(f) Pay any dividends or make any other distribution or payment
on account of or in redemption, retirement or purchase of any capital stock,
other than, for so long as an Event of Default has not occurred or would not
exist after giving effect to such transaction, payments made for the repurchase
of stock or the exercise of options effected in connection with the termination
of an employee, officer or director;
(g) Directly or indirectly acquire, or make any Investment in or
to any Person, or permit any of its Subsidiaries so to do, other than Permitted
Investments;
(h) Directly or indirectly enter into or permit to exist any
material transaction with any Affiliate of Borrower except for transactions that
are in the ordinary course of Borrower's business, upon fair and reasonable
terms that are no less favorable to Borrower than would be obtained in an arm's
length transaction with a nonaffiliated Person;
(i) Make any payment in respect of any Subordinated Debt, or
permit any of its Subsidiaries to make any such payment, except in compliance
with the terms of such Subordinated Debt, or amend any provision contained in
any documentation relating to the Subordinated Debt without Bank's prior written
consent;
Become an "investment company" or become "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
or become principally engaged in, or undertake as one of its important
activities, the business of extending credit for the purpose of purchasing or
carrying margin stock, or use the proceeds of any Term Advance for such purpose.
Fail to meet the minimum funding requirements of ERISA, permit a Reportable
Event or Prohibited Transaction, as defined in ERISA, to occur, fail to comply
with the Federal Fair Labor Standards Act or violate any law or regulation,
which violation could have a Material Adverse Effect or a material adverse
effect on the Collateral or the priority of Bank's Lien on the Collateral, or
permit any of its Subsidiaries to do any of the foregoing; or
6.7 Borrower is not a merchant whose sales for resale of goods for
personal, family or household purposes exceeded seventy-five percent (75%) in
dollar volume of its total sales of all goods during the 12 months preceding the
filing by Bank of a financing statement describing the Collateral. At no time
hereafter shall Borrower's sales for resale of goods for personal, family or
household purposes exceed seventy-five (75%) in dollar volume of its total
sales.
6.8 Except as disclosed in writing to Bank, Borrower's sole place of
business or chief executive office or residence is located at the address
indicated above and Borrower covenants and agrees that it will not, during the
term of this Agreement, without prior written notification to Bank, relocate
said sole place of business or chief executive office or residence.
6.9 Borrower represents, warrants and covenants as follows:
(a) [Deleted]
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LOAN & SECURITY AGREEMENT
(b) Borrower is and shall at all times hereafter be a corporation
duly organized and existing in good standing under the laws of the state of its
incorporation and qualified and licensed to do business in California or any
other state in which it conducts its business;
(c) Borrower has the right and power and is duly authorized to
enter into this Agreement; and
(d) The execution by Borrower of this Agreement shall not
constitute a breach of any provision contained in Borrower's articles of
incorporation or by-laws.
6.10 The execution of and performance by Borrower of all of the terms
and provisions contained in this Agreement shall not result in a breach of or
constitute an event of default under any agreement to which Borrower is now or
hereafter becomes a party.
6.11 [Deleted]
6.12 All assessments and taxes, whether real, personal or otherwise,
due or payable by, or imposed, levied or assessed against, Borrower or any of
its property have been paid, and shall hereafter be paid in full, before
delinquency. Borrower shall make due and timely payment or deposit of all
federal, state and local taxes, assessments or contributions required of it by
law, and will execute and deliver to Bank, on demand, appropriate certificates
attesting to the payment or deposit thereof. Borrower will make timely payment
or deposit of all F.I.C.A. payments and withholding taxes required of it by
applicable laws, and will upon request furnish Bank with proof satisfactory to
it that Borrower has made such payments or deposit. If Borrower fails to pay any
such assessment, tax, contribution, or make such deposit, or furnish the
required proof, Bank may, in its sole and absolute discretion, and without
notice to Borrower, (i) make payment of the same or any part thereof; or (ii)
set up such reserves in Borrower's account as Bank deems necessary to satisfy
the liability therefor, or both. Bank may conclusively rely on the usual
statements of the amount owing or other official statements issued by the
appropriate governmental agency. Each amount so paid or deposited by Banks shall
constitute a Bank Expense and an additional advance to Borrower.
6.13 There are no actions or proceedings pending by or against
Borrower or any guarantor of Borrower before any court or administrative agency
and Borrower has no knowledge of any pending, threatened or imminent litigation,
governmental investigations or claims, complaints, actions or prosecutions
involving Borrower or any guarantor of Borrower, except as heretofore
specifically disclosed in writing to Bank. If any of the foregoing arise during
the term of the Agreement, Borrower shall immediately notify Bank in writing.
6.14 (a) Borrower, at its expense, shall keep and maintain its assets
insured against loss or damage by fire, theft, explosion, sprinklers and all
other hazards and risks ordinarily insured against by other owners who use such
properties in similar businesses for the full insurable value thereof Borrower
shall also keep and maintain business interruption insurance and public
liability and property damage insurance relating to Borrower's ownership and use
of the Collateral and its other assets. All such policies of insurance shall be
in such form, with such companies, and in such amounts as may be satisfactory to
Bank. Borrower shall deliver to Bank certified copies of such policies of
insurance and evidence of the payments of all premiums therefor. All such
policies of insurance (except those of public liability and property damage)
shall contain an endorsement in a form satisfactory to Bank showing Bank as a
loss payee thereof in respect of the Collateral, with a waiver of warranties
(Form 438-BFU), and all
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REVOLVING
LOAN & SECURITY AGREEMENT
proceeds payable thereunder shall be payable to Bank and, upon receipt by Bank,
shall be applied on account of the Obligations owing to Bank. To secure the
payment of the Obligations, Borrower grants Bank a security interest in and to
all such policies of insurance (except those of public liability and property
damage) and the proceeds thereof, and Borrower shall direct all insurers under
such policies of insurance to pay all proceeds thereof directly to Bank.
(b) During the continuance of an Event of Default, Borrower
hereby irrevocably appoints Bank (and any of Bank's officers, employees or
agents designated by Bank) as Borrower's attorney for the purpose of making,
selling and adjusting claims under such policies of insurance, endorsing the
name of Borrower or any check, draft, instrument or other item of payment for
the proceeds of such policies of insurance and for making all determinations and
decisions with respect to such policies of insurance. Borrower will not cancel
any of such policies without Bank's prior written consent. Each such insurer
shall agree by endorsement upon the policy or policies of insurance issued by it
to Borrower as required above, or by independent instruments furnished to Bank,
that it will give Bank at least ten (10) days written notice before any such
policy or policies of insurance shall be altered or canceled, and that no act or
default of Borrower, or any other person, shall affect the right of Bank to
recover under such policy or policies of insurance required above or to pay any
premium in whole or in part relating thereto. Bank, without waiving or releasing
any Obligations or any Event of Default, may, but shall have no obligation to do
so, obtain and maintain such policies of insurance and pay such premiums and
take any other action with respect to such policies which Bank deems advisable.
All sums so disbursed by Bank, as well as reasonable attorneys' fees, court
costs, expenses and other charges relating thereto, shall constitute Bank
Expenses and are payable on demand.
6.15 All financial statements and information relating to Borrower
which have been or may hereafter be delivered by Borrower to Bank are true and
correct and have been prepared in accordance with GAAP consistently applied and
there has been no material adverse change in the financial condition of Borrower
since the submission of such financial information to Bank.
6.16 (a) Borrower at all times hereafter shall maintain a standard
and modem system of accounting in accordance with GAAP consistently applied with
ledger and account cards and/or computer tapes and computer disks, computer
printouts and computer records pertaining to the Collateral which contain
information as may from time to time be requested by Bank, not modify or change
its method of accounting or enter into, modify or terminate any agreement
presently existing, or at any time hereafter entered into with any third party
accounting firm and/or service bureau for the preparation and/or storage of
Borrower's accounting records without the written consent of Bank first obtained
and without said accounting firm and/or service bureau agreeing to provide
information regarding the Receivables and Inventory and Borrower's financial
condition to Bank; permit Bank and any of its employees, officers or agents,
upon demand, during Borrower's usual business hours, or the .usual business hour
of third persons having control thereof, to have access to and examine all of
the Borrower's Books relating to the Collateral, Borrower's Obligations to Bank,
Borrower's financial condition and the results of Borrower's operations and in
connection therewith, permit Bank or any of its agents, employees or officers to
copy and make extracts therefrom.
(b) Borrower shall deliver to Bank within twenty (20) days after
the end of each month, a company prepared balance sheet and profit and loss
statement covering Borrower's operations (together with a compliance
certificate), and deliver to Bank within one hundred twenty (120) days after the
end of each of Borrower's fiscal year a statement of the financial condition of
the Borrower for each such fiscal year audited by an independent certified
public accountant reasonably satisfactory to
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REVOLVING
LOAN & SECURITY AGREEMENT
Bank, including but not limited to,
a balance sheet and profit and loss statement and any other report requested by
Bank relating to the Collateral and the financial condition of Borrower, and a
certificate signed by an authorized employee of Borrower to the effect that all
reports, statements, computer disk or tape files, computer printouts, computer
runs, or other computer prepared information of any kind or nature relating to
the foregoing or documents delivered or caused to be delivered to Bank under
this subparagraph are complete, correct and fairly present the financial
condition of Borrower and that there exists on the date of delivery to Bank no
condition or event which constitutes an Event of Default under this Agreement.
(c) In addition to the financial statements requested above, the
Borrower agrees to provide Bank with the following schedules:
XX Accounts Payable Agings on a monthly basis within 20 days of
- ------------ month end;
XX Borrowing Base Certificate on a monthly basis.
- ------------
XX Projections or other financial exhibits upon request.
- ------------
XX Semi-annual Accounts Receivable audits at Borrower's expense.
- ------------
6.17 Borrower shall maintain, as of the last day of each calendar
month, the following financial ratios and covenants on a consolidated and
non-consolidated basis:
(a) Tangible Effective Net Worth in an amount not less than
$17,000,000, to step up by 50% of all profits earned, new equity or subordinated
debt issued after the date hereof, other than equity issued to officers,
directors or employees.
(b) A quick ratio of unrestricted cash equivalents plus
securities plus Receivables to Current Liabilities not less than 2.50: 1.00,
Current Liabilities to include outstandings under the Line of Credit.
(c) A ratio of Total Liabilities (less debt subordinated to Bank)
to Tangible Effective Net Worth of less than 1.50: 1.00.
(d) Borrower shall not without Bank's prior written consent
acquire or expend for or commit itself to acquire or expend for fixed assets by
lease, purchase or otherwise in an aggregate principal (or imputed principal)
amount that exceeds Four Million Dollars ($4,000,000) in any fiscal year;
(e) Borrower shall not incur aggregate additional obligations on
account of leased or financed equipment in excess of $1,500,000 per fiscal year
(other than Equipment financed by Bank); and
(f) Borrower shall maintain more than eighty percent (80%) of its
assets (measured by fair market value) in the United States, not including
Receivables and Intangibles owing by foreign entities to Borrower.
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REVOLVING
LOAN & SECURITY AGREEMENT
All financial covenants shall be computed in accordance with GAAP
consistently applied except as otherwise specifically set forth in this
Agreement. All monies due from Affiliates (including officers, directors and
shareholders) shall be excluded from Borrower's assets for all purposes
hereunder.
6.18 Borrower shall promptly supply Bank (and cause any guarantor to
supply Bank) with such other information (including tax returns) concerning its
financial affairs (or that of any guarantor) as Bank may request from time to
time hereafter, and shall promptly notify Bank of any material adverse change in
Borrower's financial condition and of any condition or event which constitute a
breach of or an event which constitutes an Event of Default under this
Agreement.
6.19 Borrower is now and shall be at all times hereafter solvent and
able to pay its debts (including trade debts) as they mature.
6.20 Borrower shall immediately and without demand reimburse Bank for
all sums expended by Bank in connection with any act brought by Bank to correct
any default or enforce any provision of this Agreement, including all Bank
Expenses; Borrower authorizes and approves all advances and payments by Bank for
items described in this Agreement as Bank Expenses.
6.21 Each warranty, representation and agreement contained in this
Agreement shall be automatically deemed repeated with each advance and shall be
conclusively presumed to have been relied on by Bank regardless of any
investigation made or information possessed by Bank. The warranties,
representations and agreements set forth herein shall be cumulative and in
addition to any and all other warranties, representations and agreements which
Borrower shall give, or cause to be given, to Bank either now or hereafter.
6.22 Borrower shall keep all of its primary operating accounts with
Bank and shall notify Bank in writing within thirty (30) days after opening any
other bank account, deposit account or any other account into which money can be
deposited.
6.23 Borrower shall furnish to the Bank: (a) as soon as possible, but
in no event later than thirty (30) days after Borrower knows or has reason to
know that `any reportable event with respect to any deferred compensation plan
has occurred, a statement of chief financial officer of Borrower setting forth
the details concerning such reportable event and the action which Borrower
proposes to take with respect thereto, together with a copy of the notice of
such reportable event given to the Pension Benefit Guaranty Corporation, if a
copy of such notice is available to Borrower; (b) promptly after the filing
thereof with the United States Secretary of Labor or the Pension Benefit
Guaranty Corporation, copies of each annual report with respect to each deferred
compensation plan; (c) promptly after receipt thereof, a copy of any notice
Borrower may receive from the Pension Benefit Guaranty Corporation or the
Internal Revenue Service with respect to any deferred compensation plan;
provided, however, this subparagraph shall not apply to notice of general
application issued by the Pension Benefit Guaranty Corporation or the Internal
Revenue Service; and (d) when the same is made available to participants in the
deferred compensation plan, all notices and other forms of information from time
to time disseminated to the participants by the administrator of the deferred
compensation plan.
6.24 Borrower is now and shall at all times hereafter remain in
compliance with all material federal, state and municipal laws, regulations and
ordinances relating to the handling, treatment and disposal of toxic substances,
wastes and hazardous material and shall maintain all necessary authorizations
and permits.
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6.25 [Deleted]
6.26 [Deleted]
6.27 Borrower shall perform all acts reasonably necessary to ensure
that (a) Borrower and any business in which Borrower holds a substantial
interest, and (b) all customers, suppliers and vendors that are material to
Borrower's business, become Year 2000 Compliant in a timely manner, or shall
develop feasible contingency plans to address third-party failures to become
Year 2000 Compliant. Such acts shall include, without limitation, performing a
comprehensive review and assessment of all Borrower's systems and adopting a
detailed plan, with itemized budget, for the remediation, monitoring and testing
of such systems. As used in this paragraph, "Year 2000 Compliant" shall mean, in
regard to any entity, that all software, hardware, firmware, equipment, goods or
systems utilized by and material to the business operations or financial
condition of such entity, will properly perform date sensitive functions before,
during and after the year 2000. Borrower shall immediately upon request, provide
to Bank such certifications or other evidence of Borrower's compliance with the
terms of this paragraph as Bank may from time to time require.
6.28 None of Borrower's or any Subsidiary's properties or assets has
ever been used by Borrower or any Subsidiary or, to the best of Borrower's
knowledge, by previous owners or operators, in the disposal of, or to produce,
store, handle, treat, release, or transport, any hazardous waste or hazardous
substance other than in accordance with applicable law; to the best of
Borrower's knowledge, none of Borrower's properties or assets has ever been
designated or identified in any manner pursuant to any environmental protection
statute as a hazardous waste or hazardous substance disposal site, or a
candidate for closure pursuant to any environmental protection statute; no lien
arising under any environmental protection statute has attached to any revenues
or to any real or personal property owned by Borrower or any Subsidiary; and
neither Borrower nor any Subsidiary has received a summons, citation, notice, or
directive from the Environmental Protection Agency or any other federal, state
or other governmental agency concerning any action or omission by Borrower or
any Subsidiary resulting in the releasing, or otherwise disposing of hazardous
waste or hazardous substances into the environment.
7. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute a default by
Borrower under this Agreement:
(a) If Borrower fails or neglects to comply with any provision of
sections 6.6, 6.16 or 6.17 hereof, or fails or neglects to perform, keep or
observe any other covenant or agreement contained in this Agreement, or any
other present or future agreement between Borrower and Bank, and as to such
other covenant or agreement such failure continues for more than ten (10) days;
provided, however, that if the default cannot by its nature be cured within the
ten (10) day period or cannot after diligent attempts by Borrower to be cured
within such ten (10) day period, and such default is likely to be cured within a
reasonable time, then Borrower shall have an additional reasonable period (which
shall not in any case exceed, thirty (30) days) to attempt to cure such default,
and within such reasonable time period the failure to have cured such default
shall not be deemed an Event of Default (provided that no Advances, Equipment
Advances or Letters of Credit will be made or issued during such cure period);
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LOAN & SECURITY AGREEMENT
(b) If any representation, statement, report or certificate made
or delivered by Borrower, or any of its officers, employees or agents to Bank is
not true in any material respect;
(c) If Borrower fails to pay when due and payable or declared due
and payable, all or any portion of the Borrower's obligations (whether of
principal, interest, taxes, reimbursement of Bank Expenses, or otherwise);
(d) If there is a material impairment of the prospect of
repayment of all or any portion of Borrower's Obligations or a material
impairment of the value or priority of Bank's security interest in the
Collateral;
(e) If all or any of Borrower's assets are attached, seized,
subject to a writ or distress warrant, or are levied upon, or come into the
possession of any Judicial Officer or Assignee and the same are not released,
discharged or bonded against within twenty (20) days thereafter;
(f) If any Insolvency Proceeding is filed or commenced by or
against Borrower without being dismissed within thirty (30) days thereafter;
(g) If any proceeding is filed or commenced by Borrower for its
dissolution or liquidation, or against Borrower and is not dismissed within
thirty (30) days;
(h) If Borrower is enjoined, restrained or in any way prevented
by court order from continuing to conduct all or any material part of its
business affairs;
(i) If a notice of lien, levy or assessment is filed of record
with respect to any or all of Borrower's assets by the United States Government,
or any department, agency or instrumentality thereof, or by any state, county,
municipal or other government agency, or if any taxes or debts owing at any time
hereafter to any one or more of such entities becomes a lien, whether choate or
otherwise, upon any or all of the Borrower's assets and the same is not paid on
the payment date thereof,
(j) If a judgment or other claim becomes a lien or encumbrance
upon any or all of Borrower's assets and the same is not satisfied, dismissed or
bonded against within ten (10) days thereafter;
(k) If Borrower's records are prepared and kept by an outside
computer service bureau at the time this Agreement is entered into or during the
term of this Agreement such an agreement with an outside service bureau is
entered into, and at any time thereafter, without first obtaining the written
consent of Bank, Borrower terminates, modifies, amends or changes its
contractual relationship with said computer service bureau or said computer
service bureau fails to provide Bank with any request information or financial
data pertaining to Bank's Collateral, Borrower's financial condition or the
results of Borrower's operations;
(1) If Borrower permits a default in any material agreement to
which Borrower is a party with third parties so as to result in an acceleration
of the maturity of Borrower's indebtedness to others, whether under any
indenture, agreement or otherwise of an amount in excess of Two Hundred Fifty
Thousand Dollars ($250,000);
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LOAN & SECURITY AGREEMENT
(m) If Borrower makes any payment on account of indebtedness
which has been subordinated to Borrower's Obligations to Bank in violation of
the terms of such subordination;
(n) If any misrepresentation exists now or hereafter in any
warranty or representation made by Bank by any officer or director of Borrower,
or if any such warranty or representation is withdrawn by any officer or
director;
(o) If any party subordinating its claims to that of Bank's or
any guarantor of Borrower's Obligations dies or terminates its subordination or
guaranty, becomes insolvent or an Insolvency Proceeding is commenced by or
against any such subordinating party or guarantor;
(p) If any reportable event, which the Bank determines
constitutes grounds for the termination of any deferred compensation plan by the
Pension Benefit Guaranty Corporation or for the appointment by the appropriate
United States District Court of a trustee to administer any such plan, shall
have occurred and be continuing thirty (30) days after written notice of such
determination shall have been given to Borrower by Bank, or any such Plan shall
be terminated within the meaning of Title IV of the Employment Retirement Income
Security Act ("ERISA"), or a trustee shall be appointed by the appropriate
United States District Court to administer any such plan, or the Pension Benefit
Guaranty Corporation shall institute proceedings to terminate any plan and in
case of any event described in this Section 7, the aggregate amount of the
Borrower's liability to the Pension Benefit Guaranty Corporation under Sections
4062, 4063 or 4064 of ERISA shall exceed five percent (5%) of Borrower's
Tangible Effective Net Worth.
Notwithstanding anything contained in Section 7 to the contrary, Bank
shall refrain from exercising its rights and remedies and Event of Default shall
thereafter not be deemed to have occurred by reason of the occurrence of any of
the events set forth in Sections 7.e, 7.f or 7.j of this Agreement if, within
ten (10) days from the date thereof, the same is released, discharged,
dismissed, bonded against or satisfied; provided, however, if the event is the
institution of Insolvency Proceedings against Borrower, Bank shall not be
obligated to make advances to Borrower during such cure period.
8. BANK'S RIGHTS AND REMEDIES.
8.1 Upon the occurrence of an Event of Default by Borrower under this
Agreement, Bank may, at its election, without notice of its election and without
demand, do any one or more of the following, all of which are authorized by
Borrower:
(a) Declare Borrower's Obligations, whether evidenced by this
Agreement, installment notes, demand notes or otherwise, immediately due and
payable to the Bank;
(b) Cease advancing money or extending credit to or for the
benefit of Borrower under this Agreement, or any other agreement between
Borrower and Bank;
(c) Terminate this Agreement as to any future liability or
obligation of Bank, but without affecting Bank's rights and security interests
in the Collateral, and the Obligations of Borrower to Bank;
(d) Without notice to or demand upon Borrower or any guarantor,
make such payments and do such acts as Bank considers necessary or reasonable to
protect its security interest in the
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<PAGE> 23
REVOLVING
LOAN & SECURITY AGREEMENT
Collateral. Borrower agrees to assemble the Collateral if Bank so requires and
to make the Collateral available to Bank as Bank may designate. Borrower
authorizes Bank to enter the premises where the Collateral is located, take and
maintain possession of the Collateral and the premises (at no charge to Bank),
or any part thereof, and to pay, purchase, contest or compromise any
encumbrance, charge or lien which in the opinion of Bank appears to be prior or
superior to its security interest and to pay all expenses incurred in connection
therewith;
(e) Without limiting Bank's rights under any security interest,
Bank is hereby granted a license or other right to use, without charge,
Borrower's labels, patents, copyrights, rights of use of any name, trade secret,
trade names, trademarks and advertising matter, or any property of a similar
nature as it pertains to the Collateral, in completing production of,
advertising for sale and selling any Collateral and Borrower's rights under all
licenses and all franchise agreement shall inure to Bank's benefit, and Bank
shall have the right and power to enter into sublicense agreements with respect
to all such rights with third parties on terms acceptable to Bank;
(f) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sales and sell (in the manner provided for
herein) the Inventory;
(g) Sell or dispose the Collateral at either a public or private
sale, or both, by way of one or more contracts or transactions, for cash or on
terms, in such manner and at such places (including Borrower's premises) as is
commercially reasonable in the opinion of Bank. It is not necessary that the
Collateral be present at any such sale;
(h) Bank shall give notice of the disposition of the Collateral
as follows:
(i) Bank shall give the Borrower and each holder of a
security interest in the Collateral who has filed with Bank a written request
for notice, a notice in writing of the time and place of public sale, or, if the
sale is a private sale or some disposition other than a public sale is to be
made of the Collateral, the time on or after which the private sale or the
disposition is to be made;
(ii) The notice shall be personally delivered or mailed,
postage prepaid, to Borrower's address appearing in this Agreement, at least
five (5) calendar days before the date fixed for the sale, or at least five (5)
calendar days before the date on or after which the private sale .or other
disposition is to be made, unless the Collateral is perishable or threatens to
decline speedily in value. Notice to persons other than Borrower claiming an
interest in the Collateral shall be sent to such addresses as they have
furnished to Bank;
(iii) If the sale is to be a public sale, Bank shall also
give notice of the time and place by publishing a notice one time at least five
(5) calendar days before the date of this sale in a newspaper of general
circulation in the county in which the sale is to be held; and
(iv) Bank may credit bid and purchase at any public sale.
(i) Borrower shall pay all Bank Expenses incurred in connection
with Bank's enforcement and exercise of any of its rights and remedies as herein
provided, whether or not suit is commenced by Bank;
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REVOLVING
LOAN & SECURITY AGREEMENT
(j) Any deficiency which exists after disposition of the
Collateral as provided above will be paid immediately by Borrower. Any excess
will be returned, without interest and subject to the rights of third parties,
to Borrower by Bank, or, in Bank's discretion, to any party who Bank believes,
in good faith, is entitled to the excess; and
(k) Without constituting a retention of Collateral in
satisfaction of an obligation within the meaning of 9505 of the Uniform
Commercial Code or an action under California Code of Civil Procedure 726, apply
any and all amounts maintained by Borrower as deposit accounts (as that term is
defined under 9105 of the Uniform Commercial Code) or other accounts that
Borrower maintains with Bank against the Obligations.
8.2 Bank's rights and remedies under this Agreement and all other
agreements shall be cumulative. Bank shall have all other rights and remedies
not inconsistent herewith as provided by law or in equity. No exercise by Bank
of one right or remedy shall be deemed an election, and no waiver by Bank of any
default on Borrower's part shall be deemed a continuing waiver. No delay by Bank
shall constitute a waiver, election or acquiescence by Bank.
9. TAXES AND EXPENSES REGARDING BORROWER'S PROPERTY.
If Borrower fails to pay promptly when due to another person or
entity, monies which Borrower is required to pay by reason of any provision in
this Agreement, Bank may, but need not, pay the same and charge Borrower's
account therefor, and Borrower shall promptly reimburse Bank. All such sums
shall become additional indebtedness owing to Bank, shall bear interest at the
rate hereinabove provided, and shall be secured by all Collateral. Any payments
made by Bank shall not constitute (i) an agreement by it to make similar
payments in the future; or (ii) a waiver by Bank of any default under this
Agreement. Bank need not inquire as to, or contest the validity of, any such
expense, tax security interest, encumbrance or lien and the receipt of the usual
official notice of the payment thereof shall be conclusive evidence that the
same was validly due and owing. Such payments shall constitute Bank Expenses and
additional advances to Borrower.
10. WAIVERS.
10.1 Borrower agrees that checks and other instruments received by
Bank in payment or on account of Borrower's Obligations constitute only
conditional payment until such items are actually paid to Bank and Borrower
waives the right to direct the application of any and all payments at any time
or times hereafter received by Bank on account of Borrower's Obligations and
Borrower agrees that Bank shall have the continuing exclusive right to apply and
reapply such payments in any manner as Bank may deem advisable, notwithstanding
any entry by Bank upon its books.
10.2 Borrower waives demand, protest, notice of protest, notice of
default or dishonor, notice of payment and nonpayment, notice of any default,
nonpayment at maturity, release, compromise, settlement, extension or renewal of
any or all commercial paper, accounts, documents, instruments, chattel paper,
and guarantees at any time held by Bank on which Borrower may in any way be
liable.
10.3 Bank shall not in any way or manner be liable or responsible for
(a) the safekeeping of the Inventory; (b) any loss or damage thereto occurring
or arising in any manner or fashion from any cause; (c) any diminution in the
value thereof-, or (d) any act or default of any carrier,
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<PAGE> 25
REVOLVING
LOAN & SECURITY AGREEMENT
warehouseman, bailee, forwarding agency or other person whomsoever. All risk of
loss, damage or destruction of Inventory shall be borne by Borrower.
10.4 Borrower waives the right and the right to assert a confidential
relationship, if any, it may have with any accountant, accounting firm and/or
service bureau in connection with any information requested by Bank pursuant to
or in accordance with this Agreement, and agrees that a Bank may contact
directly any such accountants, accounting firm and/or service bureau in order to
obtain such information. Borrower consents to Bank's responding to credit
inquiries with respect to Borrower.
10.5 BORROWER AND BANK EACH WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY
ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY TRANSACTION HEREUNDER, OR
CONTEMPLATED HEREUNDER, OR ANY OTHER CLAIM (INCLUDING TORT OR BREACH OF DUTY
CLAIMS) OR DISPUTE HOWSOEVER ARISING BETWEEN BANK AND BORROWER.
10.6 In the event that Bank elects to waive any rights or remedies
hereunder, or compliance with any of the terms hereof, or delays or fails to
pursue or enforce any terms, such waiver, delay or failure to pursue or enforce
shall only be effective with respect to that single act and shall not be
construed to affect any subsequent transactions or Bank's right to later pursue
such rights and remedies.
11. ONE CONTINUING LOAN TRANSACTION.
All loans and advances heretofore, now or at any time or times
hereafter made by Bank to Borrower under this Agreement or any other agreement
between Bank and Borrower, shall constitute one loan secured by Bank's security
interests in the Collateral and by all other security interests, liens,
encumbrances heretofore, now or from time to time hereafter granted by Borrower
to Bank.
Notwithstanding the above, (i) to the extent that any portion of the
Obligations are a consumer loan, that portion shall not be secured by any deed
or trust or mortgage on or other security interest in the Borrower's principal
dwelling which is not a purchase money security interest as to that portion,
unless expressly provided to the contrary in another place, or (ii) if the
Borrower (or any of them) has (have) given or give(s) Bank a deed of trust or
mortgage covering real property, that deed of trust or mortgage shall not secure
the loan and any other Obligation of the Borrower (or any of them), unless
expressly provided to the contrary in another place.
12. NOTICES.
Unless otherwise provided in this Agreement, all notices or demands
by either party on the other relating to this Agreement shall be in writing and
sent by facsimile transmission, overnight courier service, or regular United
States mail, postage prepaid, properly addressed to Borrower or to Bank at the
addresses stated in this Agreement, or to such other addresses as Borrower or
Bank may from time to time specify to the other in writing. Requests to Borrower
by Bank hereunder may be made orally.
13. AUTHORIZATION TO DISBURSE.
Bank is hereby authorized to make loans and advances hereunder upon
telephonic or other instructions received from anyone purporting to be an
officer, employee, or representative of Borrower, or at the discretion of Bank
if said loans and advances are necessary to meet any Obligations of
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REVOLVING
LOAN & SECURITY AGREEMENT
Borrower to Bank. Bank shall have no duty to make inquiry or verify the
authority of any such party, and Borrower shall hold the Bank harmless from any
damage, claims or liability by reason of Bank's honor of, or failure to honor,
any such instructions.
14. DESTRUCTION OF BORROWER'S DOCUMENTS.
Any documents, schedules, invoices or other papers delivered to
Bank, may be destroyed or otherwise disposed of by Bank six (6) months after
they are delivered to or received by Bank, unless Borrower requests, in writing,
the return of the said documents, schedules, invoices or other papers and makes
arrangements, at Borrower's expense, for their return.
15. CHOICE OF LAW.
The validity of this Agreement, its construction, interpretation and
enforcement, and the rights of the parties hereunder and concerning the
Collateral, shall be determined according to the laws of the State of
California. The parties agree that all actions or proceedings arising in
connection with this Agreement shall be tried and litigated only in the state
and federal courts in the Northern District of California or County of Santa
Clara.
16. GENERAL PROVISIONS.
16.1 This Agreement shall be binding and deemed effective when
executed by the Borrower and accepted and executed by Bank at its Headquarter
Office.
16.2 This Agreement shall bind and inure to the benefit of the
respective successors and assigns of each of the parties, provided, however,
that Borrower may not assign this Agreement or any rights hereunder without
Bank's prior written consent and any prohibited assignment shall be absolutely
void. No consent to an assignment by Bank shall release Borrower or any
guarantor from their Obligations to Bank. Bank may assign this Agreement and its
rights and duties hereunder. Bank reserves the right to sell, assign, transfer,
negotiate or grant participations in all or any part of, or any interest in
Bank's rights and benefits hereunder. In connection therewith, Bank may disclose
all documents and information which Bank now or hereafter may have relating to
Borrower or Borrower's business.
16.3 Paragraph headings and paragraph numbers have been set forth
herein for convenience only; unless the contrary is compelled by the context,
everything contained in each paragraph applies equally to this entire Agreement.
16.4 Neither this Agreement nor any uncertainty or ambiguity herein
shall be construed or resolved against Bank or Borrower, whether under any rule
of construction or otherwise; on the contrary, this Agreement has been reviewed
by all parties and shall be construed and interpreted according to the ordinary
meaning of the words used so as to fairly accomplish the purposes and intentions
of all parties hereto. When permitted by the context, the singular includes the
plural and vice versa.
16.5 Each provision of this Agreement shall be severable from every
other provision of this Agreement for the purpose of determining the legal
enforceability of any specific provision.
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LOAN & SECURITY AGREEMENT
16.6 This Agreement cannot be changed or terminated orally. Except as
to currently existing Obligations owing by Borrower to Bank, all prior
agreements, understandings, representations, warranties, and negotiations, if
any, with respect to the subject matter hereof, are merged into this Agreement.
16.7 The parties intend and agree that their respective rights,
duties, powers, liabilities, obligations and discretions shall be performed,
carried out, discharged and exercised reasonably and in good faith.
IN WITNESS WHEREOF, the parties hereto have caused this Revolving Credit
Loan & Security Agreement (Accounts and Inventory) to be executed as of the date
first hereinabove written.
ATTEST: BORROWER:
ACCELERATED NETWORKS, INC.
By: /s/ Frederic T. Boyer
- ----------------------------- -----------------------------
Title Signature of
Title: Chief Financial Officer
---------------------------
Accepted and effective as
of_______________at Bank's
Headquarters Office By:
-----------------------------
Signature of
Title:
----------------------------
BANK:
COMERICA BANK-CALIFORNIA
By: /s/ Thomas M. Hicks
-----------------------------
Signature of
Title: Vice President
--------------------------
By:
-----------------------------
Title:
---------------------------
27
<PAGE> 1
EXHIBIT 10.27
SENIOR LOAN AND SECURITY AGREEMENT NO. L6244
THIS SENIOR LOAN AND SECURITY AGREEMENT NO. L6244 (this "Security Agreement") is
dated as of May 28, 1999 between ACCELERATED NETWORKS, INC., a California
corporation ("Borrower") and PHOENIX LEASING INCORPORATED, a California
corporation ("Lender").
RECITALS
A. Borrower desires to borrow from Lender in one or more borrowings the
Commitment amount as defined in Section 3(a)(ii) below, and Lender desires to
loan, subject to the terms and conditions herein set forth, such amount to
Borrower (each, a "Loan" and collectively, the "Loans"). Such borrowings shall
be evidenced by one or more Senior Secured Promissory Notes (each, a "Note" and
collectively, the "Notes"), in the form attached hereto.
B. As security for Borrower's obligations to Lender under this Security
Agreement, the Notes and any other agreement between Borrower and Lender,
Borrower will grant to Lender hereunder a first priority security interest in
certain of its equipment, machinery, fixtures, other items and intangibles, in
each case, to the extent funded hereunder, including but not limited to lab and
text equipment high end computers, peripherals, workstations, servers, routers,
hubs, RAID's, office and phone equipment, and furniture, (and also certain
custom use equipment, installation and delivery costs, purchase tax, toolings,
software, tenant improvements and other items generally considered fungible or
expendable ("Soft Costs")) whether now owned by Borrower or hereafter acquired,
and all substitutions and replacements of and additions, improvements,
accessions and accumulations to said equipment, machinery and fixtures and other
items, together with all rents, issues, income, profits and proceeds therefrom
which is described on the Note attached hereto or any subsequently-executed Note
entered into by Lender and Borrower and which incorporates this Security
Agreement by reference (collectively, the "Collateral").
NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:
SECTION 1. TERM OF AGREEMENT. The term of this Security Agreement begins on the
date set forth above and shall continue thereafter and be in effect so long as
and at any time any Note entered into pursuant to this Security Agreement is in
effect. The Term and monthly payment amount payable with respect to each item of
Collateral shall be as set forth in and as stated in the respective Note(s). The
terms of each Note hereto are subject to all conditions and provisions of this
Security Agreement as it may at any time be amended. Each Note shall constitute
a separate and independent Loan and contractual obligation of Borrower and shall
incorporate the terms and conditions of this Security Agreement and any
additional provisions contained in such Note. In the event of a conflict between
the terms and conditions of this Security Agreement and any provisions of such
Note, the provisions of such Note shall prevail with respect to such Note only.
<PAGE> 2
SECTION 2. NON-CANCELABLE LOAN. This Security Agreement and each Note cannot be
canceled or terminated except as expressly provided herein. Borrower agrees that
its obligations to pay all monthly payment amounts and other sums payable
hereunder (and under any Note) and the rights of Lender and any assignee in and
to such monthly payment amounts and other sums, are absolute and unconditional
and are not subject to any abatement, reduction, setoff, defense, counterclaim
or recoupment due or alleged to be due to, or by reason of, any past, present or
future claims which Borrower may have against Lender, any assignee, the
manufacturer or seller of the Collateral, or against any person for any reason
whatsoever.
SECTION 3. LENDER COMMITMENT. (a) General Terms. Subject to the terms and
conditions of this Security Agreement Lender hereby agrees to make senior
secured Loans to Borrower, subject to the following conditions: (i) each Loan
shall be evidenced by a Note; (ii) the total principal amount of the Loans shall
not exceed $1,500,000 in the aggregate (the "Commitment") provided that no more
than 30% of the amount of the utilized Commitment may be used to finance Soft
Costs; (iii) the amount of each Loan shall be at least $25,000 except for a
final Loan which may be less than $25,000; (iv) Lender shall not be obligated to
make any Loan after June 30, 2000; (v) at the time of each Loan, no Event of
Default or event which with the giving of notice or passage of time, or both,
could become an Event of Default shall have occurred, as reasonably determined
by Lender, and certified by Borrower; (vi) at the time of each Loan, Borrower
has reimbursed Lender for all UCC filing and search costs, inspection and
labeling costs, and appraisal fees, if any, not covered by the Fee; (vii) for
each Loan, Borrower shall present to Lender a list of proposed Collateral for
approval by Lender in its sole discretion; (viii) for each Loan, Borrower shall
have provided Lender with each of the closing documents described in Exhibit A
hereto (which documents shall be in form and substance reasonably acceptable to
Lender); (ix) any failure of Borrower to perform in accordance with its business
plan referred to as "Accelerated Networks, Inc. 1999 AOP, 2000 and 2001
Forecast-Balance Sheet Statement of Operations and Statement of Cash Flow" dated
February 16, 1999 (the "Business Plan") (all quarterly figures will be prorated
to monthly), as may be amended from time to time in form and substance
acceptable to Lender is not a material adverse change as reasonably, determined
by Lender; (x) there shall be no material adverse change in Borrower's
condition, financial or otherwise, that would materially impair the ability of
Borrower to meet its payment and other obligations under this Loan (a "Material
Adverse Effect') as reasonably determined by Lender, and Borrower so certifies,
from (yy) the date of the most recent financial statements delivered prior to
such time by Borrower to Lender to (zz) the date of the proposed Loan; (xi)
Borrower shall use the proceeds of all Loans hereunder to purchase or reimburse
the purchase of Collateral; (xii) all Collateral has been marked and labeled by
Lender or Lender's agent; and (xiii) Lender has received in form and substance
acceptable to Lender: (a) unless previously delivered, Borrower's interim
financial statements signed by a financial officer of Borrower, (b) prior to the
first funding, Lender has confirmed Borrower's financial condition with evidence
satisfactory to Lender; and (c) unless previously delivered, complete copies of
the Borrower's audit reports for its most recent fiscal year, which shall
include at least Borrower's balance sheet as of the close of such year, and
Borrower's statement of income and retained earnings and of changes in financial
position for such year, prepared on a consolidated basis and certified by
independent public accountants. Such certificate shall not be qualified or
limited because of restricted or limited examination by such accountant of any
material portion of the
2
<PAGE> 3
company's records. Such reports shall be prepared in accordance with generally
accepted accounting principles and practices consistently applied.
(b) The Notes. Each Loan shall be evidenced by a Note. Each Note shall
bear interest and be payable at the times and in the manner provided therein.
Following payment of the Indebtedness related to each Note, Lender shall return
such Note, marked "cancelled," to Borrower. Borrower has the ability to prepay
any and all outstanding Notes in whole but not in part after twelve (12) months
from the date of such Note under this Security Agreement. The prepayment amount
shall be the sum of (i) and (ii) below, discounting the amounts in (ii) at a
rate of 6% per annum compounded monthly on the basis of a 360 day year: (i) all
amounts which may be then due or accrued to the payment date for all outstanding
Notes; (ii) as of such payment date, an amount equal to: (A) all remaining
monthly payments due under all outstanding Notes, and (B) 15% of the original
principal amount of any such outstanding Note calculated in accordance with
Election No. 1 in Section 29. The prepayment conditions are as follows: (a)
Borrower must provide Lender with at least five (5) days' advance written notice
of its intention to prepay; and (b) the prepayment date must fall on a regular
monthly payment date.
SECTION 4. SECURITY INTERESTS. (a) Borrower hereby grants to Lender a first
security interest in all Collateral; (b) This Security Agreement secures (i) the
payment of the principal of and interest on the Notes and all other sums due
thereunder and under this Security Agreement (the "Indebtedness") and (ii) the
performance by Borrower of all of its other covenants now or hereafter existing
under the Notes, this Security Agreement and any other obligation owed by
Borrower to Lender in connection with the transactions contemplated hereby (the
"Obligations").
SECTION 5. BORROWER'S REPRESENTATIONS AND WARRANTIES. Borrower represents and
warrants that (a) it is in good standing under the laws of the state of its
formation, duly qualified to do business and will remain duly qualified during
the term of each Loan in each state where necessary to carry on its present
business and operations, including the jurisdiction(s) where the Collateral will
be located as specified on each Exhibit A to each Note, except where failure to
be so qualified would not have a Material Adverse Effect; (b) it has fall
authority to execute and deliver this Security Agreement and the Notes and
perform the terms hereof and thereof, and this Security Agreement and the Notes
have been duly authorized, executed and delivered and constitute valid and
binding obligations of Borrower enforceable in accordance with their terms; (c)
the execution and delivery of this Security Agreement and the Notes will not
contravene any law, regulation or judgment affecting Borrower or result in any
breach of any material agreement or other instrument binding on Borrower; (d) no
consent of Borrower's shareholders or holder of any indebtedness, or filing
with, or approval of, any governmental agency or commission, which has not
already been obtained or performed, as appropriate, is a condition to the
performance of the terms of this Security Agreement or the Notes; (e) there is
no action or proceeding pending or threatened against Borrower before any court
or administrative agency which might have a Material Adverse Effect on the
business, financial condition or operations of Borrower; (f) at the time any
Loan is made hereunder, Borrower owns and will keep all of the Collateral free
and clear of all liens, claims and encumbrances, and, except for this Security
Agreement, there is no deed of trust, mortgage, security agreement or other
third party interest against any of the Collateral other than Permitted Liens
(as defined below); (g) at the time any Loan is made hereunder, Borrower has
good and marketable title to the Collateral; (h)
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at the time any Loan is made hereunder, all Collateral that is the subject of
that Loan has been received, installed and is ready for use and is satisfactory
in all respects for the purposes of this Security Agreement; (i) the Collateral
that is the subject of that Loan is, and will remain at all times under
applicable law, removable personal property, which is free and clear of any lien
or encumbrance except in favor of Lender other than Permitted Liens (as defined
below), notwithstanding the manner in which the Collateral may be attached to
any real property; 0) all credit and financial information submitted to Lender
herewith or at any other time is and will at the time given be true and correct
in all material respects; and (k) the security interest granted to Lender
hereunder is a first priority security interest subject to Permitted Liens, and
(1) on or before January 1, 2000, computer systems that are material to
Borrower's business or operations shall be Year 2000 performance compliant and
will thus be able to accurately process date data from, into and between the
twentieth and twenty-first centuries including leap year calculations.
"Permitted Liens" shall mean and include: (i) liens for taxes or other
governmental charges not at the time delinquent or thereafter payable without
penalty or being contested in good faith; and (ii) liens of carriers,
warehousemen, mechanics, materialmen, vendors, landlords and other liens arising
by operation of law incurred in the ordinary course of business.
SECTION 6. METHOD AND PLACE OF PAYMENT. Borrower shall pay to Lender, at such
address as Lender specifies in writing, all amounts payable to it under this
Security Agreement and the Notes.
SECTION 7. LOCATION; INSPECTION; LABELS. All of the Collateral funded by such
Note shall be located at the address (the "Collateral Location") shown on
Exhibit A to each Note and shall not be moved without Lender's prior written
consent which location shall in all events be within the United States. All of
the records regarding the Collateral shall be located at 301 Science Drive,
Moorpark, CA 93021, and/or such other location of which Borrower has given
notice to Lender in accordance with this Security Agreement. Lender shall have
the right to inspect Collateral, including records relating thereto, and
Borrower's books and records at any time (upon reasonable notification) during
regular business hours, such books and records t6 be maintained in accordance
with prudent industry practice. Borrower shall be responsible for all labor,
material and freight charges incurred in connection with any removal or
relocation of Collateral which-is requested by Borrower and consented to by
Lender, as well as for any charges due to the installation or moving of the
Collateral. Payments under the Notes and under this Security Agreement shall
continue during any period in which the Collateral is in transit during a
relocation. During Borrower's regular business hours and upon at least two days'
notice to Borrower, Lender or its agent shall mark and label Collateral, which
labels (to be provided by Lender) shall state that such Collateral is subject to
a security interest of Lender, and Borrower shall keep such labels on the
Collateral as so labeled.
SECTION 8. COLLATERAL MAINTENANCE. (a) General. Upon reasonable notice, Borrower
will permit Lender to inspect each item of Collateral and its maintenance
records during Borrower's regular business hours. Borrower will at its sole
expense comply with all applicable laws, rules, regulations, requirements and
orders with respect to the use, maintenance, repair, condition, storage and
operation of each item of Collateral. Any addition or improvement that is so
required or cannot be so removed will immediately become Collateral of Lender.
(b) Service and Repair. With respect to computer equipment, other than personal
computers,
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Borrower has entered into, and will maintain in effect, vendor's standard
maintenance contract or another contract satisfactory to Lender for a period
equal to the term of each Loan and extensions thereto which provides for the
maintenance of the Collateral in good condition and working order and repairs
and replacement of parts thereof, all in accordance with the terms of such
maintenance contract. Borrower shall have that Collateral certified for the
vendor's standard maintenance agreement before Lender acquires any interest in
the Collateral as provided in this Security Agreement. With respect to any other
Collateral, Borrower will at its sole expense maintain and service and repair
any damage to each item of Collateral in a manner consistent with prudent
industry practice and Borrower's own practice so that such item of Collateral is
at all times (i) in the same condition as when delivered to Borrower, except for
ordinary wear and tear, and (ii) in good operating order for the function
intended by its manufacturer's warranties and recommendations.
SECTION 9. LOSS OR DAMAGE. Borrower assumes the entire risk of loss to the
Collateral through use, operation or otherwise. Borrower hereby indemnifies and
holds harmless Lender from and against all claims, loss of Loan payments, costs,
damages, and expenses relating to or resulting from any loss, damage or
destruction of the Collateral, any such occurrence being hereinafter called a
"Casualty Occurrence." Notwithstanding any Casualty Occurrence, the Loan to
which such casualtied item of Collateral is subject shall continue in full force
and effect without any abatement in the monthly payment due. Borrower shall, at
its election, (a) no later than thirty (30) days after such Casualty Occurrence
repair the Collateral returning it to good operating condition, (b) no later
than thirty (30) days after such Casualty Occurrence replace the Collateral with
Collateral acceptable to Lender in its reasonable discretion, in good condition
and repair taking all steps required by Lender to perfect Lender's first
priority security interest therein, which replacement Collateral shall be
subject to the terms of this Security Agreement, or (c) on the next regular
monthly payment date which falls after such thirty (30) days, or if there is no
such payment date, thirty (30) days after such Casualty Occurrence pay to Lender
an amount equal to the Balance Due (as defined below) for each lost or damaged
item of Collateral. The Balance Due for each such item is the sum of: (i) all
amounts for each item which may be then due or accrued to the payment date, plus
(ii) as of such payment date, an amount equal to the product of the fraction
specified below times the sum of all remaining payments under the respective
Note, including the amount of any mandatory or optional payment required or
permitted to be paid by Borrower to Lender at the maturity of the Note
discounting to present value the amounts in (ii) at a rate of 6% per annum
compounded monthly on the basis of a 360 day year ("Discount Rate"). The
numerator of the fraction shall be the collateral value (as set forth on the
applicable Note) of the item and the denominator shall be the aggregate
collateral value of all items under the Note. Upon the making of such payments,
Lender shall release such item of Collateral from its lien hereunder.
SECTION 10. INSURANCE. Borrower at its expense shall keep the Collateral insured
against all risks of physical loss for at least the replacement value of the
Collateral and in no event for less than the amount payable following a Casualty
Occurrence (as provided in Section 9). Such insurance shall provide for a loss
payable endorsement to Lender and/or any assignee of Lender. Borrower shall
maintain commercial general liability insurance, including products liability
and completed -operations coverage, with respect to loss or damage for personal
injury, death or property damage in an amount not less than $2,000,000 in the
aggregate, naming Lender and/or
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Lender's assignee as additional insured. Such insurance shall contain insurer's
agreement to give thirty (30) days' advance written notice to Lender before
cancellation or material change of any policy of insurance. Borrower will
provide Lender and any assignee of Lender with a certificate of insurance from
the insurer evidencing Lender's or such assignee's interest in the policy of
insurance. Such insurance shall cover any Casualty Occurrence to any unit of
Collateral. Notwithstanding anything in Section 9 or this Section 10 to the
contrary, this Security Agreement and Borrower's obligations hereunder shall
remain in full force and effect with respect to any unit of Collateral which is
not subject to a Casualty Occurrence. If Borrower fails to provide or maintain
insurance as required herein, Lender shall have the right but shall not be
obligated, to obtain such insurance. In that event Borrower shall pay to Lender
the cost thereof.
SECTION 11. MISCELLANEOUS AFFIRMATIVE COVENANTS. So long as any portion of the
Indebtedness is unpaid and as long as any of the Obligations are outstanding
Borrower will: (a) duly pay all governmental taxes and assessments at the time
they become due and payable; provided, however, Borrower may contest the same in
good faith so long as no payment default by Borrower has occurred and is
continuing; (b) comply with all applicable material governmental laws, rules and
regulations relating to its business and the Collateral where a failure to
comply would have a Material Adverse Effect; (c) take no action to adversely
affect Lender's security interest in the Collateral as a first and prior
perfected security interest (d) furnish Lender with its annual audited financial
statements within one hundred twenty (120) days following the end of Borrower's
fiscal year, unaudited quarterly financial statements within sixty (60) days
after the end of each fiscal quarter, and including an income statement and
balance sheet all of which shall be certified by an officer of Borrower as true
and correct and shall be prepared in accordance with generally accepted
accounting principles consistently applied, and such other information as Lender
may reasonably request; and (e) promptly (but in no event more than five (5)
days after the occurrence of such event) notify Lender of any change in
Borrower's condition during the commitment period which constitutes a Material
Adverse Effect, and of the occurrence of any Event of Default.
SECTION 12. INDEMNITIES. Borrower will protect, indemnify and save harmless
Lender and any assignees from and against all liabilities, obligations, claims,
damages, penalties, causes of action, costs and expenses (including reasonable
attorneys' fees and expenses), imposed upon or incurred by or asserted against
Lender or any assignee of Lender by Borrower or any third party by reason of the
occurrence or existence (or alleged occurrence or existence) of any act or event
relating to or caused by any portion of the Collateral, or its purchase,
acceptance, possession, use, maintenance or transportation, including without
limitation, consequential or special damages of any kind, any failure on the
part of Borrower to perform or comply with any of the terms of this Security
Agreement or any Note, claims for latent or other defects, claims for patent,
trademark or copyright infringement and claims for personal injury, death or
property damage, including those based on Lender's negligence or strict
liability in tort and excluding only those based on Lender's gross negligence or
willful misconduct. In the event that any action, suit or proceeding is brought
against Lender by reason of any such occurrence, Borrower, upon Lender's
request, will, at Borrower's expense, resist and defend such action, suit or
proceeding or cause the same to be resisted and defended by counsel designated
and approved by Lender. Borrower's obligations under this Section 12 shall
survive the payment in full of all the
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Indebtedness and the performance of all Obligations with respect to acts or
events occurring or alleged to have occurred prior to the payment in full of all
the Indebtedness and the performance of all Obligations.
SECTION 13. TAXES. Borrower agrees to reimburse Lender (or pay directly if
instructed by Lender) and any assignee of Lender for, and to indemnify and hold
Lender and any assignee harmless from, all fees (including, but not limited to,
license, documentation, recording and registration fees), and all sales, use,
gross receipts, personal property, occupational, value added or other taxes,
levies, imposts, duties, assessments, charges, or withholdings of any nature
whatsoever, together with any penalties, fines, additions to tax, or interest
thereon (the foregoing collectively "Impositions"), except same as may be
attributable to Lender's income, arising at any time prior to or during the term
of any Notes or of this Security Agreement, or upon termination or early
termination of this Security Agreement and levied or imposed upon Lender
directly or otherwise by any Federal, state or local government in the United
States or by any foreign country or foreign or international taxing authority
upon or with respect to (a) the Collateral, (b) the exportation, importation,
registration, purchase, ownership, delivery, leasing, financing, possession,
use, operation, storage, maintenance, repair, return, sale, transfer of title,
or other disposition thereof, (c) the rentals, receipts, or earnings arising
from the Collateral, or any disposition of the rights to such rentals, receipts,
or earnings, (d) any payment pursuant to this Security Agreement or the Notes,
or (e) this Security Agreement the Notes or any transaction or any part hereof
or thereof.
SECTION 14. RELEASE OF LIENS. Upon payment of all of the Indebtedness and
performance of all of the Obligations, Lender shall execute UCC termination
statements and such other documents as Borrower shall reasonably request to
evidence the release of Lender's lien relating to the Collateral.
SECTION 15. ASSIGNMENT. WITHOUT LENDER'S PRIOR WRITTEN CONSENT WHICH CONSENT
WILL NOT BE UNREASONABLY WITHHELD OR DELAYED, BORROWER SHALL NOT (a) ASSIGN,
TRANSFER, PLEDGE, HYPOTHECATE OR OTHERWISE DISPOSE OF THIS SECURITY AGREEMENT,
ANY NOTE, ANY COLLATERAL, OR ANY INTEREST THEREIN, (b) LEASE OR LEND COLLATERAL
OR PERMIT IT TO BE USED BY ANYONE OTHER THAN BORROWER OR BORROWER'S EMPLOYEES,
CONTRACTORS AND AGENTS OR (c) MERGE INTO, CONSOLIDATE WITH OR CONVEY OR TRANSFER
ITS PROPERTIES SUBSTANTIALLY AS AN ENTIRETY TO ANY OTHER PERSON OR ENTITY EXCEPT
TO A SUCCESSOR IN INTEREST TO ALL OR SUBSTANTIALLY ALL OF THE BUSINESS OF
BORROWER; PROVIDED, HOWEVER, THAT, THE FINANCIAL CONDITION OF SUCH SUCCESSOR IS
GREATER THAN OR EQUAL TO BORROWER AS DETERMINED IN GOOD FAITH BY LENDER AND THE
SUCCESSOR'S BUSINESS AND ITS MAJOR INVESTORS ARE REASONABLY ACCEPTABLE TO
LENDER, OR SUCH ENTITY HAS OUTSTANDING RATED INVESTMENT GRADE PUBLIC DEBT.
LENDER MAY ASSIGN ANY OF THE NOTES, THIS SECURITY AGREEMENT OR ITS SECURITY
INTEREST IN ANY OR ALL COLLATERAL, OR ANY OR ALL OF THE ABOVE, IN WHOLE OR IN
PART TO ONE OR MORE ASSIGNEES OR SECURED PARTIES WITHOUT NOTICE TO BORROWER. If
Borrower is given notice of such assignment it agrees to acknowledge receipt
thereof in writing
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and Borrower shall execute such additional documentation as Lender's assignee
and/or secured party shall reasonably require at Lender's expense. Each such
assignee and/or secured party shall have all of the rights, but (except as
provided in this Section 15) none of the obligations, of Lender under this
Security Agreement, unless such assignee or secured party expressly agrees to
assume such obligations in writing. Borrower shall not assert against any
assignee and/or secured party any defense, counterclaim or offset that Borrower
may have against Lender. Notwithstanding any such assignment, and providing no
Event of Default has occurred and is continuing, Lender, or its assignees,
secured par-ties, or their agents or assigns, shall not interfere with
Borrower's right to quietly enjoy use of Collateral subject to the terms and
conditions of this Security Agreement. Subject to the foregoing, the Notes and
this Security Agreement shall inure to the benefit of, and are binding upon, the
successors and assignees of the parties hereto. Borrower acknowledges that any
such assignment by Lender will not change Borrower's duties or obligations under
this Security Agreement and the Notes or increase any burden or risk on
Borrower.
SECTION 16. DEFAULT. (a) Events of Default. Any of the following events or
conditions shall constitute an "Event of Default" hereunder: (i) Borrower's
failure to pay any monies due to Lender hereunder or under any Note beyond the
tenth (10th) day after the same is due; (ii) Borrower's failure to comply with
its obligations under Section 10 or Section 15; (iii) any representation or
warranty of Borrower made in this Security Agreement or the Notes or in any
other agreement statement or certificate furnished to Lender in connection with
this Security Agreement or the Notes shall prove to have been incorrect in any
material respect when made or given; (iv) Borrower's failure to comply with or
perform any material term, covenant or condition of this Security Agreement or
any Note or under any other agreement between Borrower and Lender or under any
lease or mortgage of real property covering the location of the Collateral if
such failure to comply or perform is not cured by Borrower within thirty (30)
days after Borrower knows of the noncompliance or nonperformance or notice from
Lender or such longer period that Borrower is diligently attempting to effect
such cure; (v) seizure of any of the Collateral under legal process; (vi) the
filing by or against Borrower or any guarantor under any guaranty executed in
connection with this Security Agreement ("Guarantor") of a petition for
reorganization or liquidation under the Bankruptcy Code or any amendment thereto
or under any other insolvency law providing for the relief of debtors; (vii) the
voluntary or involuntary making of an assignment of a substantial portion of its
assets by Borrower or by any Guarantor for the benefit of its creditors, the
appointment of a receiver or trustee for Borrower or any Guarantor or for any of
Borrowers or Guarantor's assets, the institution by or against Borrower or any
Guarantor of any formal or informal proceeding for dissolution, liquidation,
settlement of claims against or winding up of the affairs of Borrower or any
Guarantor provided that in the case of all such involuntary proceedings, same
are not dismissed within sixty (60) days after commencement; (viii) the making
by Borrower or by any Guarantor of a transfer of all or a material portion of
Borrower's or Guarantor's assets or inventory not in the ordinary course of
business; or (ix) any default or breach by any Guarantor of any of the terms of
its guaranty to Lender in connection with this Security Agreement.
(b) Remedies. If any Event of Default has occurred, Lender may in its
sole discretion exercise one or more of the following remedies with respect to
any or all of the Collateral: (i) declare due any or all of the aggregate sum of
all remaining payments under the Notes, including
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the amount of any mandatory or optional payment required or permitted to be paid
by Borrower to Lender at the maturity of the Notes ("Remaining Payments"); (ii)
proceed by appropriate court action or actions either at law or in equity to
enforce Borrower's performance of the applicable covenants of the Notes and this
Security Agreement or to recover all damages and expenses incurred by Lender by
reason of an Event of Default; (iii) except as provided by law, without court
order or prior demand, enter upon the premises where the Collateral is located
and take immediate possession of and remove it without liability of Lender to
Borrower or any other person or entity; (iv) terminate this Security Agreement
and sell the Collateral at public or private sale, or otherwise dispose of,
hold, use or lease any or all of the Collateral in a commercially reasonable
manner; or (v) exercise any other right or remedy available to it under
applicable law. If Lender has declared due any or all of the Remaining Payments,
Borrower will pay immediately to Lender, without duplication, (A) the Remaining
Payments discounted to present value at the Discount Rate, (B) all amounts which
may be then due or accrued, and (C) all other amounts due under this Security
Agreement and under the Notes (Lender's Return, as referred to below, means the
amounts described in clauses (A), (B) and (C) above). The net proceeds of any
sale or lease of such Collateral will be credited against Lender's Return. The
net proceeds of a sale of the Collateral pursuant to this Section 16(b) is
defined as the sales price of the Collateral less selling expenses, including,
without limitation, costs of remarketing the Collateral and all refurbishing
costs and commissions paid with respect to such remarketing. The net proceeds of
a lease of the Collateral pursuant to this Section 16(b) is defined as the
amount equal to the monthly payments due under such lease (discounted to present
value at the Discount Rate) plus the residual value of the Collateral at the end
of the basic term of such lease, as reasonably determined by Lender, and
discounted at the Discount Rate.
At Lender's request, Borrower shall assemble the Collateral and make it
available to Lender at such time and location as Lender may reasonably
designate. Borrower waives any right it may have to redeem the Collateral.
Declaration that any or all amounts under this Security Agreement and/or the
Notes are immediately due and payable and Lender's taking possession of any or
all Equipment shall not terminate this Security Agreement or any of the Notes
unless Lender so notifies Borrower in writing. None of the above remedies is
intended to be exclusive but each is cumulative and may be enforced separately
or concurrently.
(c) Application of Proceeds. The proceeds of any sale of all or any part
of the Collateral and the proceeds of any remedy afforded to Lender by this
Security Agreement shall be paid to and applied as follows:
First, to the payment of reasonable costs and expenses of suit or
foreclosure, if any, and of the sale, if any, including, without limitation,
refurbishing costs, costs of remarketing and commissions related to,
remarketing, all Remedy Expenses, all expenses, liabilities and advances
incurred or made pursuant to this Security Agreement or any Note by Lender in
connection with foreclosure, suit, sale or enforcement of this Security
Agreement or the Notes, and taxes, assessments or liens superior to Lender's
security interest granted by this Security Agreement;
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Second, to the payment of all other amounts not described in item
Third below due under this Security Agreement and all Notes;
Third, to pay Lender an amount equal to Lender's Return, to the
extent not previously paid by Borrower; and
Fourth, to the payment of any surplus to Borrower or to whomever may
lawfully be entitled to receive it.
(d) Effect of Delay, Waiver; Foreclosure on Collateral. No delay or
omission of Lender, in exercising any right or power arising from any Event of
Default shall prevent Lender from exercising that right or power if the Event of
Default continues. No waiver of an Event of Default, whether full or partial, by
Lender or such holder shall be taken to extend to any subsequent Event of
Default, or to impair the rights of Lender in respect of any damages suffered as
a result of the Event of Default. The giving, taking or enforcement of any other
or additional security, collateral or guaranty for the payment or discharge of
the Indebtedness and performance of the Obligations shall in no way operate to
prejudice, waive or affect the security interest created by this Security
Agreement or any rights, powers or remedies exercised hereunder or thereunder.
Lender shall not be required first to foreclose on the Collateral prior to
bringing an action against Borrower for sums owed to Lender under this Security
Agreement or under any Note.
SECTION 17. LATE PAYMENTS. Borrower shall pay Lender a late charge of 8% of any
payment in the ordinary course owed Lender by Borrower which is not paid when
due (taking into account applicable grace periods), for every month such payment
is not paid when due, but in no event an amount greater than the highest rate
permitted by applicable law. If such amounts have not been received by Lender at
Lender's place of business or by Lender's designated agent by the date such
amounts are due under this Security Agreement or the Note;, Lender shall bill
Borrower for such charges. Borrower acknowledges that invoices for amounts due
hereunder or under the Notes are sent by Lender for Borrower's convenience only.
Borrower's non-receipt of an invoice will not relieve Borrower of its obligation
to make payments hereunder or under the Notes.
SECTION 18. PAYMENTS BY LENDER. If Borrower shall fail to make any payment or
perform any act required hereunder (including, but not limited to, maintenance
of any insurance required by Section 10), then Lender may, but shall not be
required to, after such notice to Borrower as is reasonable under the
circumstances, make such payment or perform such act with the same effect as if
made or performed by Borrower. Borrower will upon demand reimburse Lender for
all sums paid and all reasonable costs and expenses incurred in connection with
the performance of any such act.
SECTION 19. FINANCING STATEMENTS. Borrower hereby appoints Lender (and each of
Lender's officers, employees or agents designated by Lender) with full power of
substitution by Lender, as Borrower's attorney, with power to execute and
deliver on Borrower's behalf, financing statements and other documents necessary
to perfect and/or give notice of Lender's security interest in any of the
Collateral. Notwithstanding the above, Borrower will, upon
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Lender's request, execute all financing statements pursuant to the Uniform
Commercial Code and all such other documents reasonably requested by Lender to
perfect Lender's security interests hereunder. Borrower authorizes Lender to
file financing statements signed only by Lender (where such authorization is
permitted by law) at all places where Lender deems necessary.
SECTION 20. NATURE OF TRANSACTION. Lender makes no representation whatsoever,
express or implied, concerning the legal character of the transaction evidenced
hereby, for tax or any other purpose.
SECTION 21. SUSPENSION OF LENDER'S OBLIGATIONS. The obligations of Lender
hereunder will be suspended to the extent that Lender is hindered or prevented
from complying therewith because of labor disturbances, including but not
limited to strikes and lockouts, acts of God, fires, floods, storms, accidents,
industrial unrest, acts of war, insurrection, riot or civil disorder, any order,
decree, law or governmental regulations or interference, failure of the
manufacturer to deliver any item of Collateral or any cause whatsoever not
within the sole and exclusive control of Lender.
SECTION 22. LENDER'S EXPENSE. Borrower shall pay Lender all reasonable costs and
expenses including reasonable attorney's fees, litigation expenses and the fees
of collection agencies, incurred by Lender (a) in enforcing any of the terms,
conditions or provisions hereof and related to the exercise of its remedies
("Remedy Expenses"), and (b) in connection with any bankruptcy or post-judgment
proceeding, whether or not suit is filed and, in each and every action, suit or
proceeding, including any and all appeals and petitions therefrom.
SECTION 23. ALTERATIONS; ATTACHMENTS. No alterations or attachments shall be
made to the Collateral that would materially impair the value or function
thereof without Lender's prior written consent, which shall not be given for
changes that will adversely affect the reliability and utility of the Collateral
or which cannot be removed without damage to the Collateral, or which in any way
decrease the value of the Collateral for purposes of resale or lease. All
attachments and improvements to the Collateral shall be deemed to be
"Collateral" for purposes of the Security Agreement, and a first priority
security interest therein shall immediately vest in Lender.
SECTION 24. CHATTEL PAPER. (a) One executed copy of the Security Agreement will
be marked "Original" and all other counterparts will be duplicates. To the
extent if any, that this Security Agreement constitutes chattel paper (as such
term is defined in the Uniform Commercial Code as in effect in any applicable
jurisdiction) no security interest in the Security Agreement may be created in
any documents other than the "Original." (b) There shall be only one original of
each Note and it shall be marked "Original," and all other counterparts will be
duplicates. To the extent, if any, that any Notes to this Security Agreement
constitutes chattel paper (or as such term is defined in the Uniform Commercial
Code as in effect in any, applicable jurisdiction) no security interest in any
Note(s) may be created in any documents other than the "Original."
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SECTION 25. COMMITMENT FEE. Borrower has paid to Lender a commitment fee ("Fee")
of $15,000. The Fee shall be applied by Lender first to reimburse Lender for all
out-of-pocket UCC and other search costs, inspections and labeling costs and
appraisal fees, if any, incurred by Lender, and then proportionally to the first
monthly payment for each Note hereunder in the proportion that the Collateral
value for such Note bears to Lender's entire commitment. However, the portion of
the Fee which is not applied to such monthly payments shall be non-refundable
except if Lender defaults in its obligation to fund Loans pursuant to Section 3.
SECTION 26. NOTICES. All notices hereunder shall be in writing, by registered
mail, or reliable messenger or delivery service (including overnight service)
and shall be directed, as the case may be, to Lender at 2401 Kerner Boulevard,
San Rafael, California 94901, Attention: Asset Management and to Borrower at 301
Science Drive, Moorpark, CA 93021, Attention: Frederic T. Boyer, or at such
other address as the parties may notify one another of in writing from time to
time.
SECTION 27. MISCELLANEOUS. (a) Borrower -shall provide Lender with such
corporate resolutions, financial statements and other documents as Lender shall
reasonably request from time to time. (b) Borrower represents that the
Collateral hereunder is used solely for business purposes. (c) Time is of the
essence with respect to this Security Agreement. (d) Borrower acknowledges that
Borrower has read this Security Agreement and the Notes, understands them and
agrees to be bound by their terms and further agrees that this Security
Agreement and the Notes constitute the entire agreement between Lender and
Borrower with respect to the subject matter hereof and supersede all previous
agreements, promises, or representations. (e) This Security Agreement and the
Notes may not be changed, altered or modified except by an instrument signed by
an officer or authorized representative of Lender and Borrower. (f) Any failure
of Lender to require strict performance by Borrower or any waiver by Lender of
any provision herein or in a Note shall not be construed as a consent or waiver
of any other breach of the same or any other provision. (g) If any provision of
this Security Agreement or any Note is held invalid, such invalidity shall not
affect any other provisions hereof or thereof. (h) The obligations of Borrower
to pay the Indebtedness and perform the Obligations shall survive the expiration
or earlier termination of this Security Agreement and each Note until all
Obligations of Borrower to Lender have been met and all liabilities of Borrower
to Lender and any assignee have been paid in full. (i) Borrower will notify
Lender at least 30 days before changing its name, principal place of business or
chief executive office. (j) Borrower will, at its expense, promptly execute and
deliver to Lender such documents and assurances (including financing statements)
and take such further action as Lender may reasonably request in order to carry
out the intent of this Security Agreement and Lender's rights and remedies.
SECTION 28. JURISDICTION AND WAIVER OF JURY TRIAL. This Security Agreement and
each Note shall be deemed to have been made under and shall be governed by the
laws of the State of California in all respects, including matters of
construction, validity and performance. At Lender's sole discretion, option and
election, jurisdiction and venue for any legal action between the parties
arising out of or relating to this Security Agreement or any Note shall be in
the Superior Court of Marin County, California, or, in cases where federal
diversity jurisdiction is available, in the United States District Court for the
Northern District of California
12
<PAGE> 13
located in San Francisco, California. BORROWER, TO THE EXTENT IT MAY LAWFULLY DO
SO, HEREBY WAIVES ITS RIGHT TO TRIAL BY JURY IN ANY ACTION BROUGHT ON OR WITH
RESPECT TO THIS SECURITY AGREEMENT, ANY NOTE, ANY SECURITY DOCUMENTS, OR ANY
OTHER AGREEMENTS EXECUTED 1N CONNECTION HEREWITH.
SECTION 29. END OF LOAN POSITION. (a) General, Borrower shall be required to
choose a final payment or Note extension election ("End of Loan Position") at
the expiration of each Note's term. Borrower shall provide written notice of its
election to Lender at least 90 days prior to the end of the term of such Note.
That choice shall be an election of Borrower's End of Loan Position election for
all, but not less than all, of the Collateral under such Note under the
Security, Agreement.
In the event Borrower does not provide 90 days' prior written notice of its
election, Borrower shall be deemed to have elected Election No. 1.
(b) End of Loan Position Elections. As its End of Loan Position, Borrower shall
be required to;
Election No. 1: Make a final payment equal to 15% of the Note's original
principal amount.
Election No. 2: Extend the Note's term for an additional 12 months ("Extended
Term") for a monthly rate of 1,65% of the Note's original principal amount,
(c) Release. Upon payment of all amounts due under either Election I or 2,
Lender shall, upon request by Borrower, promptly release all liens and security
interests it has in the applicable Collateral.
IN WITNESS WHEREOF, Borrower and Lender have caused this Security Agreement to
be executed as of the date and year first above written.
PHOENIX LEASING INCORPORATED ACCELERATED NETWORKS, INC.
By: /s/ Tim Taylor By: /s/ Frederic T. Boyer
---------------------------------- ----------------------------------
Name: Tim Taylor Name: Frederic T. Boyer
-------------------------------- --------------------------------
Title: AVP Title: Chief Financial Officer
------------------------------- -------------------------------
HEADQUARTERS LOCATION:
301 Science Drive
Moorpark, CA 93021
County of Ventura
EXHIBITS AND SCHEDULES:
Exhibit A -- Closing Memorandum
13
<PAGE> 1
PRODUCT PURCHASE AND SALE AGREEMENT
This Product Purchase and Sale Agreement ("Agreement"), effective as of
February 23, 2000 (the "Effective Date"), is made by and between
Accelerated Networks, Inc., a California corporation with its principal
place of business at 301 Science Drive, Moorpark CA, 93021 ("SELLER")
and UniDial Communications, Inc. with its principal place of business
1901 East Point Parkway, Louisville, KY 40223 ("CUSTOMER"). CUSTOMER AND
SELLER are also referred to collectively as the "Parties." The Parties
agree as follows:
1. PRODUCT ORDERS
1.1 Purchase Order. On the effective date of this agreement, CUSTOMER will
submit a purchase order for SELLER's products described in Attachment A
("Products") having an aggregate purchase price of at least $10,000,000
(the "Purchase Order"). Delivery dates will be [***] in calendar ---
Quarter One of 2000 and [***] in Quarters Two, Three and Four ---
respectively. CUSTOMER may apply overage purchases to the following
Quarter's commitment level. CUSTOMER may specify the carrier and mode of
transportation for shipment of Product. Terms and conditions contained
in any purchase order, confirmation, invoice, acknowledgment, release,
acceptance or other written correspondence will not only modify any of
the terms of this Agreement and the terms of this shall be controlling
over any inconsistent or conflicting terms.
1.2 Subsequent Purchase Orders. During the term of this Agreement, CUSTOMER
may submit purchase orders in addition to the Purchase Order described
in Section 1.1. The terms of this Agreement shall apply to all such
additional purchase orders.
1.3 Submission of Orders. All purchase orders shall be sent by fax to the
following address:
Accelerated Networks
301 Science Drive
Moorpark, CA 93021
Attn: Sales Administration
Fax (805) 553-9696
1.4 Purchase Order Cancellation, Rescheduling and Alterations. CUSTOMER may
cancel delivery of Products pursuant to a purchase order without charge
upon written notice to SELLER not less than [***] prior to the scheduled
delivery date. CUSTOMER will be responsible for payment of one hundred
percent (100%) of the amount of any portion of a purchase order that is
canceled less than [***] prior to the scheduled delivery date. CUSTOMER
may reschedule delivery date of Products pursuant to a purchase order
without charge upon written notice to SELLER not less than [***] prior
to the scheduled delivery date. This reschedule of delivery of Products
by SELLER can only be done two (2) times per purchase order and the
revised delivery date cannot be greater than [***] from the originally
scheduled delivery date. CUSTOMER may alter a purchase order with a
written purchase order change notice to SELLER not less than [***] prior
to the scheduled delivery date. Alterations would include (i) change a
location for delivery, (ii) modify the quantity or type of Products to
be delivered or (iii) correct typographical or clerical errors.
*** Confidential treatment has been requested for certain redacted provisions of
this agreement. The redacted provisions are identified by three asterisks
enclosed by brackets and underlined. The confidential portion has been filed
separately with the Securities and Exchange Commission.
1
<PAGE> 2
1.5 Pricing. Product prices payable by the CUSTOMER and applicable discounts
are set forth in Attachment B. Prices are exclusive of all taxes,
customs duties or similar tariffs and fees, shipping and insurance
charges which SELLER may be required to pay or collect upon the sale or
delivery of the Products or upon collection of the sales price, all of
which shall be CUSTOMER's responsibility.
1.6 Payment. Terms of payment are net thirty (30) days of SELLER's invoice
date, unless SELLER at any time determines that CUSTOMER's credit is not
satisfactory, in which case payment terms shall be, at SELLER's
election, C.O.D., in advance of delivery or by irrevocable letter of
credit in favor of SELLER. All payments shall be made in U.S. dollars in
the United States.
2. DELIVERY AND ACCEPTANCE
2.1 Delivery. Products are delivered FOB SELLER's plant or other place of
shipment. Shipments will be made to the delivery address specified on
CUSTOMER's purchase order. In the absence of a specified delivery
address, delivery will be made to CUSTOMER's Louisville facility.
Shipping arrangements will be mutually agreed upon by the Parties prior
to delivery. SELLER shall use its commercially reasonable efforts to
fill (by full or partial shipment) CUSTOMER's purchase orders for
Products within [***] of receiving purchase order.
2.2 Inspection and Acceptance of Deliveries. CUSTOMER shall have the right
to visually inspect all Products ordered pursuant to this Agreement for
a period of [***] following delivery. If the delivered Product(s) fails
to conform to the applicable purchase order or release, in whole or in
part, CUSTOMER may reject the delivery and CUSTOMER shall promptly
return the rejected Product(s) to SELLER at SELLER's risk and expense.
Upon receipt of the rejected Product(s), SELLER will promptly ship
replacement Product(s) to CUSTOMER.
2.3 Pre-shipment Review. If reasonably requested by CUSTOMER, a
representative of CUSTOMER may participate, to the extent applicable, in
SELLER's preshipment configuration, prestaging and inspection of Product
at SELLER's facility.
3. SOFTWARE LICENSE
3.1 License Grant. SELLER grants CUSTOMER, subject to the terms and
conditions set forth in this Agreement, a non-exclusive,
non-transferable, non-sublicenseable license to (i) use the software
comprising any Product (including software contained in firmware
embedded in a Product) ("Software") and (ii) distribute the Software to
CUSTOMER's end-user customers together with SELLER's standard End User
Software License Agreement in conjunction with CUSTOMER's product and
service offerings. All copies of the Software are licensed and not sold.
As between the Parties, SELLER retains all title to (except as expressly
licensed by SELLER)s, and rights (including all intellectual property
and proprietary rights anywhere in the world) and interest in the
Software.
3.2 License Regulations. CUSTOMER shall not, nor permit others to (i) copy,
modify or create any derivative work of the Software or include the
Software in any other software (ii) delete, alter or obscure any
copyright or other notice or proprietary legend appearing in the
Software or on any documentation, media, master or package materials for
the Software provided by SELLER or (iii) reverse assemble, decompile,
reverse engineer or otherwise attempt to derive the source code (or the
underlying ideas, structure, sequence, organization or algorithms) from
the Software.
4. MONTHLY MEETINGS. SELLER and CUSTOMER shall each designate at least one
representative to serve as a liaison with the other party (each a
"Representative"). The Representatives shall meet, either in person or
by telephone, to discuss in good faith matters relating to this
Agreement including Product delivery schedules, joint marketing
activities, sales training needs, price changes and new Product features
and
*** Confidential treatment has been requested for certain redacted provisions of
this agreement. The redacted provisions are identified by three asterisks
enclosed by brackets and underlined. The confidential portion has been filed
separately with the Securities and Exchange Commission.
2
<PAGE> 3
enhancements. Such meetings shall take place on a monthly basis at a
mutually agreed upon location. Each party shall bear its own costs
incurred in attending or participating in such meetings.
5. SELLER'S WARRANTY
5.1 Product Warranty. SELLER warrants to CUSTOMER (i) for a period of one
(1) year from the date of shipment, that the hardware Products will be
free from material defects in materials and workmanship, (ii) for a
period of ninety (90) days from the date of shipment, the Software will
perform substantial in accordance with applicable specifications
identified in the user manual of the then current release and (iii)
services performed by SELLER hereunder will be performed in a
professional and workmanlike manner and in accordance with current
industry standards. SELLER's warranty does not extend to any Product
that (a) is modified or altered, (b) is not maintained to SELLER's
maintenance recommendations (c) is operated in a manner other than that
specified by SELLER, (d) has its serial number removed or altered or (e)
is treated with abuse, negligence or other improper treatment
(including, without limitation, use outside the recommended
environment).
5.2 Remedies. Products delivered to CUSTOMER by SELLER hereunder which do
not comply with the warranty in Section 5.1 above and are returned to
SELLER during the applicable warranty period will be repaired or
replaced at SELLER's option at no cost to CUSTOMER. If SELLER cannot, or
determines that it is not practical to, repair or replace a returned
Product, the price paid by CUSTOMER for such Product will be credited
and applied to future orders.
5.3 Disclaimer. SELLER MAKES NO WARRANTIES (OTHER THAN AS EXPRESSLY PROVIDED
IN SECTION 5.1 ABOVE) WITH RESPECT TO THE PRODUCTS, OR ANY SERVICES AND
DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WARRANTIES
OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND
NON-INFRINGEMENT. FURTHER, SELLER DOES NOT WARRANT THE USE, OR THE
RESULTS OF THE USE, OF THE PRODUCTS OR THAT ANY SOFTWARE WILL BE
ERROR-FREE.
5.4 Year 2000 Compliance Warranty. Seller represents and warrants the ("Year
2000 Warranty') that (a) all Calendar-Related processing by the Products
and Special Products of Date Data or of any System Date will not cause
the Products to cease to operate substantially in accordance with the
Specifications, (b) all data fields for the Date Data contained in the
Products are four-digit fields capable of indicating century and
millennium, and (c) that Seller has verified through its testing
procedures that no change in the System Date (including the changes from
the year 1999 to the year 2000) will cause the Products or the Special
Products to cease to operate substantially in accordance with their
Specifications. Notwithstanding any provision to the contrary set forth
in this Agreement, Seller makes no representation or warranty with
respect to the Products or Special Products operating in conjunction
with any computer software, computer firmware, computer hardware, or any
combination of the foregoing supplied by third parties.
6. CUSTOMER'S REPRESENTATIONS AND WARRANTIES. CUSTOMER represents, warrants
and covenants that (i) it shall comply with good business practices and
all laws and regulations relevant to this Agreement or the subject
matter hereof, (ii) it shall use the then current names used by SELLER
for the Products provided that all advertisements, promotional
materials, packaging and anything else bearing any trademark of SELLER's
shall identify SELLER as the trademark owner and shall be subject to
SELLER's prior written approval and (iii) shall comply with all export
laws, restrictions, national security controls and regulations of the
United States or other applicable foreign agency or authority, and not
to export or re-export, or allow the export or re-export of any Product
or Proprietary Information of SELLER or any direct product thereof in
violation of any such restrictions, laws or regulations, or without all
required licenses and proper authorizations, any Group D-I or E-2
country (or national of such country) specified in the then current U.S.
Export Administration Regulations (or any successor supplement or
regulations).
7. LIMITATION OF LIABILITY. NEITHER PARTY WILL BE LIABLE WITH RESPECT TO
ANY SUBJECT MATTER OF THIS AGREEMENT UNDER ANY CONTRACT, NEGLIGENCE,
STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY FOR (I) ANY AMOUNTS
IN EXCESS IN THE AGGREGATE OF THE AMOUNTS PAID TO IT (IN THE CASE OF
SELLER) OR (IN THE CASE OF
3
<PAGE> 4
CUSTOMER) PAID OR OWED BY IT HEREUNDER DURING THE TWELVE (12)-MONTH
PERIOD PRIOR TO DATE THE CAUSE OF ACTION AROSE OR (II) ANY INCIDENTAL OR
CONSEQUENTIAL DAMAGES, LOST PROFITS OR LOST DATA OR (III) COST OF
PROCUREMENT OF SUBSTITUTE GOODS, TECHNOLOGY OR SERVICES. THE LIMITATIONS
OF THIS SECTION 7 SHALL NOT APPLY TO ANY BREACH OF SECTION 3.2 OR 9.
8. RELATIONSHIP OF THE PARTIES. CUSTOMER expressly acknowledges that it is
an independent contractor in the performance of this Agreement, and is
solely liable for all labor and related expenses in connection with this
Agreement. CUSTOMER will not have, and will not represent that it has,
any power, right or authority to bind SELLER, or to assume or create any
obligation or responsibility, express or implied, on behalf of SELLER.
9. PROPRIETARY INFORMATION. The Parties acknowledge that in the course of
performing their duties under this Agreement, each may obtain
confidential and proprietary information of the other ("Proprietary
Information"). Such Proprietary Information may include, but is not
limited to, trade secrets, know-how, inventions, techniques, processes,
programs, schematics, software source code, data, customer lists,
financial information, and sales and marketing plans. Each party shall
at all times keep in trust and confidence all Proprietary Information of
the other party and, during the term of this Agreement and for five (5)
years after its termination, shall not use such Proprietary Information
other than in the course of performing its duties under this Agreement
nor shall it disclose any such Proprietary Information to any third
party without the written consent of the other. Upon termination or
expiration of this Agreement or upon the request of the disclosing
party, each party shall promptly return all manifestations of the
other's Proprietary Information in its possession.
10. TERM AND TERMINATION.
10.1 Term. This Agreement shall commence on the Effective Date and shall
remain in force for a period of One (1) year unless earlier terminated
as provided in this Section 10. Thereafter, this Agreement shall
automatically renew for successive one (1)-year terms unless a party
provide written notice to the other party no later than sixty (60) days
prior to the expiration of the then current terms of such party's intent
not to renew.
10.2 Termination for Convenience. This Agreement may be terminated at any
time, with or without cause, by either party upon ninety (90) days prior
written notice to the other party.
10.3 Termination for Cause. This Agreement may be terminated by either party
for cause immediately by written notice upon the occurrence of any of
the following events: (i) if the other ceases to do business, or
otherwise terminates its business operations, provided, however, that
the acquisition of all or substantially all of a party's stock, assets
or business shall not be grounds for termination of this Agreement; or
(ii) if the other breaches any material provision of this Agreement and
fails to cure such breach within thirty (30) days of written notice
describing the breach; provided, however, that a breach of the
obligations set forth in Section 3.2 or 9 and shall be grounds for
immediate termination of this Agreement by the non-breaching party, or
(iii) if the other becomes insolvent or seeks protection under any
bankruptcy, receivership, trust deed, creditors arrangement, composition
or comparable proceeding, or if such proceeding is instituted against
the other (and not dismissed within ninety (90) days).
10.4 Effect of Termination. Upon any termination or expiration of this
Agreement, all pending purchase orders for release of Products shall be
canceled as of the effective date of termination or expiration, all sums
payable to SELLER shall be due and payable on the effective date of
termination of expiration and all licenses granted to CUSTOMER under
this Agreement shall immediately terminate, and CUSTOMER shall
discontinue all use and distribution of the Products. Upon an end-user
acquiring a copy of the Software pursuant to an End-User License
Agreement, the end-user shall be entitled to use that copy of the
Software, subject to the terms and conditions of the End-User License
Agreement.
11. PUBLICITY. The Parties shall announce this Agreement and the
establishment of the relationship between CUSTOMER and SELLER under this
Agreement pursuant to a joint press release to be mutually agreed
4
<PAGE> 5
upon. The Parties agree to submit to each other for approval all other
press releases relating to this Agreement and to not publish any press
release without prior approval of the other party, which approval shall
not be unreasonably withheld.
12. ASSIGNMENT. This Agreement shall be binding on successors and assigns
provided, however, this Agreement may not be assigned or transferred by
CUSTOMER without the prior written consent of the SELLER, which consent
shall not be unreasonably withheld. Any purported assignment in
violation of this Section 12 shall be null and void.
13. MISCELLANEOUS
13.1 No Waiver. A waiver by either party of any provision of this Agreement
or breach, in any one instance, shall not be construed as a waiver of
any other provision or subsequent breach thereof.
13.2 Notices. All notices or communications of any kind made or required to
be given pursuant to this Agreement shall be in writing and delivered by
personal service to the other party or sent by first class mail, postage
prepaid to the address for such party specified in this first paragraph
of this Agreement or such other address as such party shall provide
notice of in accordance with this Section 13.2.
13.3 Governing Law Legal Actions. This Agreement shall be governed and
construed under California law, without regard to conflicts of laws
provisions thereof. Any controversy, claim or dispute between the
parties to this Agreement arising out of, in connection with, or in
relation to the interpretation, validity, performance or breach of this
Agreement shall, at the request of either party, be resolved to the
exclusion of a court of law by binding arbitration in Ventura County,
California, in accordance with the Commercial Arbitration Rules of the
American Arbitration Association then in effect (but. nonetheless the
arbitration itself shall not be conducted under the auspices of such
Association unless the parties shall expressly so agree). The
arbitrator(s) shall be empowered to award relief which is legal and/or
equitable in nature, as appropriate. Except to the extent expressly
contradicted by the Commercial Arbitration Rules of the American
Arbitration Association and/or this Agreement, the arbitration
provisions of Section 1280 et seq. (Part 3, Title 9) (with the exception
of Section 1283.05) of the California Code of Civil Procedure shall be
fully applicable to this Agreement. For purposes of California Code of
Civil Procedure Section 1281.8 (relating to court issuance of
provisional remedies), the parties agree that in any controversy, claim
or dispute involving the Proprietary Information section of this
Agreement and/or the protection of any intellectual property, it shall
be conclusively presumed, if a party is otherwise entitled to have a
court issue a provisional remedy, that the arbitration award to which
the party may be entitled may be rendered ineffectual without
provisional remedy.
13.4 Severability. If any provisions of this Agreement is held by a court of
competent jurisdiction to be illegal, invalid or unenforceable, that
provision shall be limited or eliminated to the minimum extent necessary
so that this Agreement shall otherwise remain in full force and effect
and enforceable.
13.5 Force Majeure. A party shall not be liable for non-performance or delay
in performance (other than of payment or confidentiality obligations)
caused by any event reasonably beyond the control of such party
including, but not limited to wars, hostilities, revolutions, riots,
civil commotion, national emergency, strikes, lockouts or other labor
disputes or shortages or inability to obtain material or equipment,
unavailability of supplies, compliance with laws or regulation
(including, without limitation, those related to infringement),
epidemics, fire, flood, earthquake, force of nature, explosion, embargo,
or any Act of God, or any law, proclamation, regulation, ordinance or
other act or order of any court, government or governmental agency.
13.6 Entire Agreement Amendment. This Agreement, including all Attachments to
this Agreement, constitutes the entire agreement between the parties
relating to the subject matter hereof and all prior or simultaneous
proposals, negotiations, representations, conversations, discussions and
agreements, whether written or oral, among the parties and all past
dealing or industry custom. This Agreement may not be amended except by
a writing signed by the Parties.
5
<PAGE> 6
13.7 This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement effective as
the Effective Date.
By: /s/ Suresh Nihalani By: /s/ Michael Johnson
-------------------------------- --------------------------------
Name: Suresh Nihalani Name: Michael Johnson
------------------------------ ------------------------------
Title: President and CEO Title: CTO
------------------------------ ------------------------------
Date: March 17, 2000 Date: February 23, 2000
------------------------------ ------------------------------
6
<PAGE> 7
ATTACHMENT A
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Products Description
- --------------------------------------------------------------------------------
<S> <C>
AN-3220 AN-3200 20-slot 23" Chassis. - 48 VDC power
- --------------------------------------------------------------------------------
SYSMOD1-DS3-2 System Combo Card includes system processor, 1-port
Ethernet 10/100TX, 1 console port. 2 PREINSTALLED DS-3
(45MBPS) ATM WAN UPLINK DAUGHTERCARDS.
- --------------------------------------------------------------------------------
LC12-T1 12-channel line card supports ATM over unchannelized
T1.12 integral T1 modems with CSU/DSU on daughtercards.
- --------------------------------------------------------------------------------
VSIC-8TC 8-channel T1 and Voice Server Card with hardware
support for voice compression. 8DS-1 channelized T1
digital voice interfaces for connection to PBX or Class
5 switches. Supports 192 channels of G.711 PCM or 96
voice channels of voice compression. Supports G.168
echo cancellation and structured CES service via CBR
voice over AAL1 and rtVBR voice over AAL2. Hardware
ready for G.726. Software for compression is sold
separately. REQUIRES MULTI-SERVICE GATEWAY SYSTEM
SOFTWARE.
- --------------------------------------------------------------------------------
MSAP-SW-GW2.2 Multi-Service Gateway System software version 2.2.
Required with any purchase of voice module with MSAP
unit.
- --------------------------------------------------------------------------------
MSAP-SW-VCMP3.0 G.726 Voice compression software for 96 voice channels
Voice Server Card. THIS OPTION MUST BE PURCHASED FOR
EACH VOICE SERVER CARD THAT NEEDS VOICE COMPRESSION.
- --------------------------------------------------------------------------------
AP v2.4 Access Pilot EMS S/W support 50 fully loaded MSAPs.
- --------------------------------------------------------------------------------
AN-30T Integrated Access Device Base Unit. 1-port Ethernet
10/100TX, 2-ports Serial V.35/V.11(Slimline 26
connectors), 1-port ATM WAN over unchannelized T1 up to
1.544Mbps with built-in CSU/DSU, and 1-slot for factory
installed Voice Interface Module. Includes manual,
Ethernet cable, and SDSL cable. REQUIRES SLIMLINE 26
CONNECTOR TO V.35 SERIAL CABLE (CDXEXXX-XX), PLEASE
REFER TO THE CABLING SECTION OF THE PRICE LIST FOR
ORDERING OPTIONS. REQUIRES A CONFIGURATION WORKSHEET
WITH EVERY ORDER.
- --------------------------------------------------------------------------------
AN-30VM-D24C Digital Voice Module for AN-30. 24-DS0 digital voice
channels with 2-ports T1 for drop & insert
functionality. Hardware supports G.711 PCM and G.168
echo cancellation. Hardware ready for voice compression
requirements. Software for compression is sold
separately.
- --------------------------------------------------------------------------------
AN-30-SW-DCMP3.0 G.726 ADPCM voice compression software for 24-ports
digital voice module.
- --------------------------------------------------------------------------------
AN-30-SW-DSS2.2 Dynamic Service Selection Software for the AN-30 IAD.
- --------------------------------------------------------------------------------
AN-30-SW-B2.2 Basic System Software version 2.2 for the AN-30 IAD.
W/routing.
- --------------------------------------------------------------------------------
AN-20T Integrated Access Device Base Unit. Includes 1-port
Ethernet 10BT and 1-port ATM WAN over unchannelized T1
(integral CSU/DSU).
- --------------------------------------------------------------------------------
AN-20-SW-B2.2 Basic System Software version 2.2 for the AN-20 IAD.
W/routing.
- --------------------------------------------------------------------------------
AN-20-SW-DSS2.2 Dynamic Service Selection Software version 2.2 for the
AN-20 IAD.
- --------------------------------------------------------------------------------
</TABLE>
A-1
<PAGE> 8
ATTACHMENT B
PRODUCT PRICES AND DISCOUNT LEVELS
SHIPMENT SCHEDULE FOR Q1/2000:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
LINE QTY MODEL NO. DESCRIPTION LIST DISCOUNT DISCOUNT
ITEM PRICE RATE PRICE
- ------------------------------------------------------------------------------------------------------------------------------------
1 [***] AN-3220 AN-3200 20-slot 23" Chassis. - 48 VDC power. [***] [***] [***]
--- --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
2 [***] SYSMOD1-DS3-2 System Combo Card includes system processor, [***] [***] [***]
--- 1-port Ethernet 10/100TX, 1 console port. 2 --- --- ---
PREINSTALLED DS-3 (45MBPS) ATM WAN UPLINK
DAUGHTERCARDS.
- ------------------------------------------------------------------------------------------------------------------------------------
3 [***] LC12-T1 12-channel line card supports ATM over [***] [***] [***]
--- unchannelized T1.12 integral T1 modems with --- --- ---
CSU/DSU on daughtercards.
- ------------------------------------------------------------------------------------------------------------------------------------
4 [***] VSIC-8TC 8-channel T1 and Voice Server Card with hardware [***] [***] [***]
--- support for voice compression. 8 DS-1 --- --- ---
channelized T1 digital voice interfaces
for connection to PBX or Class 5
switches. Supports 192 channels of G.711
PCM or 96 voice channels of voice
compression. Supports G.168 echo
cancellation and structured CES service
via CBR voice over AAL1 and rtVBR voice
over AAL2. Hardware ready for G.726.
Software for compression is sold
separately. REQUIRED MULTI-SERVICE
GATEWAY SYSTEM SOFTWARE.
- ------------------------------------------------------------------------------------------------------------------------------------
5 [***] MSAP-SW-GW3.0 Multi-Service Gateway System software version 3.0 [***] [***] [***]
--- Required with any purchase of voice --- --- ---
module with MSAP unit.
- ------------------------------------------------------------------------------------------------------------------------------------
6 [***] MSAP-SW-VCMP3.0 G.726 Voice compression software for 96 voice [***] [***] [***]
--- channels Voice Server Card. --- --- ---
THIS OPTION MUST BE PURCHASED FOR EACH
VOICE SERVER CARD THAT NEEDS VOICE
COMPRESSION.
- ------------------------------------------------------------------------------------------------------------------------------------
7 [***] AP v2.4 Access Pilot EMS S/W support 50 fully loaded MSAPs [***] [***] [***]
--- --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------
<S> <C>
EXTENDED PRICE
- ---------------
[***]
---
- ---------------
[***]
---
- ---------------
[***]
---
- ---------------
[***]
---
- ---------------
[***]
---
- ---------------
[***]
---
- ---------------
[***]
---
- ---------------
</TABLE>
*** Confidential treatment has been requested for certain redacted provisions of
this agreement. The redacted provisions are identified by three asterisks
enclosed by brackets and underlined. The confidential portion has been filed
separately with the Securities and Exchange Commission.
B-1
<PAGE> 9
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
LINE QTY MODEL NO. DESCRIPTION LIST DISCOUNT DISCOUNT
ITEM PRICE RATE PRICE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
8 [***] AN-30T Integrated Access Device Base Unit. 1-port [***] [***] [***]
--- Ethernet 10/100TX, 2-ports Serial --- --- ---
V.35/V.11 (Slimline 26 connectors),
1-port ATM WAN over unchannelized T1 up
to 1.544 Mbps with built-in CSU/DSU, and
1-slot for factory installed Voice
Interface Module. Includes manual,
Ethernet cable, and SDSL cable. REQUIRES
SLIMLINE 26 CONNECTOR TO V.35 SERIAL
CABLE (CDXEXXX-XX), PLEASE REFER TO THE
CABLING SECTION OF THE PRICE LIST FOR
ORDERING OPTIONS. REQUIRES A
CONFIGURATION WORKSHEET WITH EVERY
ORDER.
- ------------------------------------------------------------------------------------------------------------------------------------
9 [***] AN-30VM-D24C Digital Voice Module for AN-30. 24-DS0 digital [***] [***] [***]
--- voice channels with 2-ports T1 for drop --- --- ---
& insert functionality. Hardware
supports G.711 PCM and G.168 echo
cancellation. Hardware ready for voice
compression requirements. Software for
compression is sold separately.
- ------------------------------------------------------------------------------------------------------------------------------------
11 [***] AN-30-SW-DCMP3.0 G.726 ADPCM voice compression software for [***] [***] [***]
--- 24-ports digital voice module. --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
12 [***] AN-30-SW-DSS2.2 Dynamic Service Selection Software for the AN-30 [***] [***] [***]
--- IAD. --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
13 [***] AN-30-SW-B3.0 Basic System Software version 2.2 for the AN-30 [***] [***] [***]
--- IAD. W/routing --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
14 [***] AN-20T Integrated Access Device Base Unit. Includes [***] [***] [***]
--- 1-port Ethernet 10BT and 1-port ATM WAN --- --- ---
over unchannelized T1 (integral
CSU/DSU).
- ------------------------------------------------------------------------------------------------------------------------------------
15 [***] AN-20-SW-B2.2 Basic System Software version 2.2 for the AN-20 [***] [***] [***]
--- IAD. W/routing. --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
16 [***] AN-20-SW-DSS2.2 Dynamic Service Selection Software version 2.2 [***] [***] [***]
--- for the AN-20 IAD. --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------
EXTENDED
PRICE
- ------------
<S> <C>
[***]
---
- ---------------
[***]
---
- ---------------
[***]
---
- ---------------
[***]
---
- ---------------
[***]
---
- ---------------
[***]
---
- ---------------
[***]
---
- ---------------
[***]
---
- ---------------
[***]
- ---------------
</TABLE>
*** Confidential treatment has been requested for certain redacted provisions of
this agreement. The redacted provisions are identified by three asterisks
enclosed by brackets and underlined. The confidential portion has been filed
separately with the Securities and Exchange Commission.
B-2
<PAGE> 10
SHIPMENT SCHEDULE FOR Q2/2000:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
LINE QTY MODEL NO. DESCRIPTION LIST DISCOUNT DISCOUNT
ITEM PRICE RATE PRICE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 [***] AN-3220 AN-3200 20-slot 23" Chassis. - 48 VDC power. [***] [***] [***]
--- --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
2 [***] SYSMOD1-DS3-2 System Combo Card includes system processor, [***] [***] [***]
--- 1-port Ethernet 10/100TX, 1 console port. 2 --- --- ---
PREINSTALLED DS-3 (45MBPS) ATM WAN UPLINK
DAUGHTERCARDS.
- ------------------------------------------------------------------------------------------------------------------------------------
3 [***] LC12-T1 12-channel line card supports ATM over [***] [***] [***]
--- unchannelized T1.12 integral T1 modems with --- --- ---
CSU/DSU on daughtercards.
- ------------------------------------------------------------------------------------------------------------------------------------
4 [***] VSIC-8TC 8-channel T1 and Voice Server Card with [***] [***] [***]
--- hardware support for voice compression. --- --- ---
8 DS-1 channelized T1 digital voice
interfaces for connection to PBX or
Class 5 switches. Supports 192 channels
of G.711 PCM or 96 voice channels of
voice compression. Supports G.168 echo
cancellation and structured CES service
via CBR voice over AAL1 and rtVBR voice
over AAL2. Hardware ready for G.726.
Software for compression is sold
separately. REQUIRED MULTI-SERVICE
GATEWAY SYSTEM SOFTWARE.
- ------------------------------------------------------------------------------------------------------------------------------------
5 [***] MSAP-SW-GW3.0 Multi-Service Gateway System software [***] [***] [***]
--- version 3.0 --- --- ---
Required with any purchase of voice
module with MSAP unit.
- ------------------------------------------------------------------------------------------------------------------------------------
6 [***] MSAP-SW-VCMP3.0 G.726 Voice compression software for 96 [***] [***] [***]
--- voice channels Voice Server Card. --- --- ---
THIS OPTION MUST BE PURCHASED FOR EACH
VOICE SERVER CARD THAT NEEDS VOICE
COMPRESSION.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------
EXTENDED
PRICE
- ------------
<S> <C>
[***]
---
- ------------
[***]
---
- ------------
[***]
---
- ------------
[***]
---
- ------------
[***]
---
- ------------
[***]
---
- ------------
</TABLE>
*** Confidential treatment has been requested for certain redacted provisions of
this agreement. The redacted provisions are identified by three asterisks
enclosed by brackets and underlined. The confidential portion has been filed
separately with the Securities and Exchange Commission.
B-3
<PAGE> 11
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
LINE QTY MODEL NO. DESCRIPTION LIST DISCOUNT DISCOUNT
ITEM PRICE RATE PRICE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
7 [***] AP v2.4 Access Pilot EMS S/W support 50 fully loaded [***] [***] [***]
--- MSAPs --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
8 [***] AN-30T Integrated Access Device Base Unit. 1-port [***] [***] [***]
--- Ethernet 10/100TX, 2-ports Serial V.35/V.11 --- --- ---
(Slimline 26 connectors), 1-port ATM WAN
over unchannelized T1 up to 1.544 Mbps
with built-in CSU/DSU, and 1-slot for
factory installed Voice Interface
Module. Includes manual, Ethernet cable,
and SDSL cable. REQUIRES SLIMLINE 26
CONNECTOR TO V.35 SERIAL CABLE
(CDXEXXX-XX), PLEASE REFER TO THE
CABLING SECTION OF THE PRICE LIST FOR
ORDERING OPTIONS. REQUIRES A
CONFIGURATION WORKSHEET WITH EVERY
ORDER.
- ------------------------------------------------------------------------------------------------------------------------------------
9 [***] AN-30VM-D24C Digital Voice Module for AN-30. 24-DS0 [***] [***] [***]
--- digital voice channels with 2-ports T1 --- --- ---
for drop & insert functionality.
Hardware supports G.711 PCM and G.168
echo cancellation. Hardware ready for
voice compression requirements. Software
for compression is sold separately.
- ------------------------------------------------------------------------------------------------------------------------------------
11 [***] AN-30-SW-DCMP3.0 G.726 ADPCM voice compression software for [***] [***] [***]
--- 24-ports digital voice module. --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
12 [***] AN-30-SW-DSS2.2 Dynamic Service Selection Software for the [***] [***] [***]
--- AN-30 IAD. --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
13 [***] AN-30-SW-B3.0 Basic System Software version 2.2 for the [***] [***] [***]
--- AN-30 IAD. W/routing --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
14 [***] AN-20T Integrated Access Device Base Unit. [***] [***] [***]
--- Includes 1-port Ethernet 10BT and 1-port ATM --- --- ---
WAN over unchannelized T1 (integral
CSU/DSU).
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------
EXTENDED
PRICE
- ------------
<S> <C>
[***]
---
- ------------
[***]
---
- ------------
[***]
---
- ------------
[***]
---
- ------------
[***]
---
- ------------
[***]
---
- ------------
[***]
---
- ------------
</TABLE>
*** Confidential treatment has been requested for certain redacted provisions of
this agreement. The redacted provisions are identified by three asterisks
enclosed by brackets and underlined. The confidential portion has been filed
separately with the Securities and Exchange Commission.
B-4
<PAGE> 12
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
LINE QTY MODEL NO. DESCRIPTION LIST DISCOUNT DISCOUNT
ITEM PRICE RATE PRICE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
15 [***] AN-20-SW-B2.2 Basic System Software version 2.2 for the [***] [***] [***]
--- AN-20 IAD. W/routing. --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
16 [***] AN-20-SW-DSS2.2 Dynamic Service Selection Software version [***] [***] [***]
--- 2.2 for the AN-20 IAD. --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL PRICE:
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------
EXTENDED
PRICE
- ------------
<S> <C>
[***]
---
- ------------
[***]
---
- ------------
[***]
- ------------
</TABLE>
*** Confidential treatment has been requested for certain redacted provisions of
this agreement. The redacted provisions are identified by three asterisks
enclosed by brackets and underlined. The confidential portion has been filed
separately with the Securities and Exchange Commission.
B-5
<PAGE> 13
SHIPMENT SCHEDULE FOR Q3/2000:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
LINE QTY MODEL NO. DESCRIPTION LIST DISCOUNT DISCOUNT
ITEM PRICE RATE PRICE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 [***] AN-3220 AN-3200 20-slot 23" Chassis. - 48 VDC power. [***] [***] [***]
--- --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
2 [***] SYSMOD1-DS3-2 System Combo Card includes system processor, [***] [***] [***]
--- 1-port Ethernet 10/100TX, 1 console port. 2 --- --- ---
PREINSTALLED DS-3 (45MBPS) ATM WAN UPLINK
DAUGHTERCARDS.
- ------------------------------------------------------------------------------------------------------------------------------------
3 [***] LC12-T1 12-channel line card supports ATM over [***] [***] [***]
--- unchannelized T1.12 integral T1 modems with --- --- ---
CSU/DSU on daughtercards.
- ------------------------------------------------------------------------------------------------------------------------------------
4 [***] VSIC-8TC 8-channel T1 and Voice Server Card with [***] [***] [***]
--- hardware support for voice compression. --- --- ---
8 DS-1 channelized T1 digital voice
interfaces for connection to PBX or
Class 5 switches. Supports 192 channels
of G.711 PCM or 96 voice channels of
voice compression. Supports G.168 echo
cancellation and structured CES service
via CBR voice over AAL1 and rtVBR voice
over AAL2. Hardware ready for G.726.
Software for compression is sold
separately. REQUIRED MULTI-SERVICE
GATEWAY SYSTEM SOFTWARE.
- ------------------------------------------------------------------------------------------------------------------------------------
5 [***] MSAP-SW-GW3.0 Multi-Service Gateway System software [***] [***] [***]
--- version 3.0 --- --- ---
Required with any purchase of voice
module with MSAP unit.
- ------------------------------------------------------------------------------------------------------------------------------------
6 [***] MSAP-SW-VCMP3.0 G.726 Voice compression software for 96 [***] [***] [***]
--- voice channels Voice Server Card. --- --- ---
THIS OPTION MUST BE PURCHASED FOR EACH
VOICE SERVER CARD THAT NEEDS VOICE
COMPRESSION.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------
EXTENDED
PRICE
- ------------
<S> <C>
[***]
---
- ------------
[***]
---
- ------------
[***]
---
- ------------
[***]
---
- ------------
[***]
---
- ------------
[***]
---
- ------------
</TABLE>
*** Confidential treatment has been requested for certain redacted provisions of
this agreement. The redacted provisions are identified by three asterisks
enclosed by brackets and underlined. The confidential portion has been filed
separately with the Securities and Exchange Commission.
B-6
<PAGE> 14
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
LINE QTY MODEL NO. DESCRIPTION LIST DISCOUNT DISCOUNT
ITEM PRICE RATE PRICE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
7 [***] AP v2.4 Access Pilot EMS S/W support 50 fully loaded [***] [***] [***]
--- MSAPs --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
8 [***] AN-30T Integrated Access Device Base Unit. 1-port [***] [***] [***]
--- Ethernet 10/100TX, 2-ports Serial V.35/V.11 --- --- ---
(Slimline 26 connectors), 1-port ATM WAN
over unchannelized T1 up to 1.544 Mbps
with built-in CSU/DSU, and 1-slot for
factory installed Voice Interface
Module. Includes manual, Ethernet cable,
and SDSL cable. REQUIRES SLIMLINE 26
CONNECTOR TO V.35 SERIAL CABLE
(CDXEXXX-XX), PLEASE REFER TO THE
CABLING SECTION OF THE PRICE LIST FOR
ORDERING OPTIONS. REQUIRES A
CONFIGURATION WORKSHEET WITH EVERY
ORDER.
- ------------------------------------------------------------------------------------------------------------------------------------
9 [***] AN-30VM-D24C Digital Voice Module for AN-30. 24-DS0 [***] [***] [***]
--- digital voice channels with 2-ports T1 --- --- ---
for drop & insert functionality.
Hardware supports G.711 PCM and G.168
echo cancellation. Hardware ready for
voice compression requirements. Software
for compression is sold separately.
- ------------------------------------------------------------------------------------------------------------------------------------
11 [***] AN-30-SW-DCMP3.0 G.726 ADPCM voice compression software for [***] [***] [***]
--- 24-ports digital voice module. --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
12 [***] AN-30-SW-DSS2.2 Dynamic Service Selection Software for the [***] [***] [***]
--- AN-30 IAD. --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
13 [***] AN-30-SW-B3.0 Basic System Software version 2.2 for the [***] [***] [***]
--- AN-30 IAD. W/routing --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
14 [***] AN-20T Integrated Access Device Base Unit. [***] [***] [***]
--- Includes 1-port Ethernet 10BT and 1-port ATM --- --- ---
WAN over unchannelized T1 (integral
CSU/DSU).
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------
EXTENDED
PRICE
- ------------
<S> <C>
[***]
---
- ------------
[***]
---
- ------------
[***]
---
- ------------
[***]
---
- ------------
[***]
---
- ------------
[***]
---
- ------------
[***]
---
- ------------
</TABLE>
*** Confidential treatment has been requested for certain redacted provisions of
this agreement. The redacted provisions are identified by three asterisks
enclosed by brackets and underlined. The confidential portion has been filed
separately with the Securities and Exchange Commission.
B-7
<PAGE> 15
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
LINE QTY MODEL NO. DESCRIPTION LIST DISCOUNT DISCOUNT
ITEM PRICE RATE PRICE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
15 [***] AN-20-SW-B2.2 Basic System Software version 2.2 for the [***] [***] [***]
--- AN-20 IAD. W/routing. --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
16 [***] AN-20-SW-DSS2.2 Dynamic Service Selection Software version [***] [***] [***]
--- 2.2 for the AN-20 IAD. --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL PRICE:
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------
EXTENDED
PRICE
- ------------
<S> <C>
[***]
---
- ------------
[***]
---
- ------------
[***]
- ------------
</TABLE>
*** Confidential treatment has been requested for certain redacted provisions of
this agreement. The redacted provisions are identified by three asterisks
enclosed by brackets and underlined. The confidential portion has been filed
separately with the Securities and Exchange Commission.
B-8
<PAGE> 16
SHIPMENT SCHEDULE FOR Q4/2000:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
LINE QTY MODEL NO. DESCRIPTION LIST DISCOUNT DISCOUNT
ITEM PRICE RATE PRICE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 [***] AN-3220 AN-3200 20-slot 23" Chassis. -48 VDC power. [***] [***] [***]
--- --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
2 [***] SYSMOD1-DS3-2 System Combo Card includes system processor, [***] [***] [***]
--- 1-port Ethernet 10/100TX, 1 console port. 2 --- --- ---
PREINSTALLED DS-3 (45MBPS) ATM WAN UPLINK
DAUGHTERCARDS.
- ------------------------------------------------------------------------------------------------------------------------------------
3 [***] LC12-T1 12-channel line card supports ATM over [***] [***] [***]
--- unchannelized T1.12 integral T1 modems with --- --- ---
CSU/DSU on daughtercards.
- ------------------------------------------------------------------------------------------------------------------------------------
4 [***] VSIC-8TC 8-channel T1 and Voice Server Card with [***] [***] [***]
--- hardware support for voice compression. --- --- ---
8 DS-1 channelized T1 digital voice
interfaces for connection to PBX or
Class 5 switches. Supports 192 channels
of G.711 PCM or 96 voice channels of
voice compression. Supports G.168 echo
cancellation and structured CES service
via CBR voice over AAL1 and rtVBR voice
over AAL2. Hardware ready for G.726.
Software for compression is sold
separately. REQUIRED MULTI-SERVICE
GATEWAY SYSTEM SOFTWARE.
- ------------------------------------------------------------------------------------------------------------------------------------
5 [***] MSAP-SW-GW3.0 Multi-Service Gateway System software [***] [***] [***]
--- version 3.0 --- --- ---
Required with any purchase of voice
module with MSAP unit.
- ------------------------------------------------------------------------------------------------------------------------------------
6 [***] MSAP-SW-VCMP3.0 G.726 Voice compression software for 96 [***] [***] [***]
--- voice channels Voice Server Card. --- --- ---
THIS OPTION MUST BE PURCHASED FOR EACH
VOICE SERVER CARD THAT NEEDS VOICE
COMPRESSION.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------
EXTENDED
PRICE
- ------------
<S> <C>
[***]
---
- ------------
[***]
---
- ------------
[***]
---
- ------------
[***]
---
- ------------
[***]
---
- ------------
[***]
---
- ------------
</TABLE>
*** Confidential treatment has been requested for certain redacted provisions of
this agreement. The redacted provisions are identified by three asterisks
enclosed by brackets and underlined. The confidential portion has been filed
separately with the Securities and Exchange Commission.
B-9
<PAGE> 17
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
LINE QTY MODEL NO. DESCRIPTION LIST DISCOUNT DISCOUNT
ITEM PRICE RATE PRICE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
7 [***] AP v2.4 Access Pilot EMS S/W support 50 fully loaded [***] [***] [***]
--- MSAPs --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
8 [***] AN-30T Integrated Access Device Base Unit. 1-port [***] [***] [***]
--- Ethernet 10/100TX, 2-ports Serial V.35/V.11 --- --- ---
(Slimline 26 connectors), 1-port ATM WAN
over unchannelized T1 up to 1.544 Mbps with
built-in CSU/DSU, and 1-slot for factory
installed Voice SDSL cable. REQUIRES
SLIMLINE 26 CONNECTOR TO V.35 SERIAL
CABLE (CDXEXXX-XX), PLEASE REFER TO THE
CABLING SECTION OF THE PRICE LIST FOR
ORDERING OPTIONS. REQUIRES A
CONFIGURATION WORKSHEET WITH EVERY
ORDER.
- ------------------------------------------------------------------------------------------------------------------------------------
9 [***] AN-30VM-D24C Digital Voice Module for AN-30. 24-DS0 [***] [***] [***]
--- digital voice channels with 2-ports T1 --- --- ---
for drop & insert functionality.
Hardware supports G.711 PCM and G.168
echo cancellation. Hardware ready for
voice compression requirements. Software
for compression is sold separately.
- ------------------------------------------------------------------------------------------------------------------------------------
11 [***] AN-30-SW-DCMP3.0 G.726 ADPCM voice compression software for [***] [***] [***]
--- 24-ports digital voice module. --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
12 [***] AN-30-SW-DSS2.2 Dynamic Service Selection Software for the [***] [***] [***]
--- AN-30 IAD. --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
13 [***] AN-30-SW-B3.0 Basic System Software version 2.2 for the [***] [***] [***]
--- AN-30 IAD. W/routing --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
14 [***] AN-20T Integrated Access Device Base Unit. [***] [***] [***]
--- Includes 1-port Ethernet 10BT and 1-port ATM --- --- ---
WAN over unchannelized T1 (integral
CSU/DSU).
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------
EXTENDED
PRICE
- ------------
<S> <C>
[***]
---
- ------------
[***]
---
- ------------
[***]
---
- ------------
[***]
---
- ------------
[***]
---
- ------------
[***]
---
- ------------
[***]
---
- ------------
</TABLE>
*** Confidential treatment has been requested for certain redacted provisions of
this agreement. The redacted provisions are identified by three asterisks
enclosed by brackets and underlined. The confidential portion has been filed
separately with the Securities and Exchange Commission.
B-10
<PAGE> 18
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
LINE QTY MODEL NO. DESCRIPTION LIST DISCOUNT DISCOUNT
ITEM PRICE RATE PRICE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
15 [***] AN-20-SW-B2.2 Basic System Software version 2.2 for the [***] [***] [***]
--- AN-20 IAD. W/routing. --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
16 [***] AN-20-SW-DSS2.2 Dynamic Service Selection Software version [***] [***] [***]
--- 2.2 for the AN-20 IAD. --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL PRICE:
- ------------------------------------------------------------------------------------------------------------------------------------
GRAND TOTAL:
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------
EXTENDED
PRICE
- ------------
<S> <C>
[***]
---
- ------------
[***]
---
- ------------
[***]
- ------------
[***]
- ------------
</TABLE>
*** Confidential treatment has been requested for certain redacted provisions of
this agreement. The redacted provisions are identified by three asterisks
enclosed by brackets and underlined. The confidential portion has been filed
separately with the Securities and Exchange Commission.
B-11
<PAGE> 19
ATTACHMENT C
RESIDENT ENGINEER AND TRAINING PROGRAM
Accelerated Networks will provide at [***] during the first 12 months
of UniDial's deployment a Resident Engineer starting [***] after the
effective date of this agreement. Description and cost savings are
described below. [***]
Accelerated Networks will provide [***] to UniDial a total of [***]
training seats with a class load of [***] persons maximum, which equates
to [***] classes of on site training. UniDial may allocate a portion of
the [***] seats as desired to Accelerated Network's HQ Training
facility following appropriate scheduling timelines. Descriptions and
cost savings to UniDial are described below. [***]
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
ACCELERATEDSTART SERVICE DESCRIPTION RESOURCES PRICING
PROFESSIONAL SERVICES
- ----------------------------------------------------------------------------------------------------
ON-SITE NETWORK OPERATIONS SUPPORT ANI will deliver 3 Mos. [***]
---
Accelerated Networks can provide Resident this service 6 Mos. [***]
---
Engineering personnel to serve as onsite 12 Mos. [***]
---
support resource(s) at the customer's Network
Operation Center (NOC). The Resident
Engineer(s) have the responsibility to monitor
the ANI portion of the customer network to
ensure all faults are addressed as soon as one
may arise. In addition to the monitoring and
fault management of the Accelerated Networks
based network, the engineer(s) will assist in
managing the day to day process of integrating
and implementing major additions/transitions
to the Accelerated Networks-based network.
- ----------------------------------------------------------------------------------------------------
TRAINING Will be offered At Accelerated Networks
Accelerated Networks Educational Services primarily by ANI Training facilities in
offers focused hands-on courses to train resources. Third Moorpark, CA
customer staff on the installation, party training PER STUDENT - [***]
---
operations, troubleshooting and management of facilities and Includes course material,
the Accelerated Networks based networks. trainers will be instructor, facilities and
Classes are offered in Simi Valley, CA, or at investigated. Web equipment.
the customer's premise. Accelerated Networks based and CD based At Customer's Site
may supply all necessary equipment for (CBT) programs are PER STUDENT - [***]
---
classes at the customer's site. Maximum of 8 scheduled. Includes course material,
students per class. Technical Training instructor and expenses.
courses include topics such as: Customer provides facilities
and equipment.
- AccessPilot and CoPilot Element Accelerated Networks crates
Management System (EMS) and ships all necessary
- Configuration and Operations for Equipment to Customer's
AN-20/24/28/30/31/32 and 3220/3204 Site. Maximum of 8 students
multiservice access platform per class.
- Installation and Maintenance for the EQUIPMENT - [$8995.]
ANI devices Includes all needed equipment
inclusive of Routers, Switches and
- Troubleshooting Accelerated Networks PBX simulators.
Frame Relay, ATM, SDSL, and Voice
- ----------------------------------------------------------------------------------------------------
</TABLE>
*** Confidential treatment has been requested for certain redacted provisions of
this agreement. The redacted provisions are identified by three asterisks
enclosed by brackets and underlined. The confidential portion has been filed
separately with the Securities and Exchange Commission.
C-1
<PAGE> 20
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
ACCELERATEDSTART SERVICE DESCRIPTION RESOURCES PRICING
PROFESSIONAL SERVICES
- ----------------------------------------------------------------------------------------------------
Networks
- ----------------------------------------------------------------------------------------------------
LAB SERVICES This lab is an No charge for validation of
The AcceleratedStart customer lab is internal resource. an ANI solution.
available to customers and account teams to Third party
test and evaluate their solutions. The lab interoperability
has a variety of routers, Frame Relay and ATM testing is being
switches, third party DSLAMs, CPE and test evaluated.
equipment available to test specific
applications.
- ----------------------------------------------------------------------------------------------------
</TABLE>
C-2
<PAGE> 21
ATTACHMENT D
TECHNICAL SUPPORT PROGRAMS
ACCELERATED NETWORKS WILL HONOR A [***] DISCOUNT OFF LIST FOR A 1 YEAR
CONTRACT PAID IN ADVANCE
ACCELERATED NETWORKS WILL HONOR A [***] DISCOUNT OFF LIST FOR A 2 YEAR
CONTRACT PAID IN ADVANCE
ACCELERATED NETWORKS WILL HONOR A [***] DISCOUNT OFF LIST FOR A 3 YEAR
CONTRACT PAID IN ADVANCE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
ACCELERATEDTAC SERVICES RESOURCES PRICING
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
ACCELERATEDTAC PROGRAMS ANI Network Support See pricing on next
Accelerated Networks Support Programs are Engineers will assist page
packaged to meet your network hardware and 24 hours a day 7 days
software needs. Our Web Support, Remote a week. On site
Technical Support, On-Site Remedial Maintenance trained and certified
and Repair and Replace services are expertly authorized
prepared to ensure that Accelerated Networks representatives
customer's network health is maintained at its provide support.
optimum.
ACCELERATEDTAC BASIC PARTNER LIST
_x9 (local customer time) Telephone TAC support UNISYS
with 45 minutes response. Includes minor
software releases (bug fix) and WebTAC Access.
ACCELERATEDTAC ENHANCED
Basic service, 7x24 Telephone TAC support with
15 minutes response. Includes minor software
releases (bug fix) and WebTAC Access and next
business day advanced hardware replacement.
ACCELERATEDTAC PREMIUM
Enhanced service, 7x24 TAC access with 15 minutes
response. Includes minor software releases (bug
fix) and WebTAC Access and next business day
on-site response.
ACCELERATEDTAC COMPREHENSIVE
Premium service, 7x24 TAC access with 15 minutes
response. Includes minor software releases (bug
fix) and WebTAC Access, 4-hour on-site response
365 days a year. Response time subject to
location.
- ---------------------------------------------------------------------------------------------------
</TABLE>
*** Confidential treatment has been requested for certain redacted provisions of
this agreement. The redacted provisions are identified by three asterisks
enclosed by brackets and underlined. The confidential portion has been filed
separately with the Securities and Exchange Commission.
D-1
<PAGE> 22
TECHNICAL SUPPORT PRICING
<TABLE>
<CAPTION>
- ----------------------------------------------------
<S> <C>
CUSTOMER SERVICE PRICE
- ----------------------------------------------------
ACCELERATEDTAC BASIC
- ----------------------------------------------------
AN-20 [***]
- ----------------------------------------------------
AN-24 [***]
- ----------------------------------------------------
AN-28 [***]
- ----------------------------------------------------
AN-30 [***]
- ----------------------------------------------------
AN-31 [***]
- ----------------------------------------------------
AN-32 [***]
- ----------------------------------------------------
AN-3204 [***]
- ----------------------------------------------------
AN-3220 [***]
- ----------------------------------------------------
ACCELERATEDTAC ENHANCED
- ----------------------------------------------------
AN-20 [***]
- ----------------------------------------------------
AN-24 [***]
- ----------------------------------------------------
AN-28 [***]
- ----------------------------------------------------
AN-30 [***]
- ----------------------------------------------------
AN-31 [***]
- ----------------------------------------------------
AN-32 [***]
- ----------------------------------------------------
AN-3204 [***]
- ----------------------------------------------------
AN-3220 [***]
- ----------------------------------------------------
ACCELERATEDTAC PREMIUM
- ----------------------------------------------------
AN-20 [***]
- ----------------------------------------------------
AN-24 [***]
- ----------------------------------------------------
AN-28 [***]
- ----------------------------------------------------
AN-30 [***]
- ----------------------------------------------------
AN-31 [***]
- ----------------------------------------------------
AN-32 [***]
- ----------------------------------------------------
AN-3204 [***]
- ----------------------------------------------------
AN-3220 [***]
- ----------------------------------------------------
</TABLE>
*** Confidential treatment has been requested for certain redacted provisions of
this agreement. The redacted provisions are identified by three asterisks
enclosed by brackets and underlined. The confidential portion has been filed
separately with the Securities and Exchange Commission.
D-2
<PAGE> 23
<TABLE>
<CAPTION>
- ----------------------------------------------------
<S> <C>
CUSTOMER SERVICE PRICE
- ----------------------------------------------------
ACCELERATEDTAC
COMPREHENSIVE 4 HOUR
- ----------------------------------------------------
AN-20 [***]
- ----------------------------------------------------
AN-24 [***]
- ----------------------------------------------------
AN-28 [***]
- ----------------------------------------------------
AN-30 [***]
- ----------------------------------------------------
AN-31 [***]
- ----------------------------------------------------
AN-32 [***]
- ----------------------------------------------------
AN-3204 [***]
- ----------------------------------------------------
AN-3220 [***]
- ----------------------------------------------------
ACCELERATEDTAC COMPREHENSIVE 2 HOUR
(CALL KEN OR ANSEL)
- ----------------------------------------------------
AN-20 [***]
- ----------------------------------------------------
AN-24 [***]
- ----------------------------------------------------
AN-28 [***]
- ----------------------------------------------------
AN-30 [***]
- ----------------------------------------------------
AN-31 [***]
- ----------------------------------------------------
AN-32 [***]
- ----------------------------------------------------
AN-3204 [***]
- ----------------------------------------------------
AN-3220 [***]
- ----------------------------------------------------
</TABLE>
*** Confidential treatment has been requested for certain redacted provisions of
this agreement. The redacted provisions are identified by three asterisks
enclosed by brackets and underlined. The confidential portion has been filed
separately with the Securities and Exchange Commission.
D-3
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
reportS dated February 28, 2000 relating to the consolidated financial
statements of Accelerated Networks, inc. which appear in such Registration
Statement. We also consent to the reference to us under the heading "Experts"
in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
Woodland Hills, California
April 12, 2000
<PAGE> 1
EXHIBIT 23.3
[RHK LETTERHEAD]
April 14, 2000
James Randall
Credit Suisse First Boston
2400 Hanover Street
Palo Alto, CA 94304
Dear Mr. Randall:
This letter is to provide you with permission to use the following quote:
"According to RHK, a market research and consulting firm, Internet traffic will
increase 4,600% between 1999 and 2003."
Yours sincerely,
/s/ Robert Bush
- ----------------------------------
Robert Bush
Client Services Manager
<PAGE> 1
EXHIBIT 23.4
[INTERNATIONAL DATA CORPORATION LETTERHEAD]
March 30, 2000
James Randall
Credit Suisse First Boston
2400 Hanover Street
Palo Alto, CA 94304
Dear Mr. Randall:
Per our discussion, you have permission to use the following statistics as
stated below.
"IDC estimates that there were 69 million Web users in the U.S. at the end of
1998 and anticipates that this number will increase to approximately 197 million
by the end of 2003."
Source: IDC, Internet Commerce Market Model, v6, 2000
"IDC also estimates that the total value of products and services sold over the
Web to U.S. customers will increase from approximately $13.5 billion in 1998 to
approximately $119 billion by 2003."
Source: IDC, Internet Commerce Market Model, v6, 2000
Sincerely,
/s/ Alexa McCloughan
- ----------------------------------
Alexa McCloughan
Senior Vice President
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